Germans are arguing over whether smoking restrictions apply to vaping.
By Stefanie Rossel
Germany—isn’t that the country that, apart from beer, fast cars and Neuschwanstein Castle, is also known for its bureaucratic tendencies and thorough regulation of virtually everything? Well, it certainly doesn’t live up to its reputation when it comes to the use of vaping devices in public places. Here, we enter a realm of contradictions and uncertainty.
Of course, Germany has had its national law for the protection of nonsmokers, the Nichtraucherschutzgesetz or NiSchG, in place for many years, in fact since 2007. In addition, each of Germany’s 16 states has its own legislation, most of it based on national law but with variations. Principally, the law stipulates that smoking is prohibited on public transport, at the workplace, and in hospitals, schools, gymnasiums, cultural institutions and administrative buildings. Smoking in restaurants and bars has been banned in most states since 2008. Smoking is still allowed in designated areas, and there are exceptions to the ban in some states, where smoking is still allowed in pubs that comprise only one room, measure no more than 75 square meters and are explicitly tagged as smoking areas.
Hang on, we’re talking about smoking here. Surely the law shouldn’t apply to vaping, should it? When the legislation was drafted, e-cigarettes were already on the market but were not being considered by legislators. And since then no amendments have been made that would explicitly include e-cigarettes in the law.
Amid this regulatory fog, the rise of conflicts was only a matter of time. In 2014, the owner of a restaurant in Cologne filed a complaint at the Higher Regional Court for North Rhine-Westphalia (NRW). The man had tolerated the use of vaping devices in his restaurant and was threatened to be fined by the city of Cologne for violating NRW’s nonsmoker protection law. For such an offense, the state’s law, one of Germany’s strictest, specifies a fine of up to €2,500 ($2,656). The restaurant owner countered that e-cigarettes were exempt from NiSchG because, due to a lack of pyrolysis, they do not produce smoke. In addition, he argued that including e-cigarettes into the law was unconstitutional.
Vaping versus smoking
The court ruled in his favor, saying that NRW’s law lacked explicit regulations for e-cigarettes. The law prohibited “smoking” in certain establishments, such as restaurants, but in general and professional language use, smoking implied the inhalation of smoke that is produced in the combustion process of tobacco products. By contrast, the court argued, the use of an e-cigarette did not involve combustion but a vaporization process; furthermore, the vaporized liquid was not a tobacco product in the sense of the law, even if it contained nicotine. The development of the law in NRW did not justify the application of the smoking ban to e-cigarettes, either, according to the court. When legislators in 2007 implemented the law, they had neglected vaping devices; when an amendment in 2012 was made, the legislator had intended to treat e-cigarettes like combustible smokes but in fact did not change the respective wording in the legal text, which would have been essential to sufficiently clarify the scope of application to users. The NiSchG, the court said, had the sole purpose of protecting people from the dangers of secondhand smoke; potential harm caused by e-cigarettes was neither identical nor could it be compared to that of a combustible cigarette. There was no scientific evidence yet for potential hazards through vapor for “secondhand” vapers, the court concluded. Had legislators assumed that there might be a danger to health coming from vapor, they would have been obliged to consider this when amending the law in 2012. An appeal of the case was rejected.
So far, so good for vapers in North Rhine-Westphalia, but what about the remaining states? Holger Schwemer, an expert in administrative law who defended the restaurant owner, views the judgment to be binding for all German states. “The court has referred the term of smoking to the combustion process and not to the vaporization process,” he said. “Since the term ‘smoking’ is being used in the same way in all federal laws for the protection of smokers, we may assume that, with regard to the rule of law that is binding for administration, the use of vaping devices anywhere in Germany can no longer be regarded as violation of the respective NiSchG.”
Verband des eZigarettenhandels (VdeH), an e-cigarette trade association, said the ruling also questioned the legal position of the German government, as well as that of the World Health Organization as far as e-cigarettes and the protection from secondhand vapor were concerned. After the judgment, the association said, it was essential for German legislators to develop definite rules independent of the NiSchG for this area.
Lagging
Almost three years later, Philip Droegemueller, VdeH’s spokesman, is convinced that federal health ministries have liberalized their attitude toward the use of e-cigarettes in public places, in line with the court ruling. “A number of studies have shown since then that the share of harmful emissions from e-cigarettes is low, thousand times lower than the emissions of combustible cigarettes. Thus, the equalization of both product groups is totally wrong.”
However, Droegemueller may be cheering too soon. On its website for smoking cessation, Germany’s federal office for health education says the chemical composition of exhaled vapor remains unclear. “It cannot be ruled out that the interior air will be contaminated with pollutants. Hence the inhalation of vape may cause health risks. Where the national law for the protection is in place, i.e., in federal institutions and in public transport, the use of e-cigarettes is not allowed.”
Health authorities outside NRW don’t share Droegemueller’s point of view, either. Vapers should be cautious when using their devices in, for example, Rhineland-Palatinate (RP). “We are aware of the ruling by the court in North Rhine-Westphalia,” says Stefanie Schneider, spokeswoman of the state’s health ministry. “With a few exceptions, the protection of nonsmokers is the responsibility of the federal states. Each state has its own law with different rules; the intention of the individual federal legislators is also different. The verdict relates to the NiSchG of NRW, hence it is not binding for Rhineland-Palatinate.”
According to Schneider, RP legislators intend to offer their population broad protections against secondhand smoke, which she says is expressed in the first paragraph of the state’s law. The paragraph, however, speaks of “tobacco smoke.” E-cigarettes or vapor aren’t mentioned. “In RP, the rules of RP’s NiSchG also apply to e-cigarettes,” Schneider maintains. “The use of e-cigarettes is hazardous to health. Among other things, this hazard is caused by the delivery of harmful substances to the surrounding air and the exhalation by the user of the e-cigarette,” she adds, also referring to the 2012 statement.
Whether RP’s interpretation of the NiSchG could stand up in a court of law remains questionable. Until the fog surrounding the use of vaping devices in public places in Germany is lifted, vapers best make sure they are well-informed about their current location’s regulations before they light up—sorry, switch on.
Naturally, we do our level best to stave off both. And in the case of e-cigarette taxes, vapers are leading the resistance.
By Maria Verven
The original “Vaping Vamp,” Maria Verven is a 35-year PR veteran and owner of Verven Communications, a marketing firm focused on the vapor industry.
As any halfway-intelligent person who’s done his research knows, vapor products are the antithesis of traditional tobacco products. The primary reason they were developed and are used by millions of former smokers is to minimize tobacco’s adverse health effects.
Treating and taxing these products at the same rate as cigarettes is also at odds with scientific and medical views, such as those of the prestigious Royal College of Physicians, which concluded e-cigarettes are “much safer than smoking” and are “likely beneficial to U.K. public health.”
Nevertheless, the U.S. Food and Drug Administration (FDA) passed regulation that lumps vapor products as “tobacco products” under the Tobacco Control Act, citing fears that these new products are “putting a new generation of kids at risk of addiction.” The FDA’s ruling, which goes into full effect in August 2018, has already severely curtailed the innovation in the industry and is likely to wipe out many if not most small businesses in the space, according to industry experts.
The other key driver behind e-cigarette taxation is the fact that tobacco use is on the decline. Even the U.S. Centers for Disease Control and Prevention (CDC), which sounded the alarm that e-cigarette use is on the rise among adolescents, reports that the smoking rate is sharply declining. In a 2015 CDC report, that rate is around 15 percent, a decrease of almost 10 percent since 1997.
Meanwhile, e-cigarette use continues to increase. E-cigarettes and vapor products were used by an estimated 9 million people in the U.S. in 2015 according to the CDC, and it’s likely the number of vapers has since grown. Even the CDC’s own studies found that the majority of e-cigarette users are recent former and current cigarette smokers who use these products to quit.
Since tobacco taxes help fund a variety of state and public programs, the drop in the number of smokers has caused major funding gaps. Excise taxes paid by merchants make up 3 percent of the federal budget, and tobacco taxes specifically constitute an average of 2 percent of state budgets.
Where to turn? Despite the huge benefits to smokers and overall public health, tax-hungry legislators and public health groups are turning to e-cigarettes and vaping products to make up the gaps in funding.
A BRIEF OVERVIEW OF U.S. E-CIGARETTE TAXES
As of this writing, seven states (California, Kansas, Louisiana, Minnesota, North Carolina, Pennsylvania and West Virginia) tax vapor products. In addition, several cities and counties, including Washington, D.C.; Chicago and Cook County, Illinois; and Montgomery County, Maryland, have also levied hefty taxes.
While the methods and levels of taxation vary, most legislators operate under the misguided premise that e-cigarettes should be taxed at the same level as tobacco products.
The tax rates in California, Minnesota, Pennsylvania and D.C. are based on a percentage of either the wholesale or retail purchase price, while the tax rates in Kansas, Louisiana, North Carolina and West Virginia are based on the amount of consumable e-liquid.
Late last year, despite the fact that California’s smoking rate dropped to the second lowest of any state, the state overwhelmingly passed Proposition 56, which added an additional $2 in taxes per cigarette pack plus hefty taxes on e-liquids containing nicotine. Vapers in that state are now shouldering the tax burden, paying about $30 for the same 30 mL bottle that used to cost them around $20.
“This disproportionate astronomical tax to vapor products only makes it harder for smokers to consider these devices as alternatives to combustible cigarettes,” said Kari Hess, a vape shop owner and co-president of the Northern California chapter of the Smoke-Free Alternatives Trade Association. “Prop. 56 misled voters by falsely implying that the harmful health effects of tobacco are similar to vapor products,” she said.
In Pennsylvania, the state’s new 40 percent tax bill has had a devastating effect on vapor businesses. So far, more than 110 vape shops of the state’s estimated 350 shops have closed since the tax took effect in October 2016.
The Pennsylvania Department of Revenue reports it’s raising well over $1 million every month since the new law took effect, and that doesn’t include revenue generated from a “floor tax” that required retailers to make a one-time payment based on the value of their inventory when the tax bill kicked in.
Dave Petrozzo, owner of Get Your Vape On, marked up prices to cover the cost of the tax but lost many of his customers to online stores or shops in other states. “This is the first time I’ve ever been in debt,” Petrozzo said. “It has affected the business dramatically.”
Ironically, if the trend continues and consumers keep going online or driving to other states to buy their e-liquids, the $13.3 million in annual revenue Pennsylvania is counting on from the new tax may not materialize, he said.
A SLIPPERY SLOPE
At least 23 other states are considering excise taxes on vapor products, including the state of Washington, which—no surprise—lumps vapor products and e-cigarettes with combustible tobacco products. Legislators there are now proposing that vape products be taxed at 95 percent of the wholesale price, following in Minnesota’s footsteps.
A New York State Department of Health survey raised red flags when it reported that the percentage of high school students who used e-cigarettes went from 10.5 percent in 2014 to 20.6 percent in 2016, despite the fact that it was coupled with a decrease in the traditional smoking rate.
