Category: Also in TR

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  • Plxsur Revenues Surpass $1 Billion

    Plxsur Revenues Surpass $1 Billion

    By Timothy S. Donahue

    That didn’t take very long. The global vaping company Plxsur reached its goal of reaching $1 billion in consolidated revenues from its partners in just two years. The company has now successfully partnered with 12 of the world’s leading vaping companies to form what may be the largest and fastest-growing group of independent vaping companies in the world. According to Nigel Hardy, CEO and founder of Plxsur, the company accomplished this with a focus on compliance, governance and reporting, with responsibility at its core.

    “We believe having a portfolio of multiple brands is crucial for building a successful reduced-risk product (RRP) business at scale. Our retail sales across the group reflect the impact of Plxsur, which supports adult smokers who have switched to vaping,” explains Hardy. “We have sold products to about 4 million consumers, with retail sales by value of units sold at $1.835 billion. Additionally, our three North Star owned brands, Salt, Allo, and Flavour Beast, are expected to generate retail sales of more than $400 million in 2024.”

    Plxsur also has 10 e-liquid manufacturing facilities in six different markets. With that comes the quality management systems to ensure the quality of the raw materials that are coming in and what’s going out. It’s not only about quality control (QC), but also about quality assurance. All e-liquids are manufactured in a minimum ISO 9001-certified facility. Plxsur’s QC program ensures that all products manufactured and distributed meet or exceed all regulatory and legislative requirements in the markets where the products are produced.

    ISO 9001 is an international standard specifying quality management system requirements. Organizations use it to demonstrate their ability to consistently provide products and services that meet customer and regulatory requirements. Plxsur only produces its brands of e-liquids. The company does not do third-party manufacturing because the company’s focus is on its products.

    Plxsur leadership says its partners have a combined market share representing an estimated 10 percent of the global $19.34 billion vaping market. Hardy said the company is targeting a 20 percent market share in the next five years. The companies include Hale Vaping (Ireland), UEG Holland (Netherlands), DampShop (Belgium), Pro Vape (Latvia), Puff Store (Italy), Nobacco (Greece), Ritchy Group (Czech Republic), Vape Empire (Malaysia), Pacific Smoke (Canada) and CK Complex (Poland).

    “The past two years have seen a huge amount of financial and operational progress for Plxsur, and we have grown to become the world’s largest and fastest-growing group of independent vaping companies with consolidated revenues of over $1 billion,” said Hardy.

    In 2021, Plxsur was founded by David Newns, Charlie Yates, and Nigel Hardy. The three entrepreneurs shared a vision for the vaping industry and discussed how they could work together to achieve their goals. They believed the key to success was respecting and supporting entrepreneurship while empowering local management teams. They planned to create a global network of independent vaping companies that were both the largest and the most responsible in the industry.

    Plxsur, under Hardy’s leadership, believes in improving the businesses it brings on board by focusing on three key aspects of business strategy: governance, compliance, and reporting. Compliance involves adhering to various rules and regulations in the countries and communities where Plxsur businesses operate. This includes regulatory, communication, and marketing compliance, as well as legal compliance related to finance and jurisdiction.

    “We’re at a very important and exciting stage in our journey. The companies in that group are not only the best at what they do in their respective markets, but importantly, they share our values.

    “They put the consumers first, think big, and take responsibility seriously. All our companies want to make a real difference in the lives of adult smokers by contributing to a smokeless society. We now have a presence in Europe, Asia, and North America, covering the full vaping value chain from manufacturing, wholesale, distribution, and direct-to-consumer, both online and through our global network of over 800 specialist vaping stores.”

    In 2023, group revenues increased 40 percent on the previous year to more than $1 billion, with an adjusted EBITDA of over $200 million. The outlook for the global vaping market is strong, and last year, Plxsur commissioned an independent research report that Hardy said is the “most comprehensive consumer study conducted on vaping to date”, using data from an online panel of over 30,000 consumers in six of Plxsur’s markets.

    “The opportunity available for RRP across our 12 markets is significant, and I am pleased that our Global Vaping Market Snapshot vindicates the belief that not only will this sector continue to grow at pace, but that vaping is quickly becoming the most popular form of RRP in the market, with adult smokers who switch to vaping likely to remain loyal by navigating the regulatory framework,” he explained. “Our team has established a center of excellence leading a program of capability development to ensure management teams at a local level of the skills to deliver sustained value growth.”

    Plxsur and its partners continue raising the bar as a responsible vaping group. All its companies have now committed to the six Plxsur standards (product compliance, manufacturing safety, responsible marketing, youth access, child protection and third-party product compliance) that address the biggest issues the vaping industry faces today. The company has also supported local teams across the group and guided companies in engaging with governments on policy development, particularly around preventing youth access.

    “We’re focused on migrating consumers from disposable vapes to rechargeable pod and open systems. This is a key priority for Plxsur and our companies are already delivering huge results. In Q3 of 2023, I’m delighted that our Italian business, Puff, successfully migrated many of their consumers to pod and open devices through its launch as an exclusive distributor of new-to-market pods and e-liquids,” said Hardy.  “To keep the momentum going, our portfolio companies have exciting plans to expand their range of pod systems in the first half of this year.”

    Unlike traditional business acquisitions, Hardy explained that the company’s partners are not selected based on their financial worth. Plxsur is highly selective in its choice of partners, and financial size is not the only factor determining whether a company is suitable to join the Plxsur team. Hardy cited the example of Pro Vape, a company headquartered in Riga, Latvia, which started its business in late 2016 and met all the necessary criteria to become a Plxsur partner.

    “The Baltic market is not particularly a huge market for vaping. What Pro Vape has is a significant presence in Europe,” said Hardy. “Only 40 percent of their business is domestic, and 60 percent is across the rest of Europe.”

    Plxsur has specific criteria that businesses must meet before partnering with them. Firstly, the company must be a leader in its channel, whether it is business-to-business or business-to-consumer, or a leading player in its market. Currently, all of Plxsur’s partners meet this benchmark. Secondly, having a healthy balance of company-owned brands within the portfolio is essential, with Plxsur aiming for at least 50 percent of its revenues to be driven by such brands. Thirdly, the most crucial criterion is people.

    “Our ability to retain our unique entrepreneurial spirit while growing at a rapid pace has been pivotal to our success over the past two years,” said Hardy. “We remain committed to achieving long-term value for all stakeholders, with responsibility at the core of everything we do. Supported by several tailwinds, including evolving market dynamics and customer preferences, we remain confident in Plxsur’s medium-term prospects and our ability to continue our trajectory to promote responsibility in the sector, achieve our target of over $15 billion in revenues by 2033.”

    To achieve the lofty goal, Hardy said Plxsur is well placed to capitalize on the growing trend of vaping across the globe, unlock future value, and play a leading role in shaping the sector’s future on a platform of responsibility. He said Plxsur excels at creating a distinctive, innovative business leadership environment while growing at a pace pivotal to the company’s success over the past two years.

    “We continue to see increasing regulation around vaping, particularly disposables, flavors, and marketing,” said Hardy. “At Plxsur, we see regulation as a force for good and encourage appropriate regulation and enforcement to tackle illicit and irresponsible trading behaviors. Last year, we submitted Plxsur’s response to the UK government’s open consultation on creating a smoke-free generation, and we continue to engage with regulators worldwide.

    “This engagement with responsibility at the core of everything we do places Plxsur in a prime position to continue to grow, lead the industry, and shape the future of vaping.”

  • Taking Stock

    Taking Stock

    Image: blacksalmon

    Where are we with ESG?

    By Cheryl K. Olson

    It was once novel, even radical, to talk about making good environmental, social and governance (ESG) practices central to business and investment decisions. Today, ESG is literally front and center on the websites of major tobacco companies.

    Under the heading “Winning with ESG,” Turning Point Brands states, “We recognize that incorporating ESG into our business strategy will support our operating principles of winning with accountability, integrity and responsibility.” Altria has set up a Responsibility Progress Dashboard to track and manage ESG issues.

    Sustainability is now the trending term. Witness Philip Morris International’s Sustainability page, which begins, “For PMI, sustainability is more than just a means to minimize negative externalities and mitigate risks while maximizing operational efficiency and resource optimization.” At Universal Leaf, the first-listed “core belief” is “We believe in our responsibility to make a sustainable impact on our planet.”

    Whether ESG or sustainability, is something meaningful going on here for the nicotine product industry? What are the biggest concerns on the “E” side of things? Below are several perspectives.

    Investor Viewpoints

    Pieter Vorster, managing director at Idwala Research, focuses on tobacco harm reduction and industry transformation. When it comes to tobacco companies, says Vorster, investors may look at ESG from several angles. One is the Tobacco-Free Portfolios perspective, which assumes that there are no good tobacco companies, and all should be excluded from portfolios. Another approach, he says, is “to encourage companies to change, as with the oil industry, and invest in the least bad ones.”

    A third viewpoint looks more at process than product. Tobacco companies can end up in ESG portfolios via “good credentials on other measures like carbon footprint and water,” says Vorster. “BAT, for example, has been in the Dow Jones Sustainability Index for over 20 years.”

    Why the shift from ESG to sustainability? “From an investor perspective, the whole ESG movement is probably slowing,” Vorster says, because it’s no longer a differentiating factor. Rather, environmental and social consciousness is something that’s assumed by both investors and consumers.

    This is why he feels that measures of movement toward reduced-risk nicotine products, such as the Tobacco Transformation Index, can benefit industry. They can help companies stand out on another dimension of ESG. (More on this later.)

    “I think the sustainability label is a bit broader than ESG,” says Vorster. “For me, from an investor perspective, sustainable would be, how long can this business exist? How long can it grow?”

    “Ultimately, most investors care about performance,” Vorster says. “If a company’s environmental credentials are going to impede their share price performance, then they will care.”

    He adds, “That’s also why they care about tobacco companies transforming, because they want a more sustainable business long term. You know, it’s not good business if your products kill half your customers.”

    Investors care about tobacco companies transforming because they want a more sustainable business long term. You know, it’s not good business if your products kill half your customers.

    The Litter Issue

    When I was a child, environmental awareness meant “Keep America Beautiful” (KAB) campaigns, telling us “every litter bit hurts.” This included cigarette ends tossed from car windows. To my surprise, KAB is still going. Its website says that “cigarette butts account for 88 percent of litter four inches or smaller.”

    Concerns about cigarette litter have shifted from aesthetics to preventing chemical and plastic pollution. Cigarette filter waste was on the agenda this year at the 10th session of the Conference of the Parties (COP10) to the World Health Organization Framework Convention on Tobacco Control (FCTC). Citing a 2010 study, a COP10 news release says, “An estimated 4.5 trillion cigarette butts are thrown away annually worldwide, representing 1.69 billion pounds of toxic trash containing plastics.”

