Category: Print Edition

  • Forging Ahead

    Forging Ahead

    Photo: Innokin

    Innokin continues innovating to reduce harm, improve the user experience and minimize the environmental impact of its products.

    By Stefanie Rossel

    Founded in 2011, Chinese vape product manufacturer Innokin is almost a veteran in the world of electronic cigarettes. The company set out with the goal to create a smoke-free world by combining technological innovations, leading designs and the highest standards of quality. Today, Innokin’s products are sold in 80 markets worldwide.

    With a focus on continuous research and development and a 12,000 square meter factory in Shenzhen, Innokin has created a comprehensive portfolio of vaping products. Among its bestselling devices are the Endura and Platform series, which were introduced in 2015 and 2017, respectively. The company is also known for the MVP Pod, a streamlined device targeted at new vapers, which debuted in late 2021. In the same year, the manufacturer teamed up with Fourier Technology to present Sensis, the first vaporizer using fourth-generation technology: In contrast to previous generation devices that are based on single direction-current technology, the innovation uses alternating current, which sends electricity through the coil in both directions. According to Fourier Technology, alternating current increases the efficiency of heat transfer between the coil and liquid, which improves flavors and extends coil life.

    In an industry that has become accustomed to seeing major hardware innovations every 12 months to 18 months, however, it was an e-liquid development that got Innokin in the headlines. In May last year, the company launched the Aquios Bar, formerly known as Lota Pod, a new sub-brand of vaporizers, for which it has partnered with Aquios Labs in the U.K. Aquios Bar was the first vaping solution to feature a water-based e-liquid.

    The pod uses a groundbreaking technology developed by Aquios. Named AQ30, the technology enables the production of liquids containing 30 percent water through a specialized formulation process. Compared to traditional vapes, water-based liquid creates a smoother, cleaner vaping experience, delivers nicotine to the bloodstream more efficiently and significantly reduces the dehydration associated with vaping.

    It allows the hardware to operate at considerably lower temperatures. Conventional e-liquids contain polypropylene glycol (PG) and vegetable glycerin (VG) as well as flavor and nicotine. PG and VG need to be heated to 189 degrees Celsius and 292 degrees Celsius, respectively, to produce a vapor that can be inhaled—a process that causes dehydration. Adding water to the liquid reduces the boiling point and vape temperatures, thus diminishing harmful substances in vapor.

    “With a significantly lower operating temperature of 119 degrees Celsius, devices using our AQ30 water-based technology have been found to produce 92 percent less acetaldehyde and 81 percent less formaldehyde compared to traditional vapes,” explains Innokin co-founder George Xia. “We hope that by continuing to invest in water-based vaping, we can create a truly pure vaping experience.”

    George XIa

    The Power of Water

    Previously, water’s low viscosity level made it unsuitable for use in vaping devices at any meaningful level. Aquios has been able to overcome this hurdle with a special adapted vaping device. Equipped with new heating, wicking and airflow systems, the Aquios Bar initially launched with a portfolio of three water-based devices, each with their own position for specific global markets and consumer needs, according to the company.

    Experts consider water-based vaping one of the most significant breakthroughs since the introduction of nicotine salts. Xia is convinced that as the vaping industry matures, policymakers and consumers will naturally demand more research into alternatives to combustible tobacco. “A key part of reducing harm is lowering the emission of HPHCs [harmful and potentially harmful constituents],” he says. “Research shows that lowering the operating temperature of vaping devices reduces HPHC emissions. Water-based vaping is one of the most effective ways of lowering vaping temperature, so we believe this technology has a key role to play in the future of vaping.”

    During the September 2022 GTNF in Washington, D.C., Innokin’s and Aquios Labs’ water-based solution was recognized with a Golden Leaf Award. In November, Innokin added the Innobar C1 to its product range, including a lineup of disposable devices and the reusable Innobar C1 pod system, all of which work with A30 water-based technology. Meanwhile, Innokin has launched its water-based vape products in a number of markets. “Our rollout started with key European markets including the U.K., Germany, Sweden, Italy and Poland,” says Xia.

    “With growing awareness for the technology, we are now aiming to scale up to reach markets that have already declared e-cigarettes legal and compliant worldwide. We believe that by doing so, we can offer even more individuals a safer and more enjoyable vaping experience. We are also in discussions with other vaping brands to integrate our technology into their product portfolios. The new Aquios Juice series, consisting of water-based e-liquids in individual bottles, is expected to be launched in several European countries, including the U.K. We’ve developed refillable devices that synergize with the bottled Aquios e-liquid, and we’ll launch them with the e-liquids.”

    Meanwhile, Innokin is working to further improve its water-based vaping by fine-tuning and expanding flavor profiles to meet the local demands in different markets. But there’s more in Innokin’s pipeline: “We are also exploring our offering of tobacco flavors as some regions move to restrict flavored vaping products. Water-based vaping is the ideal platform for tobacco flavors since the reduced PG and VG content allows us to represent the natural, complex aromas of tobacco more accurately. We are also exploring the possibility of introducing our water-based e-liquids to individual bottles and refillable devices to cover a wider range of vapers. Additionally, we are developing a new generation of ultrasonic vaping products, which allow the ultrasonic ‘coil’ to be separated from the device. This will reduce waste substantially and allow consumers to use ultrasonic coils for far greater lengths of time.”

    Making Vaping Greener

    At Innokin, innovation isn’t limited to enhancing vaping technologies. The company also focuses on sustainability and is constantly tweaking its hardware and product packaging. While disposable vapes have rapidly gained popularity and helped countless smokers quit cigarettes, they also present an environmental challenge. The EU is expected to ban single-use vapes by the end of 2026. “We have been taking meaningful steps to reduce the environmental impact of our products for a number of years now, and our core product offerings remain to be within the refillable category,” Xia says. “Within our disposable portfolio, we have developed products like the Innobar F3 and Aquios Bar, which use 95 percent less plastic than other leading devices.”

    Both the Innobar F3 and Aquios Bar feature a reinforced card shell design.

    “We welcome sensible regulations to reduce the environmental impact of vaping, and we see refillable products, along with pre-filled pod-style products, as an excellent platform for reducing waste,” says Xia. “We are now seeing consumers who made the switch to vaping via disposables demand solutions that have a lower environmental impact and cost. As such, the industry needs to offer affordable, simple permanent devices that deliver the same satisfaction as disposable devices. Our upcoming Klypse Zip pod device is designed to cater to this need, with an affordable price point, convenient refills and award-winning performance, building on the success of our original Klypse pod.”

    Introduced in early 2022, the Klypse is a mid-sized, easy-to-use pod system that makes refilling simple for new users. Featuring a refillable pod enables vape beginners to try out different e-liquids or even taper down nicotine strength if they’re seeking to quit nicotine altogether.

    In addition to making its devices more environmentally friendly, Innokin has introduced recyclable packaging across all product lines, carried out battery recycling programs and reforestation initiatives and partnered with e-waste specialists in major markets.

    Consumer education plays a key role in Innokin’s approach. From mid-April to early May this year, the manufacturer ran its “Vape for the Planet” campaign, teaching customers sustainable vaping practices. Xia says his company has been overwhelmed with the response to the campaign, which educated consumers about proper disposal of vaping products and how they can reduce their impact by switching to a refillable device.

    “We also gathered data via a survey to measure consumer sentiment toward sustainability in vaping, and this feedback has provided us with some good ideas about how we can reduce waste while continuing to serve our customers with excellent products,” he says. “We believe the vaping industry must come together as a community in order to solve the question of waste, and working with organizations such as the U.K. Vaping Industry Association will accelerate this process.

    “The main takeaways from this campaign are that consumers want more education about how they can vape sustainably and that most people are willing to take extra steps to recycle used products as long as they are provided with the necessary resources to do so. We look forward to discussing our findings with other key players in the industry and identify ways we can deliver a more sustainable future.”

