Category: Print Edition

  • That Fleeting Scent

    That Fleeting Scent

    Photo: kasetch

    The FDA’s proposed ban on menthol cigarettes and cigars remains highly controversial.

    By Stefanie Rossel

    Almost exactly a year after the European Union imposed a ban on the manufacture and sale of menthol cigarettes, the U.S. Food and Drug Administration said it would ban menthol as a characterizing flavor in cigarettes and cigars at the federal level. With the move, the agency hopes to significantly reduce youth initiation to smoking, increase the chances of smoking cessation among current smokers and address health disparities experienced by communities of color, low-income populations and LGBTQ+ individuals, all of whom are more likely to use these tobacco products, according to acting FDA Commissioner Janet Woodcock.

    The proposed ban, announced on April 29, has been under discussion for more than a decade. While the 2009 Family Smoking Prevention and Tobacco Control Act (TCA), which gave the FDA regulatory authority over tobacco products, banned all characterizing flavors in cigarettes, it allowed the continued use of menthol cigarettes but instructed the agency to consider what to do about the additive. The FDA’s recent decision was forced by a federal lawsuit brought by public health groups in 2020 after the agency failed to respond to their 2013 petition, which called on the FDA to ban menthol products.

    Menthol can be extracted from mint plants or made synthetically. In tobacco, it is used to mask the harshness and irritation caused by cigarette smoke. The minty flavor creates a cooling, slightly anesthetic sensation, which, according to a 2013 FDA report, makes cigarettes more appealing to new smokers, thus getting them more easily addicted. The substance is also believed to increase the degree of addiction; menthol smokers are reportedly less likely than nonmenthol smokers to successfully quit smoking despite having a higher urge to end their tobacco dependence. Around the globe, mentholated smokes account for about 10 percent of cigarette consumption, according to the World Health Organization.

    In the U.S., menthol cigarettes represented 36 percent of all cigarette sales in 2018, according to the Centers for Disease Control and Prevention. Although U.S. smoking prevalence has dropped below 40 million, the share of mentholated cigarettes has risen significantly after the TCA prohibited all other characterizing flavors.

    What makes the FDA’s proposed ban controversial is the fact that menthol cigarettes are also considered a racial justice issue in the U.S. According to the 2019 National Survey on Drug Use and Health, 85 percent of African American smokers smoke menthol cigarettes compared to 30 percent of white smokers and compared to less than 10 percent of African American smokers in the 1950s—a situation that critics attribute to racially targeted marketing strategies by the tobacco industry. African Americans typically smoke fewer cigarettes and start smoking at an older age than white smokers, but they die from tobacco-related illnesses at much higher rates, CDC data indicates.

    Menthol cigarettes also appeal to Hispanic (48 percent) and Asian (41 percent) smokers, according to the survey, whereas about half of smokers aged 12–17 smoke menthols compared with about 40 percent for smokers aged 18 and older. With a market share of 49 percent, menthol cigarettes also featured prominently in in the LGBTQ+ community.

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    Great Expectations

    The FDA expects its proposed ban to have a significant impact. A Canadian study quoted by the agency suggests that the measure would prompt an additional 923,000 U.S. smokers to quit, including 230,000 African Americans, in the first 13 months to 17 months after taking effect. According to an earlier study, such a measure would avert 633,000 premature deaths, including 237,000 African American deaths.

    While many public health and civil rights groups welcomed the FDA’s decision, lauding it as a win for both public health and racial justice, critics cast doubt on the health effects and warned that it could create more problems for minorities.  

    “In this country, we have found out that prohibition doesn’t work,” says Jeff Stier, senior fellow at Taxpayers Protection Alliance. “The ban is supposed to protect African American smokers, but they are likely to switch to a different, nonmenthol combustible cigarette brand or buy their mentholated cigarettes on the black market. We already have a pretty active illicit market; a ban would make it even worse.”

    In the view of some civil rights organizations, a ban on menthol would create new, unwelcome opportunities for negative interactions between law enforcement and Black Americans.

    The FDA plans to implement its ban by 2022, but experts expect a flood of lawsuits from the tobacco industry. Apart from a long fight regulators may face in court, along with resistance in Congress, most notably from tobacco-state lawmakers, the process of shaping respective legislation is likely to take time as it will comprise two detailed proposals that are open to public comments and will then be reviewed by the White House. When the FDA last proposed to ban menthol cigarettes in 2013, it received 174,000 public comments. The agency is obliged by law to read every single one and consider them carefully.

    Questionable Effect

    While several countries, including Brazil and Turkey, have banned menthol cigarettes over the past decade, data on the impact of the measure remains scarce. Studies from Canada show that smokers of menthol cigarettes were considerably more likely to quit their habit altogether after that country banned menthol cigarettes nationwide in 2017. A more recent study by the National Bureau of Economic Research in Cambridge, Massachusetts, USA, however, concludes that there was “almost no direct evidence on [the] effects” of a menthol cigarette ban “using real-world policy variation.” The study also found that many youths switched to nonmenthol cigarettes and that many adults started buying their menthol cigarettes from Native Canadian reserves, which are exempted from the ban. With a pre-ban market share of 5 percent, the Canadian menthol cigarette market is also more like that of the EU, where menthol cigarettes account for 7 percent of all cigarette sales, than that of the U.S.

    The EU prohibited the manufacture and sale of menthol cigarettes in May 2020. The ban extends to the sale of rolling tobacco with mentholated filters or papers. Exempted from the ban are menthol-flavored e-liquids for vape products, separately available mentholated smoking accessories, menthol-flavored oral nicotine pouches and cigarillos. Outside of Germany, mentholated consumables for heated-tobacco products (HTPs) also remain legal.

    Cigarette manufacturers responded with innovative solutions to the ban. Apart from broadening their portfolios of menthol-flavored and mint-flavored reduced-risk products (RRPs), they introduced mentholated flavor cards, which smokers could buy separately to mentholate conventional cigarettes. Tobacco companies also started offering cigarillos with mentholated filter capsules. Cigarillos are exempt from the EU ban as they are wrapped in tobacco leaf.

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    Choosing Alternatives

    To determine whether the EU ban met its objective of discouraging people from smoking or encouraging them to quit, Euromonitor International, on behalf of the Foundation for a Smoke-Free World, surveyed more than 6,000 adult menthol cigarette smokers in eight EU countries before and after the menthol cigarette ban. While the pre-ban surveys queried awareness and intention to quit or switch, the post-ban surveys queried behavior.

    Main takeaways of the surveys included a lower rate of quitting smoking completely (8 percent) than indicated in the pre-ban survey (12 percent) and higher use of products that allow consumers to manually add a flavor to regular tobacco products. Thirteen percent of respondents said they had started buying products such as menthol flavor cards or menthol filter tips after the ban as opposed to 8 percent who had the pre-ban intention to do so.

    Thirty percent of respondents said they had reduced consumption of menthol cigarettes after the ban. Twenty-eight percent indicated they had stopped smoking menthol cigarettes but continued to consume regular cigarettes (pre-ban intention: 35 percent). Twelve percent said they had stopped consuming menthol cigarettes after the ban but increased their consumption of nonmenthol cigarettes (pre-ban intention: 13 percent). Eighteen percent stated post-ban they had switched to other menthol products not affected by the ban, such as menthol cigars, cigarillos, e-cigarettes and HTPs (pre-ban intention: 19 percent).

    Thirteen percent had started buying menthol cigarettes from other sources (pre-ban intention: 12 percent), more precisely from friends or family who had travelled to countries where menthol cigarettes were still legal or from online retailers shipping from other countries.

    Interestingly, when unprompted, only 43 percent of respondents considered menthol cigarettes to be illegal in the post-ban surveys. While 10 percent were unsure of the legal status of menthol products, 27 percent still believed them to be legal or to be banned in the future (20 percent).