    Cigarette filters are also the focus of most research literature on tobacco and sustainability. A 2022 editorial in the journal Addiction on the environmental impact of tobacco products advocates banning the sale of filtered cigarettes, or having industry pay for cleanup. As an example of the latter, the writers point to a San Francisco “cigarette litter abatement fee,” which is currently $1.50 per pack, paid quarterly by local cigarette retailers.

    The European Union’s Single Use Plastics Directive has helped spur efforts to develop biodegradable filters. Experiments in recycling are underway, such as a project in Slovakia that plans to mix recycled cigarette filters into asphalt for surfacing roads.

    Sidelining of cigarettes by noncombustible alternatives should gradually reduce filter waste. What about litter issues with newer nicotine alternatives?

    “Next-generation, or reduced-risk, products were generally not a major source of concern on the environmental side until the rise in popularity of disposable vapes,” says Vorster. Waste from disposables is particularly difficult to address because so many are sold illicitly.

    The website of the U.K. Vaping Industry Association (UKVIA) criticizes the lack of interest in and resources for vape recycling from local councils. The UKVIA will host a webinar on April 15 to address the future of vape waste management.

    Concerns about e-cigarette waste have yet to catch fire (pardon the pun) in America. Sustainability is not listed among the “top issues” on the website of the Truth Initiative. Their brief 2023 report on “tobacco and the environment” mentions disposable e-cigarette waste and battery risks but zooms in on pollution and litter from cigarettes.

    David Sweanor, who chairs the advisory board of the Centre for Health Law, Policy and Ethics at the University of Ottawa, views this issue skeptically. “People look for something new to beat up nicotine companies on,” he says. “But your real concern isn’t about disposable e-cigarettes; it’s about batteries. Something less than 5 percent of household batteries sold in the U.S. are properly disposed of. So don’t throw it at the nicotine business or consumers.”

    During a visit to Finland, Sweanor happened upon a creative art installation that turned out to be a battery recycling station. “Because batteries are all different colors, as the container filled up, it’s a beautiful sculpture,” he recalls. “Whoever puts these in hockey arenas and shopping malls—why aren’t we doing things like that?”

    Waste from disposables is difficult to address because so many are sold illicitly. (Photo: Bennphoto)

    Concern About Carbon/Water Footprint

    Nowadays, we care less about “litterbugs” and more about carbon footprints. In her 2024 closing address to COP10, Adriana Blanco Marquizo, head of the FCTC Secretariat, emphasized environmental protection. She cited the “historic decision” to “take account of the environmental impacts arising from the cultivation, manufacture [and] consumption of tobacco products as well as the waste they create.”

    Six years ago, a groundbreaking report from Imperial College London turned attention from smoking’s health harms to the environmental harms from producing 6 trillion cigarettes per year. Researcher Maria Zafeiridou and colleagues looked at “resource needs, waste and emissions of the full cradle-to-grave life cycle of cigarettes” across the globe. As Imperial College’s news release noted, those 6 trillion cigarettes required 22,200 megatons of water, 5.3 million hectares of land, 62.2 petajoules of energy and 27.2 megatons of material resources.

    Synthetic nicotine maker Zanoprima Life Sciences recently released a report comparing the environmental impact (from the raw materials to the factory gate) of their laboratory-made nicotine and nicotine from plants. The report’s author, Eric Johnson of Atlantic Consulting of Zurich, routinely does life cycle assessments of products and services.

    “In some of the work I do, I know what the answer will be before I start,” says Johnson. “But I hadn’t looked at this issue closely.”

    Drawing on data used in the Imperial College study, Johnson found that tobacco-based nicotine (especially when fuel cured) had a substantially larger carbon footprint. Also, synthetic nicotine production doesn’t use up water.

    Johnson was struck by the size of the difference. “When it’s ‘this product has a 15 percent lower footprint than the other guy’s product,’ it’s hard to know,” he says. “But tobacco nicotine’s footprint is multiple times larger. Even with normal error and uncertainty, the result is solid.”

    Clearly, from an ESG standpoint, the big issue has to be that cigarettes are killing 8 million people a year. Not the carbon costs.

    What We Can’t Say

    As someone who makes his living as an investor, Sweanor views all of the above as relative trivialities. “Clearly, from an ESG standpoint, the big issue has to be that cigarettes are killing 8 million people a year,” he says. “Not the carbon costs.”

    A “good ESG” cigarette company would move aggressively into reduced-risk nicotine products. But that’s just the first step, says Sweanor. Such companies also have an ethical and legal responsibility to warn their customers.

    “If you’re selling products that are two or three orders of magnitude more hazardous than viable alternatives, you need to tell them. That’s basic ESG standards,” he says. “However, the laws in many countries, including the U.S. and Canada, make it illegal to do that.”

    Educating about and promoting reduced-risk products could create shareholder value and make it easier to hire good employees. “You’d also want to differentially price and have other incentives to nudge consumers toward the less hazardous nicotine products,” he adds. “But companies are precluded from doing all that.” Sweanor calls this “insane.”

    Recent surveys show that ever-fewer people, including those who smoke, think that noncombustible nicotine products are less hazardous than cigarettes. Sweanor imagined what health authorities would do if similar proportions of adults disbelieved that driving drunk increased car crashes. “They’d be totally freaking out and running a major campaign,” he says. “And probably force any companies involved to be part of that effort.”

    He stresses that this is out of industry’s hands. “The responsibility I would lay on the companies,” he concludes, “is that they are not making a big deal out of this.”

    ESG From the Inside

    I asked an industry insider, who’s had senior roles at several major companies, for their unvarnished anonymous view. “There is a lot of snark around the value of things like ESG,” they admitted. “I’ve heard it called ‘window dressing.’”

    They personally disagree with that view, noting that “unsexy” things like constant efforts to reduce manufacturing waste and water use get little publicity.

    “I’ve even heard THR (tobacco harm reduction) called window dressing. But I don’t think that’s true where I work,” they said. “We’d like to stay around for a long time, and we’ve got to do something very different to make that happen. And there is a real sense of pride about this transformation.”

    Citations

    Zafeiridou M et al. (2018). Cigarette smoking: An assessment of tobacco’s global environmental footprint across its entire supply chain. Environmental Science & Technology. https://pubs.acs.org/doi/10.1021/acs.est.8b01533

    Zanoprima Lifesciences Ltd. (2024). Carbon and water footprints of tobacco-based vs. synthetic nicotine. https://www.zanoprima.com/updates

    Truth Initiative (2024). Tobacco and the environment. https://truthinitiative.org/research-resources/harmful-effects-tobacco/tobacco-and-environment

    Morphett K et al. (2022). The environmental impact of tobacco products: Time to increase awareness and action. Addiction. https://onlinelibrary.wiley.com/doi/10.1111/add.16046

  • A Legacy of Leadership

    A Legacy of Leadership

    Image: HTGanzo

    Tobacco Reporterturns 150.

    By Mike Macdonald

    Impressionism was born in April 1874 when Monet, Renoir, Degas, Morisot, Pissaro, Sisley and Cezanne broke the rules and held their own art exhibition in Paris. Other notable events from the year included the establishment of the Universal Postal Union to coordinate international mail, the invention of the cylindrical QWERTY typewriter/keyboard, a patent for blue jeans with copper rivets by Levi Strauss (that sold for $13.50 per dozen) and the debut in Bombay of the first commercial horse-drawn carriage. Notable births that year included American philanthropist John D. Rockefeller, magician Harry Houdini, Italian inventor Guglielmo Marconi and British Prime Minister Winston Churchill.

    That year also marked the birth of Tobacco Reporter magazine, the leading source of industry information for, now officially, a century and a half. Technically, Tobacco Reporter began as the Western Tobacco Journal, a small, weekly newspaper published in Cincinnati, Ohio, for farmers growing burley tobacco along the Ohio River, but even then, it was the go-to source for industry information. Over time, manufacturers, processors, importers, exporters and most anybody interested in tobacco joined the growers in reading it. Before long, it was a full-fledged, monthly magazine shipped to more than 100 countries around the world, officially changing its name to Tobacco Reporter in 1966.

    How it started

    From the beginning, the award-winning magazine rode the waves of technology in publishing and was a stalwart of the tobacco industry, priding itself on obtaining the most pertinent information possible in person, firsthand. At TR’s birth, linotype (a typesetting machine that uses a keyboard instead of people doing it manually), zinc printing plates and web presses that used rolls of paper instead of individual sheets, were all brand-new inventions that made the printing process much quicker and more affordable. Progress over the decades came in the way of the mimeograph, film, monotype machines and eventually computers, and TR took advantage with each step. Today, TR remains dedicated to the printed page but also takes advantage of the technology offered by communicating information with digital editions, e-newsletters and a website that is voraciously fed each day. Whatever medium the reader preferred, TR always delivered.

    Issues in the early years offered practical advice and news written by growers for growers, but soon, professional journalists who were experts in the field (no pun intended) joined to set the standards that still top the industry to this day. A trip through TR’s archives is like reading a meticulously detailed history of the modern tobacco world, featuring companies, innovations, trends, growing reports and governmental news as well as the people who made it all happen.

    Riding the waves of technology, even then. (Photo: simonekesh)

    In 1980, Tobacco Reporter was sold from the Western Printing Co. to Specialized Agricultural Publications, and its headquarters was moved closer to the heart of the American tobacco scene, Raleigh, North Carolina. In his December 1980 editorial, associate publisher Peter Sangenito predicted, “With this merger, Tobacco Reporter will solidify its position, despite misleading and inaccurate statements made to the contrary by a competitive magazine, as the No. 1 international tobacco industry publication in the United States. We intend to hold—and expand—this position.”

    Forty-four years later, mission accomplished! Tobacco Reporter became the flagship of the company’s tobacco and nicotine division, surrounded by other titles such as Flue-Cured Tobacco Farmer, Burley Tobacco Farmer, Tobacco Farm Quarterly, Tobacconist, Pipes and Tobaccos, Cigars and Leasure and, most recently, Vapor Voice.

    Elise Rasmussen

    The first person hired after the move to North Carolina was a spirited young salesperson straight out of college by the name of Elise Ward (Rasmussen). The rest, as they say, is history. Elise not only remains with the company these many years later heading up global sales, but she is also the publisher of TR and one of the most recognizable characters in the industry, with too many accomplishments to count. She is only the second woman to serve as the master of the Worshipful Company of Tobacco Pipe Makers and Tobacco Blenders and is a serial founder, having launched or co-founded two other magazines, including TR’s sister publication, Vapor Voice, as well as Women in Tobacco, an organization with more than 500 members that has given voice and appreciation to the women within an industry once solely dominated by men.

    Elise’s biggest contribution to the industry’s intellectual discourse, however, has been the creation of the Global Tobacco and Nicotine Forum (GTNF). Since its inaugural gathering in Rio de Janeiro in 2008, the GTNF has evolved into the nicotine business’ single most important discussion forum, bringing together not only industry executives but also senior regulators, policymakers and public health advocates to reflect on the sector’s challenges and opportunities.