New York Governor Andrew Cuomo and his administration will likely use the survey results to bolster their case for defining e-cigarettes and vaping products as tobacco products. They are proposing a tax of $0.10 per milliliter.
Meanwhile, across the pond, the European Commission published public responses to its EU Tobacco Excise Directive. Vapers in the EU are just as outraged as those in the U.S. about proposals to tax e-cigarettes at the same rate as their deadly counterparts.
A whopping 90 percent of the 7,700 public responses published by the EU answered “no” when asked: “In your opinion, should e-cigarettes and refill containers be subjected to excise duties?” while 80 percent said that if e-cigarettes were taxed, the tax should be much lower than taxes on cigarettes, cigars and other smoking tobacco.
Further, most respondents stated that even in the case of only a 20 percent tax-induced price increase of e-cigarettes, this would “very likely” lead to, first off, an increase in the consumption of traditional tobacco products and, also, users purchasing e-cigarettes from informal sources.
When projecting what a 50 percent tax-induced price increase on these products would mean, they responded that it would “very likely” lead to users quitting e-cigarettes all together.
WHAT WORKS IN THEORY MAY NOT WORK IN PRINCIPLE
One of the principles of sound tax policy is the idea that taxes should be equitable—not favoring one type of business over another. In other words, all consumer products would be subject to a broad-based consumption tax like a retail sales tax.
Additional levies on tobacco, alcohol and other “sins” would have no place, except possibly for special circumstances where policymakers can demonstrate a quantifiable negative effect from using a specific product, such as the well-documented adverse health effects from smoking traditional cigarettes.
So it’s easy to see why tobacco taxes are sometimes justified and used as a way to reduce smoking while supposedly helping fund smoking prevention and public health programs.
However, e-cigarettes have a far lower risk profile and have not caused comparable negative health consequences, even from continued use. Since taxation on tobacco products is meant to be an incentive to help people quit smoking, it goes against common sense to subject vapor products to hefty taxes, since they show great promise for helping addicted smokers who’ve been unable to quit.
In fact, many would argue that smokers should be incentivized, or “nudged,” to make a switch to the less risky alternative.
Vapor products are still so new that most states are just beginning to grapple with how to tax them. The FDA’s classification and their apparent similarity to traditional cigarettes, along with the “all or nothing” stance on nicotine use by some in the public health community, are colluding to work against the e-cigarette industry.
A growing body of research and an active and vocal vaping community can help combat misinformation, but it’s a long, uphill battle.
WHAT THE FUTURE HOLDS …
While tobacco industry sales continue to decline, legislators will continue to look to products that are taking their place, despite growing evidence that vapor products are significantly less harmful.
Tobacco sales shrunk by an estimated 2.5 percent in 2016 and are estimated to decline by another 3.4 percent decline this year, according to Wells Fargo analyst Bonnie Herzog.
Meanwhile, e-cigarette sales across all retail channels rose an estimated 9 percent to $850 million in 2016, and Herzog estimates $400 million in growth in the e-cigarette and vapor industry in 2017. “Bottom line, we remain bullish overall on reduced-risk products [RRPs], as we expect consumers will shift from e-cig/vapor products to next-generation RRPs, led by iQOS,” Herzog said.
Introduced in 2014 by Philip Morris, iQOS is a rechargeable, pen-like device into which a HeatStick—a short, cigarette-like but noncombustible tobacco product—is inserted and heated to create a tobacco-flavored nicotine aerosol.
Philip Morris has great expectations for iQOS and reduced-risk products, estimating it could achieve a 3 to 5 percent market share of the global cigarette market by 2020, or an additional annual margin between $720 million and $1.2 billion. The company reportedly plans to submit both a premarket tobacco product application and modified-risk application to the FDA.
Other tobacco companies also have big plans to capitalize on the market shift to reduced-risk products.
British American Tobacco’s $49 billion purchase of the remaining stake available in Reynolds American is expected to close later this year. That deal delivers Reynolds’ Vuse e-cigarette into BAT’s hands; Vuse already is being distributed to more than 25,000 convenience stores across the U.S. Reynolds also announced it completed clinical trials on Revo 2, a heated-tobacco product. Meanwhile, British American’s equivalent e-cigarette device, Vype, is sold overseas.
Big Tobacco aside, smaller and independent producers are exiting the market in droves, selling off their inventory instead of submitting new tobacco product applications to the FDA that would allow them to continue producing and selling. Most industry watchers expect the fallout to be drastic, with the market largely left in the hands of Big Tobacco.
Regardless of which retailers survive the FDA-induced shakeout, legislators need to better understand the major differences between vapor products and traditional tobacco products.
As vapor products continue to grow in popularity, we must continue to disseminate and proliferate viable research studies that demonstrate the role e-cigarettes play in reducing the harms of smoking and improving public health.
Only if and when legislators accept the role these products play in the public health continuum will they consider proposing and passing tax laws that make any sense.
The future of China’s underdeveloped vapor market hinges on regulation, innovation and consumer education.
By Stefanie Rossel
Despite its status as the birthplace of the modern e-cigarette and the largest producer of related hardware, China’s domestic vapor market remains tiny. In 2015, e-cigarettes generated sales of only $448 million, according to Jackie Zhuang, a Chinese vapor industry consultant. By comparison, the country’s eight leading cigarette brands alone accounted for $125 billion, according to Research and Markets.
Approximately 90 percent of the world’s vaping equipment, as well as accessories and a major part of e-liquids, are manufactured in China, but almost all of it is destined for export. Domestic product awareness remains low; even in major cities such as Beijing and Shanghai, vaping is uncommon.
Until 2013, there was virtually no domestic market for vapor products, explains Zhuang. “In 2013, the Chinese sales volume for e-cigarettes surpassed $14 million for the first time, and it was all through online sales.” Since then, however, the sector has shown impressive growth, with online sales climbing to $81 million in 2014 and $266 million in 2016.
Jackie Zhuang
Over the next five to 10 years, analysts expect that the market compound growth rate will exceed 30 percent. Due to China’s sheer size, the market for vapor devices holds enormous potential. A study on e-cigarette regulation in China, published in December 2016, calculates that for every 1 percent rate substitution of e-cigarettes for combustible cigarettes, the Chinese e-cigarette market will increase by almost $5 billion.
Zhuang estimates that there are currently between 1 million and 1.5 million Chinese vapers, most of them men. Only 2.4 percent of Chinese adult females are smokers, and an unknown percentage of females vape. “Half of the online buyers are interested in box mods, the other half in cigalikes. Among offline retail buyers, 99 percent purchase box mods and mechanical mods.”
Across all distribution channels, nominal e-cigarette sales in China totaled $448 million in 2016, according to Zhuang. Online sales accounted for 57 percent of that figure. “Most of the vape products in China are sold via Taobao/Tmall and jd.com, with Taobao officially accounting for a gross merchandise volume of $231 million,” says Zhuang. “However, it is common knowledge that a major percentage of this volume is generated by faking sales records.”
Retail outlets accounted for 37 percent of sales in 2016. “The number of shops had doubled comparing to 2015, but I estimate that at least 10 percent of the shops went out of business in January 2017 before Chinese New Year, after some investigations by several third-tier smaller cities in China, but surely also more new shops opened during that period,” says Zhuang.
The other traditional retail outlets contributed $29 million. “These channels include tobacco shops, gas stations, pharmacies, convenience stores and the other sales channels, such as corporate gift set packages,” says Zhuang. “All attempts of entries into the convenient store channel in China have failed, as cigalikes did not move in China.”
Apart from e-cigarettes, almost no other cigarette alternatives are consumed in China. “The sale of nicotine-replacement therapy products is negligible, accounting for less than $1 million per year,” says Zhuang. “Snus and other smokeless products do not exist. There are herbal cigarettes, but it’s a very small market.”
Attempts at tobacco control
The future of vapor in China will depend on consumer education and regulation, according to Zhuang.
In 2015, the Chinese government began to strengthen tobacco control measures. Its efforts included a tax increase on wholesale cigarettes from 5 to 11 percent in early 2015. In December 2016, China unveiled draft legislation to ban smoking in public places nationwide by the end of 2017. Zhuang says the ban has already been enacted in Beijing, Shanghai and Shenzhen. “The law enforcement in the first-tier cities is actually unexpectedly good,” he says.
Brad Abrams
Nationwide, however, attempts to ban smoking have mostly failed due to a lack of enforcement as well as China’s tobacco culture. Smoking is deeply rooted in Chinese society, particularly among older people. About 68 percent of men and 3.2 percent of women are smokers, according to China Briefing, a business intelligence company. For men, the pressure to smoke is high. In social and business settings, cigarettes are used to establish trust and form relationships. “With the rapidly changing demographics in China, young people are more aware of the negative health consequences of smoking and are either not smoking or looking for safer alternatives,” notes Brad Abrams, president of Vogue Trading International, who until recently worked for a China-based investment holding company.
Also frustrating smoking restriction efforts is the fact that China’s tobacco industry is state-owned. The China National Tobacco Corp. (CNTC) owns about 900 cigarette brands; tobacco generates an estimated 7 to 10 percent of China’s government revenue.
“Unlike in the West, where there is a natural tension between the government, who regulates, and the industry, which makes shareholder profits, in China the government and the industry are the same entity,” reflects Abrams. “The senior managers of [the State Tobacco Monopoly Administration]/CNTC are also high-ranking party members, a dual role. Taken together, in China there is a very strong motivation to protect the status quo in the tobacco economy. This includes fiscal income to the government, personal and institutional power of the top officials, and full employment in the countryside.”
As Chinese cigarette sales volumes have flattened, the industry has been adjusting its prices and product mix to protect revenues.
“Personally, I believe that e-cigarettes and vaping in China suffer from the same general lack of satisfaction compared to traditional cigarettes to most smokers in the West,” says Abrams. “That, coupled with the strong smoking culture and tradition in China, leads to a general lack of strong interest.”
Despite China’s massive e-cigarette hardware industry, vaping domestically has been taken up by only a select few.
Turning up the heat
Contrary to state-run combustible cigarette industry, the Chinese vapor sector is dominated by privately held manufacturers. The potential of next-generation products in China, however, has not been ignored by the monopoly. In 2015, it created the Shanghai Research Institute of New Types of Tobacco Products to help develop the new product category.
According to Euromonitor International, the State Tobacco Monopoly Administration (STMA) started researching and developing an e-cigarette product in 2013. One year later, CNTC’s provincial subsidiary in Hubei brought its first vapor products to market in Wuhan.
Blue & White and Ruisheng, two companies with ties to China’s tobacco industry, launched cigalikes, according to Zhuang. But all CNTC attempts to launch e-cigarettes have since stopped. “There is not any commercialization yet from China Tobacco,” he says. Zhuang believes that heat-not-burn products are a better fit for the Chinese tobacco monopoly than are e-cigarettes. “E-cigarettes will exist but they don’t bring value to the CNTC as far as tax intake is concerned,” he explains.