  • A Blander Tomorrow

    A Blander Tomorrow

    Photo: Keith

    Bans on flavors in vapor and heated tobacco are likely to spread.

    By Barnaby Page

     Flavors are perhaps the biggest battleground of all in e-cigarette regulation—much more so than nicotine strength, for example. That may seem surprising on the surface given the widespread misperceptions of risk associated with nicotine itself (as opposed to smoking), but the underlying reason is revealing. Although occasionally there are other rationales associated with flavor bans (specific harmful ingredients, or a racial dimension in the case of menthol in the United States), nearly always the argument against flavors is a proxy for anxieties over youth vaping.

    To put it another way, if nobody thought that anyone other than adults would use mermaid-flavored caramel candy floss e-liquid, nobody would be very interested in banning it (and in fact, adult usage of these flavors is almost completely overlooked in the debate). It’s because kids use—or, more precisely, are perceived to be attracted by—these flavors that regulators, politicians, pundits and pressure groups pay so much attention to them.

    Underage vaping undoubtedly occurs; this is indisputable. Whether flavors (which in regulatory terms means nontobacco flavors) are in fact a significant driver of this is more debatable. It’s true that young people often use the more exotic flavors, but that doesn’t mean the nicotine users among them wouldn’t vape if those flavors weren’t available.

    Of course, those who are vaping nicotine-free flavored liquids presumably wouldn’t find nicotine-free tobacco-flavored liquid very appealing, and they probably wouldn’t vape at all if their favored flavors were unavailable. But these nicotine-free users are not the main concern.

    Similarly, it’s true that kids say they like the flavors they use. But this is hardly unexpected; nobody would use a flavor they don’t like. Again, it doesn’t conclusively point to what would happen in the absence of flavors, and this is an area where more research is needed—research that will become more viable on a large scale as more and more flavor bans are implemented.

    The results may prove to be unexpected: for example, work by Abigail Friedman at Yale suggests that the San Francisco flavor ban may have pushed young people not toward tobacco-flavored vapes but toward combustibles, and while one research project in one city is of course not the end of the story, it underlines the importance of looking at the real consequences of regulation in this area. If flavor bans do not keep kids away from nicotine, there is little purpose to them.

    For now, though, limiting flavors is rightly or wrongly seen as key to limiting youth vaping, and prohibitions are spreading worldwide—perhaps not as quickly as the heat of the conversation might suggest but steadily nonetheless.

    The United States is in an unusual situation here, partly because of the considerable autonomy enjoyed by sub-national levels of government compared with many other countries and partly because of slow movement by the Food and Drug Administration. There can be almost no doubt that the FDA would like to ban flavors; after all, it has even backed the idea of a menthol ban in combustibles, which is far more contentious than any restrictions on e-cigarette flavors, and seems likely to be preparing to finalize a rule to that effect this fall.

    Where vapor is concerned, there is no formal prohibition as such (though it is always conceivable that the anticipated combustibles ban could in fact cover all tobacco products), but a de facto ban on vapor flavors seems to have been in operation via the premarket tobacco product application (PMTA) process. To put it bluntly, flavored products don’t get through, and indeed this has been formally alleged by R.J. Reynolds Vapor Co. in a case against the FDA, as yet unresolved.

    In this context, it might seem odd that the FDA did grant modified-risk tobacco product (MRTP) status to menthol-flavored IQOS products from Philip Morris back in 2020—MRTP of course being an overt acknowledgment of reduced risk, not merely an authorization to sell like the PMTA. This might reflect the fact that youth usage is much less associated with heated-tobacco products like IQOS than with vapor; in fact, heated tobacco was barely known in the U.S. in 2020, has worldwide generally given rise to much less anxiety over underage use and is generally not found in the more unusual, supposedly youth-friendly flavors. Or it might simply be an anomaly. Either way, the IQOS decision seems unlikely to be any kind of precedent for a softening of FDA attitudes toward flavored vapor.

    In the absence of an official FDA rule, formal regulatory activity against flavored vape products in the United States has most significantly occurred at state level—for example, with bans in California, New Jersey, New York and Rhode Island, an almost complete prohibition in Massachusetts and heavy restrictions in Maryland and Utah. Some other states also instituted emergency bans in 2019 that have now ended. There has also been much activity at county and municipal level (most notably in California and Massachusetts and to a lesser extent in Minnesota).

    Elsewhere in the world, again partly reflecting the allocation of powers to national and sub-national governments, there are countrywide bans.

    Among those nations that allow e-cigarettes as a product category but ban flavors, China is potentially the most important given its sheer size. However, the Netherlands—a country where skepticism over vapor in official circles is high—has also received much attention, not least because it could pave the way for other European countries to follow suit. Finland has already passed a bill prohibiting flavors in all inhalable products, and we believe Norway is also likely to enact a vapor flavor ban; Belgium is another possibility, though one we consider less likely.

    Much of the forecasting in this article is drawn from the Tamarind Intelligence Policy Radar, which presents the regulatory situation in more than 50 markets for alternative tobacco products as it is today and as it is projected to be in five years. It monitors more than 150 bills and policies, many of which seek to substantially increase the regulatory burden on novel tobacco and nicotine products. Based on this, other countries where we see a vapor flavor ban as possible include Canada and Argentina, although the latter is a less likely contender.

    Other countries have taken steps toward banning flavors in all alternative products. Nations such as Spain, Belgium, Russia and the Czech Republic have raised concerns about flavors in new tobacco and nicotine products in their policies, which include, for example, national tobacco plans and health strategies. However, it should be noted that we forecast some of these first steps toward a flavor ban to have a low likelihood to medium likelihood of adoption. This may be because the measure has not been a pressing issue for a government faced with elections in the near future, as with Spain, or because the policy has remained stuck in the legislative process for years, as is the case with the bill in Belgium.

    Comprehensive bans like these could be expected to also cover heated tobacco. Some countries, however, may choose to treat it separately; among these, we think a ban is likely in Taiwan and possible in the United States.

    In terms of sheer number of countries, however, by far the most important limitation on heated-tobacco flavors is the European Union ban, which entered into force late last year via a European Commission directive.

    Such directives do not have automatic legal power in all 27 EU member states, but the individual countries are obliged to incorporate them into domestic law, a process known as “transposition,” which must in this case be completed by October (and which also applies to the European Economic Area members Norway, Iceland and Liechtenstein). When this is complete (and though the deadline could be missed in some cases, it will almost certainly be completed), heated-tobacco flavors will be banned across most of Europe, leaving the post-Brexit United Kingdom—the most friendly of all European nations toward reduced-risk nicotine products—as the major outlier where flavors are still permitted.

    In this context, the ongoing revision of the EU Tobacco Products Directive (TPD) itself is also noteworthy. It was the 2014 version of the TPD that laid the groundwork for the e-cigarette regulatory frameworks in all EU member states (at that point including the U.K.), for example with limitations on nicotine strength, and with the next incarnation of the directive currently being drawn up, there is at the very least a possibility that it could include a flavor ban for alternative products, including vapor.

    If that happens, it might well be enough to sway undecided countries outside the EU and persuade them to enact their own flavor bans—perhaps even the U.K. It is also possible that, amid environmental concerns about the sudden rise of disposables, “flavor” will become a proxy for “disposable” in exactly the same way it has been for “underage.”

    At the same time, it is always conceivable that some yet unknown nicotine-delivery technology might escape these prohibitions if there are no concerns about youth usage.

    But it is unlikely that bans that do come into force will be reversed, regardless of their outcomes; perception is often as important as reality in regulating this area. Though it hasn’t happened yet, the alternative nicotine products sector may be facing a flavorless future.

    Tamarind Intelligence analysts Berta Camps Bisbal and Sergi Riudalbas also contributed research to this article.