    Same talent but greater ambition

    In 1996, Taco Tuinstra joined TR, and, with true Dutch wit—that being, it doesn’t come along often, but when it does, it is gold—he quips that he’s not sure if serving as a magazine’s editor-in-chief for nearly three decades should be a source of pride or an indictment on his lack of ambition. Jokes aside, Taco is one of the most respected journalists in the industry and a true believer in getting the story firsthand. He has visited more than 80 countries, including destinations that even the most adventurous tourist would be awestricken by.

    Taco has been to not only North Korea and Latin America’s tri-border region but also, in 2003, to the lawless area straddling Pakistan and Afghanistan, the place where at the end of the 19th century, a nearly equally talented but considerably more ambitious correspondent honed his craft, reporting on—and at times participating in—Britain’s bloody campaign against Pashtun tribesmen. Unlike Winston Churchill (who was featured with his signature cigar on TR’s February 1965 cover), Taco did not lay siege to his hosts, electing to talk tobacco with them instead. In fact, his sources welcomed him by noting that he was the first Western visitor to arrive in the region unarmed since the Sept. 11 attacks on the United States.

    Rounding out the award-winning editorial team are George Gay, who, with his keen sense of observation and sharp wit, has become one of the most authoritative tobacco commentators since he started reporting on the business in 1982; Stefanie Rossel, who is widely respected for her deep industry knowledge; and assistant editor Timothy Donahue, who in his 11 years has become a recognized expert on the vapor business, scoring, among many other scoops, an exclusive interview with the inventor of the e-cigarette, Herbert Gilbert. 

    These roving reporters, who you will likely have met in your fields, factories and at trade exhibitions over the years, are supported by a committed team of professionals in our Raleigh office: Marissa Dean has been instrumental in the exponential growth of TR’s website and digital offerings while graphic designer Dan Kurtz, eagle-eyed copyeditor Kailyn Warpole and all-everything Karen Pace are instrumental behind the scenes. Our most recent hire, Will Rasmussen, has been a stalwart at GTNF events for years and now gives his mother much-needed assistance.

    In print, online – and in person; industry events such as TABEXPO became an important part of Tobacco Reporter’s portfolio. (Photo: Taco Tuinstra)

    Our current lineup fits into a long tradition of hiring top talent. What industry veteran will not remember Ann Jeffries, Colleen Williams, Noel Morris, Kay O’Neill, Chris Glass, Brandy Brinson and Ann Crumpler, to name just a few of the stars whose names have graced TR business cards over the years?

    Of all the evolutions we’ve seen in the publishing industry over these 150 years, most of the biggest changes have been triggered by how readers wanted to consume their information. The internet revolution driving everything online was clearly the biggest, but another popular trend came with in-person events. Trade shows became an important part of the business world, and many magazines in all industries began hosting them as a new way to engage with their readers, and TR was no exception. Too often, companies attended such events more out of obligation than desire, though, and sensing stress within the tobacco industry because of numerous small shows, TR owner Dayton Matlick and his staff set out to create the ultimate industry show, painstakingly traveling around the world and interviewing the stakeholders to see what they actually wanted, with the mantra that we serve ourselves best by serving our customers first. In 1994, TabExpo was born under the TR umbrella, and to this day is the “must-attend” trade show for the industry.

    Tobacco Reporter’s most recent chapter began in 2020 when it was purchased by TMA, a match that has propelled both organizations to new heights. Founded in 1915 as an industry trade association, TMA is a member-driven, nonprofit source of information and analysis that empowers ideas as well as assembles stakeholders to discuss and debate tobacco and nicotine matters. Together, TR and TMA have strengthened one another to the benefit of the industry, offering daily news, financial projections, market research, business insights, company profiles, governmental coverage, virtual seminars, in-person forums and the in-depth, long-form articles that have made the magazine the unquestioned leader in the industry for the last century and a half. It’s hard to believe, but now, under the leadership of TMA, the publication that has such a rich and impressive past has an even brighter future.

    Here’s to the next 150 years!

  • Turning Up the Heat

    Turning Up the Heat

    Photo: KKF

    Heated-tobacco products continue to gain momentum, although consumption patterns are shifting.

    By Stefanie Rossel

    Heated-tobacco products (HTPs) continue to make inroads worldwide. According to Euromonitor International, the market reached $35.2 billion in 2023, up from $31.5 billion in 2022. The company expects sales to grow to $40.6 billion in 2024. Expansion continues apace. At its 2023 Investor Day in September, Philip Morris International announced that it would launch its IQOS Iluma in four yet-to-be-named U.S. cities this year.

    With almost 30 million adult smokers, the U.S. is believed to offer significant opportunities for HTPs. Euromonitor projects the U.S. consumables market to reach 15.3 billion sticks by 2027. In its September 2023 financial estimate, PMI said it was aiming to capture 10 percent, or 18 billion units, of the U.S. combustible cigarette market within five years after an IQOS Iluma launch.

    “In value terms, HTP will be one of the fastest-growing legal RRP [reduced-risk product] categories,” says Shane MacGuill, Euromonitor’s head of nicotine and cannabis research. He bases his prediction on the experience of other markets where HTPs have been successful. “These are markets with a higher disposable income, a still relatively robust smoking population and strong affordability within the cigarette category, as IQOS is a premium product,” says MacGuill. “Manufacturers can communicate around tobacco and nicotine products, thus managing expectations around the HTP. Many of those factors apply in the U.S., but obviously in particular if PMI got modified-risk approval from the Food and Drug Administration; this would give them advantages for their messaging about IQOS.”

    MacGuill also sees potential for HTPs in the U.S. cannabis space. “We do see heated cannabis consumables that effectively target the IQOS device just beginning to emerge, although this is still a tiny aspect of the cannabis landscape,” he says.

    There is, however, a lack of consensus in the nicotine industry about the immediate future of HTPs in the U.S., according to MacGuill. “A major vape manufacturer we talked to said the HTP category would be almost nothing in the next five years because of regulatory issues, such as how long it will take to get premarket tobacco product application (PMTA) approval,” he says. “If you speak to peers of PMI, there are concerns that PMI could grow the category very significantly in the U.S., leaving no space in terms of revenue and recognition for everyone else.”

    Photo: vfhnb12

    Waiting for FDA Approval

    The upcoming launch will be PMI’s second attempt to establish IQOS in the U.S. In April 2019, the company assigned the exclusive commercialization rights of the brand to Altria, which then launched IQOS in Atlanta and Richmond with more than 100 dedicated salespeople. Heat sticks were sold in 500 stores. One-and-a-half years later, IQOS was available in Georgia, Virginia, North Carolina and South Carolina.

    However, plans for further commercialization were interrupted when the International Trade Commission (ITC) upheld a claim by BAT that IQOS products infringed two of its patents. In September 2021, the ITC issued an order preventing Philip Morris and Altria from importing and selling the infringing products, IQOS models 2.4, 3 and 3 Duo and their respective heat sticks.

    In July 2020, the U.S. Food and Drug Administration authorized PMI to make modified-risk claims for its IQOS model 2.4; in March 2022, it allowed modified-risk claims for the IQOS model 3. In October of that year, PMI agreed to pay Altria $2.7 billion to reclaim the U.S. commercialization rights for IQOS as of April 30, 2024.

    The dispute with BAT was solved only in February 2024, when PMI and BAT reached a global settlement resolving all ongoing patent infringement litigation between the parties related to the companies’ HTP and vapor products. Besides dismissing all pending patent infringement cases, the nonmonetary settlement also prevents future claims against current products.

    While the agreement includes a provision to request the lifting of the IQOS sales and import ban, PMI’s focus for the launch of IQOS in the U.S. will remain on its Iluma model, for which it submitted PMTAs and modified-risk tobacco product applications to the FDA in October 2023.

    However, PMI has scaled back its original launch plans in the meantime: At the 2024 CAGNY Consumer Conference in February, the company revealed that only one city test was planned in the second quarter of 2024, with a larger scale introduction postponed to the second half of 2025 or later. The decision can be explained with the FDA’s slow reviewing process. Product authorization is the prerequisite for major geographic expansion and an increase in commercial investment, but the FDA is struggling with a substantial backlog in product reviews (see “System Overload,” Tobacco Reporter, March 2023). According to Tobacco Insider, it could take 18 months to 24 months for IQOS Iluma, which comes with a fundamentally different heating system than its predecessors and contains numerous technological improvements, to get authorization. “Thereby, IQOS will have a meaningful presence in the USA (i.e., reaching to at least half of the U.S. smoker base) only in 2027 or later […],” the platform writes on its website.

    Nonetheless, PMI will enjoy a significant head start over its competitors. According to MacGuill, it will be important for BAT to enter this category in the U.S. as soon as possible. Globally, PMI estimated the number of IQOS users at approximately 28.6 million at the end of 2023, up by 3.7 million versus December 2022. BAT thinks there are about 8.8 million users of its Glo HTP device worldwide.

    Italy Catches Up

    With an estimated market value of $11.13 billion in 2023, according to Euromonitor, Japan remains by far the leading market for HTPs. But the market appears to have plateaued; its value is expected to reach $11.23 billion in 2024. A similar trend can be detected in South Korea, where the market value of HTPs climbed from $2.19 billion in 2022 to $2.24 billion last year. For 2024, the market is anticipated to be worth $2.45 billion. According to Euromonitor, in 2022, South Korea ranked third behind Italy in the global HTP league. In 2024, it is expected to fall to fourth place, behind Germany. Russia, too, is a large HTP market, but data has become elusive since that country invaded Ukraine. The most recent figures, presented at last year’s InterTabac exhibition in Dortmund, valued Russia’s HTP market at $3.2 billion.

    As Japan’s and South Korea’s HTP markets reach maturity, price competition is increasing, according to MacGuill. “Consumers are experimenting with other brands, trying other devices, while manufacturers are subsidizing devices,” he says. “It’s the natural circle of the mature market to have rapid growth and then a plateau. However, the trend for HTP markets in general is that growth is likely to return with triggers such as price. There is no ceiling.”

    The dynamics in Italy are similar, according to MacGuill. Its HTP market value has grown from $4.07 billion in 2022 to an estimated $5.18 billion last year and is expected to reach $6.51 billion in 2024, boosted by an increasing offer of devices at lower price ranges that drive product adoption. As in Germany, where the retail value of HTPs has increased from $1.96 billion in 2022 to an estimated $2.47 billion in 2023 and is anticipated to reach $2.98 billion this year, MacGuill expects the Italian HTP market to continue to grow, albeit at a slower pace than in Japan when IQOS first hit the market 10 years ago. In Japan, HTPs benefited from higher consumer incomes and consumers’ general enthusiasm for new products, among other factors. “In the two European countries, we don’t have that combination in the same way,” says MacGuill. Italy, he says, was also increasing cigarette taxes at the time when HTPs were introduced.