    Harm Reduction Instead of Prohibition

    Interestingly, the EU menthol ban appears to have nudged smokers a bit toward less hazardous forms of nicotine consumption. Of the 18 percent of respondents who said they had switched to other menthol products not affected by the ban, the majority chose RRPs. On average, 57 percent of respondents said they had switched to e-cigarettes, with the highest percentages being observed in Poland (67 percent) and the U.K. (57 percent), two markets with high vaping prevalence. Overall, 12 percent of switchers indicated they had switched to nicotine-replacement therapy products.

    It’s a development Stier would like to see in the United States, which has yet to fully embrace the concept of tobacco harm reduction by promoting products such as e-cigarettes and snus as safer alternatives to combustible cigarettes. “Instead of going back to prohibition that will bring about unintended consequences, we should encourage smokers, as they do in the U.K., to quit smoking and switch to lower risk vape products. The FDA is sitting on applications to authorize these e-cigarettes now. Instead of banning products the African American community smokes, it should undo the misperceptions surrounding RRPs, offer better alternatives and be truthful about the risks,” he says.

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  • Scientific Partnerships for Sustainable Change

    Scientific Partnerships for Sustainable Change

    Photo: BAT

    Options for the tobacco industry to demonstrate its responsible approach

    By Stephane Colard

    The objective to limit or even to ban tobacco is on the health and regulatory agenda. The so-called endgame strategy is an official goal in countries such as New Zealand1 and Ireland.2 More globally, the World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC) was adopted by the World Health Assembly in 2003 and has been ratified by more than 180 countries to date. This convention is composed of a set of articles to reduce tobacco demand and supply and is seen as an accelerator for sustainable development.3

    Even if a total ban seems unrealistic at the moment because politicians know that prohibition leads to criminality, tobacco product manufacturers cannot ignore this objective and its possible consequences on the performance of their tobacco business, which is legal. It appears clearly that such a regulatory agenda will have massive impacts along the whole value chain from the production of the raw material up to sale, and sustainable value creation may well require serious business transformations in the near future.

    Article 5.34 of the FCTC recommends to “denormalize and, to the extent possible, regulate activities described as ‘socially responsible’ by the tobacco industry, including but not limited to activities described as ‘corporate social responsibility.’” These elements tend to show that corporate and social responsibility (CSR) initiatives having the sole objective of improving the image of tobacco companies will be combatted and will fail and that the needed tobacco business transformation for ensuring sustainable value creation will not be an easy journey; it will succeed only if CSR initiatives support a genuine ambition and if corresponding impacts are assessed with internationally acknowledged methods.

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    There are several options for the tobacco industry to demonstrate its responsible approach: compliance with regulations (mandatory); ISO certification or other acknowledged standard(s) (voluntary); disclosure of relevant information to the public and/or the authorities (mandatory or voluntary); and scientific research and publication in peer-reviewed journals (voluntary). The possibility to link company strategies with the United Nations’ Sustainable Development Goals5 is also an opportunity to consider.

    The U.N. recognizes that a successful sustainable development agenda requires partnerships between governments, the private sector and civil society. The players of the tobacco and alternative product sectors fully understand that no goal can be achieved alone and that partnerships with multiple stakeholders are necessary to meet sustainable development ambitions. For example, some manufacturers prepare their program for child labor prevention in collaboration with the Eliminating Child Labor in Tobacco-growing Foundation (ECLT) and the International Labor Organization (ILO), and others contribute to WASH6 programs led by UNICEF.

    Dialogue and co-development of solutions to the issues faced by business partners, such as suppliers and retailers, are also collaborative approaches for building a sustainable future together. The misinterpretation of article 5.37 of the FCTC tends to forbid any contact with the tobacco industry, and the strategy of denormalization and isolation aims to prohibit partnerships. However, how could one improve the population health without encouraging or collaborating with the industry to develop and sell reduced-risk alternative products? How could one help millions of tobacco farmers worldwide to combat poverty and hunger without working with them on diversification? How could one combat criminal organizations making profits by the illicit trade of tobacco products without collaborating with the legal businesses? More pragmatically, how could one align government and industry testing laboratories without collaborative studies?

    Science should step away from politics, and there is no good reason for justifying absence of partnerships or reluctance to build them in total transparency. This would simply delay the implementation of positive changes. The U.N. underlines that partnerships shall be built upon principles and values, and this is why it is crucial for the tobacco industry to make the meaning of the word “sustainability” very clear in the context of partnership.

    It does not mean building partnerships for a sustainable development of tobacco businesses; it means building long-term partnerships to support transformation enabling the creation of sustainable shared value. It is essential to make a distinction between partnership types, as there are at least four different levels of engagement and shared responsibility: a partnership to elaborate a program that the manufacturers will own and manage autonomously and independently; a partnership to prepare a consensual program that the partners will own and manage together; a partnership to prepare a consensual program that a third party will manage; and a full delegation to a partner for elaborating and managing a program.

    There is always a reason to choose one type of partnership rather than another, depending on the level of interaction, shared responsibility or independence expected. Each type of partnership can be justified and understood for some given situations, but the reporting of partnerships in a public integrated report should be associated with a transparent communication of the governance rules. The analysis of the degree of interaction and interdependence between stakeholders and the related risks is an essential step because a key stakeholder involuntarily ignored and isolated (for example, the community) could impair the success of the joint project; ISO Standards 26000 and 440018 provide useful guidance in this area.

    Transparency is a way to avoid misinterpretations or even the worst suspicions that can totally undermine the good intentions of the partners. Governance is a way to avoid unintended consequences of partnerships, for example, a conflict of interest. The need for science-based methods for assessing impacts of actions for transformation should open a field for transparent and productive scientific partnerships, contributing to accelerate the U.N. agenda and to achieve a shared vision of a better world. There are principles and values in science that are universal (common to public and private sectors), such as transparency on assumptions and results, honesty and clarity in interpretations or capacity to replicate experiments.

    The process of peer-reviewed publication is also a good protection against junk science; the fact remains that several journals have decided not to publish any work from scientists working for, or from independent scientists working with, the tobacco industry9, peer-reviewed or not. However, it is unfortunate to observe that too many battles of numbers still highlight a lack of consensual methods among specialists, which extends the time spent on discussions and finally postpones the implementation of actions. An example illustrates this point: In 2018, the WHO published a global environmental footprint10 relative to cigarette smoking. The document reported a 2.6-ton carbon dioxide equivalent per million cigarette sticks while British American Tobacco and Philip Morris International reported 0.79 ton and 0.6 ton carbon dioxide equivalent per million sticks, respectively. The WHO was unable to understand why the figures were different but assumed a difference in scope and varying assessment methodologies. This point highlights a need for more transparency in scope and consensus in methodologies even if general publicly available protocols already exist.11

    An association like Coresta,12 promoting cooperation, can be the platform that the stakeholders need. It is in a privileged position to initiate new scientific and transparent partnerships and forge a consensus on methodologies for measuring the transformations of tobacco companies, far from political positioning, strategic fragmentation and the isolation of legitimate players.

    References:

    1 www.health.govt.nz/our-work/preventative-health-wellness/tobacco-control/smokefreeaotearoa- 2025

    2 https://health.gov.ie/wp-content/uploads/2014/03/TobaccoFreeIreland.pdf

    3 www.who.int/fctc/implementation/publications/who-fctc-undp-wntd-2017.pdf?ua=1

    4 www.who.int/fctc/guidelines/article_5_3.pdf

    5 www.un.org/sustainabledevelopment/sustainable-development-goals

    6 Water, Sanitation and Hygiene

    7 www.who.int/fctc/guidelines/article_5_3.pdf

    8 ISO 44001 Collaborative business relationship management systems—Requirements and framework

    9 See www.tobaccoreporter.com/2016/06/bat-criticizes-science-censorship

    10 www.who.int/fctc/publications/WHO-FCTC-Enviroment-Cigarette-smoking.pdf

    11 See, for example, the Carbon Disclosure Project www.cdp.net/en and the GHG protocol https://ghgprotocol.org

    12 www.coresta.org

    Stephane Colard is secretary general of Coresta.
  • Messy Market

    Messy Market

    Photo: Taco Tuinstra

    Ukraine’s anti-monopoly committee tries to break up a cartel it helped create.