  • Back to Normal

    Back to Normal

    Photo: Taco Tuinstra

    Following a record low harvest in 2022, Malawi has produced a more typical crop this season.

    After last year’s short crop, the Malawi tobacco trade is looking forward to more normal volumes this season. Typically, Malawi’s rainy season starts in November/December, but in 2022, the rains came much later, delaying the growing season by two months to three months.

    The drought coincided with transplanting in Malawi, causing a good percentage of the tobacco to dry out. Farmers contracted with one prominent leaf merchant alone suffered 35 percent plant mortality. As a result of the adverse weather conditions, Malawi produced 85 million kg of leaf last year—the lowest volume in a decade, according to the Tobacco Commission.

    This season, by contrast, is looking more promising. The trade is anticipating some 128 million kg of leaf, closer to the normal figure of 130 million kg. Burley accounts for most of the volume (81 percent), followed by flue-cured Virginia (16 percent) and dark air-cured tobacco (3 percent). Initial surveys indicate a good quality leaf as well.

    Nixon Lita

    Industry representatives cite favorable weather during the growing season, with rain falling in the right places at the right times and in the right volumes—until Tropical Cyclone Freddy struck southern Africa. The system—the longest-lasting on record—pulled warm air from the Intertropical Convergence Zone and the Congo over the southern and central parts of Malawi for much of February and March, resulting in perpetual overcast and rainy conditions in those regions. When it hit Malawi on March 11, it brought torrential rains and gale force winds, dumping up to 300 mm of rain in a 24-hour period. Cyclone Freddy caused massive landslides and flooding, killing more than 1,000 Malawians. Tobacco companies have been contributing to relief efforts through the Tobacco Processors Association.

    But while the storm devastated lives and infrastructure, it largely spared Malawi’s tobacco crop, and the market opened as scheduled on April 12. That is because most Malawi tobacco is grown in the country’s central and northern regions whereas the storm hit hardest in the south. According to Nixon Lita, chief executive of the TAMA Farmers Trust, the little tobacco that is grown in southern Malawi matures earlier than the leaf produced in the central and northern regions. “By the time the cyclone hit, many farmers had already reaped their tobacco,” he says.

    Despite the increased volumes, Malawi will still fail to meet demand (see “Enduring Demand“), which is estimated at 150 million kg this year. According to Lita, it’s hard to double production in 12 months, especially with the significantly higher cost of production (see “Coping with the COP”) this year. If burley shortage results in good prices, as predicted, it should encourage more farmers to plant tobacco next year. –T.T.

  • One Country, Two Systems

    One Country, Two Systems

    When it comes to encouraging people to quit cigarettes, mainland China, with its large number of smokers, has a higher proportion of low-hanging fruit than Hong Kong. | Photo: Taco Tuinstra

    China and Hong Kong are responding differently to the issues raised by e-cigarettes.

    By George Gay

    It has often been said that if the health risks of consuming tobacco had been foreseen, tobacco products would not have been allowed on the market. That is a big if, a rather shaky premise to be sure, but if one accepts the premise, the conclusion probably* stands up.

    So, looked at from one direction, Hong Kong’s reaction to e-cigarettes can be seen as logical whereas the reaction of mainland China looks inconsistent. The authorities in Hong Kong decided that e-cigarettes posed an unacceptable health risk, so, in April 2021, they banned the manufacture, import, distribution or sale of “alternative smoking products,” including e-cigarettes, before they became well established. Of course, accepting the validity of this position requires one to ignore the fact that Hong Kong seems to regard e-cigarettes as tobacco products and, therefore, not a new product that could be nipped in the bud; but logic has its limits.

    Mainland China, on the other hand, while also holding that e-cigarettes pose a health risk, decided to allow them to be manufactured, exported, imported and sold on the local market, subject to certain conditions. That the authorities believe e-cigarettes pose a health risk, perhaps akin to the risk posed by combustible cigarettes, can be assumed given the former are being regulated in a manner that, in part at least, mirrors the regulation of the latter.

    Hong Kong and mainland China have long invited comparisons in relation to their attitudes to tobacco, and one of the interesting questions posed by the current situation asks whether Hong Kong has taken a more ethical line on e-cigarettes than mainland China. In one way, I think it has because it has followed through on its assessment of vaping, but I also think that its approach has been wrong because it does not seem to take sufficient account of the good that e-cigarettes can do in helping smokers quit their habit.

    In other words, Hong Kong’s view is based on a quit-or-die approach to smoking whereas the approach of mainland China seems to give the nod to tobacco harm reduction. On mainland China, vaping might be treated largely the same as smoking, but there is a recognition that, at the same time, there is a difference. This approach might be seen as requiring an ethical tightrope walk, but, to my mind, it has the advantage of accepting that the world is a messy place in which logic has its limits and compromise is better than confrontation.

    Double Standards

    It is also the case that Hong Kong might be seen to have taken another knock to any ethical claims that it might have made in relation to e-cigarettes. According to a Nov. 28 story in the South China Morning Post (SCMP), the government has proposed scrapping a ban on the use of Hong Kong as a staging port for the export of “alternative smoking products,” such as electronic cigarettes from mainland China, an amendment that is due to come before the legislative council this year, I believe. The ban might have been seen as making an ethical stance on behalf of people living in countries where the shipments would have ended up, but the reason for proposing the abandonment of the ban showed that practical rather than ethical forces have been at work. Once it was realized that the ban had been part of the cause of a plunge in air cargo volumes out of Hong Kong between 2021 and 2022, a proposal was put forward that involved creating a secure area for transshipping such alternative products arriving from mainland China by road and sea and introducing various safeguards to prevent these products leaking onto the Hong Kong market.

    The Proof is in the Pudding

    Meanwhile, one upcoming and interesting comparison between Hong Kong and mainland China will be the success that each will have in reducing smoking—that’s smoking, not vaping. Presumably, vaping will drop away in Hong Kong while it is likely to increase in mainland China if, as elsewhere, some smokers take the opportunity to switch.

    The comparison will be difficult to make, however, because they are starting from different positions. In 2021, Hong Kong’s smoking rate dropped below 10 percent (to 9.5 percent from 10.2 percent) for the first time while mainland China’s smoking rate is thought to be about 25 percent, meaning, I suppose, that when it comes to encouraging people to quit smoking, mainland China has a higher proportion of low-hanging fruit than Hong Kong.

    No matter what, both will have to contend with the illegal trade in cigarettes if they are to reduce their actual rather than their recorded smoking rates. A report in The China Daily last year said that public security organizations nationwide had responded to 43,000 tobacco-related crimes and detained 44,000 suspects from 2017 to 2021. During the same period, the police were said to have seized 2.1 million counterfeit cigarettes, nearly 100,000 tons of leaf tobacco and about 1,700 machines used to make the fake cigarettes.

    It is, however, difficult to know what to make of these figures without knowing a little more; what, for instance, constitutes a tobacco-related “crime” in China? If tobacco-related crimes take in minor infractions (as the almost 1-to-1 ratio of suspects to crimes suggests), 43,000 crimes and 44,000 suspects during a five-year period across a population of 1.4 billion looks like small beer.

    Similarly, 2.1 million counterfeit cigarettes in a country that produces more than 2 trillion cigarettes annually looks insignificant, though, of course, the 2.1 million figure represents only the sum of snapshots in time, taking no account of the number of cigarettes that had been shipped out before the police arrived. A better indication of the scale of the counterfeit operations raided is possibly given by the 100,000 tons of seized leaf tobacco, which, even given that illicit cigarettes presumably contain more tobacco than licit ones, would make it possible to produce at least 100 million cigarettes. It is impossible, however, to take anything much from the seizure of 1,700 machines, given that it is not known what constitutes a machine in the view of those seizing these things.