    Globally, the HTP category is characterized by geographical diversification and an intensification of use. “Frequency of consumption plays an important role,” says McGuill. “In most markets, daily users represent the biggest proportion of consumers. In Italy, 73 percent of cigarette consumers smoke daily whereas 67 percent use HTPs, which is close and experiences volume progression. When there is a lot of experimentation, such as use on a weekly basis, then this will have a magnifying effect on volumes.”

    Most notably, geographical expansion is expected in Jordan, Lebanon, Egypt and Singapore. “The further down the average income table, the softer the potential for HTPs gets—also the further east you go,” says McGuill. “Here, technology development that gets the price down for HTPs is needed. In these regions of the world, affordability will be the main driver.”

    Opening Up New Possibilities

    Regarding regulation of HTPs, MacGuill expects an alignment with the cigarette category in many markets, particularly in terms of public consumption restrictions and excise tax. This, he says, will bring the price of heat sticks closer to that of cigarettes, dulling the incentive to switch.

    Herbal consumables will be an interesting segment. “It allows manufacturers to avoid the excise and regulatory hurdles,” says MacGuill. “However, regulators will move much more quickly and follow through with regulation and action. And herbal sticks could become a victim of their own success as there’s only so much rooibos tea in the world. So the security of supply might become questionable in some markets.”

    Herbal consumables democratize the category, according to MacGuill, because small manufacturers won’t have to compete with the established players for leaf tobacco. “We already see smaller brands in the space with apparent success,” he says. “The segment won’t go anywhere near a point where it’s as fragmented as the vape market, but it will be interesting to see whether the tobacco industry will push for some regulation because they want responsible players and not what we have seen in disposable vapes.”

    For tobacco companies, herbal heat sticks may pave the way for products in other areas, such as cannabis. “For BAT, for instance, which owns cannabis supplier Organigram, the next logical step could be to sell heated cannabinoid or CBD products,” says MacGuill.

    He is doubtful, however, that manufacturers would provide a combined nicotine-cannabis product. “From a regulatory perspective, manufacturers are quite keen to keep these two spaces apart,” he says.

    New heating technologies for devices, MacGuill stresses, will be successful only if they offer consumers a benefit. “This could be a meaningful difference to user experience, enhanced efficacy of the product or increased harm reduction at the higher end of the market, or a technology that drives down price at the lower end,” he says.

    The most pressing task for public health and manufacturers alike, he concludes, will be to make HTPs more accessible to consumers in low-income and middle-income countries. Home to the lion’s share of the world’s smokers, it is in these markets that lower risk nicotine products can make the greatest contribution to reducing the public health impacts of smoking.

  • Mediocre Meeting

    Mediocre Meeting

    Image: Aleksandr Baiduk

    COP10 is unlikely to significantly accelerate progress toward the FCTC objectives.

    By Stefanie Rossel

    The scene could have been from a Monty Python movie. During the 10th session of the Conference of the Parties (COP10) to the World Health Organization Framework Convention on Tobacco Control (FCTC), authorities raided four hotels hosting tobacco harm reduction (THR) advocates, investigating reports of “T-shirts and pamphlets advertising harmful products,” according to Martin Cullip, International Fellow at the Taxpayers Protection Alliance’s (TPA) Consumer Center.

    “These turned out to be clothes worn by consumer advocates bearing their organization’s name and flyers politely addressing COP10 delegates and asking them to consider harm reduction,” he says. “It is shameful that Panama considers materials expressing the right to free speech and democratic engagement to be a criminal matter.”

    Concurrent with COP10, Cullip co-organized the TPA’s “Good COP” (“Conference of the People”) counter-conference at the Central Hotel Panama. The event was livestreamed and featured almost two dozen tobacco harm reduction experts representing 14 different countries. With their presentations, they said that they were holding the WHO accountable for denying “lifesaving access to tobacco harm reduction products” and denying the public and media access to the COP meetings.

    “We know that the WHO were aware of our event as it was mentioned in webinars by Corporate Accountability, the University of Bath and the Network for Accountability of Tobacco Transnationals,” says Cullip. “It is also included in a page on COP10 interference at Tobacco Tactics [a knowledge exchange platform monitoring the tobacco industry’s activities]. One purpose of the event was to get the WHO’s attention, so we are thrilled to have achieved that. There were no attempts to stop our event, but we were visited by an inquisitive group from Vital Strategies, and a couple of delegates ventured away from the conference to have a snoop around our hotel.”

    While the “Good COP” organizers did not interact with any COP10 delegates, consumer representatives who attempted to go to the Convention Center in the hope of having a discussion were stopped. “Journalists approached WHO front groups ‘protesting’ outside the building but were told that only FCTC-accredited media would be spoken to,” says Cullip.

    Another Private Function

    Stakeholders such as consumers and tobacco growers struggled to be heard in Panama. (Pamphlet courtesy of Martin Cullip)

    COP10 was business as usual in many ways. As in past events, the conference managed to maintain its secrecy. Media representatives were cherry-picked in an accreditation process that denied access to anyone who doesn’t share the WHO’s idea of tobacco control. But even the Chosen Ones were thrown out after the delegates voted on Day 1 to exclude the press. Nongovernmental organizations (NGOs) wishing to take part had to pass a similar test of faith while consumers who have successfully quit smoking with the help of reduced-risk products were banned from sharing their experiences.

    The absence of dissenting voices allowed delegates to spread misinformation uncontested, as in the estimate of the area of land cleared for tobacco cultivation every year. It also allowed them to shame states for THR-friendly policies. The Philippines, for example, received an “Ashtray Award” for its “brazen use of tobacco industry tactics of obstinate dispute and delay throughout the COP.” Without outside scrutiny, the delegates could also conveniently ignore scientific evidence from studies not commissioned by the WHO or its financial supporters led by Bloomberg Philanthropies.

    In such a climate, only a few delegations had the courage to use the short progress statements during the opening plenary to discuss their countries’ positive experience with novel nicotine products. New Zealand was the only party to point out how the implementation of a differentiated, evidence-based regulatory framework that includes reduced-risk products (RRPs) had contributed to significantly reduced daily smoking rates.

    Most other country statements were disappointing, according to Cullip. “Canada made no mention whatsoever of harm reduction, and the U.K. were too timid to even mention the ‘Swap to Stop’ campaign, which is a central plank of the U.K.’s efforts toward the country’s Smoke-Free 2030 goal and is always mentioned in parliamentary question answers on the subject,” he says. “One can only assume they were scared of upsetting the FCTC Secretariat, so they chose not to rock the boat. There is also a suspicion that the U.K. announced its ban on disposable vapes, plain packaging and restrictions on flavors just a week before deliberately so they would be looked on favorably by the WHO.”

    Armenia, El Salvador, Guatemala and the Philippines were among the few parties to mention THR at the conference. They called for a serious and evidence-based discourse on novel tobacco products, stressing the need to consider alternative methods of reducing the health impacts of smoking. The Philippines, whose regulatory framework has recognized the role of RRPs since 2022, cited FCTC Article 1(d), which stipulates that harm reduction is one of the pillars of tobacco control.

    “There were signs at COP10 that some countries are softening on harm reduction, and quite a few made country statements referring to THR or voicing the opinion that the WHO should recognize the potential,” says Cullip. “During the proceedings, some parties also questioned the quality of reports presented by the FCTC for COP10. I had the impression that some delegations realize that the genie is out of the bottle on reduced-risk nicotine products and [that] it’s best to recognize that and accommodate them in tobacco control policies instead of banning them, which is unrealistic and futile.”

    There were signs at COP10 that some countries are softening on harm reduction, and quite a few made country statements referring to THR or voicing the opinion that the WHO should recognize the potential.

    Debate Postponed

    In line with the agenda, COP10 delegates debated novel nicotine products but without making decisions. Discussion on FCTC Articles 9 and 10, which deal with the testing and measuring of tobacco products’ contents and emissions, and the disclosure of such information, went on for the full length of the conference without achieving consensus. Cullip views this as a positive development. “It is good for consumers and public health that the wild proposals contained in COP10 reports on Article 9 and [Article] 10 did not gain any traction at COP10,” he says.

    St. Kitts and Nevis urged the FCTC Secretariat to form a working group to discuss harm reduction and to define it under the terms of Article 1(d). “This is the first time that any meaningful discussion has taken place on that part of the treaty, so it is quite significant,” says Cullip. “A working group is open to all parties to the treaty to take part in whereas an expert group is populated by cherry-picked NGOs and ‘experts’ appointed by the FCTC Secretariat and Bureau.

    “The WHO wanted an expert group set up to discuss Articles 9 and 10 to replace the previous working group, which was suspended in 2018 at COP8. Parties had been surveyed in 2020 and 2021 about the fate of the working group, and a majority, both times, were in favor of reactivating it. However, their wish was ignored, and the WHO proposed setting up an expert group regardless. It tends to explain why parties could not come to a consensus, and the St. Kitts proposal just added to the disagreement.”

    THR proponents had asked for a working group in the run-up to COP10, but so far to no avail. “There is still no formal confirmation of the decision, let alone its scope of work, objectives, criteria or membership,” says Delon Human, president and CEO of Health Diplomats and co-author of a COP10 scorecard report that measures the progress in achieving the FCTC objectives. “However, WHO’s silence on this issue should not overshadow the importance of member states finally beginning to ask the right questions,” Human notes.

    Derek Yach, who as a WHO cabinet director and executive director was heavily involved in the creation of the FCTC two decades ago, hopes that the FCTC Secretariat will look back at the way it held broad consultations with industry scientists in the years leading to the adoption of the treaty. While a draft decision requires parties to review and update the evidence and science related to tobacco harm reduction by COP11, the text, according to Yach, suggests that the proposer has prejudged the outcome.

    “It highlights ‘the need to be informed about activities of the tobacco industry that have a negative impact on tobacco control,’” says Yach, who is also the lead author of the COP10 scorecard. “Never once does the decision hint at possible positive effects of THR on tobacco use and its ultimate effect on health. Further, the decision reverts to outdated science when discussing tobacco cessation. Use of the terms ‘concern,’ ‘caution’ and ‘challenges’ all portray THR in a negative light. If this decision is adopted, it may hamper a needed open scientific debate about benefits at a time when these become clearer and stronger with new major publications.”

    The world of tobacco control and THR has changed dramatically since [2003], which is unfortunately not reflected in the interpretation, development and implementation of FCTC guidelines.

    No Significant Effect Anticipated

    The COP10 scorecard was shared with all COP10 delegates and a host of non-state THR stakeholders, according to Human. The responses received by non-state actors such as NGOs or public health advocates were mainly positive, he notes, while state actors only acknowledged receipt. The report assessed progress made by the parties to the FCTC in six sections. Trends in tobacco use and impact was rated an E-, commitments, resolutions and pledges received a B+ and implementation of resolutions a D-. In the three other sections, the FCTC got poor marks too.