Abrams agrees. “The CNTC companies are well-aware of all of the nicotine alternatives available around the world,” he says. “I have made presentations to CNTC R&D groups describing the noncigarette alternatives, as well as new nicotine-delivery devices—as have many other westeners. Personally, I believe that the new technologies coming out of Philip Morris International [PMI] and to some extent British American Tobacco [BAT] are more interesting to the CNTC companies, as they may provide smokers with a more traditional nicotine-delivery experience, plus hold the potential to be taxed at a rate equivalent to or higher than current products—thus protecting their present revenues and power.”
Whatever the outcome of the STMA’s efforts, it will be interesting to see the implications for unaffiliated e-cigarette companies. Several international tobacco companies have shown interest in China’s e-cigarette market. In January 2017, Imperial Brands announced the establishment of a joint venture with the CNTC. Unlike joint ventures established by competitors, Hong Kong-based Global Horizon Ventures does not focus exclusively on conventional tobacco products. The partners are considering next-generation product launches “in due course.” Analysts speculate this could include Imperial’s Blu e-cigarette, which holds strong positions in both the U.S. and the U.K.
Abrams is less optimistic. “The tobacco industry in China is extremely complex, even more than in the West, with many factors influencing any potential change,” he says. “To date, STMA/CNTC has been focused on maintaining the status quo. It is a particularly difficult market to penetrate or change. As an example, look at the PMI/CNTC and BAT/CNTC joint ventures that have been in existence for many years with current relatively low market shares. Granted there are many other strategic benefits they have enjoyed, but STMA/CNTC continue to closely control their domestic market.”
Uncertain future
The future of next-generation products in China depends on several factors. The participation of the CNTC is critical, as is regulation of e-cigarettes. As of May 2016, no government agency in China had taken responsibility for regulating e-cigarettes. In the absence of regulations that treat e-cigarettes as either medical devices, pharmaceutical products or tobacco products, they are considered consumer products.
Other issues that will affect the future of the Chinese vapor sector include the price difference between combustible cigarettes and e-cigarettes, which is still significant, as well as the lack of quality control standards. Taxation will also play a role. Zhuang expects this process to take another three to five years. Product innovation will be key, according to Zhuang. “There is no perfect item for the Chinese market yet,” he says. “Chinese consumers are waiting for better vape products and better vape education.”
Habanos SA celebrates the Cuban cigar with a splendid party.
By Timothy S. Donahue
Hector Luis Prieto
It isn’t easy. Sitting in the back corner of a tobacco field, Hector Luis Prieto told Tobacco Reporter that being a famous grower in Cuba has only made his job more complicated. It was easier when nobody knew his name. He wants to spend his time at his farm, with his family. That’s nearly impossible now that busloads of “turistas” visit his plantation almost daily.
“The crop is my life. It’s my family’s life. It’s everything to us. Tobacco is how we survive,” says Prieto. “I rarely leave; it’s my home.” Prieto is young (45), in farmer’s years. He wakes up every morning at 4 a.m. to inspect the fields. Every morning. Every leaf. Nothing is left unseen. No plant goes untouched. His dedication is impossible to overlook.
Prieto has to check his plants daily during the growing season, which can begin as early as late October and end sometime in February. He rises so early because he knows the tourists will be arriving soon, and once the busses start unloading, he won’t have time to manage his fields properly. Everybody wants to get their picture taken and possibly score a cigar rolled by Prieto himself. That’s a rarity nowadays; Hector only rolls for special friends. Handing me a fresh cigar, he said “aprecia esto”—appreciate this. He doesn’t plan on rolling many more. We were already smoking a cigar rolled by his friend, so this special one got put safely into a pocket.
It wasn’t always like this. Before 2008, the year Prieto won the Habanos Man of the Year award in the production category, his farm wasn’t on the list of stops for the tour buses full of tobacco travelers. Now, Prieto’s a legend. He is the youngest man ever to win the prestigious award. That is some pretty high praise, as Prieto’s operation is in the western Cuban province of Pinar del Rio in the town of San Juan y Martinez, an insanely bumpy two-hour drive from the capital city of Havana. My companion’s face hilariously smashed against the car roof numerous times as he tried to sleep on the trip there. Prieto won the award for having a higher yield of fine wrapper tobacco than any of his neighbors in the Vuelta Abajo region, home to perhaps some of the finest tobacco farms in the world.
Prieto isn’t alone in his love of tobacco. It’s a passion for these island people. Cuba has long been known for its exceptional cigars. Celebrating that tradition, Habanos SA, part of the state-run tobacco monopoly, has hosted the Festival del Habano for 19 years in a row now. The gathering is billed as the world’s top event for premium cigars. It is as advertised, too. It’s an intense week completely devoted to the knowledge and enjoyment of Habanos (Havana cigars) and the latest developments in the field. There is no tobacco event quite like it anywhere else in the world.
Opening doors
This year’s event, held from Feb. 27 to March 3, centered on the H. Upmann, Montecristo and Quai D’Orsay brands, all of which received some major additions to their portfolios during the festival. More than 2,000 participants from 50 countries attended the revelries, as well as 180 journalists and 70 companies from 11 countries. The event’s traditional trade fair includes numerous manufacturers and suppliers in the tobacco world, artisans, collectors, and suppliers of smoking accessories and luxury goods. The seminars are lumped in with the trade fair, which is held in the massive Palacio de Convenciones in Havana.
The event began with the traditional press conference held inside Havana’s International Conference Center, where Habanos SA company executives answered questions and provided an overview of the company’s sales figures for the previous year. Nothing is ever easy in Cuba, however. Oddly, event workers would often only open one side of a double-doored entranceway, making getting into or out of the different breakout sessions a complicated mess. To be fair, they were trying to check badges as well. Life also happens on Cuban time here, meaning everything starts an hour or two late. You learn to accept these things.
Starting off, Enrique Babot Espinosa, Habanos’ chief of market operations, told attendees that the company “reaped” $445 million worth of revenues in 2016, with 450 million units sold, accounting for 70 percent of the global market, excluding the U.S. Then, Habanos co-presidents Inocente Nunez and Luis Sanchez-Harguindey answered questions from the crowd.
When asked about the loosening of trade restrictions by the U.S., Sanchez-Harguindey said the steps are a move in the right direction. “We will be able to bring our culture, our product, closer to the U.S. customer. Our product is highly demanded and appreciated around the world … these are exactly the same expectations that we have for the U.S.,” he said through an interpreter. “These measures must be put into context, as there are conditions such as the number of cigars that can be imported in the U.S. The main difference, as compared to previous measures, is the limit of 100 units. This is as opposed to the previous measure of $100. The impact over the past 2 1/2 months [since the change] has not been significant.”
The best-selling vitola (format) worldwide has been Robusto. The Cohiba Robusto is the leading seller, followed by Partagas and Romeo y Julieta. In descending order, the largest markets for Cuban cigars are Spain, France, China, Germany, Cuba and Switzerland. Together, these six countries account for 50 percent of Habanos sales. “Increased tourism [13 percent growth from 2015 to 2016, totaling more than 4 million visitors a year] has appreciated the growth of sales in the Cuban market,” said Sanchez-Harguindey. Overall, Habanos claims to be experiencing a 5 percent yearly growth, while the industry overall grows at 0.5 percent. “A heads-up for 2017, we are aware of challenges, and we continue to remain consistent in our pursuit to launch new products,” said Sanchez-Harguindey. “We are consistent in our mission towards innovation and quality.”
Handmade Habanos
Habanos SA was founded in 1994 to commercialize all the brands of Habanos and tobacco leaf worldwide. As an arm of the Cuban state tobacco company, Cubatabaco, Habanos controls the promotion, distribution and export of Cuban cigars and cigarettes. The company operates in more than 150 countries around the world. The term “Habanos” has been used since the late 19th century to identify the “puro” Cuban cigar. After more than 200 years, Habanos are the only cigars that continue to be made totally by hand with long filler, according to Habanos.
Visiting a Cuban cigar factory is a unique experience. The smell is unmistakably tobacco, with a sweet honey and crisp cedar scent. Real Fabrica de Tobaccos La Corona is one of the more modern factories in Cuba. Although rich with tradition, the factory has changed locations several times throughout its history. Formerly known as “La Casa de Hierro,” La Corona is also the home to the Romeo y Julieta brand.
The cigar factory is a living entity, and its rolling room is its central nervous system. Here, the dedicated hands of expert “torcedores”—cigar rollers—are hard at work. It’s crowded, and everyone has something to do. Only security guards and tour groups are standing around. Visitor Mark Ryan, of U.S.-based Daughters & Ryan, said he was in awe of the speed and quality of the Cuban craftsmanship. “Wow,” he exclaimed. “They are really good.”
Festivalgoers were also able to visit the historic Fabrica de Tabacos Torcido H. Upmann, one of the most renowned cigar factories in the world. This is where the first vitolas for H. Upmann were created, according to Habanos. This year, the factory began production of the first H. Upmann Gran Reserva Cosecha 2011, in its iconic Sir Winston vitola. It’s the first Gran Reserva presented by the H. Upmann brand since its founding over 170 years ago, according to Habanos.
This factory is special. Herman Upmann was a former banker who was the first to ship cigars in cedar boxes, according to our tour guide. When you enter, the rollers are smacking their chavetas (a crescent blade specifically designed for use in making cigars) on their rolling tables as a loud welcoming gesture. There are 695 workers in the H. Upmann rolling room alone. They produce up to 30,000 cigars a day. Music plays loudly, and everyone seems to be having fun producing product. Several rollers are simultaneously smoking cigars.
It’s old, the factory, and it has several floors that housed rollers, quality control, aging and packaging in different areas as you climb the black wrought-iron stairs. All the H. Upmann brand’s vitolas are produced at this factory, including the Linea Magnum with Magnum 46, Magnum 50 and the recently launched Magnum 54. Rollers here are also responsible for producing prestigious vitolas for the Montecristo brand, including the most premium line offered by Montecristo, the new Linea 1935.
Trading places
While the trade show accompanying the festival offers its own excitement with beautiful women and well-dressed men showcasing uniquely Cuban humidors, antiques and other cultural items, the real draw is the seminars. Visitors can experience the International Habanosommelier Contest (think wine sommelier for cigars), as well as attend a master class on rolling cigars. There are also numerous lectures, and pairings of exclusive rums and brandies with cigars.
The rolling class is one of the most popular seminars. The class was led by master roller Arnaldo Ovalles, who had some help from rollers from Cohiba’s famed El Laguito factory who strolled the floor. Attendees were taught how to roll a Corona Gorda vitola, which is the third most popular Cuban vitola, behind only the Mareva and Robusto sizes, according to Ovalles. Each participant is given all of the ingredients they need to roll said cigar: a cutting board, a chaveta, glue and tobacco for the filler, binder, and wrapper. Visitor George Cassels-Smith, CEO of U.S.-based Tobacco Technologies Inc., rolled one of the better cigars. “It’s not bad,” he said of his slightly crooked smoke with a satisfied grin.