    However, is it possible, I wonder, for the authorities to use such figures to their advantage? Given that tobacco is a monopoly operation on mainland China, and given that the authorities must have available to them more detailed figures than appeared in the newspaper report, including those to do with at least the basic financials of the counterfeiting operations, they could presumably calculate the tax-paid prices that would have to be charged at retail for licit cigarettes to put the counterfeiters out of business.

    That would surely be a more reliable and less challenging method than using, as now, joint agencies to target the supply chain of raw and auxiliary materials used in the production of fake products and the production and distribution of counterfeit cigarettes both locally and offshore. Such an approach would have its detractors, but little is likely to change while there is seemingly no attempt to face up to the realities of the illegal trade and try new methods of addressing it, especially those concerned with prevention.

    Head in the Sand

    Currently, many people seem to be in denial about the illegal trade in cigarettes. On Jan. 31, the chairman of the Hong Kong Council on Smoking and Health was quoted in an SCMP report as saying there was no evidence that the level of tax on tobacco had a direct relation with the sale of illicit cigarettes. But, on March 1, a report in The Standard suggested that an increase in sales of illicit cigarettes might have been due to rising tobacco prices caused by inflation. These cannot both be right. The idea that smokers buy illicit cigarettes in reaction to price increases caused by inflation but not those caused by taxation is not credible.

    In defense of the idea that tobacco tax increases do not cause illicit cigarette sales to rise, the government’s anti-tobacco advisers were quoted in the Jan. 31 SCMP story as saying the illicit trade in cigarettes had thrived for years even though the tax rate had remained unchanged. But this argument doesn’t hold up for a second. One interpretation of the fact that illicit cigarette sales had continued to rise while taxes remained the same would be that the existing tax level was seen by many smokers as having been way too high when it was introduced and still too high now. And this argument does not take account of the fact that once the illicit gates have been opened, it is devilishly difficult to close them. Illicit cigarettes become normalized in the eyes of many smokers, as speeding becomes normalized in the eyes of many drivers.

    There was also evidence for this in the Jan. 31 SCMP story, when it was reported that the results of a survey of 2,000 smokers and nonsmokers suggested that buying illicit cigarettes was “quite easy.” Smokers, it was said, could now have illicit cigarettes delivered to their homes by making a call or sending a text on WhatsApp or WeChat.

    One of the taxation arguments that has long bothered me was put forward in a Nov. 3 SCMP report when it quoted a lawmaker representing the wholesale and retail sector as saying poorer smokers would not be able to afford cigarettes after a then proposed price rise caused by a 30 percent increase in tobacco duty, an increase that was imposed in February. “I agree with a reasonable tax increase by following the inflation rate, or else [the frozen tax] will sound like encouraging smoking. But if the increase deviates too much, it is a discrimination against the poor as the rich will not be affected,” the lawmaker was quoted as saying.

    I realize there is a limit to logic, but this is a strange way to look at things if at least one of the objectives of the tax increase was to stop people smoking. Surely, if better-off smokers will not be affected by such a rise, it is they who will be discriminated against because it is they who won’t be forced to quit. A system that was fair across the board would have to be one that stretched the finances of all smokers to maintain their habit. And such a system would have to be linked to incomes. Under it, a billionaire, for instance, might have to pay about $10,000 for a pack of cigarettes. Harsh but fair.

    *Of course, what is never mentioned is whether tobacco would have been allowed on the market if the health risks had been known and if the economic potential of the tobacco industry had been foreseen at the same time.

  • Fungi Fever

    Fungi Fever

    Photo: Volodymyr Herasymov

    Mushrooms sprout new opportunities for Malawi

    As Malawi seeks to diversify its economy, button mushrooms are emerging as one of the promising alternatives. Not only are the fungi popular among Malawians, who like to eat them as pizza toppings and in other foods, the country’s climate and growing conditions are also conducive to its production. To date, domestic production has been minimal, however. In the 1980s, a government research station cultivated limited numbers, but the organization failed to invest in farmer training. Over time, domestic production fell by the wayside. Today, Malawi imports 92 percent of its button mushrooms from South Africa.

    Lilongwe-based JAT Investments seeks to change that by promoting domestic cultivation. According to founder and Managing Director Temwani Gunda, mushrooms offer many advantages to the farmer. For starters, they require less land than other crops. “You can grow them in a small shed,” she says, adding that this also protects them to a degree from the impacts of climate change.

    The labor, meanwhile, is easy compared with tobacco. “You don’t need to go into the fields and be exposed to the elements,” says Gunda. “This means it is an inclusive commodity; even old people manage them.” Selling for approximately MKW10,000 ($9.75) per kilogram, mushrooms also offer attractive yields. A shed of 3.5 meters by 5 meters can produce 250 kg of mushrooms. One growing cycle takes about two months, allowing farmers in Malawi to grow three times per year. “And that’s the production from just one shed,” says Gunda.

    Farmers venturing into mushrooms should also have no trouble selling them. A consultant hired by JAT Investments estimated domestic demand at between 70 tons and 75 tons.

    Farmers venturing into mushrooms should also have no trouble selling them. A consultant hired by JAT Investments estimated domestic demand at between 70 tons and 75 tons.

    The greatest challenge for Malawi mushroom producers is seed (spawn). Because there is no domestic production, it must be imported from South Africa or elsewhere. This adds not only cost and time but also risk—if the shipper does not properly control the temperature, the seed won’t germinate.

    With the help of the Centre for Agricultural Transformation (CAT), JAT Investments expanded its farmer base from two to seven farmer “clubs,” each of which contains between 10 and 15 mushroom growers. The CAT also assisted with seed procurement, infrastructure and farmer training, allowing the number of farmers to grow at a much faster pace than it could have managed otherwise.

    According to Gunda, growers, including many tobacco farmers, have been lining up to join the project—and they appear to have been pleased with the performance of the fungi. “Just one crop of mushroom allowed me to pay school fees and buy fertilizer for my maize,” says one JAT grower. A colleague lauds the fact that, unlike tobacco, mushrooms are good for health and don’t require him to chop down trees.—T.T.

  • From Imports to Orchards

    From Imports to Orchards

    Photos: Taco Tuinstra

    Rebuilding the banana value chain

    Until the late 1990s, bananas were big business in Malawi. The industry employed between 2 million and 3 million people and completely satisfied domestic demand. But then a nasty plant virus hit. Banana bunchy top virus (BBTV) wiped out production, forcing many former Malawi banana farmers to find alternative livelihoods. Today, the country relies almost entirely on imports. More than 90 percent of bananas consumed in Malawi are now purchased in Tanzania and Mozambique, which demand to be paid in precious foreign currency.

    Supported by the Centre for Agricultural Transformation (CAT), Lilongwe-based Hortinet is working to reestablish banana production in Malawi. Through its efforts, it aims to create employment, reduce imports and offer Malawi an additional source of income while diversifying the country’s economy and reducing its heavy reliance on tobacco exports.

    Bananas are a popular food in Malawi, so there is opportunity for import substitution, according to Frank Washoni, executive director of Hortinet. “Currently, we are exporting jobs,” he says. “This is something our smallholders could be doing if they get the appropriate support.”

    The strategy to deal with BBTV requires banana growers to uproot and burn their infected bananas and replace them with disease-free imported planting materials. The biggest challenge has been accessing clean planting materials. Until recently, there were no proper banana seed systems in Malawi. Because the existing crop strand had outlived its economic lifespan, there were no proper systems to supply banana growers with clean planting materials to reestablish their orchards.

    To address this problem, Hortinet in 2019 established Malawi’s first commercial banana tissue culture lab, allowing it to produce large quantities of planting materials in a short time. Hortinet gives plantlets to smallholder growers, negotiates production contracts and provides extension services. “At the end of the season, we buy the product—banana fruit—for either distribution or value addition,” says Washoni. Among other things, bananas can be used to make flour and chips.