    Measured against the findings of the scorecard, COP10 didn’t fare well, according to Human. “The most disappointing aspect of COP10 was the ongoing nonrecognition of THR as an integral part of tobacco control as stated in Article 1(d) of the FCTC,” he says. “Therefore, the ‘fail’ grade for not embracing THR was perpetuated. This is […] a failure to prevent unnecessary tobacco-related disease, disability and premature deaths.”

    Furthermore, the “fail” marks for neglecting THR research priorities and capacity-building in low-income and middle-income countries were validated not only by nonaction but accentuated by the ongoing exclusion of key stakeholders, Human points out. “We scored the lack of stakeholder engagement as a ‘fail’ beforehand, and unfortunately, the COP10 exclusionary behavior confirmed the ‘fail,’” he says. “FCTC’s Article 5.3 requires parties to protect the implementation of their public health policies against the commercial and vested interests of the tobacco industry. Yet this is impossible when many of the same countries are also striving to generate revenue from state-owned tobacco entities.”

    Globally, 18 governments own 10 percent or more of at least one tobacco company. This is likely to interfere with at least one of the decisions referenced in COP10’s Panama Declaration: the creation of a working group to deal with Article 19, which nations can use to hold the tobacco industry liable for people’s health and the environment. The article was repeatedly discussed in previous COP meetings, says Human.

    “The expert group which has been established will be made up of lawyers from various countries, with experience of holding tobacco companies accountable. At COP6, the expert group on Article 19 presented a comprehensive report on civil liability for the tobacco industry, and at COP7, it presented an online Civil Liability Toolkit. Whether this leads to a flurry of lawsuits after COP10 remains to be seen. The technical guidance needs to be backed up by political will in countries. Tobacco companies remain one of the most effective tax collectors for countries, so the most likely outcome will be prolonged discussions followed by minimal action,” says Human.

    Human feels encouraged by the COP10’s decision to set up another expert group to work on “forward-looking control measures” under Article 2.1, which encourages governments to implement measures beyond those required by the FCTC. “The world of tobacco control and THR has changed dramatically since [2003], which is unfortunately not reflected in the interpretation, development and implementation of FCTC guidelines,” he says.

    “Article 2.1 might offer hope in that it could guide the COP to better translate new information, science, products and consumer experience into actions. As a starting point, our hope is that the workgroup would review current peer-reviewed literature on the effectiveness of noncombustible nicotine alternatives such as ENDS [electronic nicotine-delivery systems] to facilitate and accelerate cessation. Then it could play a role in balancing the COP focus to consider supply side measures in equal weight to the current focus on reducing demand for tobacco products.”

    For Human, the recent COP’s decision to strengthen language around Article 18, which urges parties to take account of the environmental impacts arising from the cultivation, manufacture and consumption of tobacco products as well as the waste they create, is positive, as it will help integrate tobacco control policy with those protecting the environment. “For example, it will improve policy coherence between the FCTC and national and international treaties, like the Intergovernmental Negotiating Committee on Plastic Pollution, aimed at addressing hazard waste from tobacco products, including cigarette butts,” he says.

    “Another positive outcome could be an acceleration of identifying and promoting economically viable and sustainable agricultural alternatives to tobacco growing. All in all, it should strengthen implementation of the FCTC.”

    Human is less optimistic that the decisions taken at the event will contribute to accelerating the decline of global tobacco consumption. “Based on the mediocre decline in tobacco consumption facilitated by COP1 to COP10 and the inability of parties to fully embrace harm reduction strategies, science, products and methods, no significant declines are expected.”

  • The Virtue in Vice

    The Virtue in Vice

    Photo: kohanova1991

    Vice Ventures has carved out a niche investing in good companies in “bad” industries.

    By Stefanie Rossel

    For startups in the reduced-risk nicotine product business, raising money can be an almost insurmountable hurdle. In addition to the typical challenges faced by new enterprises, they must cope with unfavorable perceptions: Due to the tobacco industry’s controversial legacy, any company associated with the sector—however remotely—continues to carry a stigma in the eyes of many. For some venture capital funds, this makes investment in such companies a no-go. Many of them even have specific clauses prohibiting investments in “bad” businesses.

    Venture capitalist Catharine Dockery repeatedly ran into this issue when pitching her investments in the late 2010s. With the possibility of recession looming on the horizon, she was convinced that the best way to earn a return on capital was to invest in “vice” brands, with companies such as Altria Group and Diageo historically outperforming others in times of economic hardship. Yet many of the investment firms she applied to had provisions blocking such investments.

    Getting nowhere with established firms, Dockery in 2018 established Vice Ventures, a financial firm without inhibitions about investing in so-called sin industries. Remarkably, many of the fund managers who had rejected her strategies due to their employers’ restrictions ended up investing in Vice Ventures with their personal money, endorsing the validity of her approach.

    The venture capital firm started with a $25 million fund, raising money from family offices and high-profile investors like Marc Andreessen and Bradley Tusk. It was followed by a second fund of the same size last year. In 2020, Forbes recognized Dockery in its “30 Under 30” ranking, an index that recognizes notable young entrepreneurs in various industries.

    While Vice Ventures invests in companies catering to vices, such as alcohol, cannabis and nicotine, it takes a sober, analytical approach. By selecting good companies—those that have the power to grow explosively without hurting people—in a bad environment, Dockery says she is looking for “the virtue in the vice.”

    “We’re focused on finding responsible operators in categories where other funds often won’t get involved,” she explains. “We see nuance in this space in the sense relative to the typical fund view of entirely black or white by category.”

    Dockery is convinced that vice startups, and by extension vice investors, can generate returns while still being mindful of the social good. The reputational problems of the sector stem from the tobacco industry’s past behavior. The big tobacco firms, for example, spent years downplaying the risks of smoking. Even though many of them have changed their conduct, that legacy still taints the sector today. Dockery detects a double standard, though, noting that investors who object to tobacco may have no qualms about funding companies that have contributed to and covered up the impact of climate change, for example.

    “Our most important criterion for evaluation is legality and feasibility of the business plan.”

    Ethical Investments

    Dockery spent much time determining how morals would influence her strategy and then developed some rules to guide her decisions. Good investments, she argues, have founders and leaders who are ethical and honest. Good vice products, meanwhile, are created for, marketed to and consumed by consenting, responsible and understanding adults who have power over their decisions. According to Dockery, good vice companies care about their customers and have real-world expectations for their behavior while good vice products inform users how consumption may affect them.

    Evaluated against these criteria, investing in reduced-harm nicotine products, with cigarettes killing over 480,000 Americans each year, according to health groups, is a logical and ethical step. “There is significant research suggesting that having flavored recreational options available to adult smokers is a useful public health tool,” says Dockery. “Vice Ventures is quite active in investing in early-stage nicotine companies, including both recreational products that require premarket tobacco product application (PMTA) approval and nicotine-replacement therapy (NRT).”

    The first startup Vice Ventures financed in the nicotine sector was Lucy Goods, a Nevada-based manufacturer of recreational and NRT oral nicotine products. Lucy Gums, the company’s nonmedical flagship product, is advertised as an upgraded version of the classic nicotine gum, coming with “stronger flavors, better texture and packaging you don’t have to be a rocket scientist to open.”

    A behavioral study, published in Harm Reduction Journal in January, concluded that Lucy Gums helped prevent nicotine cravings among participants, did not appear to attract those who never used tobacco products and had low potential to promote nicotine relapse among former tobacco users. Results suggested minimal appeal to youth, and there was no evidence that Lucy Gum flavors appealed more to young adults than to older adults. “The fact that Lucy appeals to people who smoke, regardless of their intent to quit smoking, highlights the potential of Lucy to reach more adult tobacco users than medicinal NRT products and to facilitate their transition to less harmful alternatives,” said Lucy Goods’ co-founder and CEO, David Renteln. With a 0.3 percent reduction in population-level smoking rate projected for a 2.3 percent quitting rate, current smoking cessation methods show limited effectiveness.

    “While not a cessation product, Lucy is positioned in a crucial middle ground, targeting nicotine users who want to address the harms of consumption, consume nicotine in new and enjoyable ways, and potentially, in the future, work toward reducing consumption,” Dockery says. In May 2022, Lucy Goods submitted PMTAs for 42 nicotine products.

    Vice Ventures also led the financing of Qnovia’s Series A funding in 2022. The Richmond, Virginia-based startup raised $17 million, which it said it would use to move forward an investigational new drug submission to the U.S. Food and Drug Administration and begin human clinical trials for its NRT drug candidate.

    Qnovia has developed RespiRx, a handheld, pocket-size atomizer capable of producing vapor without heat, which the company hopes will become the first FDA-approved, prescription-only inhalable NRT solution (see “High-Tech Quitting,” Tobacco Reporter, March 2023). In late 2023, trial results showed that the drug delivery platform had an “exceptional” pharmacokinetic profile compared to existing NRTs.

    Qnovia claims it has the potential to fill the void for more effective pharmacotherapies and NRTs, as traditional treatments fail to deliver nicotine rapidly, which is crucial when trying to alleviate withdrawal symptoms.

    Chicago-based Black Buffalo, another company partially funded by Vice Ventures, has created a moist smokeless tobacco alternative based on nicotine-infused edible leaves from the cabbage family. According to Black Buffalo, the leaves’ properties are similar to those of tobacco in terms of texture, aroma, color and flavor. While smokeless tobacco products, such as dip, snuff and chewing tobacco, remain popular in the U.S., with sales reaching $4.98 billion in 2022, according to the Federal Trade Commission, societal attitudes toward oral nicotine use have been shifting. Black Buffalo’s products are aimed at moist smokeless tobacco consumers migrating away from traditional tobacco products.

    Focus on Harm Reduction

    So what does it take for a nicotine startup to successfully pitch with Vice Ventures? “Our first, most important criterion for evaluation is legality and feasibility of the business plan,” says Dockery. “Nicotine companies often face exceptionally long regulatory timelines and complex regulations, so we need to feel confident that the management team can navigate that landscape.”

    While Vice Ventures tends to evaluate companies on an individual basis rather than a category basis, it is especially focused on the concept of harm. “There is a myriad of ways a product can cause harm to the consumer or society, regardless of the company involved,” says Dockery.

    There are also characteristics that exclude contenders. “We frequently receive pitches for products, especially in nicotine, that are planning to operate in ways that don’t meet our investment criteria,” says Dockery. For example, Vice Ventures is uninterested in the delta-8-tetrahydrocannabinol (THC) products that have rapidly gained popularity following the passage of the 2018 U.S. Farm Bill, which legalized industrial hemp with THC levels below 0.3 percent dry weight. The fact that delta-8 products exploit a regulatory loophole has prompted Vice Ventures to stay away from the sector.