    By Stefanie Rossel

    June 1, 2021, marked another step toward the end of a multimillion-dollar anti-competition lawsuit brought against four tobacco manufacturers and a distributor in Ukraine. On that day, the country’s Supreme Court ruled that a UAH460 million ($16.87 million) fine imposed by the Antimonopoly Committee of Ukraine (AMCU) against Imperial Tobacco Ukraine (ITU) and Imperial Tobacco Productions Ukraine for alleged violation of antitrust legislation was groundless.

    The Supreme Court found that Imperial’s Ukrainian subsidiaries had not been involved in the events that had unlawfully left the country with only one cigarette distributor. In a press release, Imperial Tobacco Ukraine’s CEO, Ratislav Cernak, welcomed the decision, saying it was an encouraging sign for all foreign investors in Ukraine. The ruling followed the overturning of similar fines for British American Tobacco and Tedis in February and for Philip Morris International in April 2021. At the time of writing, Japan Tobacco’s case was still pending before the Supreme Court.

    In October 2019, the AMCU imposed a record fine of UAH6.5 billion—one of the biggest in the country’s history—on the local affiliates of PMI, BAT and Imperial Brands, along with Tedis Ukraine, the country’s largest tobacco distributor, for conspiring to eliminate competition in cigarette distribution. The committee claimed that the tobacco companies and Tedis had conspired to keep new businesses from entering the market. The companies appealed but lost their cases in the first instance court. Both manufacturers and the American Chamber of Commerce (ACC) in Ukraine expressed concern about the anti-competition trial, arguing the defendants had not been given full access to the evidence on which the AMCU based its allegations and that insufficient attention was paid to the companies’ arguments during the trial.

    The AMCU then asked the court to collect fines from all accused companies and freeze funds on their bank accounts, which could potentially have led to a manufacturing halt. In the face of such pressure, some of the companies paid up. However, some defendants also made clear their intention to defend their rights as foreign investors in arbitration.

    On Dec. 21, 2020, PMI filed a lawsuit for bilateral investment arbitration at the International Center for Settlement of Investment Disputes in Washington, D.C., claiming their fine violated bilateral agreements on mutual protection of investments with the United States and Switzerland. Previously, the ACC had cautioned that such high-profile disputes, which involve consideration by international bodies and make Ukraine, not the AMCU, a party to the dispute, usually gain international publicity and could have a negative impact on Ukraine’s image among foreign investors. The organization had called for a quick, transparent and fair solution.

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    Self-Made Problem

    The story behind the AMCU’s antimonopoly accusation is long and contradictory. Tedis and its predecessor company, Metropolis Ukraine, have repeatedly been the subject of legal challenges for antitrust behavior. Metropolis was founded in 2010 as a subsidiary of Megapolis, a Russian firm. At that time, it held 50 percent of the Ukrainian tobacco market, in which more than 50 cigarette distributors were operating. After a scandal that allegedly involved supplying weapons to the separatists in the war in Donbas in 2016, the company changed its name to Tedis Ukraine.

    Gradually, the company took over most of its competitors, with the AMCU approving the acquisitions. As of 2020, Tedis ranked eighth in the Forbes’ “Top 100 largest private Ukrainian companies” rating, generating an annual turnover of UAH49.7 billion. In 2019, Tedis aimed to generate a turnover of UAH60 billion, the company’s CEO Taras Korniachenko said in an interview with liga.net. According to Wikipedia, the company is one of the country’s largest taxpayers, employing 2,500 people spread over 35 regional branches in 2020. 

    According to openforbusiness.com.ua, which quoted AMCU spokesperson Olha Pischanska, Tedis’ share of the Ukrainian market rose to 99 percent between 2013 and 2015 but decreased to less than 75 percent by 2019. She pointed out that in addition to Tedis, other companies were buying cigarettes from manufacturers.

    Soon after Tedis had been cleared of the October 2019 charge, it was fined UAH274 million by the AMCU, which in March 2021 said that the company had not complied with an earlier ruling. In December 2016, the antitrust committee claimed that Tedis had abused its monopoly position between 2013 and 2015 and imposed a UAH431 million fine on the firm. The AMCU had also ordered the company to restore competition in the tobacco market. Tedis said it planned to appeal the most recent ruling, calling the decision “completely unfounded.” In an official statement on its website, it announced that it had fully paid the original fine in 2020 and fully fulfilled other obligations imposed by the AMCU.

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    Declining Legal Market

    About one-third of Ukraine’s 45.4 million people smoke, according to worldpopulationreview.com. With a joint share of more than 90 percent, PMI, BAT, JTI and Imperial Brands dominate Ukraine’s tobacco market. They also rank among the country’s 10 largest taxpayers. In 2020, the country exported €227 million ($268 million) worth of cigars and cigarettes to the European Union.

    Despite high domestic demand, cigarette sales in Ukraine have declined over the past few years. In 2019, the country produced 51 billion cigarettes, 15 percent less than in the previous year, a greater decrease than in the years 2011 to 2017 together, Imperial Brand’s country general manager said in an interview. His counterpart at PMI Ukraine expected a similarly steep drop for 2020.

    Tax revenues from tobacco account for about eight percent of Ukraine’s total state budget. In the past years, the country has repeatedly raised the excise duty for cigarettes, most recently by 20 percent in January. Presently, the specific rate of excise duty is UAH1,088.64 per 1,000 cigarettes, and the minimum rate is UAH1,456.33 per 1,000 cigarettes. Taxation accounts for around 70 percent of the pack price in Ukraine.  

    The former Soviet republic is one of the poorest countries in Europe, with an average nominal salary of €300 ($354) in 2019. Amid rising prices of legal smokes, the illegal cigarette market in Ukraine has flourished: According to PMI Ukraine’s CEO, the share of illegal cigarettes—including smuggling, counterfeiting and cigarettes with counterfeit excise stamps—has grown from 1 percent in 2016 to 9 percent in 2020.

    Ukraine is also the No. 1 country of origin for illicit cigarettes trafficked into the EU. In 2018 alone, inflows from Ukraine accounted for more than 4 billion cigarettes, according to the European Commission. Until recently, smuggling tobacco to other countries was not illegal in Ukraine. In April 2021, after years of pressure from the EU, Ukrainian President Volodymyr Zelensky introduced a bill that would make trafficking a crime punishable by up to 12 years in prison and a significant fine.

    Important Matter

    Solving the tobacco cartel dispute is essential for Ukraine as this is part of the Association Agreement between with EU that entered into force in September 2017. The contract establishes a comprehensive free-trade area between the parties and commits Ukraine to economic, judicial and financial reforms to converge its policies and legislation to those of the EU. Among other things, it requires the parties to “recognize the importance of free and undistorted competition in their trade relations.” The EU is Ukraine’s largest trading partner, accounting for more than 40 percent of its trade in 2019. Ukraine is preparing to formally apply for EU membership in 2024.

    To break up the monopoly, the country’s cabinet published a resolution in September 2020, which foresees the establishment of a national operator in the tobacco market by the end of 2021. Starting out as a pilot project, the operator’s task will be to combat tax evasion, smuggling and counterfeiting by introducing a track-and-trace system. The move is supposed to attract investment and is expected to add more than $535 million to the state budget.

    Critics, however, fear it would cement Tedis’ leading role and boost the illicit tobacco market. Legal challenges to the plan have been filed already. Ukraine’s road to EU membership is likely to be a long one.

    Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.
  • Rebirth of an Icon

    Rebirth of an Icon

    Photo: Rizla

    The legendary Rizla brand gets a makeover.

    By George Gay

    Having been told that the Rizla brand of rolling papers was being given “a very significant refresh to ensure it remains relevant, particularly for younger adult smokers,” I couldn’t help wondering how it was possible to know when a brand needed such a refresh. The answer, it turns out, is fairly simple, at least in theory. Andrew (Drew) Marfleet, the head of marketing for Rizla, told me during a Teams meeting toward the end of June that, in large part, it was a matter of asking the brand’s consumers.