There was also a session on the history of the Quai D’Orsay cigar, “The Quai D’Orsay Brand—Then and Now.” Leading the lecture were journalist Yves Belaubre; Antoine Bathie of Seita, the former French distributor of Cuban cigars; Jose Maria Lopez Inchaurbe, strategic marketing director of Habanos SA; and Carlos Ferran, international marketing supervisor of Habanos.
In 1973, the Quai D’Orsay cigar was born out of the lack of a quality French-only cigar and the strong bond between the French and Cuban people. It was the first regional division of Habanos SA (then Cubatabaco). There are different stories as to what the Quai D’Orsay name refers to. One is that it refers simply to the famous Paris avenue of the same name; another suggests it refers to the French foreign ministry located on it. Both are true, according to Bathie, whose father was instrumental in the development of the Quai D’Orsay brand. “My father thought this would be a good name for a cigar to be presented at events like state dinners,” said Bathie.
An interesting addition to this year’s lecture series was named “The Art of Combination (the wrapper, the binder and the filler),” which was all about how the three parts of a cigar meld together to form the final product. Industry experts explained how a problem with one part can affect the entire smoking experience. Everyone was given one of four different cigars, each of which had something intentionally wrong with it, whether a twisted bunch, a draw that was too loose, poor construction issues or too much of one type of tobacco. Each person was then asked to smoke their sample and report back on what they thought was wrong with the cigar. The experts then explained what was wrong with the individual cigars and how they should have been constructed.
Cuban nights
The Habano Festival includes several interesting evening gatherings. With the exception of Monday’s opening evening event, which was waylaid by weather, Cuba put on quite the show. Free cigars, rum and the island’s stimulating nightlife come alive for the privileged attendees who managed to secure invitations. The closing gala event is hottest ticket in town, however. It’s hard to imagine something as spectacular outside of Las Vegas.
The El Laguito reception hall served as host to dinner on Wednesday night. It was dedicated to Quai D’Orsay. Guests experienced the brand’s three vitolas—Coronas Claro and the new No. 50 and No. 54—as well as a vitola from its historical portfolio, Quai D’Orsay Imperiales. Only 2,000 were made exclusively for this dinner. The event featured various musical performances, all choreographed by Cuba’s maestro Santiago Alfonso’s company.
The gala dinner paid tribute to the Montecristo brand and was held Friday evening at the Pabexpo center in the Miramar neighborhood in Havana. As part of the festivities, Habanos gave out samples of, among other cigars, the new Montecristo Linea 1935 in three different vitolas: Legend, Dumas and Maltes. This year’s celebration included performances by a number of different artists, including Haila, David Torrens, Diana Fuentes and A Otro Tiempo, as well as the Ballet de Lizt Alfonso, which celebrated its 25th anniversary last year.
Then there was violinist Ara Malikian and his ensemble. It was one of the most spectacular shows of the event. Malikian and his instrument danced across the stage with great enthusiasm and energetic force. Many of these artists left the stage and circled among guests. After dinner and the shows came to an end, Habanos handed out awards in three different categories: business, communication and production. Cuban grower Josefa Acosta Ramos took the top spot in the production category, while Edward Sahakian, a U.K.-based tobacconist, won in the business category. Gordon Mott, senior contributing editor for Cigar Aficionado, prevailed in the communication category. Chile’s Puro Tabaco, with its representative Felipe Rojas, was unanimously voted the winner of the 16th edition of the International Habanosommelier Contest. Judges said it was the closest competition yet. “It’s an honor like no other,” Rojas said.
Finally, the gala dinner and overall festival closed in a major way—with the famed humidor auction. This year’s auction got heated early as two bidders fought fiercely for the Cohiba humidor, for which Canadian bidder Leander Da Silva raised his numbered paddle with the highest winning bid of the night, €380,000 ($406,000). A few humidors exceeded the €250,000 mark, and by the end of the auction, seven one-of-a-kind humidors sold for more than $1.3 million. The money will be donated to the Cuban public health system.
As the event officially ended, we said our goodbyes to the festival’s talented media team, headed by Habanos’ director of marketing operations, Daymi Difurniao, which organized the event. We passed through the large Pabexpo doors one last time, walking back into the humid Cuban air. Hundreds of taxi drivers stood like paparazzi waiting to ferry exhausted attendees home. Luckily, we already had a driver waiting for us who wisely parked a few blocks away so we didn’t have to sit through the chaotic traffic in front of the convention center. The Habano Festival was an amazing experience. There is just something rare and special about Cuba. Much like its cigars, its people are vibrant, beautiful and genuine. Next year, the world’s finest cigar show should be even better.
Latest releases from Habanos SA, Cuba’s cigar monopoly
There were several new cigars announced during the 19th Habano Festival. The first Gran Reserva from the H. Upmann brand in the Sir Winston (47 x 178 mm) vitola (format), was one of the most promising releases. This is one of the brand’s most special cigars; it has additional aging of its leaves and is only in limited production.
Also exciting was the launch of Linea 1935 under the Montecristo brand. Three new vitolas are incorporated into the brand’s regular portfolio; these will become the most premium Habanos offered by Montecristo. Two of the three vitolas are unprecedented in the Habanos portfolio: Maltes (53 x 153 mm) and Dumas (49 x 130 mm), while Leyenda (55 x 165 mm) takes the form of the special limited-edition Montecristo 80 Aniversario, launched in 2015 to commemorate the brand’s 80th anniversary.
Typically a strictly French offering, the Quai D’Orsay brand is reinventing itself. It is doing so by launching a new design and presenting two new vitolas, with international distribution in the major markets of Habanos SA. The Quai D’Orsay No. 50 (50 x 110 mm) and Quai D’Orsay No. 54 (54 x 135 mm) vitolas come in both in 10- and 25-unit presentations. These will be added to the Coronas Claro (42 x 142 mm) vitola to create an attractive brand portfolio that will be available worldwide in 2017 through the Habanos international distribution network.
Habanos also released the new Romeo y Julieta Petit Royales (47 x 95 mm), a totally new vitola that is incorporated into the brand’s regular portfolio. With a heavy ring gauge and short length, this is a Habano in line with the current trend in formats increasingly demanded by enthusiasts around the world, according to Habanos SA.
There were also three limited editions announced during the festival: Cohiba Talisman (54 x 154 mm), Partagas Serie No. 1 (52 ring gauge x 138 mm) and Punch Regios de Punch (48 x 120 mm). – TSD
The creation of “expert panels” to detect characterizing flavors hints at the folly of the tobacco ingredients discussion.
By George Gay
I’m fascinated by the idea of having regulations that provide for a panel of people to decide whether a tobacco product has or hasn’t a characterizing flavor other than tobacco—a judgment that will mean in the case of the former that the product in its current format is banned, while in the case of the latter the product may remain on the market.
The setting up of such a panel is provided for within the EU’s revised Tobacco Products Directive that came into force last year, though it is not clear to me when the panel might be ready to start work. Presumably, however, it won’t be anytime soon because, I assume, protocols will need to be put in place, a lexicon will have to be agreed, reference products will have to be identified, and panelists will have to be trained in the various products to be tested.
One of the fascinating aspects of this exercise for a person such as me, whose olfactory system cannot tell red wine from white wine in a blind tasting, is its apparent subjectivity. Of course, the European Commission says that the method to be used will be robust. It says that the panel, comprising experts in sensory analysis, chemical analysis and statistics, will be backed by a technical group that will carry out sensory assessments based on a comparison of the scent properties of the test product with those of a reference product. In addition, where necessary, chemical assessments will be made, in part because a flavoring is taken to mean an additive that imparts scent and/or flavor.
And the commission assures us that sensory, including scent, analysis is an established scientific discipline that applies principles of experimental design and statistical analysis to assess and describe perceptions of the human senses, including smell, to evaluate consumer products. It has been found to be a suitable method for producing valid, robust, reliable and reproducible results when assessing whether a tobacco product has a characterizing flavor, the commission says.
This sounds all well and good, but, if as I understand it, a characterizing flavor is defined as a clearly noticeable smell or taste other than one of tobacco, the question arises as to what is the need for all of these experts and the chemical analysis. If it’s clearly noticeable, any person off the street—with the possible exception of me—could handle the job.
It must surely be the case, given the presence of the experts, that while some products will have a smell clearly different from tobacco and some will smell only of tobacco, some products will be marginal in their smell, and it is these that raise the interesting questions. If it takes a panel of experts backed by technicians, chemical analysis and statistical modeling to determine whether product A has a scent beyond tobacco, what is the point in the exercise? I mean, if the different-from-tobacco scent is so difficult to pin down that it requires a trip to the laboratory, product A is hardly likely to create a stampede of smokers and nonsmokers at retail outlets. And it is largely the attractiveness of product A, especially in the case of young people, that the EU is hoping to eliminate.
Of course, it might be argued that the chemical analysis is needed because the commission’s purpose is also to guard against additives that increase the addictiveness or toxicity of the product. But is this possible? Is it meaningful? What level of addictive or toxic agents would have to be discovered so that it could be said with confidence that the product under test was more addictive and/or more toxic than was the reference product? After all, we are often told that the cigarette, in whatever form, is more addictive than heroin is, and that it is the only licit consumer product that kills when used as it is meant to be used.
If characterizing flavors are the concern that critics make them out to be, it shouldn’t take an expert panel to detect them.
More bureaucrats and consultants
OK, you could argue that this doesn’t really matter because it’s jolly interesting to have a bunch of experts sitting around sniffing and analyzing tobacco products, but it does matter. Many people living in the EU have been suffering from the effects of austerity, a system of transferring what little money the financially poor have been left with following the negligent and criminal activities of some banks to the better off, and many of these impoverished people are smokers. As I understand it, EU member states and the commission will be allowed to charge manufacturers and importers of tobacco products for assessing whether a tobacco product has a characterizing flavor, whether prohibited additives or flavorings are used, and whether a tobacco product contains additives in quantities that increase to a significant and measurable degree the toxic or addictive effect of the tobacco product concerned. But while they might charge the manufacturers and importers, the bill for these activities is going to land in the laps of smokers, and this is unfair.
This panel is like tracking and tracing in that it takes a sledgehammer to crack a nut. It is about well-off people in suits attending meetings where the coffee and biscuits are paid for by various overt and covert imposts brought down on impoverished smokers and where the discussions are all about “helping” smokers. But smokers cannot afford this sort of help. They cannot support further layers of bureaucrats, consultants and hangers-on. Surely, the EU, having convinced itself of the need for tracking and tracing, cannot be unaware that many smokers are addicted to a product they no longer can afford.