    However, while Hortinet has the experience and technology, it lacked the means to scale up its out-grower project and supply the desired 700 farmers. So the CAT, as part of a five-year project, helps Hortinet train potential banana growers at its smart farm. The idea is that, after five years, Hortinet will have sufficiently grown to self-finance its continued expansion to more smallholder farmers.

    Washoni believes the potential domestic market is considerable. “According to the ministry of agriculture, we lost more than 25,000 hectares representing at least 10 metric tons of bananas each,” he says. “Today, we are importing 20,000 tons per year, supporting only the urban areas—so there is still a big deficit.”

    Hortinet is determined to make a dent in that deficit. By the end of next year, it wants to distribute at least 1 million plantlets and establish a minimum of 500 ha of banana production with its contracted smallholders. With a plan to add 500 ha each year, Hortinet will have supported the establishment of 2,000 ha by the end of four years.

    Washoni views bananas as a good opportunity for farmers looking to diversify. At the CAT smart farm, Hortinet demonstrates how profitable the fruit can be compared to other crops. While the initial payback period is longer than for tobacco, bananas offer multiple returns each season. “Once in the ground, you might harvest on a quarterly basis,” says Washoni. At 15 tons per acre, the potential yield per unit of area is also high. And other than water, bananas require few inputs. Farmers can get away with organic manure and limited amounts of inorganic fertilizer. What’s more, bananas require relatively little land. “Even on a plot of only 20 [meters] by 20 meters, it might make economic sense for the farmer to put in an orchard,” says Washoni.

    The next step will be to establish a structured market. Unlike tobacco, which has multiple players, a dedicated regulator and a well-developed system for selling and buying, there is no comparable infrastructure for bananas in Malawi. According to Washoni, it’s a work in progress. “Once we hit a critical mass, we will need an organized market,” he says. Right now, our priority is to get production going.”—T.T.

  • A ‘Greenprint’ for Change

    A ‘Greenprint’ for Change

    Photo: ArieStudio

    The environmental challenges presented by disposable vapes can be addressed without banning the category.

    By Stefanie Rossel

    Over the past few years, sales of disposable vapes have skyrocketed in many markets. Future Market Insights valued the global disposable e-cigarette market at $6.34 billion in 2022 and expects demand to increase at a compound annual growth rate of 11.2 percent between 2022 and 2032, reaching $18.32 billion by 2032. In both the U.K. and Germany, the world’s No. 2 and No. 3 vape markets, respectively, the disposable segment now dominates the market with a share of more than 60 percent.

    Disposable e-cigarettes are particularly popular among new users as these products come ready to use. There’s no need to fill up, press buttons or recharge. The single-use products, which can deliver up to 600 puffs—the equivalent of approximately three packs of cigarettes—don’t require any technical knowledge and are activated by drawing on them. They can be purchased almost anywhere where cigarettes are sold, which makes them attractive as an impulse buy. Nicotine salts offer a smooth vaping experience without a harsh throat hit, and sweeteners can be added without worrying about long-term contamination of the device as it is intended for short-term use anyway.

    While disposables play a significant role in weaning smokers off combustible cigarettes, they are also increasingly attracting criticism. There are concerns not only about youth uptake but also about their environmental impact. Several countries, including France, Scotland and Belgium, are considering banning disposable vapes for this reason. In early May, Australia announced the prohibition of single-use e-cigarettes.

    Like refillable devices, disposable vapes consist of a hard plastic shell, a metal heating element, a circuit board and a lithium-ion battery cell. They contain heavy metals and chemicals as well as nicotine-containing pods. In contrast to multiuse products, they are discarded after the last puff, thus posing a significant environmental burden. Some manufacturers and retailers offer takeback and recycling programs, but many vapers are unaware of the schemes. In addition, most users are oblivious to the fact that the products are electronic waste that need to be disposed of at recycling centers or returned to retailers; they simply throw the devices into the household trash.

    Due to their construction, dismantling vapes is a difficult, costly, time-consuming process that involves a lot of manual work. As a result, instead of being recycled, many disposable vapes are incinerated, which is a waste of valuable raw materials. According to a Financial Times calculation conservatively assuming a $5 billion vape market in 2022, the more than 90 million tons of lithium used to manufacture e-cigarettes that year was enough to supply more than 11,000 electric vehicle batteries while the 1,160 tons of copper contained in the devices would suffice to produce more than 16 million home electric vehicle chargers.

    John Dunne, director of the UKVIA

    Without proper regulation, there are obvious dangers that those who see vaping as their only way out of smoking will be forced to either switch back to cigarettes or risk buying products on the black market.

    Backdoor Prohibition

    While sharing the environmental concerns raised by critics, industry leaders believe there are better ways to address the problem than through bans. “We have seen in other countries that banning products will lead to smokers who were giving up [cigarettes], or planning to, returning to smoking,” says John Dunne, director general of the U.K. Vaping Industry Association (UKVIA). “There is also the risk that you just feed a black market in vaping products; you just have to look to the Australian model, where all vapes are banned except on prescription, which has led to a huge black market problem. Without proper regulation, there are obvious dangers that those who see vaping as their only way out of smoking will be forced to either switch back to cigarettes or risk buying products on the black market—with all the inherent risks involved in an unregulated market.”

    Without spelling it out, EU regulators are preparing for a ban nonetheless. In December, the European Parliament and the council reached a provisional agreement to overhaul EU rules on batteries. The Battery Regulation, set to be passed this year, stipulates that 3.5 years after the rule comes into force, the batteries in portable devices must be removable and replaceable by the user. For disposable vapes, the new rules mean a de facto ban from the end of 2026.

    Dustin Dahlmann, president of the Independent European Vape Alliance, observes that an increasing number of single-use e-cigarettes is already switching to reusable systems. “This doesn’t happen merely for environmental reasons but also because of cost. We are convinced that this trend will continue. Manufacturers of disposable vapes increasingly launch their products as reusable versions. This is welcomed by consumers, not least because it makes vaping more affordable.”

    All retailers, he adds, are obliged to point out the correct disposal of one-way products to consumers. “Our campaigns in the past received positive feedback, and we are convinced that they have had a noteworthy effect. It’s also clear, however, that education of consumers must be continued at all levels.”

    Manufacturers of disposable vapes increasingly launch their products as reusable versions.

    There’s a Better Way

    In the U.K., a similar review of battery legislation has been delayed twice. The country has successfully embraced vaping as a tool for reducing smoking, but even as many smokers have quit with the help of e-cigarettes, the country has recently witnessed a surge in youth uptake, which in turn has sparked discussion about banning disposables. Such a move, Dunne says, would limit the positive impact of vaping on smoking rates, “and more smokers means more deaths and more cost to society.”

    Instead of talking about bans, vaping advocates say regulators should focus on reducing the negative effects of disposable vapes. “On youth access, the UKVIA has been calling on government to police the sale of vapes to under-18s more effectively through a number of simple steps, including on-the-spot fines for rogue resellers of up to £10,000 ($12,660), up from £2,500,” he says. “On environmental impact, the UKVIA recently held a webinar which brought together politicians, regulators, manufacturers and the waste industry to discuss the issue and subsequently published a 22-point action plan for all stakeholders to help meet the challenge. More needs to be done in both areas, and we remain committed to working with all stakeholders to build effective solutions.”

    Dubbed “Greenprint for Sustainable Vaping,” the plan proposes that retail staff receive enhanced training so that they can properly inform customers about recycling options and the greater cost-effectiveness of multiuse devices. Under the plan, shop operators would also be advised to place prominently located collection points in their stores and encourage vapers to use them.

    Manufacturers and retailers should offer incentives to customers for recycling used devices and develop public information campaigns to normalize recycling so that vapers feel peer pressure to recycle and social shame if they don’t.