    Rizla, he said, had been talking to consumers for more than a year, and the feedback had included the message that, while during the past few years, changes had overtaken societies, the way consumers viewed brands and the way many brand owners presented their products, Rizla’s image had remained largely unchanged.

    The message was clear and the solution seemingly simple, but this was not quite the case. In refreshing the brand, a number of other factors had to be taken into consideration, not least of which concerned the fact that while consumers wanted change, they were at the same time greatly attached to Rizla’s “iconic and legendary” status. Now words such as iconic and legendary are often bandied about where they really have no place, but this is not the case with Rizla. The Rizla brand, which was acquired by Imperial Tobacco, now Imperial Brands, in 1997, dates to 1796 and the granting of a license by Napoleon Bonaparte to the Lacroix family for the supply of its premium rolling papers to his troops, while the Lacroix family’s involvement with paper can be traced back to at least 1532 and Pierre Lacroix.

    So there was something of a conundrum to confront because here was a rock-solid brand but one that had been around for the sort of timespan over which even rocks wear down. In other words, there was a tightrope for the marketing people to walk in trying to stay true to a venerable brand dating back more than 200 years, while bringing its image up to date. As Marfleet told the people around him, “no pressure then.”

    In fact, negotiating the tightrope required an even trickier balancing act than is implied here. In recent times, Rizla has seen an uptick in demand from those in the 21–30 age group, and it was focus groups largely made up of such people who expressed a desire for a refresh. But the brand’s core consumers are men aged 35 and above, so any refresh needed to be mindful not to alienate them. Unsurprisingly then, Marfleet made the point that this group of older consumers also had been kept close to the research, though, ultimately, he added, it had been about listening to all of the brand’s consumers and keeping them at the center of everything that had been done.

    I guess this approach goes to the heart of marketing, which is defined briefly as being about identifying consumer needs and determining how best to meet them. But care has to be exercised here; otherwise, like me, you can make an altogether wrong assumption. This refresh is about marketing, so these “needs” have to do with the brand messaging, not the product itself.

    Visual Positioning

    So, if the product remains the same, what is involved in a brand refresh? Well, according to Marfleet, it is ultimately about the brand’s strapline. “It is the visual positioning of the brand and the way that the brand communicates itself,” he said. “So, for as long as we can remember, Rizla has had the strapline of Never Settle [as, for instance, in: Keep Discovering—Never Settle; and Keep Creating—Never Settle]. What we have moved to, again after listening to our consumers, is celebrating our heritage and our legacy in a modern way. And that has led to our new brand positioning, which is, Roll with the Legend—Since 1796.”

    Beyond the strapline, Marfleet said, the refresh was more generally about brand communication, which, of course, raises another question. Isn’t the communication of tobacco and tobacco-related products and brands banned in many jurisdictions, which certainly include most of the markets where rolling-tobacco products and accessories are popular?

    Rizla was definitely limited in how it could communicate its message, Marfleet admitted, but it would be making changes in those channels open to it. So, instore materials would be changing, as would the brand’s online digital presence. A more specific example of the changes being made concerns a shift away from the sponsorship of motor sports and toward music and culture in general. Rizla has supported culture in the past, but now it is shifting all of its brand partnership efforts toward music and culture, which resonates more with the brand’s current consumers. Such a shift can be seen also in Rizla’s launch of a digital partnership with the global media platform Dazed, which positions it in the area of supporting emerging artists.

    Return on Investment

    This is a global refresh that, at the time I spoke with Marfleet, had been rolled out in two key Rizla markets, Italy and Spain, and that was due to be introduced elsewhere in the coming months. It was designed by the Rizla marketing team in close cooperation with a creative agency during a year and a half of weekly workshops that decided, following the sifting of something like 10 iterations, on the new brand positioning.

    The Covid-19 pandemic raised some challenges in respect of these workshops, but the overriding challenge, Marfleet said, had been ensuring that those working on the project got it right. In other words, the crux of the matter is: has it worked as a marketing project, and will it be successful as an investment? Well, apparently there has been excellent feedback after rigorous testing, and consumers in both the 21-plus and 35-plus age groups are said to love the refresh.

    But rolling papers comprise a niche product, and tobacco smoking is under attack, so will the market hold up to such an extent that the investment will turn out to have been worth it? Marfleet clearly believes so. The RYO market, which was the subject of healthy competition, was quite stable at the moment as a result of downtrading, Marfleet said, and Rizla had definitely seen an uptick in those aged 21-plus picking up on RYO. “Given the stable market and our predictions, we definitely feel that the investment into the brand refresh is completely justified and will pay off,” he said.

    Custom Manufacturing

    Of course, while Rizla says its products are aimed at the world’s adult tobacco smokers, it is likely that it will benefit from changes in some jurisdictions where marijuana smoking is being legalized. But on the other side of the coin, market challenges could be thrown up by revisions to the EU’s Tobacco Products Directives (TPD) and regulatory changes made by the U.S. Food and Drink Administration. However, Marfleet said these issues were on Rizla’s horizon. “What I can say is that we are proactively planning for multiple scenarios, especially with the TPD, so that we will be ready to take action whatever the outcome of that may be,” he added.

    Meanwhile, there was another, unofficial focus group that was regularly kept appraised of what was happening with the refresh: the approximately 200 people who work at the Rizla rolling papers factory in Belgium, which supplies the world with such papers. And, according to Factory Manager Kris Smedts, all of the people working at the factory, who make up a wide range of ages, loved the refresh.

    The factory, which was built in 1958 and which, over the years, has been expanded and automated to provide for an annual manufacturing capacity of up to 100 billion paper leaves, spread over a staggering number of SKUs (stock-keeping units), is located on the south side of Antwerp, at Wilrijk. It uses lean manufacturing techniques and is managed by an MRP (manufacturing resources planning) system because, though paper booklets might appear to comprise a simple product, their interleaved presentation is difficult to achieve, especially at high speeds, and the addition of innovations such as cut corners (to ease rolling) and pack-closing mechanisms have, over the years, added to the complexity of manufacture and logistical handling.

    Another layer of difficulty is added because, since rolling papers are a niche product, it is not possible to buy off the shelf the machinery for manufacturing and packing it, so it has to be developed by the factory’s own engineers working with specialized partners. And because rolling papers comprise an evolving product, the factory has a special product development team that works on the design of the new or modified machinery required to manufacture the innovative products needed to stay ahead of consumer demands.

    Finally, despite the refresh, some things will not change, or not much. During my chat with Marfleet, I mentioned a fairly raunchy Rizla marketing campaign used a good while ago, and he agreed that the brand’s marketing archives included campaigns that had been “on the edge of cheeky,” though, over the years, the cheek had been toned down in line with new advertising regulations. Nevertheless, he said, we’ll never forget that Rizla should always be a fun and quirky brand.

    George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.
  • The World is a Stage

    The World is a Stage

    Photos: TAI Group

    The TAI Group employs the principles of acting to improve human interactions in corporate teams.

    By Stefanie Rossel

    It’s a universal truth: A leader is only as good as his or her team. And a team is only as good as its leader. To jointly achieve top results, optimal human interaction is key. This is particularly true in a business environment characterized by external pressures and transformation as is the case in the tobacco industry. Motivating a group of individuals around a product that faces moral and ethical condemnation on a global scale can be a demanding task for a leader. As the sector gradually transitions from combustible cigarettes toward less hazardous products, its players face new challenges, such as recruiting people from pools that are not traditional for the tobacco industry, for instance, consumer electronics or pharmaceuticals.

    An unusual approach to enhance human interaction under such difficult circumstances comes from the New York City-based TAI Group. Founded in 1979 as an acting school, the company uses the processes and skills that performers practice. Unlike your typical acting school, TAI started by helping actors understand themselves as artists. “We would ask them questions like, ‘Who are you? What gets you out of bed in the morning? What are you trying to say with your art, beyond just getting another gig?’” explains Gifford Booth, TAI’s co-founder and CEO. In 1996, the company was hired by one of the world’s leading consulting firms to take the principles of the performing arts into the corporate world. “We applied the same methodology we’d always used with the artists we coached,” says Booth. “We helped these corporate men and women understand their identities as leaders. Then we helped them develop communication skills to reach a broad spectrum of audiences. It turned out that as the participants came to express themselves more authentically, their leadership presence grew more compelling. Their interpersonal skills expanded. That is why they became better salespeople and grew more effective as team leaders and mentors. That is why the culture around them began to shift. As they became more collaborative, so did everyone in the environment.”