But hey, that’s their problem, right? Tobacco and tobacco consumers have been denormalized, so they cannot expect to be treated fairly, or in the same way as other products and consumers are treated. Other consumer products launched into a market system are judged by consumers so that those products that pass that judgment remain on the market while those that don’t wither and die. But, in the case of tobacco in the EU, the judgment is being passed over to people who are probably not consumers of that product and, as far as I am aware, will not test it as a normal consumer would use it. And their judgment is not about ensuring that the most attractive products remain on the market but about ensuring that some of those products are removed from the market.
The reason for turning the world on its head in this way, I guess, is that the consumption of tobacco is said to be highly risky, which it is in relation to some products, though not all. Alcohol, which is linked with at least six types of cancer and which is far riskier than is tobacco at a societal level (in terms of contributing to violence and road accidents), has no such panel sitting in judgment of it. Perhaps this is because it is accepted that, after an hour or two of work, the panel members would no longer be able to function properly, and might be tweeting inappropriately, making unwelcome sexual advances to fellow panel members and fighting in an unseemly manner.
Menthol
Of course, the tobacco smelling panel won’t have to sit in judgment of menthol because the EU has decided already that this flavoring should be banned as of 2020. This is interesting because it raises the question of prohibition. A lot of people claim that tobacco prohibition can’t be brought in because alcohol prohibition didn’t work in the U.S. But I have argued in the past that this is a false comparison. Drinkable alcohol can be produced at home and can be drunk in the evenings out of sight of prying eyes. Producing a smokable tobacco and smoking it without detection is virtually impossible.
But prohibiting only menthol cigarettes is another matter. How can this be policed when smoking most other products is still permitted? Will we have to set up a new smelling enforcement agency? For sure there will be ways of getting around the menthol ban. Some smokers will make use of the black market, while for others the commission has kindly hinted at what they might do by including in the ban the addition of flavors in cigarette components and packaging. After a little experimentation, any smoker will be able to leave her tobacco-only cigarettes overnight in a jar with some readily available menthol crystals so as to enjoy menthol cigarettes the next day. And I suppose that if our smoker had a cold, or wanted to make believe that she was smoking menthol cigarettes in the tropics, she could add some menthol crystals to a bowl of hot water, stick her head under a towel over the bowl and smoke away on her regular cigarettes. Virtual reality without having to buy a fancy gadget that makes you look like a standard lamp.
Of course, it is not only the consumer who will suffer from these flavor bans. If, as seems likely, the bans on traditional-cigarette additives in the EU start to apply downward pressure on licit cigarette sales, licit flavor companies will suffer too. And while there is always the hope that the traditional-cigarette business lost by flavor companies will be made up, or partially made up, in supplying flavors for new nicotine-delivery products, there are clouds on the horizon here too.
The EU has not clamped down on flavored electronic cigarettes, but, in the U.S., the future for nearly all electronic cigarettes looks nonexistent under the Food and Drug Administration’s deeming regulations. And whereas moves are being made to try to take the sting out of the worst excesses of the deeming regulations as they apply to electronic cigarettes, wipeout could be replaced by death by a thousand cuts. The New Jersey Assembly health committee recently passed and sent to the Assembly appropriations committee a bill that would ban the sale and distribution of electronic nicotine-delivery devices that have characterizing flavors other than tobacco, menthol and clove. And it would be surprising if other jurisdictions didn’t follow suit—not because it is a good idea but because governments are given to bouts of collective hysteria.
Why menthol and clove, you ask? Well, there’s a logic at work there, but it has nothing to do with the health of the consumer.
The writer would like to thank Roger N. Penn, who has worked in the tobacco flavoring industry for more than 30 years, for his kind help in preparing this story.
NDC Technologies is energized by the challenge of new tobacco products.
By George Gay
As combustible tobacco cigarettes start to make way for less risky products that require new or modified manufacturing materials, it would seem reasonable to assume that some of the traditional suppliers to the tobacco manufacturing industry must be wondering what tomorrow holds for them. But last month, when Tobacco Reporter caught up with the global marketing director of NDC Technologies, Ian Benson, he appeared primed for a demanding but interesting future for his company’s on-line measuring instrumentation. The traditional tobacco industry is still a strong and important part of NDC’s business, he said, and while the consumption of combustible products is declining slightly, it isn’t going to disappear in a hurry. The industry is still innovating, and it has a huge installed base of on-line infrared gauges that will need to be replaced at some time in the future.
At the same time, the reduced-risk products that are on the market and that are coming onto the market provide further opportunities. The manufacture of some of these products, including heat-not-burn devices, is interesting for NDC, Benson said, because the measurement requirements it generates go beyond the on-line moisture and total-volatiles measurements for which NDC’s instrumentation is best-known within the tobacco industry, and it draws on the capabilities of the group’s other three businesses, such as those to do with the measurement of thickness, mass per unit area, line speed and length. These are capabilities that NDC has in its portfolio and that it could use to help manufacturers that wanted to move in new directions. “I think we’re going to see more demanding and interesting measurement requirements from the industry in the future,” Benson said.
The fact that the traditional tobacco industry still has considerable mileage in it was illustrated in February when NDC received from China orders for infrared gauges worth about $1 million. This was business won following on-site performance tests against competitive instrumentation, Benson said, and it indicated that NDC was still attracting significant business based on the requirements of the combustible-products manufacturing industry.
The end of last year saw NDC score a considerable success, too, in another on-site trial, this time at the premises of a major Western tobacco manufacturer that NDC had not supplied previously. On this occasion, its TM710eV total-volatiles, infrared-filter gauge, which was launched at the beginning of last year, was chosen in preference to a diode-array full-spectrum infrared gauge and another filter-based gauge in a direct competitive trial in which the suppliers were not allowed into the factory to tweak their instruments.
The full gamut
Ian Benson
The difference between using a full-spectrum gauge and a filter gauge can be confusing to those not familiar with such technology, in part because both systems examine the full spectrum of infrared radiation at some point in the development process. In the case of the former, the full-spectrum gauge is mounted on-line, and the huge amount of raw data collected is subjected to a complex mathematical data reduction technique that identifies the infrared regions or wavelengths that correspond to the principle variance in respect of, say, total volatiles within the tobacco being measured—those parts of the spectrum that must be “observed” to measure the total volatiles.
In the case of NDC’s filter gauge, samples of the tobacco to be measured on-line are firstly run through full-spectrum infrared spectrometers in the company’s laboratory to identify the fingerprint of the total volatiles in the spectrum—to identify what are the regions or wavelengths of the infrared spectrum that correspond to changes taking place in the total-volatiles content of the tobacco. That fingerprint will be found in only four to six discrete regions, and those are translated into optical filters that are included in the on-line gauge.
“We are used to supplying production people who want a solution, so we’ve done that mathematical processing of the full-spectrum information in our laboratory and put the dedicated solution into our analyzer,” said Benson. “We are using the same modeling techniques as the full-spectrum—diode array—people, but we choose to give the customers a solution that is more process-suitable.
“What I mean by that is that tobacco manufacturers want fast measurements and they want measurements that are not affected by lighting, by ambient humidity and by changes in temperatures in the factory, and using our technology with filters, that can be achieved. NDC has been on-line since day one, which was back in 1970.”
For Benson, on-line is the key word. The problem with some full-spectrum systems was that they required the manufacturer to have a PC in the factory. “This is not really a practical solution,” he said. “You can go into factories where people have been using our instruments for 10 to 15 years and they still look in great condition; they have handled the environment. But I don’t think you can say that about a PC.”
NDC developed its TM710eV total-volatiles gauge in cooperation with major tobacco manufacturers, said Benson, and, since its launch, the uptake of it had been strong. Several international players were using it, obtaining good results and seeing the advantage of measuring total volatiles instead of just moisture.
And it is not only cigarette manufacturers that are taking to the new gauge. A major manufacturer of oral tobacco products has also taken the TM710eV on board. Oral-product tobaccos have higher moisture levels than those of cigarette tobaccos, and the company had previously not been successful in finding an instrument to make the measurements it required. “But we have managed to make very successful measurements,” said Benson. “We have a good reputation for measuring total volatiles in these generally higher-moisture oral products.”
Again, the language, this time used in respect of moisture and total volatiles, can be confusing. Total volatiles take in anything that dries off in laboratory oven tests, which are performed in a factory to provide highly accurate reference data. The tobacco sample is weighed, heated to 100 degrees Celsius for three or 16 hours, depending on the preferred method, and then weighed again. Whatever has been driven off might be called moisture, but the correct term is total volatiles or oven volatiles. A large part of the total volatiles comprises moisture, but another part comprises humectants, casings, flavors, sugars, etc.
Well-positioned
And new-type products introduce other components into the equation. “The thing that has been interesting for us has been the development of heat-not-burn products, which we have been involved in,” said Benson. “We have data that proves we can measure moisture, nicotine, sugars and glycerol, the key components that need to be measured in respect of heat-not-burn tobaccos.”
And while a heat-not-burn tobacco factory might not require the number of gauges found in sophisticated traditional-cigarette plants, it requires a range of different measurements. “That plays well into NDC’s wide range of capabilities,” said Benson. “For instance, we are heavily into the packaging industry; so we have instrumentation to measure mass per unit area and geometric thickness, or caliper, as we would call it—all on-line. We are able to do a range of different measurements for that application; so if the industry continues to go that way, NDC is well-placed to offer the additional measurements that companies are going to need to control the processes involved.”
Not all the measurements that NDC can make have tobacco industry applications at present, but they are there if needed in the future. For instance, NDC has been involved in measuring the thickness and coating weight of the active ingredients of transdermal patches used as nicotine-replacement therapies. And, through its cable and tube business, the company can measure the length of materials and the speed at which they are moving if they are being produced in a web-based process. This is a noncontact method called laser Doppler velocimetry.
Apart from its tobacco, food and bulk business, and its cable and tube business, NDC has, as is mentioned above, a business serving the packaging industry in the fields of extrusion and converting processes and a business serving the metals industry measuring the thickness and flatness of steel or aluminum coils and strips.
The focus on harm reduction makes tobacco companies even more attractive investments.
By Stefanie Rossel
While social responsibility is a fairly recent concept in business, awareness of responsible corporate behavior has risen rapidly. Companies have widely accepted the idea. According an EY study, sustainability reporting has become “business as usual.” More than 80 percent of Fortune 500 companies address sustainability on their websites.
Today, sustainability strategies are driven by business objectives, rather than ethical ones. Company leaders believe sustainability adds value to their organizations and helps them identify and mitigate risks.
Sustainable investing has been booming in the past few years. In its most recent report, the Forum for Sustainable and Responsible Investment valued the 2016 U.S. market for sustainable, responsible and impact investing at $8.72 trillion, or one-fifth of all investments under professional management—a 33 percent increase since 2014.
“It is very important for investors that tobacco companies have a corporate social responsibility strategy in place,” says a senior consumer analyst with a London-based investment bank. “Clients are more interested than ever in environmental, social and governance [ESG] topics. If we can point to such an effort, there’s a lot of approval and interest from customers.”