    Due to the regulatory landscape, nicotine is a bit of specialty sector in Vice Ventures’ broad portfolio. According to Dockery, convincing investors depends to a large extent on the person. “We have a track record of approaching this field in a very responsible way, which helps a lot,” she says. “Professional investors often engage with our fund the most readily because they understand the opportunity we’re working to capitalize on. Many of our fund investors are passionate co-investors, so they are frequently involved alongside the fund in our investments.

    “Outside of Vice Ventures, co-investors largely depend on the sector we’re investing in. For some of our more regulatory-intensive categories like nicotine, we often see private and high-net-worth investors instead of funds involved in early stages of companies.”

    Over the next five years, Dockery plans to continue growing the fund’s scale and reach. With the $25 million fund closed last year, the company is looking to develop approximately 30 best-in-class early-stage domestic and international companies in various vice industries. “We’re already a well-known partner for early-stage capital in our verticals, and there is natural room to grow over time,” she says. “Venture capital represents one of the most niche areas of the investment market, and our position as an early-stage partner will set us up for unique long-term relationships with top startups.”

  • Russian Resolve

    Russian Resolve

    The Chestny ZNAK system tracks items from production to real-time sales. | Photo: CRPT

    A supplier of product labeling solutions claims its technology had helped shrink the Russian illicit cigarette market by a quarter.

    By Marissa Dean

    The black market and illicit trade are hot topics. Confronted with ever-rising taxes, consumers of tobacco products in many markets are increasingly tempted by more affordable black market offerings. Many places are adjusting and implementing technologies and processes to help curb black market trade. Russia is one of these areas, having recently been listed by the World Health Organization among the countries with policies providing the highest level of protection for its citizens from tobacco.

    During a side event at the third Meeting of the Parties (MOP3) to the Protocol to Eliminate Illicit Trade in Tobacco Products, officials gave a presentation on Russia’s Chestny ZNAK track-and-trace system. The event, which took place on Feb. 13 in Panama, was aimed at familiarizing the parties “with proven approaches to ensuring traceability of tobacco products in accordance with Article 8 of the protocol,” according to Revaz Yusupov, deputy general director for the Center for Research in Perspective Technologies (CRPT) in Moscow. “Special attention during the presentations was given to the impact of the system on reducing the illicit tobacco trade in Russia. Representatives from Nigeria, Brazil and Panama were present at the event, facilitating discussions on the potential implementation of the system in their respective countries.”

    Introduced by the CRPT in 2019, the Chestny ZNAK system tracks items from production to real-time sales. According to Yusupov, the system is the first of its kind globally. “The fundamental approach involves assigning a unique digital data matrix code to each product,” explained Yusupov. “This code undergoes scanning at every stage, spanning from production to sale. The entire product journey is traced through electronic document management and online cash registers, mandated by law across the country.”

    Products with the assigned digital codes are deemed legal, complying with all requisites and documentation. Attempting to illegally introduce goods into the Russian market without proper documentation and labeling is “impractical,” according to the CRPT, because of the success of the Chestny ZNAK system—the digital codes are safeguarded by cryptographic protection, which makes forgery impossible.

    The information about the products within the system is tamper-proof as well, according to the CRPT, and the system blocks the sale of expired goods or goods lacking proper documentation. Currently, 667,000 companies and individual entrepreneurs use the system, which boasts a processing capacity exceeding 350,000 operations per second (“surpassing that of Uber or Netflix,” said Yusupov) and a data volume of nearly 100 petabytes.

    The Chestny ZNAK system isn’t specifically for tobacco products, though it has been successful in curbing the illicit tobacco market. The system can be used across goods, and it has been implemented in 16 categories of goods, including dairy products, water, clothing, footwear, perfumes, tobacco, medicines, beer and low-alcohol beverages, biologically active additives, antiseptics, medical products, soft drinks and juices, wheelchairs and children’s water, according to the CRPT. When asked about how the system works across goods, Yusupov stated that “The implementation process kicks off with pilot tests for each product category. While participation is not mandatory, it is in the business’ interest as it provides an opportunity to prepare equipment and practice with free Data Matrix codes. Workgroups are formed, comprising representatives from both the business sector and the system operator. Collaboratively, they develop a labeling concept that aligns with the unique requirements of each area within the circulation of goods.”

    And the system has been quite successful, according to its manufacturer. “Before the introduction of labeling,” said Yusupov, “the illegal tobacco market in Russia consistently grew, surpassing 15.6 percent by 2019. Following the implementation of labeling, it decreased by a quarter, with 18 productions legalized and 45 illegal ones shut down. Authorities claim that the combined impact of cracking down on illegal trade resulted in RUB245 billion ($2.7 billion) in increased tax revenues.”

    By the end of 2025, it’s estimated that the overall economic impact will reach RUB1.6 trillion ($17.6 billion).

    In addition to the Chestny ZNAK system, Russia has also enacted a law to systematize control over the circulation of tobacco raw materials and equipment through the licensing institute along with the establishment of an authorized government body for supervision. This government body has instituted a system for registration of equipment. Requirements have also been introduced for tracking the volume of production and circulation of tobacco products and raw materials and for the seizure and destruction of illegal tobacco products and the associated manufacturing equipment, and customs and border authorities have been granted additional powers in regard to illicit trade. Administrative and criminal liability are enforced for a broad range of violations related to mandatory product labeling requirements, including smuggling, production, introduction into circulation and transportation of unmarked goods. There are also quantitative restrictions on the movement of individuals within the territory of the Russian Federation with unmarked tobacco and nicotine-containing products. All of these reforms in combination with the Chestny ZNAK system have led to Russia’s success in curbing illicit trade, according to the CRPT.

  • Thriving Against the Odds

    Thriving Against the Odds

    Image: K

    Pondering the industry’s remarkable longevity as Tobacco Reporter celebrates its 150th anniversary.

    By George Gay

    Longevity is good, right? Most people probably want to live longer, or, out of fear, postpone death—at least until tomorrow. And, until quite recently, average life expectancy had been generally increasing and allowing most of us to outlive previous predictions. For instance, if I had lived to the average age predicted for people born in the year that I was born, I would have been dead about a dozen years ago. But, based on current predictions, I still have until the end of June this year—according to my calculations, June 29, to be precise.

    This makes me wonder what tobacco control people might mean when they declare that a smoker died “prematurely.” What standard are they comparing the smoker’s lifespan against? We aren’t born stamped with sell-by dates.

    I started to wonder about such matters when, in this, the 150th year of Tobacco Reporter, I was asked to write about longevity as it relates to the tobacco industry, and it occurred to me that there must be some relationship between the longevity of people, companies and industries, though I imagine that relationship is complex and becoming more so given the march of robotics, artificial intelligence and environmental breakdown. The pharmaceutical industry, for instance, is a product of people while the increasing longevity of those people is largely down to the drugs and other medical interventions developed by the industry, whose longevity, therefore, seems to be assured.

    A Hardy Lot

    But the longevity of the tobacco industry raises different issues because it is said to be “killing” the smokers who are its main customers, so the question arises as to why the industry has managed to survive and even thrive, especially during the past six decades or so when the risks of smoking have become widely known and the industry has had ranged against it governments, a huge tobacco control industry and much of the media.

    But let’s start with another, related question. Why have smokers continued with their habit in the face of massive disincentives? After all, the consumption of cigarettes has generally been described during the past six decades as everything from risky to deadly. Such consumption is said to constitute an addiction and to cause poverty and multiple diseases that “kill” about half or two-thirds of cigarette smokers, along with nonsmokers, a toll amounting to about 1 million lives a year and predicted to reach 1 billion during this century. It is said to be the major cause of “premature” and even “preventable” deaths worldwide and to cost societies much more than it contributes, both financially and emotionally. Carelessly discarded cigarettes and butts are blamed for fires and significant environmental damage while tobacco products have been degraded through regulation, and smoke is said to discolor and make everything it touches smelly. Smoking, and therefore smokers, have been “denormalized,” and, to cap it all, cigarettes are said by some to have no inherent value.

    And yet 1 billion smokers continue to smoke, and nonsmokers continue to take up smoking. Why? Is an eighth of the world’s population insane? Are these people recklessly obstinate, or do they not believe, or choose not to believe, the above? I don’t think so. I think the cause can be traced to tobacco control and the strategies that it has used, which have included the dissemination of misleading and ill-thought-out propaganda that has engendered in smokers a healthy skepticism. I don’t want to go through all of the questionable issues raised in the paragraph above, but it is worth pointing out that a lot of smokers would be rightly insulted by the claims that their smoking caused them to be poor and that cigarettes have no inherent value. In many cases, their impoverishment was caused by the life chances, or lack of them, they were handed at birth, and so cigarettes provide one of few pleasures available to them.

    And on that subject, it would be wrong to ignore the importance of the illegal trade in cigarettes in helping to keep smoking rates up in difficult times—in allowing smokers to continue with their habit when they cannot afford licit products. Governments, tobacco control and tobacco manufacturers have aligned to rail against this business, but once again, they have put forward some of the most crass and unconvincing arguments, blaming smokers but not those who impose taxes and price increases.

    Of course, tobacco control would claim that smoking continues because of nicotine addiction, though this cannot be a factor in nonsmokers taking up smoking. And it certainly cannot be the only reason because if it were, a type of automatic, generational stop-smoking system would kick in. In fact, I don’t believe that addiction is a very important factor, or at least it needn’t be. But, for whatever reasons, tobacco control has been at pains to medicalize smoking—to claim that smokers cannot quit without interventions by the medical profession working with the pharmaceutical industry or, more lately, with tobacco harm reduction advocates.

    And here we get a glimpse of why the tobacco industry—and many of the tobacco companies of which the industry is composed—has been so resilient in recent times: flexibility. With the launch of reduced-risk products, the aims of the industry in regard to cigarettes are in line with those of tobacco control, and even surpass them, I suspect, since it has a future beyond cigarettes whereas tobacco control has not. In other words, the tobacco industry has been subsumed, though not welcomed, into what has become the colossal tobacco control industry while still selling tobacco, mostly cigarettes. Some might call this sleight of hand rather than flexibility, but it has worked and does work.

    An Irrational World

    This is all well and good, but it doesn’t explain how the tobacco industry managed to survive and even prosper during the 50 years or so between the time when the risks of tobacco consumption loudly entered the public discourse and the time when the industry started out in the lower risk business. How can one explain why, when governments came to believe that huge numbers of lives and dollars were being lost to smoking, no serious, long-term attempt was ever made anywhere in the world to ban cigarette smoking?