    The plan calls for packaging to reinforce the message that vape devices must be recycled and for vape manufacturers to be acquainted with waste processing so that they can design their products in a way that will facilitate recycling. According to the action plan, all relevant vape businesses should be compliant with the Waste Electrical and Electronic Equipment Regulations 2013, the Producer Responsibility Obligations (Packaging Waste) Regulations 2007 and other rules.

    Most vape manufacturers are innovating to make their products more environmentally friendly, says Dunne. “For example, one brand I know of is going to be launching a single-use device later this year which is over 50 percent cardboard and uses biodegradable silicon in place of plastic. Another challenge for the waste companies is actually dismantling devices, and this is also an area where manufacturers are working hard to make the process easier. We’re not there yet, but there is lots of focus on this issue, and I am optimistic that the various stakeholders can work together to find workable solutions.”

    Dunne says there is a simpler way of preventing youths from buying disposable vapes and at the same time limiting the waste problem than introducing taxes on single-use e-cigarettes, as has also been debated. “It is smokers from a disadvantaged background—who are generally in the highest smoking rate areas—who will be hit hardest by a tax on vapes, and for every one of them who returns to smoking as a result, that is a step back for all of us,” he says.

    “There is a much better solution staring us in the face. There is currently a maximum fill level of 2 mg of e-liquid in a vape, single-use or otherwise, and this arbitrary number has no logic to it, safety or otherwise. If the government were to introduce a minimum fill level of 10 mg, you instantly achieve a number of things; firstly, the price would rise to around £15 or more, pricing out underage users, and you would reduce the environmental impact by 80 percent overnight.”

  • A Gamble on Goobers

    A Gamble on Goobers

    PAM Managing Director Ronald Ngwira (left) examines fuel pellets created with leftover shells from the company’s groundnut operations. | Photo: Taco Tuinstra

    Pyxus has great expectations of its Malawi groundnut business

    Like many of their customers, tobacco merchants in Malawi have been exploring supplemental lines of business—not only to ensure their future as cigarette consumption stagnates but also to help their contracted farmers develop supplemental sources of income.

    Pyxus Agriculture Malawi’s (PAM) contracted tobacco farmers often cultivate nontobacco crops, including groundnuts, maize and sunflowers. Measured by weight, its growers already produce four times more food than tobacco. As part of its efforts to improve farmer livelihoods and the communities in which they live, Pyxus has been working to find markets for some of these crops.

    The company has high expectations, especially for groundnuts, which are nutritious sources of protein, vitamins and dietary fiber. Among other health benefits, groundnuts are credited with preventing heart diseases, lowering bad cholesterol and improving fertility. Common products made from groundnuts include cooking oil, herbal supplements, butter and snack items. Groundnuts are also used as a source for animal fodder. There are three categories of groundnuts: the Hausa groundnut, the Bambara groundnut and the peanut.

    Driven by consumers’ growing appetite for protein-rich and plant-based foods, global demand for groundnuts is increasing by 4 percent per year. Market Research Future projects the value of global peanut sales alone to reach $107.4 billion by 2030. Malawi has grown groundnuts for decades. “In the 1980s, Malawi used to be a big exporter to Europe,” says PAM Managing Director Ronald Ngwira. Currently, however, Africa is a net importer of groundnuts; global supply is dominated by Argentina, India and the United States. Malawi produces 447,421 metric tons of groundnuts—less than 1 percent of global cultivation.

    A Good Match for Malawi

    In addition to enjoying strong global demand, groundnuts are suited to Malawi’s conditions. Due to the country’s landlocked location, agricultural exports must travel long distances to ports in either South Africa or Mozambique. As a semi-perishable product, groundnuts are able to tolerate such journeys without requiring expensive cold storage.

    What’s more, groundnut plants release nitrogen as they decompose, improving soil fertility and allowing farmers to reduce their fertilizer bill. Soil health has been a major concern in Malawi, where farmers struggle with high levels of acidity and insufficient levels of organic matter due in part to deforestation and less-than-optimal agricultural practices.

    Another benefit: Leftover shells from Pyxus groundnut operations can be converted into fuel pellets and green charcoal, reducing the need to cut trees for firewood and potentially saving thousands of hectares of forest. This is a big deal in Malawi, where few people have access to electricity and the majority of the country’s rapidly growing population burns wood as fuel for cooking and energy. Wood is also used by farmers to build barns and cure tobacco. Industry typically relies on coal to fuel its activities. According to Ngwira, the use of groundnut shell-based fuel has already allowed Pyxus to reduce AOTM’s factory reliance on coal by 40 percent.

    One challenge that has been holding back Malawi groundnut production is the quality of its plant varieties, which has constrained quality and productivity. To unlock the potential of groundnuts for Malawi, PAM has been researching better cultivars. Over the past few years, the company examined 1,000 strains from around the world. Looking for varieties that are high in protein, climate-change resilient and resistant to disease, PAM selected four types and presented them to the ministry of agriculture for approval. The company then invested in irrigation, mechanization and multiplication of the improved varieties to boost farmers’ yields and incomes.

    Boosting Volumes and Quality

    Tapping into its large network of tobacco field technicians, Pyxus also started offering extension services to groundnut farmers. “We have more than 150 qualified extension officers training farmers on a daily basis to assist farmers achieve better yields and quality while also ensuring track-and-trace capabilities to export into international markets,” says Ngwira. At 1 metric ton per hectare, average groundnut yields have traditionally been low in Malawi. With better cultivars, inputs and agricultural practices, however, it should be possible to increase those yields to 3 metric tons per hectare, according to PAM. Ngwira says the company will follow the same journey it took when implementing the integrated production system in tobacco, where years of farmer training resulted in substantially improved productivity and loan recovery rates.

    PAM’s investments in groundnuts are paying off already. In 2021, Malawi’s government set the minimum selling price of groundnuts at MKW330 ($0.32) per kilogram. Owing to the quality produced by its contracted farmers, Pyxus was able to offer a minimum price of MKW440 per kilogram, according to Ngwira.

    PAM is also tackling the problem of aflatoxins, poisonous carcinogens produced by certain molds that can impact agricultural crops. Historically, Malawi groundnuts have suffered from comparatively high levels of aflatoxins, but with better agricultural practices, such as quick drying to prevent the formation of fungi, it is possible to reduce contamination to below the tolerances prescribed by export markets.

    In March 2022, PAM inaugurated a $3 million processing factory in Lilongwe’s Kanengo, where it not only cleans, shells and sorts the groundnuts but also turns the leftover shells into fuel pellets. Built in a disused tobacco warehouse, the facility employs more than 100 people and has the capacity to process 50,000 tons of groundnuts per annum. It is the largest groundnut shelling plant on the African continent outside of South Africa.

    Addressing Malawi President Lazarus Chakwera and other dignitaries attending the opening ceremony, Ngwira noted that factory was key to unlocking Malawi’s potential for agricultural industrialization—which is in line with the government’s commitment to promote exports through value addition for agricultural crops.

    Ngwira is excited about the prospects for Malawi groundnuts. In addition to growing demand from major markets such as China and India, there is also a huge appetite for the product regionally. “Currently, most Malawi groundnuts are exported to the Lake Victoria region,” he says. Already home to more than half a billion people, the area’s population is projected to grow significantly. “Malawi can help supply the protein to feed those people,” says Ngwira.

    To cater to the anticipated demand, PAM aims to rapidly expand its contacted farmer base from about 7,000 smallholders at the time of the factory opening to about 30,000 in the future. In the process, it will not only create additional sources of incomes for its contracted farmers but also provide Malawi with a welcome supplement to tobacco as a source of much-needed foreign exchange.—T.T.

  • Raising the Next Generation

    Raising the Next Generation

    Photo: JTI

    JTI steps up its investment in new nicotine products.