    Since then, TAI has worked with leading global companies and startups alike across a span of industries and on six continents. Asking the right questions is still at the heart of the company’s human interaction solutions, Booth points out. “To this day, the power of our work begins and ends with helping people connect to what drives them, what they want to create for themselves and others and how to align and mobilize others around a vision.”

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    Creating awareness

    Curiosity informs every part of TAI’s relationship with a client, he adds. “Our solutions are experiential and exponential. Whether we are working with leaders, teams or brands, we start with the interactions and experiences of the individual.”

    When a leader understands what drives them and what they want to cause through their role, they are better able to create and build teams. When team members understand each other’s aspirations, values and motivations, they align more naturally around what they have in common. When individuals, regardless of role, can speak with ease about what they need from relationships and surroundings to be at their best, they are more likely to create a culture that invites collaboration, learning, innovation and accountability.

    “Imagine this developmental work taking hold with a leader and team that you know,” muses Booth. “Can you see the kind of clarity, connection and energy that is created? When leaders who are authentic, empathetic and skilled at inspiring action join forces with teams that are collaborative, innovative and accountable, the results are immediate and measurable.”

    The company aims to develop resilient, aware and high-performing individuals. “We do this by supporting them to bring to life how they best operate in the world, to uncover the meaning and motivation under every action, decision and interaction. We know that when a person is guided by their essential drivers, they embody a natural self-confidence, develop resiliency and consistency and have ‘a bias for action.’ This self-awareness coupled with communication tools, informed by the principles of the performing arts, gives them the skills and flexibility to adapt to any audience to make the impact they aspire.”

    The program is also designed to align, connect and motivate teams, which are supported to uncover an unwavering purpose, sourced from shared values and principles, which establishes meaning and motivation specific to the group. A third pillar is grounding innovative and high-performing brands in conscious commitment. “When innovative, high-performing brands use an unwavering purpose, sourced from shared values and principles, to influence their actions and communication, they act with conscious commitment,” says Booth. “They become grounded in attitudes and behaviors that engender trust, connectedness and selflessness. Acting from a place of conscious commitment to align vision, strategy, business models, policies and communication ensure that brands continuously walk the talk.”

    A the participants in TAI’s training sessions learn to express themselves more authentically, their leadership presence grows more compelling.

    Into the limelight

    In contrast to other executive coaching programs, TAI’s clients actively participate, improvise and create in the moment, learning how to enhance their impact and confidence by practicing the skills needed to deal with real-time needs and challenges. “Our work is designed to create and accelerate the development of subconscious memory, so-called muscle memory. Once a client or participant has inculcated the ideas and behaviors so that they don’t require conscious thought and effort, they save a lot of mental energy and can work harder and get more out of their actions with less effort.”

    Asset-based and encouraging, TAI’s methods of working are the opposite of bullying and browbeating, according to Booth. “And they do take a bit of courage and willingness, there is no doubt about that,” he says. “My colleagues have an uncanny way of drawing people out so that even the most introverted participants experience their impact.”

    While he and his colleagues come from the theater, Booth insists they are not offering acting classes, but educating participants how to make the best use of well-established acting techniques. “Stepping onto a stage is an act of courage, no matter how many times you’ve done it,” he says. “Actors establish a presence by practicing breathing techniques, being conscious of their posture and controlling their energy.”

    To fully understand what they have to say and what they want to cause in others by saying it, an actor analyzes the character they are about to play. They create a relationship with the audience by investigating their reactions and sensing their energy, and they become skilled at giving and receiving feedback. Performances are honed and perfected through candid assessment and constant reinvention.

    “Rehearsal and practice are necessary,” Booth emphasizes. “A work is perfected through experimentation, imagination and play. Actors try things, see if they work, and then adopt them or try something else. You can substitute the word leader for the word actor in any of the examples above to understand how the theater informs our work. We create a learning laboratory for businesspeople to practice finding their presence, analyzing their character, creating a relationship with their audience, giving and receiving feedback—and to rehearse it all again and again until it is a part of them.”

    TAI works on the universal principles that enhance human interactions: Know yourself. Value relationships. Communicate in a way that has impact. Collaborate. Innovate. “These elements are not new, but since our background is in theater, we have a unique way of using them with others. We know that when they are actively employed, the show goes on. People know their parts, and they execute them with commitment and energy. When we have the best of everyone, when we’ve created the conditions for full participation and contribution, the result is the best production that can be.”

    TAI’s approach is doing the opposite of teaching people to fake it. “Bad acting—something we call ‘schmacting’—is surface,” he says. “As an audience, we see it, feel it—and ultimately we won’t buy it. Powerful acting, the kind that moves us emotionally and intellectually, is rooted in deep truths. Quality acting training is based on the authenticity of the individuals. Acting schools don’t train young women to be copies of Meryl Streep nor young men to be George Clooney clones. Acting training is based on bringing out the unique characteristics of the individual. In that same way, we don’t want to turn anyone into a fake, robotic leader. We fight against that. We want you to lead from who you are with your unique style and strengths. We encourage your own excellent character to inform your personal leadership. When you lead from this place, rather than from who you think you should be, the results are startling and abundant.”

    When a leader understands what drives them and what they want to cause through their role, they are better able to create and build teams.

    Gifford Booth, co-founder and CEO, TAI Group

    Targeting the C-suite

    First and foremost, TAI’s offer is targeted at executive-level managers. “This kind of work, which is literally about changing behavior, must be supported from the top down,” underlines Booth. “Any time real change must be rolled out, top management will find this kind of work invaluable because they need their leaders to go out and light fires.”

    The company’s work, however, is also useful for emerging leaders tasked with incentivizing their business units. “These people are usually younger and may have a different kind of energy about them,” says Booth. “They might use a different language, and they must create relationships so that the strategies they communicate can cascade down to where the action is.”

    TAI also works directly with human resources leaders who have their fingers on the pulse of their people, Booth adds. “Their ability to move people forward, to help people work with each other well, is paramount to success. Enhancing human interaction is a way to do that.”

    The TAI methodology has been designed to prepare its participants to be able to cope with changes occurring after the coaching has been concluded. Every time the membership of a team changes, the task or focus changes, or the leader changes, the group moves through some fundamental stages of development, Booth explains. “Roles must be established and clarified. Goals and objectives must be articulated. Expectations and values around interpersonal dynamics must be investigated and explored. Communication is key to moving through the process. Teams who have worked with TAI have a blueprint for how to approach a new alignment. Because the work is experiential and requires the attention and input of every participant, the work is memorable. One of our greatest sources of satisfaction is knowing that the work can be replicated by those who have participated in it. We teach a group, and they teach the next group.”

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    Into a new role

    Helping leaders to communicate beyond ambiguity is an important part of TAI’s work, especially in controversial industries, such as tobacco. “We can assist the industry’s transformation by helping executives and their teams align with the new corporate strategies and effectively cascade those communications company-wide. We can help them prototype the communications they want to share. We can help them know what their stakeholders require from them to listen, understand and act. We help them mitigate risk by having them rehearse, clarify and learn in real-time.”

    Philip Morris International (PMI) has made use of TAI’s services for the past 15 years. TAI helped the cigarette manufacturer to face conflicts and challenges that their leaders confront every day, Booth says. In their coaching, TAI dealt with questions such as how a PMI leader could create lines of ethical clarity for its employees on selling a product with considerable health risks, how they could hold to the line of a global strategy in the face of complex local political opposition or regional law requirements, and how they could motivate a team divided by ethnicity and culture. As the tobacco company moves its business focus toward reduced-risk products, these issues have been complemented by a look at how PMI could bring large-scale technological innovation, i.e., the company’s heated-tobacco product IQOS, to their existing product line and successfully advocate for that product in their global markets.