    There is at least one powerful, specific reason for this, but firstly I think I should mention what I think is the most powerful general reason: the fact that we do not live in a rational world, something that gets forgotten and leads to much unnecessary anguish and disappointment. Remember, within the world of tobacco control, for instance, 5 percent equals no percent. And looking further afield, most of the damaging complaints leveled at the tobacco industry can also be leveled at other industries, including but not restricted to the alcohol, arms and automobile industries, and no serious, long-term efforts have ever been made to stop the sale of arms and automobiles nor the sale of alcohol in most of the world. I guess that if you are a glass-half-full sort of person, you might argue that there is a certain consistency to our irrationality, and perhaps that brings you comfort. Where this consistency breaks down, however, is in respect of the reactions to the damage caused by these products, which in the case of alcohol, arms and automobiles is largely to adopt a head-in-the-sand approach while in the case of tobacco, it is to heap opprobrium on smokers, tobacco companies and the industry.

    Why this discrimination? I’m running out of space here, so I shall have to answer that question briefly and perhaps without as much rigor as I would like to employ. The reason, in my view, is that many of those who govern us like to be driven around in big, polluting vehicles and are not adverse to touching the buttons in their arm rests to order the slaughter of innocent people, their own citizens and others, with technically advanced weaponry, but they are morally opposed to tobacco smoking. I should mention by way of explanation, perhaps, that they also like to drink.

    The Benefit of Bulk

    Beyond irrationality, the major reason why the tobacco industry was able to thrive was down to its size, the foundations of which were built up before the risks of smoking were widely known. Right from the start, it was able to acquire its raw materials at favorable rates while being able to increase the prices of the products made from that tobacco. It could afford the best scientists and lobbyists to support its causes, it could afford the best lawyers to defend it when needed and, anyway, the cost of any fines that were imposed could be passed onto smokers. Extraordinarily, even when the tobacco manufacturers went from denial to admitting that their products caused harm, there was little change.

    Crucially, its size meant that for a long time, the industry was able to argue that even if its products were harming smokers, it was providing work across the world, from the tobacco fields to the boardrooms. Millions were employed growing, selling, processing, transporting and manufacturing tobacco. And many others were employed in the businesses that fed into these activities, and others still in the wholesale, retail and advertising sectors.

    And even when the employment argument started to unwind in the face of such developments as wholesale company consolidations, globalization, the introduction of new technologies into tobacco fields and factories, and the ending of tobacco advertising and promotions, little changed because governments were hooked on tobacco taxes, and it was a lot easier and less costly not to rock the boat—to collect those taxes from two or three big, efficient manufacturers than from multiple small-sized and medium-sized players. It was another case where the manufacturers were able to align themselves with those who supposedly opposed them. It wasn’t and isn’t a loving relationship, more a marriage of convenience, but it worked and is still working.

    Enduring Legacy

    One other factor that should be mentioned here is tradition, which must exist in some sort of relationship to longevity and which has bound smokers together in a sense of camaraderie, whether, as 60 years ago, in majority groupings at social events or more lately as minorities huddled together outside pubs. The cigarette was able to lay claim to being a traditional product also because, with the advent of ever more advanced machinery, it became, leaving aside its risky aspect, an almost perfect product, one that was refined but remained largely the same for decades. You could argue, and certainly I would, that cigarettes started to lose the respectability that tradition bestows when regulations were introduced to degrade these products and their packaging and when consolidated manufacturers, chasing profits and presumably in thrall to the idea that cigarettes had become simply nicotine-delivery systems, reduced the range of products on offer, especially in respect of taste.

    Of course, it is true to say that tobacco had never aspired to the sorts of appellation and vintage certifications that wine boasts, and now it would not be allowed to, but for a long while, there was a hint of such quality assurances in phrases such as: “It’s the tobacco that counts.” So it is unsurprising that, arguably, until the arrival of unconscionable levels of taxes, generic products and the oddly named “value” cigarettes, brand loyalty among cigarette smokers must have been just about the highest of any consumer group. Indeed, in another example of how governments have helped tobacco manufacturers, or at least individual manufacturers, a type of brand loyalty has presumably picked up again in recent years in those countries where retailers are required to keep cigarettes under lock and key.

    Additionally, cigarettes scored heavily in the sorts of ritualistic activities that surround much tradition. In fact, even now, the industry is at pains to try to keep some of the ritualistic traditions alive in lower risk products. It is interesting, too, that despite the “denormalization” of smoking, officially, tobacco remains a solid part of the fabric of society. In a recent story on consumer price indices, a writer noted, with some surprise, that the U.K. Office of National Statistics still tracked, among other things, four different packs of cigarettes and rolling tobacco—along with e-cigarettes.

    But enough of all this backwards looking stuff. What about the future? Well, I guess that tobacco control will continue with its often ludicrous strategies because of its failure to understand smokers, and governments will continue to rip off smokers because they can while they both take their time coming round to the view that abstinence doesn’t work and tobacco harm reduction does. Meanwhile, tobacco manufacturers will likely retain their alignments, all the while motoring on, at first being driven by hybrid tobacco and nicotine businesses before moving on to cleaner, nicotine fuels alone.

    Or will they? The premature death of tobacco and, especially, cigarettes has been predicted for as long as I can remember, and they ain’t dead yet. Indeed, perhaps this is one area where talk of a preventable death is not so dumb. Perhaps tobacco products have a lot of life left in them, especially since, as seems increasingly likely, populations become more stressed as the world is plunged into forever wars and environmental catastrophe by those morally opposed to smoking.

  • Mapping Milestones

    Mapping Milestones

    Photo: Imperial Brands

    Three years into its five-year strategy, Imperial Brands reports progress on multiple fronts.

    By George Gay

    The U.K. government looks set to ban outright the sale of disposable vapes largely on the grounds that these products, which can be bought with a relatively modest outlay, are said to appeal to those under the age of 18. Currently, arguments are raging around this issue, but no matter on what side of the fence you sit, it cannot be denied that there is something less than coherent about the reasoning behind the proposed ban because it is already illegal in the U.K. to sell vapes to those under 18. The legal position in respect of disposable vapes and the underaged will not change because of the ban, though it will in respect of the rest of the population, so the argument that the proposal is aimed at protecting the underaged does not stand up to scrutiny.

    It is odd, too, that another, more reasoned argument against disposable vapes—that their disposal, whether careless or authorized, is too environmentally damaging—seems to be of only secondary concern to the government. But it is of concern, and some industry players are taking steps to address at least some of the issues raised.

    In its 2023 annual report, Imperial Brands said that it had launched its Blu Bar disposable vape brand in 11 European markets, so I took the opportunity of asking it for its views on these products. “We have long called for action to prevent the deliberate marketing of vaping products to young people,” Imperial said in an emailed reply. “It is important, however, that new restrictions do not compromise the ability of vaping products to transition adult smokers away from combustible cigarettes.

    “Disposable vapes are currently used by more than half of adult vapers in the U.K., and a ban threatens to undermine the country’s significant progress to reduce smoking. There’s also a risk it will fuel the illegal trade of unregulated products, already a sizeable problem for enforcement authorities.

    “We recognize the sustainability challenges associated with disposable products. We have been working hard to address this in our portfolio and have just launched a new version of Blu Bar (Blu Bar 1000) in the U.K. (other European markets to follow) with a removable battery.”

    The use of a removable battery is presumably an important step in disposable vape design because it makes the dismantling of used products in qualified waste disposal facilities safer and more efficient, and therefore more likely to happen. It doesn’t, I guess, address the important question of the number of batteries being used and disposed of across the country, but then this can be partially addressed by increasing the number of puffs that products deliver. In any case, apparently, at Imperial, this is not the end of the story. “Expect to see more innovation—all built on our consumer insights—from us later this year,” Imperial added.

    The reference to consumer insights harks back three years to the launch of Imperial’s five-year strategy to transform itself into what it describes as a consumer-led challenger business. As part of this strategy, it set up in 2021 a Global Consumer Office, and it now has two Sense Hubs at which it interacts with consumers to understand their expectations. “We are placing the consumer at the center of our decision-making by building our capabilities in consumer insights, portfolio and brand management, innovation, and through our portfolio of next-generation products (NGPs),” Imperial said.

    This is all well and good, but I had to admit that I was less than certain what was meant by a “challenger business” and what you had to do to qualify as such a business. “We are the smallest of the global businesses in our industry, and that means to succeed over the long term, we need to be a strong challenger,” Imperial said. “Being a challenger is about having the best understanding of our consumers and their choices. It is about having simple and efficient operations that enable us to be agile. It’s about building a culture where our people can perform their best work.

    “To give an example: We have had a disciplined, challenger approach to NGP market entry. We have launched products only in markets where the category (vaping, heated tobacco and/or modern oral) is a big proportion of overall nicotine consumption—and where we have strong existing routes to market.”

    The reference to a disciplined approach to NGP is not just managerial speak. In fact, as part of its five-year strategy, Imperial put in place the means not only to revive its combustible business but to reboot its NGP business completely. In its 2023 report, it describes how, during fiscal years 2021 and 2022, it first refocused the business by withdrawing from several markets, such as the heated-tobacco market in Japan, which it decided did not fit its challenger criteria. Presumably, withdrawing from Japan’s heated-tobacco market must have taken considerable thought and discipline.

    Having refocused, it then began a test-and-learn process introducing new products in pilot markets, closely studying reaction from consumers and customers, before scaling up.

    Which brings us to the 2023 financial year. “For our potentially reduced-harm business, this has been an important year, with product innovation and targeted market launches translating into accelerated revenue growth,” Imperial says in its report. “Following the introduction of new propositions in vape, heated tobacco and oral nicotine, we now have credible offerings in all three major categories. And consumers can now buy our NGP in more than 20 European markets as well as the United States.

    “This operational acceleration has translated into revenue growth of 26.4 percent globally, and 40.4 percent in Europe, where we have been focusing our investment.”

    Not everything has gone to plan, however. The U.S. Food and Drug Administration on Feb. 5 issued marketing denial orders to Imperial subsidiary Fontem U.S. for four Blu disposable and one Myblu brand of e-cigarettes, which means that these products may not be marketed or distributed in the U.S. While this and a previous failed attempt to get Imperial Brands through the FDA’s premarket tobacco product application (PMTA) process has been costly and is no doubt frustrating, it is not altogether surprising. The Fontem application joins those of many other companies that have come to grief against the gates of the FDA. “After reviewing the company’s PMTAs, FDA determined that the applications lacked sufficient evidence to demonstrate that permitting marketing of the products would be appropriate for the protection of the public health, which is the standard legally required by the 2009 Family Smoking Prevention and Tobacco Control Act,” the agency said in announcing its decision. It might have added, “No pasaran!”

    The list of Imperial’s main NGP markets seems to support the company’s claim to have launched products only in markets where vaping, heated tobacco and/or modern oral is a big proportion of overall nicotine consumption and where it already had strong existing routes to market. Its main vapor product markets are, in alphabetical order, Belgium, the Canaries, the Czech Republic, France, Germany, Greece, Ireland, Italy, Portugal, Spain, the U.K. and the U.S. In heated tobacco, they are Bulgaria, the Czech Republic, Greece, Hungary, Italy, Poland and Portugal. And in modern oral, they are Austria, Denmark, Estonia, Iceland, Norway and Sweden.