    By George Gay

    Having been asked to write about Japan Tobacco International, I immediately headed for the company’s website, where the following question jumped out at me: Who is JTI? Even though I have become used to the fact that, in some jurisdictions, corporations are, from a legal standpoint, treated as though they are individual people, the word “who” struck me as oddly personal. I would have glided past the question “What is JTI?” a point that probably was in the minds of those who constructed the site.

    There are some advantages in conferring anthropomorphic status on a company, but the idea can raise negative images too. People grow old, they retire, become increasingly feeble (take my word for it) and eventually die. But, on the other hand, they form relationships and produce offspring.

    And, stretching the metaphor toward its breaking point, this, of course, is the direction of travel of JTI. The company still offers, and will for the foreseeable future offer, traditional tobacco products, but a new-generation company is emerging and offering new-generation products (NGPs), including e-cigarettes, heated-tobacco products (HTPs) and nicotine pouches. The relationship between the parent and offspring is still obvious, but the latter will increasingly be making its own way, and the resemblance will gradually fade.

    From Words to Action

    I write that with some confidence—with much more confidence than I would have had a week ago—because a few days back, the U.K. government announced that “1 million smokers will be encouraged to swap cigarettes for vapes under a pioneering ‘swap to stop’ scheme designed to improve the health of the nation [England*] and cut smoking rates.”

    “As part of the world-first national scheme, almost one in five of all smokers in England will be provided with a vape starter kit alongside behavioral support to help them quit the habit as part of a series of new measures to help the government meet its ambition of … [making England] smoke-free by 2030—reducing smoking rates to 5 percent or less,” a government press note said.

    What difference, you might ask, does one jurisdiction make in the grand scheme of things when JTI has a presence in about 130 countries? Good question, especially since the press note, in many respects, left the U.K. government sitting on the same old fence from where it was trying to promote vaping as a method of quitting smoking while suggesting that it was going to make vapes less attractive because of the perceived threat they posed to young people. Nevertheless, I think the announcement represented a sea change. In the past, the authorities in the U.K. have been willing to state categorically that vaping is far less risky than smoking, but this is the first time to my knowledge that they have demonstrated they are so sure of this position that they are willing to take what can only be described as decisive—though admittedly limited—action.

    And if, as most of the people who read this magazine probably believe, such action, properly implemented for as long as necessary, succeeds in reducing smoking rates significantly from what is already a low base, then England can only become an exemplar that other countries interested in reducing smoking rates will be almost bound to follow.

    Even with the World Health Organization raged against NGPs, with the U.S. Food and Drug Administration less than supportive of NGPs and with scientists steeped in conspiracy theories feeling happy to muddy the waters around NGPs, a real-time, real-life, nationwide case study will be hard to ignore, assuming tobacco smoking does, as we’re told, take a toll on economies.

    During 2023, significant investments toward HTS will be necessary to establish the foundations for the JT Group’s future earnings growth.

    Riding the Wave

    Although JTI, as the tobacco market leader in the U.K., will be negatively affected by any reduction in sales of traditional products, it is, at the same time, in a good position to take advantage of any transition that might occur to NGPs in England. There it sells Logic Compact, a closed-tank e-cigarette, and last year it launched in London its Ploom X HTP, an updated version of Ploom S. And it offers, too, Nordic Spirit nicotine pouches, which were launched in the U.K. in 2019.

    Looking further afield, in October, Japan Tobacco and Altria signed a joint venture agreement to market HTPs in the U.S. with Ploom-branded devices and Marlboro-branded consumables, for which, according to a Nikkei Asia report in the middle of April, they plan to have FDA marketing approval by early 2025. They also signed a long-term, nonbinding global memorandum of understanding to explore commercial opportunities for a wide range of reduced-risk products (RRPs).

    Meanwhile, in introducing JT’s 2022 earnings report, Masamichi Terabatake, president and CEO of the JT Group, made much of the company’s ambitions in respect of NGPs. “We continued to make progress in the … RRPs category, with Ploom X increasing share in the HTS … segment in Japan and the launch of Ploom X in London,” he said.

    “2022 marked the first year of the newly combined tobacco business structure, which has successfully strengthened our business fundamentals and capabilities through various initiatives. More is to come, especially regarding HTS—our RRP investment priority over the 2023–2025 business plan—with the acceleration of Ploom X market launches. This will support our 2028 ambition to reach break-even in the RRP category, by achieving an HTS segment share in the mid-teens across key HTS markets. During 2023, significant investments toward HTS will be necessary to establish the foundations for the JT Group’s future earnings growth.”

    Increased RRP investments are seen as the route to building a future of profit growth. And investments are set to be significant. According to the Nikkei Asia report, JT is aiming to spend $2.25 billion during the next three years on its heated-tobacco operations, two-thirds of it on marketing beyond its core Japan market. It is understood to be planning to launch this year Ploom X on more than 10 markets where HTPs are already established and at least 20 markets by the end of 2024.

    Terabatake told Nikkei Asia that the company’s ambitions for expanding its heated-tobacco investments overseas had been held up by a semiconductor shortage, which meant there were not enough heated-tobacco devices. But, he added, “For 2023, we are back on track for procurements, and we are able to secure more than twice Japan’s supply volume compared to last year.”

    It is worth noting, however, that JTI has not been neglecting its traditional tobacco operations, and, indeed, in the second biennial report on the Tobacco Transformation Index, which, published last year, detailed the findings of two further years of research into the efforts made by the world’s 15 largest tobacco companies to reduce the harm caused by the consumption of their products, the JT Group’s “Product Sales category score was … negatively impacted by the company’s increasing (CAGR 2019–2021: plus-0.8 percent) HRP [high-risk products] volume sales.”

    And JTI, unsurprisingly, is not happy when those volume sales are put under threat, as can be seen from the considerable space it devotes on its website to the illegal trade in cigarettes.

    Calling a Spade a Spade

    Up to a point, I find it encouraging how JTI is willing to call out bad policies for what they are. In one section of its website, it is blunt in pointing out that in imposing extreme regulations on the sale of tobacco products, many countries are creating more problems than they are “supposedly solving.”

    While some try to deny the obvious by saying that sales of illicit cigarettes are not boosted by high levels of cigarette taxes, JTI says on its website that the introduction of ever-steeper tax increases has criminal gangs “rubbing their hands with glee.” It makes the point that consumers who are suddenly priced out of the legitimate market are driven toward the cheaper illicit tobacco options available on the black market.

    JTI does not say this, but, to me, it is self-evident that if a government raises the price of a product to which it says consumers are “addicted,” knowing those consumers are aware of a cheaper source of that product, that government is not making a serious attempt at reducing smoking, just an attempt at reducing recorded, tax-paid consumption.

    It is important to note that JTI is not against regulation of the tobacco and nicotine industries. Indeed, it says at one point that it “supports regulation that conforms to the Organization for Economic Co-operation and Development’s principles of Better Regulation.”

    “These principles can be summarized as openness, participation, accountability, effectiveness, coherence and proportionality,” it says.

    Nevertheless, it calls out, too, the “misguided” moves toward display bans and “plain packaging” despite a lack of evidence that these policies achieve their stated health goals.

    Again, JTI does not say this, but the idea of a government’s ordering graphic health warnings on cigarette packs as a means of putting people off smoking, and then requiring those packs to be placed behind closed doors, seems incoherent. The only people likely to see those graphic warnings on a regular basis are those who are already committed to smoking, so the policy of requiring display bans seems largely aimed at making the life of retailers more difficult.

    I don’t agree with everything JTI has to say about the illegal trade, and there is something that appears on its website that, like the “who is JTI?” question, jumped out at me. I point it out only because I believe it is worth thinking about. The following is part of what appears below a heading that reads, “Illegal tobacco helps organized crime infiltrate local communities”: “In March 2021, an enforcement operation conducted by Russian Law Enforcements resulted in the seizure of one illegal cigarette factory in the Krasnodar area; 10 tons of raw tobacco used in the illegal production; 7.3 million counterfeit cigarettes; and 428,000 cigarette pack blanks.”