While there is no single, agreed definition of what makes an investment “sustainable,” there are funds that explicitly exclude tobacco from their portfolios, treating it as a tainted sector, similar to firearms, alcohol, fast food or gambling.
But this could be about to change. According to a Wall Street Journal report, the increasing amount and availability of data on ESG factors means that investors can judge companies individually, rather than having to eliminate whole sectors based on their members’ shared characteristics.
Erik Bloomquist
Aware of their reputation, the major international tobacco companies have long implemented responsible business strategies. “Once you have ‘got over’ the actual product, you will find that tobacco companies are very sustainable with regard to their business model and economics in general,” the analyst says. “Moreover, they have strong cash flows, are well run and feature strong brands. They are also mindful of externalities and thinking about the future. What’s more is that the tobacco industry has successfully gone through some kind of existential threat which other industries such as sugar, for example, may still experience. Hence, the image of the tobacco industry with investors is actually quite good.”
As tobacco companies seek to reduce the health impact of smoking, the tobacco “taint” may lessen. Philip Morris International (PMI) has bet the company’s future on smoke-free products that present lower risks than cigarettes. British American Tobacco (BAT) has invested more than $1 billion in its next-generation product business. In February 2013, it became the first tobacco company to publish a dedicated harm-reduction report; in 2017 it released its third report of this kind, describing the company’s reduced-risk product portfolio, the current state of harm-reduction science and its plans for the future.
“The development and adoption of reduced-risk products as key parts of PMI and BAT’s portfolios are tectonic shifts in how the firms see their business developing in the future,” says tobacco analyst Erik Bloomquist. “This change in products over time will do a great deal to enhance the image of tobacco firms and, more importantly, their actual sustainability over many years.”
Adding value
BAT has been a pioneer in publicizing its good corporate citizenship efforts. “We have been producing sustainability reports for over 15 years,” says Jennie Galbraith, head of sustainability and reputation management at BAT. “This is a clear demonstration of our commitment to transparency and maintaining an ongoing dialogue with external stakeholders.”
The company conducted its first detailed materiality assessment 10 years ago. “This assessment was instrumental in sharpening our agenda and taking us from a broad approach that included numerous socially responsible and philanthropic projects to focusing on the core issues of harm reduction, sustainable agriculture and farmer livelihoods, and corporate behavior, as well as embedding the principle of shared value across our day-to-day business practices,” says Galbraith. “There is an added reputational benefit to doing this, but for us it’s all about building a strong business for the future. Over the years we’ve seen firsthand how considering sustainability and shared value can enhance our approach.”
Jennie Galbraith
There are various frameworks to evaluate the sustainability performance of a company. The most widely cited and followed among them is the Global Reporting Initiative and the Dow Jones Sustainability Index (DJSI). The latter ranking is based on research by Swiss investment group RobecoSAM and concentrates on best-in-class companies across all industries. It provides an integrated assessment of economic, environmental and social criteria with a strong focus on long-term shareholder value. There are global, regional and country DJSI benchmarks. Following RobecoSAM’s yearly rating, best-performing companies are included in the indices, whereas those that don’t meet the thresholds are removed.
Interestingly, while companies on their websites boast about their rankings in the DJSI, the importance of such indices to investors appears to be overrated “We do not follow these indices, so it is hard for us to opine, but generally they are little followed by investors,” says the senior consumer analyst. “Or investors may look at them, but only as a first resource—i.e., a kind of minimum standard before doing further work along their own criteria. So if companies are removed, it should have little impact.”
The only tobacco company to feature in the DJSI European Index, BAT has been listed for 15 consecutive years. “This means that BAT scored in the top 20 percent of over 600 European companies assessed, maintaining the same overall score as last year (83 percent) and scoring better than the industry average in 16 out of 17 sections of the assessment,” says Galbraith. “Our associate company Reynolds American replaced us in the World Index with a 4 percent higher score than us due to the weighting of certain categories where our global footprint raised challenges for our scoring versus that of Reynolds.”
According to Galbraith, the company’s high scores across so many categories reflect the quality of management across all key areas of the business and its comprehensive and globally consistent focus on sustainability issues.
Human rights
Nevertheless, good corporate governance remains an ongoing exercise. BAT recently increased its focus on one of the biggest challenges for the tobacco industry, human rights in supply chains.
“Our global agricultural supply chain is a vital part of our business, and we’ve long been aware of the importance of protecting human rights in this area,” explains Galbraith. “As a company, we take this very seriously, and addressing human rights risks is a core element of our new sustainable agriculture and farmer livelihoods program. From an industrywide perspective, the new Sustainable Tobacco Programme builds on our long-standing Social Responsibility in Tobacco Production program and is bringing together best practice to strengthen standards for suppliers across the tobacco leaf supply chain. This is an excellent example of collaboration and shows how different parties can come together to make a difference for the common good.”
In addition to its work with leaf suppliers, BAT has also been making strides across its wider supply chain. “For example, in 2016, we rolled out our new Supplier Code of Conduct, which sets out the minimum standards we expect all our suppliers to adhere to, including specific human rights criteria,” says Galbraith. “We’ve also been working over the last year to strengthen due diligence and introduce human rights risk assessment for all 70,000-plus suppliers outside of our agricultural supply chain. We welcome the U.N. Guiding Principles on Business and Human Rights, and legislation such as the U.K. Modern Slavery Act, as they provide a much clearer road map for companies to follow.”
Proud of its liquids and customized service, the Avant Garde vape bar in London attracts customers from around the globe.
By George Gay
You cannot miss the Avant Garde E-Liquid vape bar. It’s bright red, inside and outside, and it sits alongside the mostly more conservatively appointed premises that make up Wells Street, which is off Oxford Street in an upmarket area of London known as Fitzrovia. I don’t mean to imply that the bar is garish. It’s bright, as befits a business that is catering to an activity that is still newish and, certainly, still evolving and expanding rapidly after vapor’s recent big bang.
You can check out what I mean by taking a Google gander down Wells Street, and, if you do, another of the premises you will notice is a fine-looking, traditional English pub called The Champion. One thing that strikes you about The Champion is that it is, with no pun intended, more soberly appointed than is the vape bar, and it is interesting to consider briefly some of the other differences, along with the similarities, that divide and link these two businesses, which both exist to satisfy the same basic human need.
They are both places where people go to relax, to meet friends and perhaps enjoy for a short time the company of strangers. And both, at times, will be loud with chatter, as, in the case of the vape bar, I can attest, having conducted an interview there. The major difference, I think, will be the conversations. Down at The Champion, the talk will largely be about work, friends, family, football and, given the history of the pub, perhaps boxing. Little of the conversation will be about what is being consumed or how it is being consumed. Even an 18-year-old entering a pub for the first time has probably already settled on beer, wine or spirits as her poison of choice, and she certainly knows how to handle a glass.
A bespoke bar
Up at Avant Garde, however, while social chatter will still be heard, much of the talk will center on what is being consumed and how it is being consumed. Some of the reasons for this are clear. As mentioned above, vaping is still a rapidly evolving activity and, despite the seemingly trendy red decor, Avant Garde attracts a wide range of people, including those who have never vaped but who are keen to learn about an activity that might help them give up their lifelong smoking habits.
Oh, and I should have mentioned: Avant Garde is not just a vape bar, of which there are now a lot in London. It is what the owners believe is still the only bespoke vape bar in England. Here, vapers can ask the bar staff, friends or strangers sitting alongside them at the bar for their advice on e-liquid flavor combinations. And, while sitting at the bar, they can have these combinations made up in the proportions of their choice, and try them.
But, having sat for a little while in the bar, I can say with confidence that conversations about flavor proportions comprise small talk. The more intense conversations are about vapor devices and mods, of which there is a profusion along one wall of the bar, and about which there is always advice on hand from bar staff and fellow travelers on the vaping trail. And lastly there are those loud, intense voices talking about mod components: tanks, coils, cotton and batteries.
“They’re men,” Almas Tanvir-Khan, one of three founders of the business, said to me. “They’re always men,” she added, laughing and giving the manager of the bar, Imran Haque, a friendly dig. Haque had been explaining to me some of the finer points of handmade coils constructed from two different gauges of wire, one wound around the other in the manner of a guitar string. It was a little technical for me, but I could see where he was coming from. The way the wire was wound affected the resistance of the coils, which affected the heat applied to the e-liquid and, eventually, the quantity and quality of the vapor.
Overall, what Haque was saying was that if a nonvaping smoker walked through the door of the bar, he would be guided in the direction of a good, reliable mod and an appropriate liquid, probably a standard 60 percent PG (propylene glycol), 40 percent VG (vegetable glycerine) tobacco-flavored liquid that would most closely mimic the throat hit and taste that he was used to from his cigarettes. In time, and with proper guidance, the now ex-smoker might move on to the smoother 100 percent VG liquids delivered from a device that he might modify using quality components.
Down to business
But I’m afraid that I’ve got this story around the wrong way, perhaps because the red decor drew me into the bar. Although the bar is a great shop window, especially given its location in one of the tourist hot spots of London, it is most definitely not the business. Avant Garde is owned by EISI Limited, which manufactures e-liquids and whose main commercial activity is selling them—and only them—wholesale, though it has, too, an online retail business. It was started by Tanvir-Khan, her sister, Sadia Tanvir-Navaab—both of whom were previously lawyers working in the field of immigration—and her sister’s husband, Yousuf Navaab.
Navaab, a vaper unsatisfied with the e-liquids readily available at the time, which he characterized as comprising either cheap products from China or expensive ones from the U.S., decided to experiment with mixing his own liquids. These he tested on friends and family members—what else are such people for?—and eventually created the types of premium liquids that he had been seeking.
The new business started to offer these liquids online about three years ago, and having clearly identified an unfilled niche in the market, it took off to become what Tanvir-Khan described as a very profitable operation with an increasing turnover.
These days, the head office and manufacturing operation, complete with ISO 7 cleanroom, is based in northwest London. Under the EU’s Tobacco Products Directive, the cleanroom is not a requirement, but it was put in when it was thought that such a facility would be required and is now seen as a hedge against possible future regulatory changes and also as a valuable marketing tool.
Marketing: Now that is an interesting aspect of the business. Although the company has enjoyed a great deal of success, with its wholesale and online businesses both said to reach out to more than 100 countries, marketing is not necessarily its strong point. In fact, its advertising budget was described as peanuts. It has a small but expanding wholesale team at its head office, a website it operates through social media, and it has one vape bar, opened in November 2014. But its marketing happens largely through word of mouth. I was told that vapers turn up at the vape bar from the U.S. having been told about it by other vapers, and that a commercial customer from the Middle East had kindly introduced five other customers from the same region.