    Of course, while these lists look reasonably impressive following a major reboot, on the global stage, Imperial is smaller than its three main rivals, so it has developed a partnership approach to innovation. “This is exemplified by our three new innovation centers,” Imperial says in its report. “Our Sense Hubs in Liverpool and Hamburg bring together our own development teams with third-party partners and our consumers. Our Shenzhen site enables us to get closer to our supply chain partners.

    “Our new way of working has halved the time from initial concept to market launch and increased our capacity to work simultaneously on multiple projects. This is particularly important because of the need for us to take a multi-category approach, reflecting the way different markets are evolving different NGP preferences because of local culture and regulatory environments.”

    Although much progress has been made, these are early days yet in respect of the NGP side of the business, as Imperial readily admits. For instance, while its 2023 report included tobacco (cigarettes, RYO, cigars and snus) volumes, it gives no NGP volumes. When asked about this, Imperial said that NGP volumes had not been large enough to justify reporting. “But as the success of the reboot grows, this is something we’re keeping under review,” it said. “We do report on NGP revenue by region.”

    Fair enough. One thing that did seem odd to me, admittedly not someone trained in management of any kind, was that in its 2023 report, Imperial announced a £1.1 billion ($1.39 billion) share buyback scheme for 2024, up from a £1 billion scheme in 2023. Why, I wanted to know, was the money not invested in the business—perhaps in the company’s nascent NGP products?

    The answer was that Imperial was already delivering on its four priorities for the use of capital, namely: invest behind new strategy to support sustainable growth; maintain a strong and efficient balance sheet; a progressive dividend policy growing annually, taking into account underlying business performance; and surplus capital returns to shareholders.

    “We remain fully committed to investing in the business,” the company wrote. “It is the priority for capital, and we have been stepping up investment in NGP rollouts. But our NGP plan is targeted behind specific markets and products based on the market data and consumer insight.”

  • Confidence and Confidentiality

    Confidence and Confidentiality

    Willie McKinney (Photos courtesy of McKinney Specialty Labs)

    McKinney Specialty Labs has the expertise to generate trustworthy data and the discretion to share it only with authorized users.

    By Taco Tuinstra

    If you want to quickly grasp the difference between vaping and smoking, peek into the e-cigarette testing laboratory at McKinney Specialty Labs in Richmond, Virginia, USA. Then compare it to the smoking lab a few steps down the hall. The first room looks bright and crisp, almost like a hospital operating theater, while the second room has tubes exhausting cigarette smoke out of the lab, bringing to mind the scene from a sci-fi thriller.

    If you want to obtain a more profound understanding of the complex aerosols generated by vapes and combustible cigarettes, however, you will have to analyze them scientifically—and this is what McKinney Specialty Labs excels at. Among other services, the lab offers physical testing, which includes characterizing the particle size distribution and output of aerosols; microbiological testing; toxicology testing and regulatory compliance assistance. It also tests the ignition propensity of combustible products.

    To carry out such tests, the 57,000-square-foot facility is equipped with some of the industry’s most sophisticated instrumentation, including machinery that less apportioned laboratories might only dream of. Jake Hilldrup, technical director of chemistry, points out some highlights. McKinney Specialty Labs is the proud owner of a Virtrocell model 48 v2.0, for example—an instrument that exposes cells directly to aerosols. By skipping intermediate steps such as capturing the aerosol before adding it to cells, the Vitrocell mimics the conditions under which products are consumed better than conventional equipment.

    Hilldrup then gestures to a collection of red devices with spikes. “The spike is a probe for electrostatic precipitation from metals,” he explains. The machine generates an electrostatic field that causes all the aerosol particles to stick to the sides of a quartz tube, allowing researchers to collect them without a pad. This is important, says Hilldrup, because many pads arrive from the supplier with background levels of metals, making it difficult to get a good baseline. “The probes ensure cleaner collection and better reproducibility,” he says. “They are very state-of-the-art tools for metal collection that other labs are not using yet.”

    In yet another room, the company has set up a dissolution apparatus to analyze the performance of nicotine pouches, which have been taking the U.S. tobacco market by storm recently. The machines run artificial saliva through the system to stimulate nicotine release. Among other insights, they will reveal how the nicotine is released within a given time frame. “Hopefully, it’s not coming out all within the first five minutes,” says Hilldrup.

    In addition to brand-name equipment from recognized international suppliers, McKinney Specialty Labs also features one-of-a-kind, in-house designed equipment, including a “Tripple Puff” collection system that allows researchers to test multiple electronic nicotine-delivery devices (ENDS) simultaneously. Developed by a lab technician who is a trained engineer, the Tripple Puff is “a nice timesaver,” according to Hilldrup.

    Having the right equipment is key to providing clients with timely and accurate data, but according to one of the company owners, Willie McKinney, it is not the gleaming machinery park that sets McKinney Specialty Labs apart. “It’s the highly skilled employees who make the difference,” he says. After all, anybody can purchase instrumentation, but not everybody can operate it properly. “You need experts to make sure the equipment is validated and operating the way it should, so the client can trust the results—and, importantly, the regulator can trust the results,” says McKinney.

    According to him, the U.S. Food and Drug Administration and its international counterparts are confident that McKinney Specialty Labs will generate data the right way. Such trust, he says, is crucial, and not every laboratory succeeds in earning it, as evidenced by a recent FDA notice advising manufacturers to be cautious with data generated by some labs. Some third-party test labs may be generating unreliable data, the agency warned. At McKinney Specialty Labs, clients need not worry about such issues, McKinney insists.

    Strong Credentials

    A certified minority-owned business, McKinney Specialty Labs officially launched at the start of this year, but the facility has been around for much longer, as part of a large organization offering analytical solutions for environmental projects. At one point, for various reasons, that company decided to discontinue operating the specialty lab and put the facility and its assets up for sale.

    McKinney was immediately interested. “The facility had a great reputation, with impressive scientists. So, when the opportunity arose to acquire it, I just had to look into it,” he says. One factor driving McKinney’s enthusiasm was the fact that he had worked with the laboratory for many years as a client and was intimately familiar with its staff and their professionalism. A board-certified toxicologist, McKinney boasts a distinguished career in the tobacco industry. Educated at the University of North Carolina School of Public Health and the New York University Center for Environmental Medicine, he is a leading expert on lung inhalation and aerosol physics.

    During his 20 years at Philip Morris, and later Altria, much of McKinney’s focus was on tobacco harm reduction. Among other projects, he worked on Accord, one of the first systems to heat rather than burn tobacco. Accord was a product before its time, but the research and development invested into Accord ultimately laid the groundwork for one of the most successful smoking technology innovations in recent history—the IQOS platform.

    McKinney then worked for Juul Labs, which he describes as an extraordinarily creative and energetic business. In addition to these corporate engagements, McKinney served as an industry representative on the FDA Center for Tobacco Control’s Tobacco Product Scientific Advisory Committee, gaining valuable insights into the agency’s thinking and establishing rapport with key agency officials.

    Leveraging Experience

    As the FDA sought to bring order to the burgeoning ENDS market, McKinney decided to leverage his experience in the private sector and with regulators. The first electronic nicotine products that smokers actually liked and started switching to were developed by startups. These small companies lacked the internal scientists, toxicologists and experts who could help them navigate the regulatory environment.

    So, in 2020, McKinney created McKinney Regulatory Science Advisors (McKinney RSA). The business comprises a consortium of individuals with rich experience in tobacco or a deep background in a relevant scientific field. “For example, one advisor is a former reviewer at the FDA,” says McKinney. “We also have a Harvard-trained behavioral scientist [who is also a frequent editorial contributor to Tobacco Reporter]—so we can help clients take their products all the way from concept to market.”

    According to McKinney, the services of McKinney Specialty Labs nicely complement those of the consultancy. “We can not only help clients design their studies but also execute them; we can guide them through the entire process,” he says. “For clients who choose to leverage those synergies, it’s a one-stop shop.”

    McKinney stresses that clients need not be concerned about the confidentiality of their data when the consultancy and lab work together. “Many labs generate data for multiple competitors and manage to maintain confidentiality,” he says. “McKinney RSA has served competitors while maintaining confidentiality, and so has this lab under its previous ownership. We have robust systems in place to maintain confidentiality. Plus, the only time the consulting firm is involved is when the client wants its services; the synergies are only leveraged at the client’s request.”

    So far, clients appear to be comfortable entrusting their analytical work to McKinney Specialty Labs. “We are kept in business by a combination of regulation and R&D,” says McKinney. Cigarette and cigar testing is in steady demand due to regulatory requirements. On top of that, McKinney Specialty Labs has seen an uptick in interest for services related to ENDS and modern oral products. Interestingly, demand comes not only from the independent companies that drove the ENDS revolution but also from the established tobacco companies. Even though the big companies have the resources to do their own testing, they also outsource some of that work, as a spot-check on their own methods, for example.

    Building on a Solid Foundation

    While it’s still early days for McKinney Specialty Labs, the company says it is well on its way to realizing its initial goals. Because the facility had a great reputation already, McKinney’s first priority was to retain the talent. “We wanted to make sure that it would be a smooth transition for the employees, so the workforce was an important consideration during the negotiations: What were their needs? Could we match existing benefits?” says McKinney. The firm’s focus paid off, with nearly 100 percent of the workforce opting to continue with the new organization, according to McKinney. Other changes were on the administrative side. Because the lab previously was part of a larger organization, McKinney had to recreate some infrastructure, such as payroll systems.

    Now the company is doing a “deep dive” into how it can be more efficient. “Having been a lab client, I know what it’s like from the clients’ perspective; I know the challenges and opportunities that exist within the lab, so that’s a benefit,” says McKinney.

    Of course, even the best equipment, the most qualified scientists and the greatest levels of efficiency cannot guarantee success. The regulatory environment for nicotine products, says McKinney, has been “fluid” to say the least, making it extremely challenging for manufacturers to bring new products to market. “However, we pay very close attention to regulatory decisions and, importantly, why decisions are made. Then we leverage that information to decrease the probability of failure.”

    Looking forward, McKinney Specialty Labs plans to keep pushing the envelope. “Tobacco is a very specific industry, but the testing of complex aerosols has other applications as well,” says McKinney. “Cannabis, for example, is an interesting market. It is not clearly regulated, and knowledge is lacking. We see that as an opportunity to raise awareness of our capabilities. The nicotine experience rolls right over. Cannabis oils are thicker than what we are used to, but we have the expertise to figure it out. We can start developing and validating methods so that when federal regulations come into place, we should be ready to go.”

    Regardless of the services that the laboratory may add to its portfolio in the future, McKinney intends to offer his clients the same levels of confidence and confidentiality that his clients in the nicotine industry have become accustomed to. For each sector, he says, the company’s objective will be the same: “Our goal is to be a client-focused organization and deliver a quality product in a timely manner.”