    “We have helped PMI executives and their teams face these issues head on with no evasion, driven by their values, bringing their full self into these situations, using razor-sharp communication to navigate the complexities, and helping all of their stakeholders to connect, relate, collaborate and create,” says Booth.

    Stefanie Rossel is Tobacco Reporter’s editorial contributor. An experienced trade journalist, she combines sharp reporting skills with in-depth knowledge of the tobacco and vapor industries. Prior to joining Tobacco Reporter, Stefanie was editor-in-chief at Tobacco Journal International, where she worked for a decade. Fluent in English, German and French, Stefanie covers tobacco news around the world. She is based in Germany.
  • Milestone Study

    Milestone Study

    Photos: BAT

    A long-term, randomized, controlled trial of BAT’s glo tobacco-heating product lends credibility to the harm reduction potential of the entire category.

    By Oliver Porritt

    A landmark new clinical study has shown that the health risks of cigarette smoking may be reduced in smokers who completely switch to using tobacco-heating products (THPs).

    The research, carried out by BAT, analyzed the changes in a range of biomarkers of exposure (BoE) and biomarkers of potential harm (BoPH). These biomarkers are linked to oxidative stress, cardiovascular and respiratory diseases and cancer, and they were used to compare the potential long-term effects of smoking cigarettes versus THPs and cessation.

    Published in the Journal Internal and Emergency Medicine, the results suggest that smokers who switch from cigarettes to exclusive use of BAT’s flagship THP, glo, may benefit from a similar reduction in the risk of developing a number of smoking-related diseases as those who stopped smoking entirely.

    To find out more about the study and its implications, Tobacco Reporter caught up with BAT’s director of scientific research, David O’Reilly, whose team led the work.

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    Speaking from Liverpool, where he was attending this year’s Global Forum on Nicotine (GFN), O’Reilly said the paper represented a significant moment for both his company and the product category as a whole. “This is a milestone event because this groundbreaking study is the first time the world has seen a successful long-term, randomized, controlled trial of any tobacco-heating product. Until now, no one else has been able to demonstrate over a sustained period that when you switch from cigarette smoking to exclusive use of a THP like glo, the biomarkers of potential harm are reduced to levels similar to that of cessation. This study was long in the planning, and it required careful execution, but when we reviewed the results, we were delighted,” said O’Reilly.

    “The biomarkers of exposure go down rapidly, so we weren’t expecting to see any substantial improvements between the positive results we published in an earlier paper, featuring our three-month data, and what we found at six months. But with BoPH, you need to conduct longer studies for beneficial changes to occur. That’s why the six-month data was more important to us than either the three month or even the twelve month time slots. In fact, we aren’t really expecting it to change significantly beyond this point. By the time you get to six months, the cohorts have stabilized in their BoPH. We would anticipate that the 12-month data will provide further validation of this set of results, but the halfway point is therefore absolutely pivotal in this year-long study, and we are very pleased with what we’ve seen,” O’Reilly noted.

    While this study focused on our flagship THP, glo, we would be the first to say that this research also importantly supports the category of tobacco-heating products as a whole.

    David O’Reilly, director of scientific research, BAT

    “Every one of the studies we’ve done on glo, and indeed the work we’ve carried out on our other platforms, is important because they all add to the evidence base for these products, further demonstrating that, while they are not risk-free and are addictive, they are reduced risk if individuals quit smoking and move to them completely. But some types of evidence carry more weight than others, and a long-term, clinical, randomized, controlled study assessing BoPH carries a lot of weight indeed.

    “I think this study, along with many others that we and others have published, also adds to the evidence that tobacco harm reduction should be adopted as a tobacco control and public health policy because it’s likely to contribute to the reduction in morbidity and mortality from cigarette smoking.”

    He added, “This has been a very successful project, but we have also learned a lot of things that we’ll take into our upcoming studies. Over the next three years, we have around 30 clinical trials planned, and we anticipate that in the future these could be executed in a shorter time period. This is really important because the sooner we obtain this kind of data, the sooner we can engage with external stakeholders and give governments and consumers the confidence that for smokers who would otherwise continue to smoke, switching to these products is a positive thing to do.”

    This clinical study was carried out at four sites in the U.K. (Belfast, London, Leeds and Merthyr Tydfil). The participants were healthy smokers or never-smokers of both sexes, aged 23–55, who could go about their day-to-day lives, visiting a clinic just once a month for samples, including blood and urine, to be collected.

    The volunteer smokers who did not want to quit were randomly selected to either continue smoking their usual brand of cigarettes or switch to the exclusive use of glo for the duration of the study. A control group of smokers who did want to quit smoking was offered nicotine-replacement therapy (NRT) and/or varenicline provision if requested, together with cessation counselling, while the never-smokers acted as a control. Across these four groups, a total of 339 participants completed the study to six months.

    Various BoE and BoPH were assessed at baseline and monthly up to 180 days (six months), and this paper presents the results at the halfway point of the full 12-month study. The use of BoPH, in particular, gives researchers the ability to assess the potential health risks of novel tobacco products in the absence of long-term epidemiological evidence. These newer products have simply not been around long enough to evaluate their impact on clinical outcomes such as cancer, cardiovascular disease and chronic obstructive pulmonary disease. These are conditions that can take decades to develop, but BoPH can provide crucial indicators for these events. Indeed, according to the Institute of Medicine’s 2001 report Clearing the Smoke, BoPH are defined as the “measurement of an effect due to exposure; these include early biological effects, alterations in morphology, structure or function, and clinical symptoms consistent with harm.”

    The data from this study show that while the BoE and BoPH remained stable between baseline and six months for the group who continued to smoke, the levels of most BoE reduced significantly for the users of glo, becoming similar to those of the control groups who abstained from cigarette smoking.

    More importantly, for those participants who exclusively switched to glo, the following BoPH also saw a favorable change versus continued cigarette smoking: HDL, WBC, FEV1%pred, sICAM, 11-dTx B2, 8-epi-PGF, FeNO and NNAL, and, with the exception of FeNO and NNAL, these changes were comparable to cessation.

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    To make sure these results were both reliable and meaningful, the team at BAT told participants about the importance of exclusively using the products they had been assigned, for both the cigarette and glo groups, or abstaining from any nicotine products, other than NRT, in the quitting or never-smoker cohorts. But to ensure the glo users were not smoking cigarettes during the study, the clinics also measured a compound called CEVal. This is a hemoglobin adduct of acrylonitrile (N(2cyanoethyl) valine and, as it is only found in cigarette smoke, O’Reilly says it proved to be a very useful biomarker of compliance.

    “In these longer-term studies,” he said, “one of the main challenges has always been knowing whether or not the smokers who have either quit smoking or switched to your test product are compliant because if they’re not, it dilutes the effect of switching in the study and the potential long-term harm reduction associated with switching. To encourage smokers to switch to noncombustible products, you need to have really reliable clinical evidence showing that a complete switch is likely to reduce the risks of developing smoking-related diseases as long as they successfully stay with the product and don’t return to smoking.

    “So another breakthrough of this study is the fact we can now use CEVal to ensure compliance among our study participants. Indeed, more people were compliant in this study than we expected, and it is possible that was at least partly down to the fact they were told we would be using CEVal. So going forward, we think CEVal is a really useful tool that we are contributing to the scientific community, and we would recommend others to use it in their future studies to ensure compliance.”

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    O’Reilly also said that while this study’s findings were an important step forward, they represented just one aspect of BAT’s stated ambition to build “A Better Tomorrow.” “Our purpose is to reduce the health impact of our business,” he said, “and we are doing that with our product portfolio transformation. So, while this study is part of a broader evidence base for glo, at the same time we’re publishing studies relating to our vaping product, Vuse, and our modern oral product, Velo.