And therein lies a story, I guess. You don’t market your product successfully through word of mouth unless there is a good story to tell—some unique selling point (USP). And given that Avant Garde e-liquids sell for about £18 ($22.76) to £20 for a 30 mL bottle (very roughly a week’s supply) against an average of about £10 a bottle and prices that drift down toward £4 a bottle, the USP in question is not price. The USP, Tanvir-Khan and Haque told me a number of times, is the premium nature of the liquids, underpinned by the high-end quality of the ingredients that went into them and the strictly controlled manufacturing process.
Of course, in this day and age, the website is an important marketing arm, especially as it acts as a kind of vape bar for out-of-towners. In the quiet of your own home, you can choose the base PG/VG liquid you prefer, the nicotine level—if any—you like and the flavors you want in the proportions you want them mixed. And if you like, you can name the flavor, and that name will be on the bottle when it arrives at your door.
And it won’t just be any old bottle that turns up. Tanvir-Khan told me that because of the bottles the company uses, a lot of people enter the vape bar thinking it was a perfume shop. The bottles, which are designed by Tanvir-Navaab, are dark red and blue with, yes, a slightly sultry look. And, on a more practical level, they are discreetly labeled with information about the contents: vegan, halal, kosher, no alcohol, no diacetyl, no animal extracts.
Looking to the future, EISI wants to expand but mainly in relation to its wholesale business, which is Tanvir-Khan’s preserve. It wants to get its liquids into more vape outlets, but it has no intention of opening any more vape bars, which is not surprising given that, while the bar is a great shop window for the business, its profitability would presumably be low compared with the online or wholesale operations. And Tanvir-Khan has designs on getting into the market for those who, for one reason or another, need to watch their weight. A lot of the flavors on offer are sweet and can apparently satisfy cravings for sweet foods without delivering the calories.
The best-selling liquids are Heart of Heaven, which is 100 percent VG and part of the SuperHero range; Heavenly Vanilla Custard, which has a 60 percent PG/40 percent VG base and is within the Dessert range; and Red Ice, which is 100 percent VG and part of the Cloud Chaser range. Red Ice is raspberry and menthol, Heavenly Vanilla Custard is self-explanatory, and Heart of Heaven is … well, your guess is as good as mine. Heart of Heaven is apparently made up of 14 separate flavors and nobody, barring Navaab, the mixologist, has been able to figure out what they are, even though a competition has been run with a prize on offer.
Regulations are here to stay. Paul Marshall says the industry should work with, rather than against, authorities to ensure the best possible outcome for everybody.
By Maria Verven
Paul Marshall
Paul Marshall, chair of the British Standards Institution’s committee on electronic cigarettes and e-liquids, former pharmaceutical assessor at the Medicines and Healthcare products Regulatory Agency (MHRA), registered U.K. pharmacist and member of the Royal Pharmaceutical Society, and an experienced regulatory specialist, was an integral part of the team responsible for developing the U.K.’s regulations and licensing of e-cigarettes and nicotine-related products.
As a senior pharmaceutical assessor with the MHRA team charged with licensing central nervous system and nicotine-related products, Marshall has helped dozens of companies develop products and secure regulatory approval in the U.K. and Europe. Before joining the MHRA, he also worked in the pharmaceutical industry for six years, developing over-the-counter products for Europe, Australia, New Zealand and Southeast Asia.
In late 2016, Marshall joined Nerudia as regulatory principal to offer customers his broad knowledge of regulatory strategy, chemistry, manufacturing and controls. He is currently working with e-cigarette and e-liquid companies on their Tobacco Products Directive (TPD) notifications and U.S. Food and Drug Administration (FDA) premarket tobacco product applications (PMTA), as well as medicinal product applications.
Vapor Voice asked Marshall about his views on the current state of the industry.
What have been your proudest achievements to date?
As a civil servant for the U.K. government for 11 years, I helped regulate medicinal products, ensuring they were effective and safe and enabling patients in the U.K. and 27 European countries to access life-saving medicines.
By the time I left the MHRA, I had assessed over 400 marketing authorization applications and over 1,000 product variations. These applications included the first true e-cigarette licensed as a medicine, called e-Voke, in the U.K. I also helped develop U.K. guidance and policy for licensing medicinal products containing nicotine.
Why did you decide to join Nerudia?
Nerudia is quickly growing due to their expertise helping companies innovate, develop and manufacture their nicotine delivery systems, e-cigarettes and liquids, and register their products through either consumer or medicinal regulatory systems.
E-cigarettes and other nicotine delivery systems have a massive potential to improve people’s health and well-being. It’s a fast-paced and exciting environment, and Nerudia brings a fresh approach to all of the challenges faced by the e-cigarette industry.
What are your primary responsibilities and goals?
While my title is regulatory principal, my role is not limited to just regulatory matters. I will draw from all my experience as a medical professional and regulator to advise and support Nerudia’s clients with their product development and regulatory strategies.
I also use my experience to provide leadership for an industry that’s relatively young and still developing. Earlier this year, I delivered presentations on the MHRA and European regulatory process for medicinal e-cigarettes in the U.S., and I also spoke to audiences about product lifecycle stability testing in the U.K. and Europe.
I am currently writing and publishing two book chapters on stability testing and am also helping develop European and ISO standards for e-cigarettes and e-liquids, including creating a reference atomizer for testing e-liquids and defining acceptance limits for consistent nicotine delivery.
What direction do you see the e-cigarette industry going in?
The industry is still young, and there is great hope in the medical community that e-cigarettes provide a safer alternative to tobacco. However, we mustn’t forget some people use them recreationally to get a hit of nicotine.
The boundaries are blurred, and I can see the industry evolving into a clearer delineation between companies that offer recreational products and those that offer products geared toward medical benefits.
For both sectors, regulation and standards will be a fact of life. The proverbial genie is out of the bottle, and it will be impossible to put back in. The industry needs to embrace and work with, rather than against, the authorities to help them understand e-cigarettes and e-liquids, influence regulations, and ultimately help benefit people using their products.
Do you think the Cole-Bishop amendment will eventually pass? If so, how will it affect the PMTA process?
It’s very difficult to predict whether the amendment will pass or if it will be amended or ultimately rejected. You have a new president with a mandate to shake things up with the old order, and what influence this will have is difficult to predict. Aside from that, it’s a bipartisan amendment; voting may not go along party lines, which introduces another degree of uncertainty.
With this in mind, it would be wise for companies to plan strategies for both scenarios: the possibility of using more modern e-cigarettes as predicate products in substantial equivalence applications if the grandfather date is brought forward, but also planning to use the PMTA process.
Work on a PMTA will still be relevant and not a wasted effort because the e-cigarette industry will rapidly innovate and develop new and better products and will not be bound by or limited to predicate products, even if these are relatively modern.
What are the major differences between how Europe and the U.S. are handling e-cigarette regulations? Why do you think these differences exist?
The U.S. is treating e-cigarettes as tobacco products and is requiring active oversight of the safety and quality of the product prior to marketing.
The FDA has used its rule-making procedures to promulgate a “one size fits all” regulation for all products derived from tobacco, including e-cigarettes and e-liquids that use nicotine, but also cigarettes, cigarette tobacco, smokeless tobacco, roll-your-own tobacco, cigars and pipe tobacco.
E-cigarettes and e-liquids have the option of submitting applications under substantial equivalence, modified-risk tobacco product (MRTP) or a PMTA. The MRTP route allows companies to make modified risk claims on their products as long as it’s supported by data. Regardless of the submission route, the FDA will conduct an assessment of each application.
In contrast, Europe has treated e-cigarettes and e-liquids as separate entities from tobacco products, introducing a proportionate risk-based regulatory system.
There are two regulatory pathways in Europe—the Tobacco Products Directive for consumer products and Directive 2001/83/EC for products making a medicinal claim. While the TPD is primarily aimed at tobacco products, legislators did include a separate section and notification scheme for e-cigarettes focused on safety and quality.
The notification scheme typically does not involve an assessment of the data, only logging it for future review if ever required. Medicinal applications throw in additional requirements to demonstrate the product is efficacious—that is, they work in a clinical setting. European medicinal applications are assessed much in the same way as U.S. medicinal products.
While regulators from different jurisdictions around the world exchange opinions, ideas and best practices, there are major disparities in the way countries regulate products, likely due to how they handle public pressures and risks as well as differences in history, culture, politics, market forces and other influences.
What should e-cigarette and e-liquid companies focus on during 2017?
Companies need to focus on developing a strategy to continue marketing and selling their products, regardless of whether the Cole-Bishop amendment succeeds or not. Regulation of e-cigarettes and e-liquids will not go away. So if companies want to continue selling their products in 2018, they will need to register them with the FDA.
Smaller companies have significant challenges meeting the new regulations and dealing with regulatory authorities. In contrast, tobacco companies are more accustomed to regulations and standards; their challenge is keeping pace with the breathtaking speed of innovation and development exhibited by smaller companies.
Of course, the authorities also face challenges in making sure the regulations and standards reflect the wide variety of types and functionalities of products on the market.
Naturally, Nerudia is well-placed to provide the necessary expertise and know-how to help—support and advise—companies gain approval for their nicotine-related products, whether they’re traditional tobacco, e-liquid or pharmaceutical products. We bring a unique blend of experience that bridges the many gaps companies have in innovating, developing, manufacturing and testing their products.
In fact, we submitted over 1,000 TPD notifications for our clients by last November’s deadline, and we continue to submit new notifications and amendments to existing ones.
We are currently working with several companies in the U.K., U.S. and EU on innovation and development, manufacturing, analytical testing and characterization toxicology evaluations using our V-Tox database, and regulatory compliance and strategy.
How many e-cigarette/e-liquid companies do you think will ultimately complete a PMTA?
The short answer is that the regulations will very likely greatly reduce the number of players in the market.
But a lot depends on whether the Cole-Bishop amendment passes. It depends on whether the company’s forecasted sales and profit outweighs the additional work and cost required to complete the regulatory submissions, either substantial equivalence or PMTAs. It depends on whether they have the resources to cover the regulatory costs. And it depends on their level of technical know-how in generating the data, navigating the regulations and dealing with the FDA.
Both sectors—Big Tobacco and privately held companies—have strengths and weakness.
Established tobacco companies hold a clear advantage over privately held companies in dealing with the regulatory environment. They are very accustomed to regulations, standards, testing and toxicology requirements and already have the know-how and technical expertise in regulation, quality standards, analytical testing and toxicological evaluations.
Newer, privately held e-cigarette and e-liquid companies are much less experienced in this aspect. However, these companies are more adept at innovating and developing new and exciting products.
At any rate, I think it’s important that the regulatory requirements are proportionate and provide a level playing field while balancing the need for quality and safety.
Coming from the medical industry, what do you think are the parallels between the medical and the e-cigarette industry? Where do they converge? What are the differences?
Both industries are similar, and there’s a good degree of overlap. The pharmaceutical industry has a spectrum of products from ethical pharmaceuticals that are prescribed by physicians, to borderline products such as vitamins and minerals, to over-the-counter consumer products.