    A lot of what appears on the website concerns the claim that the purchase of illicit cigarettes supports organized criminals and terrorists. The question arises, however, as to whether, in an increasing number of countries, the purchase of licit cigarettes does much the same.

    *The reason why this initiative by the U.K. government applies to England only is that responsibility for health matters is largely devolved to the “parliaments” of Northern Ireland (the Assembly), Scotland and Wales (the Senedd).

  • Changing Gear

    Changing Gear

    Photo: Taco Tuinstra

    How the tobacco industry can accelerate transformation

    By Clive Bates

    In the unlikely event that I am appointed CEO of a large tobacco firm, this is what I would do to accelerate the transformation of the business.

    First, I would ask if we really do want to transform the business and, if so, why. Until the board, thousands of staff, investors and stakeholders understand our rationale, what chance is there of bringing them on the journey? This is a more vexing question than it might appear at first sight. Perhaps we would be better off as we are? After all, we make terrific margins on cigarettes; we have tremendous pricing power courtesy of the tax authorities; we are embedded in a comfortable oligopoly that knows how to make money; and, of course, it helps that the product is addictive, and the customers are loyal to our brands.

    In contrast, the transformation is toward a volatile and diverse market, intense competition holding down margins, the ever-present danger of being caught flat-footed by rival innovation, fickle customers pursuing the next new thing and the potential for illicit entrants flooding the market. Why would we want that? The answer is that we don’t get to choose. Even if we could join forces with all other tobacco companies, we cannot individually or collectively hold back this transformation and restore the situation as it was before 2010. This is because consumer preferences and competition from nontobacco companies drive it. The ship has sailed. Our only viable strategy is to compete ferociously for market leadership in the new product categories. We need to deepen our explanation of the drivers of transformation and set out our transformation rationale clearly and rigorously. For inspiration, we will look to the scholars of creative destruction, diffusion of innovation and corporate strategy: a little more Harvard Business Review and a little less New England Journal of Medicine.

    Second, we need to sell high-quality, compliant products that people want to buy as alternatives to cigarettes and make good money by doing it. Apologies if this is a statement of the obvious, but it is the core function of businesses undergoing a market transformation. Everything else is froth. Fortunately, the impetus for this is all too clear: competition and the threat of rivals converting our cigarette smokers to their smoke-free products and, equally, the opportunity to convert their customers to become ours. Some in public health suspect that Big Tobacco would like to hold back innovation and slow down the rate of transformation. However, Big Tobacco is an imaginary construct comprising companies that compete intensely. A company that tries to hold back innovation will not fare well at the hands of its innovative rivals. The aggregate effect of all the companies pursuing competitive advantage in new product categories will be the primary driver of transformation. Ironically, the primary drag on transformation will be legislators, regulators and tobacco control activists intervening to throttle innovation and uptake of new technologies. Yet, it would be a mistake to rely on “useful idiots” to protect the cigarette business. Their attitudes and ideas could change with as little as the stroke of a philanthropist’s pen.

    Third, we should engage with the environmental, social and governance (ESG) investing community. ESG is the new language for “ethical investment.” There are really three types of ESG investing: (1) taking stakes in virtuous companies that do not trigger exclusion criteria, of which “tobacco” would always be one. This route is closed. (2) To back emerging world-changing companies, though these are difficult to spot in advance and few in number. (3) So-called “engagement investing,” where ESG investors buy into companies with a significant problematic health, social or environmental burden and pursue improvements. By reducing negative footprints, this form of investing has the potential to do more material good for society than the other two. For tobacco companies, ESG engagement would endorse a transformation strategy with external validation and accountability.

    Fourth, we must master the future of nicotine and its place in society. Nicotine is a popular recreational stimulant for a reason and not just because it is “addictive.” Tobacco companies have been understandably shy about discussing nicotine and why there is a demand for it. But companies are in the consumer nicotine business—it is the reason they exist and why they have a future. As consumer nicotine products are becoming smoke-free and far less harmful, the main deterrent to nicotine use—the health risks of smoking—is becoming weaker. The decades-long controversy about tobacco is shifting its focus from severe smoking-related diseases, such as cancer and chronic obstructive pulmonary disease, to concern about nicotine use and addiction. Most people understand and accept why there is a demand for alcohol and caffeine, and many understand the demand for cannabis. But who really understands the demand function for nicotine once this is no longer conflated with smoking? People use nicotine for pleasure and stimulation, to modulate mood, stress and anxiety, and for a range of cognitive improvements. Nicotine may interact beneficially with various health conditions, including attention-deficit/hyperactivity disorder and Parkinson’s disease. As a society, we should not be recommending or endorsing nicotine use, but we should surely have a better understanding of why people use it.

    Fifth, to the extent possible, we should agree with other transformation-minded businesses on the optimal regulatory and fiscal approach. We routinely state that excise and regulation should be “risk-proportionate,” but what do we mean by that in more detail? How should we approach contentious issues, such as youth uptake? We should be (and be seen to be) leading the thinking and marshalling of the evidence base for risk-proportionate regulation. This requires some careful judgements: we must avoid erecting excessive barriers to entry to smaller players, or we risk looking (and being) predatory, and our approach will be dismissed as cynical and expedient and generate opposition among potential allies. The regulatory environment may evolve over time and may contain dependencies. For example, some of the stricter measures to address cigarettes must be accompanied by readily available and well-understood pathways to smoke-free products.     

    Sixth, we must be more assertive scientifically. Just as the industry’s science provides high-quality insights into tobacco harm reduction and reduced-risk products, it is increasingly excluded from conventional publishing platforms and scientific fora. The exclusion is not accidental or merely a misunderstanding based on historical industry malpractice. Nor is it likely to change. It is because a significant share of the academic community rejects the strategy of harm reduction and, therefore, the science that supports it. For many, it is seen as “the nicotine maintenance survival strategy of Big Tobacco” and thus to be opposed, whatever its benefits to health and welfare. The way to address this is to fully embrace the ideas and principles of the open science* movement. The industry could produce or sponsor publicly accessible scientific resources that are category-wide, such as living reviews of biomarker or toxicology studies or informative behavioral research. We should engage credibly, respectfully and systematically to challenge poor-quality science, misleading interpretations and policy recommendations that go far beyond the science that supposedly justifies them. The lack of accountability and redress in tobacco control science has created cavalier attitudes to scientific rigour that would not be acceptable within the industry. Consistent with an open science approach, we should acquire and release all relevant market data to the independent research community and allow them to interpret it. If substitution effects are real and a transformation is proceeding, this is the best form of validation.

    Seventh, we may need an organizational vehicle to advance the transformation agenda for the industry as a whole. The tobacco industry is not homogenous. Many companies, notably the state-owned monopolies, are not interested in transformation and profit mightily, at least in the short term, from the prohibitions promoted by the World Health Organization and its fellow travelers. Yet, all the tobacco multinationals generally recognize the transformation imperative and decline to be seduced by the Bootlegger and Baptist implicit bargain with tobacco control activists. This group must find its voice—not as a conventional trade association but as a cross-industry body dedicated to an idea. It would delineate the territory of common category-wide interests (e.g., greater public understanding, a common regulatory agenda, marketing standards, environmental issues, scientific engagement, etc.) from inter-company competitive interests (pricing, product launches, etc.).

    Finally, something we should not do. We should resist the temptation to use regulation for short-term gain by supporting regulation that helps us and hinders our competitors. Over the longer term, our opponents will selectively adopt the restrictive and reject the permissive measures we back. What appears to help us today may harm us a couple of years from now as we develop new products or acquire new businesses. Our goal should be an enduring fiscal, regulatory and communications environment that works for smoke-free categories as a whole. That will create a rules-based context for competition between companies and an attractive alternative to illicit trade.