    “And while this study focused on our flagship THP, glo, we would be the first to say that this research also importantly supports the category of tobacco-heating products as a whole, and when we’ve completed similar studies on Velo and Vuse, those bodies of evidence will support each of the categories of vaping and modern oral. It’s a really important philosophy at BAT that we build trust in these categories, and that’s not just for our products and brands. With all the current transformation in the tobacco and nicotine landscape, perceptions are changing, but there’s still a long way to go. So I think the fact this study should not just be about one product, but the whole category, is a really important message.”

     

    Oliver Porritt is freelance editorial contributor to Tobacco Reporter. Previously, he worked in the science communications department at BAT.

  • A Long and Winding Road

    A Long and Winding Road

    Photo: dimasobko

    The regulation of flavored cigars in the United States

    By Barry S. Schaevitz and Phil Langer

    In late April 2021, FDA announced its intention to move forward with proposed product standards that would ban all characterizing flavors in cigars and menthol in cigarettes. This announcement, and the ensuing media frenzy, warrants much unpacking and, specifically, examination of three questions in relation to flavored cigars: What historic efforts have there been to ban flavored cigars at federal, state and local levels; is there scientific evidence (or legal precedent) to support an FDA-level flavored cigar ban; and what does FDA’s announcement actually mean going forward?

    Historic Efforts to Ban Flavored Cigars

    This is not the first time FDA has sought to ban flavored cigars. In May 2016, FDA released its Final Deeming Rule regulating cigars (and other products). While the Final Deeming Rule did not ban flavored cigars (or other flavored products), the version FDA submitted to the White House Office of Management and Budget (OMB) did contain such a provision. OMB did not clear the provision; it was subsequently removed and did not appear in the Final Deeming Rule. Thereafter, in 2019, FDA released its Draft Guidance, indicating it would seek to remove premarket review enforcement discretion for certain ENDS products and for flavored cigars that entered the market after Feb. 15, 2007, and before Aug. 8, 2016, an action that would have significantly impacted the flavored cigar category. This action was necessary, said FDA, due to a concern that youth would migrate from flavored electronic nicotine-deilvery system (ENDS) products to flavored cigars. The Final Guidance, however, did not include the section regarding enforcement against flavored cigars and only removed enforcement discretion for certain flavored ENDS products.1 Suffice it to say, FDA has had its eye on banning flavored products, including cigars, for some time. A threshold question, of course, is how would FDA define “flavored”? The Tobacco Control Act itself does not define “flavor” or “characterizing flavor,” and, to date, FDA has not defined either term.

    Separate from FDA, there have been efforts at the state and local levels to ban flavored cigars (and other products) for years, taking various approaches and realizing a variety of outcomes. It is worth noting that different jurisdictions have approached the definition of “flavor” or “characterizing flavor” differently—some focusing on marketing and statements by manufacturers as the sole criteria and some focusing more on the actual manufacturing and underlying ingredients of the products. These various approaches have created different effects throughout the market, making it more noticeable that there is no federal definition.

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    Some prominent examples of state and local efforts to ban flavored cigars over the years include:

    • Maine was the first state to ban flavored tobacco products, with efforts dating back to 2008 when a bill was passed prohibiting the sale of flavored cigars unless they had been on the market prior to 1985. The prohibition was repeatedly amended until it was ultimately repealed, except for its application to nonpremium cigars.2
    • Philadelphia first passed an ordinance in 2007 seeking to ban the sale of flavored cigars in the city, driven in part by a stated interest in preventing youth smoking. The ordinance was ultimately struck down by the Supreme Court of Pennsylvania on the grounds that the ordinance was preempted by state law. In 2020 in a next attempt, Philadelphia made it unlawful to sell flavored cigars (Philadelphia also passed a separate law relating to vapor products), except in a limited number of tobacco businesses. The ordinance was challenged in federal court, and the Eastern District of Pennsylvania enjoined enforcement of the ordinance in November 2020, finding it preempted by state law. The decision enjoining enforcement of the ordinance is on appeal before the United States Court of Appeals for the Third Circuit.
    • New York City passed an ordinance broadly prohibiting the sale of flavored tobacco products in 2009, banning the sale of any “flavored tobacco product” (excluding cigarettes) except in a defined “tobacco bar.” The ordinance was challenged in federal court, and the United States Court of Appeals for the Second Circuit ultimately affirmed the constitutionality of the ordinance in 2013. The flavor ban, however, has two prongs. The first immediately bans products that the manufacturer says are flavored; the second allows the city to seek removal of other products that the city believes are flavored.
    • Massachusetts banned all flavored tobacco products, including menthol cigarettes, effective June 2020. The commonwealth uses a manufacturer “certification” as a means of initially determining if a product is flavored. This statewide ban was preceded by numerous local-level flavored tobacco bans, such as in Bedford and Cambridge.
    • California passed a statewide flavor ban of tobacco products, including menthol cigarettes, in 2020. Much like Massachusetts, this statewide flavored tobacco product ban followed numerous city and county level bans enacted across the state. Enforcement of the statewide ban was postponed until after a voter referendum, scheduled for November 2022. Until that time, it cannot be enforced.

    FDA’s Announcement

    With respect to flavored cigars, FDA announced in April 2021 that it is “working toward issuing proposed product standards within the next year to ban menthol as a characterizing flavor in cigarettes and ban all characterizing flavors (including menthol) in cigars.”3 FDA stated that “with these actions, the FDA will help significantly reduce youth initiation.” According to FDA, “after the 2009 statutory ban on flavors in cigarettes other than menthol, use of flavored cigars increased dramatically, suggesting that the public health goals of the flavored cigarette ban may have been undermined by continued availability of these flavored cigars.” FDA posits that “flavored mass-produced cigars and cigarillos are combusted tobacco products that can closely resemble cigarettes” and “are disproportionately popular among youth and other populations.”

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    Is There Evidence and Data to Support a Ban on Flavored Cigars?

    FDA’s focus on flavored cigars appears to be largely premised on the theory that flavors contribute to youth usage of cigars and that, following the ban on characterizing flavors in cigarettes in 2009, youth moved to flavored cigars. Scientific evidence supporting these positions, however, is lacking. There has not been an increase in youth usage of cigars generally, or flavored cigars in particular, to scientifically legitimize the rationale of the FDA’s ban. As of 2019, only 1.4 percent of youth were past-month cigar smokers, decreasing from 4.1 percent in 2006.4 Similarly, in 2019, only 5.7 percent of high school students were reported to currently use a cigar, a decline from 8 percent in 2017 and 13.6 percent in 2007.5

    Moreover, the 2020 Monitoring the Future Survey (MTF) reported declines in past 30-day use for all types of cigars (regular little cigars, flavored little cigars and large cigars), and flavored little cigar use has continued on a steady decline since 2014 and declined from 5.5 percent in 2018 to 3.1 percent in 2020. The 2020 National Youth Tobacco Survey (NYTS) also reports a significant decline from 2011 to 2020 in high school usage of cigars from 11.6 percent to 5 percent, and the 2020 NYTS reports only 3.5 percent of students of any age using cigars.

    Therefore, while FDA continues to speculate that youth could migrate to flavored cigars in response to a ban on flavored e-cigarettes, there is no data in support.

    In fact, certain industry members engaged Consilium Sciences to determine what the relevant universe of scientific information is, whether this universe has been fully examined and what it shows. As presented at the Society for Research on Nicotine and Tobacco, Consilium concluded that based upon a review of seven publicly available data sources, “the results do not support an association between use of flavored cigar products and differential behaviors related to public health.”

    In its announcement, FDA failed to explain a science-based rationale for pursuing a ban on flavored cigars supported by actual data, instead reiterating speculative concerns and suppositions it has raised in years past.

    The Pros and the Cons

    A federal ban on flavored cigars offers few positives other than the prospect of a federal uniform standard for the regulation of flavored cigars—which is the level at which such regulation should occur, if at all. The panoply of varied regulations on flavored cigars, and the varied definitions of “flavored,” from some of the smallest towns to the largest cities in the country, offers obvious obstacles to compliance for manufacturers, distributors and retailers. It also presents enforcement problems, with multiple, inconsistent restrictions. A federal standard would cure some of these obstacles.