There are lots of parallels between the e-cigarette industry and the pharmaceutical industry; both industries attract smart entrepreneurs that innovate and develop products that benefit the public.
The stark difference is that the medical/pharmaceutical industry has been highly regulated for quite some time, while the e-cigarette industry has little experience with this.
Unfortunately, regulation will not go away, and the e-cigarette industry has to embrace this fact and get quickly up to speed.
The original “Vaping Vamp,” Maria Verven is a 35-year PR veteran and owner of Verven Communications, a marketing firm focused on the vapor industry.
Convinced of the harm-reduction potential of its Voke device, Kind Consumer is looking for a partner to help scale up the manufacturing process.
By George Gay
In trying to reduce the population-wide harm caused by tobacco smoking, those involved in the tobacco, tobacco replacement and nicotine sectors look, in part, at product risk but are aware that developing a product with zero—or close to zero—risk will not of itself eliminate such harm. This is clearly demonstrated by the existence of the nicotine patch.
It is generally recognized that a product’s risk must be set against its performance—mainly its appeal to smokers but also its efficacy in providing a replacement for cigarettes and, if possible, a gateway out of nicotine addiction but not a gateway for nonsmokers into such addiction.
Given this, the question arises as to where Kind Consumer’s cigarette-shaped nicotine inhaler, Voke, will fit on the continuum of risk and performance once it is launched. The first part of this question is easy to answer because, in 2014, Voke was granted a medicinal license from the U.K.’s Medicines and Healthcare products Regulatory Agency. As Paul Triniman, chief executive of Kind, told Tobacco Reporter in January, Voke is on the “moral high ground.”
Triniman, who is a chartered accountant with a good grounding in science, having spent most of his working life in the field of biotechnology, said that one of the ways in which Voke differentiated itself from vapor products, including heated-tobacco products, was that its use did not require the generation of heat. Heat was a major problem in respect of toxicants and excipients, he said, and vapor products, including heat-not-burn products, would always raise safety issues associated with chemical reactions generated by heat.
It is more difficult to answer the second part of the question, concerning Voke’s performance. But here, Triniman pointed out that, from the start, the aim of Kind, which was set up in 2006, was to develop a safer alternative to cigarettes that would address, too, smokers’ psychological and physiological needs.
Does it achieve these aims? Voke has no tobacco, involves no combustion or heating, and produces no clouds of vapor. But it certainly ticks a number of the important sensorial boxes. It delivers nicotine, which is taken in—more efficiently (quickly) than in the case of vapor devices, I’m told—by drawing on something that closely resembles a cigarette, and it provides something to occupy the fingers while talking with friends.
Paul Triniman
Cool contraption
It offers other advantages, too, but to understand these it is necessary to describe the product briefly for those not familiar with it. The Voke pack, which has an underlying plastic structure and a paperboard cover, is roughly the size, shape and weight of a pack of 20 cigarettes; so it is as convenient as—and arguably more so than—a pack of cigarettes and a lighter. And it is convenient in a way that conventional cigarettes used to be but in many jurisdictions no longer are because, as a medicine, it can be used in public places (at least in the U.K.), some of which are not open even to the use of vapor products.
One side of the pack contains the sort of canister you would find in an asthma inhaler, but which is visible only if you remove the paperboard cover. The canister contains a gas under pressure in liquid form that comprises basically the same gas as would be found in an asthma inhaler, medicinal-standard nicotine and slight menthol-flavor maskings. The other side contains the cigarette-like device that is accessible by pushing on the bottom of the appropriate side panel that is hinged below the midpoint to allow the panel to open by about 30 degrees—a movement that provides an excellent fiddle factor.
To use the device, the consumer removes the cigarette-like device and fills it from the canister as one would fill a refillable lighter—by pressing the non-mouth end of the “cigarette” to the canister’s valve, which is accessible at the bottom of the pack. And this leads on to what some consumers might see as two other advantages. One fill of Voke’s “cigarette” provides for a period of consumption that aligns with that of a traditional cigarette, while one canister provides for about 20 “cigarette” refills; so again there is continuity for cigarette smokers.
The “cigarette” is activated by drawing on it, which opens a valve causing the liquid to expand into an aerosol that is inhaled. There is no visible exhalation, which means that the product is discreet to use and raises no secondary inhalation issues.
Triniman told me that Voke was a “Marmite” product—that is, you either loved it or loathed it—and he admitted that it could take some time to adjust to it. Partly this adjustment period could be put down to the fact that Voke, which, as is mentioned above, uses no heat, offers a cold experience, rather than the hot or warm experience of a traditional cigarette or vapor product. To get an idea of your first experience of Voke, imagine that you have been offered some soup and, believing it to be hot, put it to your lips only to find that it is vichyssoise. Your initial reaction would be one of surprise, but you would probably go on to enjoy the soup.
Playing field
Having tried Voke briefly and having overcome that initial surprise, I can certainly see its appeal. And it has been tested—over 13 weeks on about 160 committed smokers in Edinburgh, Scotland, and Leeds, England. The result, Triniman said, was that about 50 percent of the participants ended with a positive buy intent, and of those, 40 percent thought that they would substitute 75 percent or more of their cigarette consumption with Voke consumption.
So why isn’t it on the market? Well, clearly, commercializing such a differentiated product takes time, but, to a certain extent, Voke was overtaken by circumstances. When work on it started, it was believed that, under the then-forthcoming revised EU Tobacco Products Directive, all vapor products would need to have a medicines license, but such a requirement fell by the wayside. So Voke, a device expensively developed within all of the constraints necessary to make it conform with a medicines license, is competing with devices developed at less expense without such constraints.
This clearly rattles Triniman, who said he would like to see clarity brought to bear on regulations governing such products. What was unacceptable was an uneven playing field. “We are believers in regulations for such products, not necessarily because we think regulation is a good thing in itself but because we think the quality control of the products is very important,” he said. “We think the consumer is deserving of reliable quality, and without regulation it is difficult to see how you would achieve that.
“We’ve taken the moral high ground and sought approval as a medicine, which is what we understood everybody else would have to do, and that has not turned out to be the case. And I think that is commercially challenging for us. We went to a lot of time, trouble and expense to achieve a license.”
Full focus
But while Triniman believes that the situation is commercially challenging, it would be wrong to give the impression that he is not optimistic about the future. Voke is a very exciting product that offers a major opportunity for somebody, he said. What he was alluding to here was the fact that Kind is looking for a partner or partners to help it commercialize Voke. In January, Kind and British American Tobacco (BAT), which had partnered with Kind in developing Voke, announced that they were going their separate ways. Kind, according to the announcement, was going to take back ownership for the commercialization of Voke, allowing it to “embrace the full economics of the opportunity.”
While this might sound like a negative for Voke, given BAT’s experience, size and reach, it was probably a good move for both companies. It allows BAT to put its efforts behind its vapor and heated-tobacco products while getting out from underneath a product that is not a natural fit within its portfolio. And it allows Kind to concentrate on commercializing Voke in the way it thinks best.
And Triniman sees that as an exciting prospect. “If we were to capture 1 percent of the U.K. smoking market by volume and sold the product at or about the cost of a packet of cigarettes, we would have a product that was twice the size of the best-selling U.K. over-the-counter pharmaceutical,” he said. “That is 1 percent. Now if you compare that with the 5 percent of the market that iQOS has just captured in Japan, you can see that relatively modest market penetrations into the smoking market add up to very meaningful numbers.”
So could Voke be sold at a price equivalent to that of a cigarette? “We would want to sell it at less than the price of cigarettes because that makes sense,” Triniman said. “My personal view is that traditional [nicotine-replacement therapies] have been far too highly priced relative to the cost of cigarettes. We want this to be a ubiquitous product. We want the smoker to buy this where he buys his cigarettes and not be put off by the price, in fact be encouraged by the price. I think we are able to do that.”
Global ambitions
In part, Kind would like a partner to help it scale up the manufacturing process, a process that, of itself, isn’t difficult. The raw materials that go into Voke are readily available and could be assembled anywhere in the world given the necessary controls to ensure compliance with the medicines license. The challenge will be in the scale, and, given the scale, the cost of the operation.
And Kind could use help in marketing and distributing the product. And here Voke has a number of advantages. While Voke has a medicines license and could be prescribed by a doctor, it has also an over-the-counter or general sales list label; so it can be sold anywhere, from pharmacies to major retailers, corner shops and garage forecourts. Its U.K. medicines license can probably be leveraged in some other countries—with the notable exception of the U.S.—and, at the same time, there is no reason why Voke, under another name and possibly modified, could not be sold in other jurisdictions simply as a consumer product. The ultimate goal is to offer the product almost worldwide.
As Triniman pointed out, Voke isn’t a product looking for a market. Out there is a market looking for Voke. There are a billion smokers worldwide, and research suggests that most of those derive pleasure, stress relief and relaxation from their habit. Nevertheless, seven out of 10 smokers also want either to cut down or quit their habit now or in the future. So there is a market of smokers who took up smoking because they enjoyed it but realized they would like to do something about it but are unable or unwilling to do so. In 2009, when Kind set out “on the serious development” of Voke, Triniman added, e-cigarettes were still a novelty. Currently in the U.K., 35 percent of smokers either use these products regularly or have used them.
And so what sort of a product is Voke? Is it a medicine? Is it a consumer product? Officially in the U.K., it is a cessation aid and a harm reduction device. But Triniman, a big man who readily admits that he enjoys good food and wine, is always going to steer to the side of risk reduction. Life is pretty dull if you don’t do something, he said. Life isn’t a rehearsal; so it is necessary to make it as pleasurable as was possible. Voke is an alternative product that sits in its own category, he added.
The final question has to be: When will Voke be launched? “Well, the license is held now, so it is ready now, but we have to be able to make it, and that’s the challenge,” said Triniman. “We would hope as soon as possible. Being realistic, it is more likely next year than this year, but I shall probably have a better answer for you in three months.”
Alex Hearn
Kind Consumer describes itself as a health care research and development company focused on inhalation technologies with innovation programs directed toward pioneering novel inhalation devices that intend to fulfill unmet health problems.
It has a small team of specialists and is still in a pre-revenue stage of its development.
It was founded by Alex Hearn, who studied classics at Oxford University but who is also well-read in science and has a keen business sense that allowed him to start in Oxford an entrepreneurial body, the model for which was taken up by other major universities in the U.K. and the U.S. –G.G.
George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.
And therein lies a story, I guess. You don’t market your product successfully through word of mouth unless there is a good story to tell—some unique selling point (USP). And given that Avant Garde e-liquids sell for about £18 ($22.76) to £20 for a 30 mL bottle (very roughly a week’s supply) against an average of about £10 a bottle and prices that drift down toward £4 a bottle, the USP in question is not price. The USP, Tanvir-Khan and Haque told me a number of times, is the premium nature of the liquids, underpinned by the high-end quality of the ingredients that went into them and the strictly controlled manufacturing process.