    The cons of a federal ban on flavored cigars are many. To begin, as indicated above, FDA has not yet provided any scientific justification for such a ban. FDA continues to ignore the simple truth that adult consumers should have access to products of their choosing based upon their own informed choice. Instead, FDA continues to make broad pronouncements on the communities impacted by the availability of flavored cigars (such as youth) in the absence of supporting data.

    Further, FDA has yet to address the unintended consequence of such a ban. Regulating entire product categories out of existence almost certainly poses the distinct risk of creating an illicit black market for the products. Or, perhaps worse, a market where consumers or others try to flavor products themselves, using unacceptable substances to do so.

    Another certain consequence of banning flavored cigars entirely would be the loss of tax revenue at both the state and federal levels. While it is difficult to calculate the precise amount of tax collected at both levels from the sale of flavored cigars, the revenue is no doubt significant as the cigar category paid $641 million in federal excise taxes alone in 2019. State taxes increase this number dramatically. Notably, several states tax little cigars (often flavored) at the same rate as cigarettes. These tax revenue consequences are of particular significance in the current federal landscape given that Congress is exploring an increase in the federal tobacco excise tax.

    What’s Next?

    As is usually the case, the road ahead will be long and unpredictable. It could be years before we see a final result. FDA’s announcement represents but a first step toward a ban on flavored cigars. According to FDA, the proposed product standard will come “within the next year.” Even if FDA meets this goal, the proposed rule will be subject to at least 60 days of public comment. This public comment period could—and often does—last even longer. It is not until FDA reviews and considers the comments submitted that it may publish a final rule, which has a lead time to an effective date. Finally, once a final rule is published, it could well be subject to legal challenge, including requests to enjoin its enforcement.

    Only time will tell how quickly and aggressively FDA will pursue a ban on flavored cigars. But FDA’s commitment should—and must—prioritize legitimate science, research and data. FDA’s actions to date on flavored cigars, including this most recent announcement, do not demonstrate that this has yet been part of the process.

    Barry S. Schaevitz is a partner at Fox Rothschild LLP.
    Philip Langer is an associate at Fox Rothschild LLP

    References

    1 See “Modifications to Compliance Policy for Certain Deemed Tobacco Products–Draft Guidance,” Section V, Mach 2019.

    2 The ban applies to all cigars except those that weigh more than 3 pounds per 1,000 cigars and are wrapped in whole tobacco leaf.

    3 This initiative appeared in FDA’s recently released Spring 2021 Unified Agenda, which indicates a target date of August 2021 for a Notice of Proposed Rulemaking. The agenda did not indicate a more specific timetable.

    4 2019 National Survey on Drug Use and Health

    5 2019 Youth Risk Behavior Surveillance System

  • Filling the Gaps

    Filling the Gaps

    Photo: fizkes

    The FDA gifted you a PMTA deficiency letter … what’s your strategy?

    By Willie McKinney and Cheryl K. Olson

    “I read it. And I thought it was over.”

    Anne* held the letter she’d just pulled from the brown and white UPS Express envelope marked U.S. Food and Drug Administration. She recalled last September’s frantic scramble to submit a premarket tobacco product application (PMTA) to keep her specialty vape product on the market. Her little team did the best they could to meet the deadline; she knew there were gaps.

    Now the FDA’s review of her product had reached a new milestone, marked by the small all-caps header at the top of the letter: DEFICIENCY. “Additional information is needed for FDA to make a determination,” it said.

    She stared, speechless, at the 25 pages of highly technical questions—what was HPHC? Puff topography? Abuse liability?—that she had 90 days to answer.

    Hundreds of companies, big and small, submitted PMTAs to comply with a court-ordered Sept. 9, 2020, deadline and to keep their novel tobacco products on the market. At a June 11 virtual meeting with the FDA’s Center for Tobacco Products (CTP) Office of Science, we learned that PMTAs for 6.5 million products from over 500 companies have been processed, with more awaiting attention. Given this crush, there are many people waiting and worrying, with the future of their businesses at stake.

    This article will help you get your bearings in this confusing review process. We’ll explain how to read and interpret a deficiency letter and how to develop a response strategy. Also, you don’t have to wait for that letter; there are things you could do now to prepare.

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    So what is a deficiency letter?

    Let’s step back and review what happens after you submit your PMTA. First comes an acceptance review, typically a low administrative bar to clear. Does the product fall under the CTP jurisdiction? Is your application in English? Does it contain an Environmental Assessment? If it’s all yes, you’ll get an acceptance letter.

    Then comes filing. This involves a preliminary scientific review that ensures the application contains all the items under section 910(b)1 of the Family Smoking Prevention Tobacco Control Act. If it does, you’ll get a filing letter. Your application will move into phase three: substantive review. A team of specialists evaluates the scientific information and data in your application. If there are gaps or questions, the FDA can ask for more information to help them make a marketing authorization decision. That request comes in the form of a deficiency letter.

    Not everyone gets one. But at the June 11 meeting, Office of Science director Matt Holman said the FDA has issued “many” deficiency letters.

    Should I feel happy or panicked?

    If you, like Anne, have a deficiency letter in hand, the answer is both. You should feel excited because you’re well on your way; the FDA has given your application a pretty through review. You should feel nervous because you have 90 days to respond. You’ve got to get cracking!

    How you feel will also depend on what they’re asking you. If, whether by strategy or necessity, your application was light on data, you may get 25 or 30 technical questions. FDA staff need all of that information to finish their evaluation of your application. If you don’t supply it, their decision is easy.

    Many companies were brand new to this regulatory process and invested just enough in their PMTAs to pass the first two phases of review. If that was your strategy, it may not have been a bad one.

    Some people in the tobacco products industry felt the FDA did not want any of these products on the market. They believed the PMTA process was designed for failure. If that’s your fear, and you have a lump sum you’ve made sitting in the bank … do you spend it on expensive tests and studies for an unknown process with an agency that may not like you? Or do you just dip a toe in and see what the response is?

    One client we know said, “I’m not in this for the money. I was a smoker.” The vape product he developed changed his life and the lives of friends and neighbors in his town. So he concluded the PMTA was worth the investment on principle despite the uncertain return.

    But as Anne found, when you get that deficiency letter, there’s no way you can respond on your own. This is a communication from a team of FDA experts, saying what they need from a scientific perspective. You have to decide whether to invest in your own team of experts to address these questions or to say, “I had a good run,” pack up and be done.

    The key point is that you will have 90 days to respond. The FDA has made it clear that during this crunch time, they will send only one deficiency letter. Ninety days is not a lot of time, especially if the letter is requesting additional data—that means new studies and tests.

    Can you get an extension? Maybe. It’s at the FDA’s discretion whether to grant one. It is likely that your odds get better if you can give a rationale for the extension by explaining in detail the work you’re doing to fill those gaps.

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    What’s the best way to answer questions raised in my deficiency letter?

    Both what you say and how you say it are important. First, your narrative. A PMTA is an opportunity to explain to the FDA why having your product on the market is appropriate for the protection of public health (APPH); it’s essentially storytelling supported by data.

    Don’t just contact a lab, get pages of numbers and toss them at the FDA, saying, “We include the data you requested.” You need to understand what data you need, what it shows and how it supports your APPH story. For example, highly variable product data could suggest that you don’t have control of your manufacturing process.

    Second, set the right tone. As the CEO at a company one of us worked for told the FDA, “We may disagree. However, we will not be disagreeable.” That helped build rapport.

    FDA staff deserve respect for their expertise and dedication. But they are human too. They may make a statement about your product that is wrong (especially given the plethora of PMTAs received). Respectfully making them aware of their error is perfectly acceptable.

    Do I have to wait for my letter, or can I respond proactively?

    Prepare in advance and avoid a panicked sprint against that 90-day clock. You may already have a pretty good idea of where your PMTA was lacking. You can check FDA guidance documents for more clues (see “Perception and Intention Studies,” Tobacco Reporter, February 2021, and “Gold Nuggets,” Tobacco Reporter, March 2021). Make sure you’ve done enough to address sensitive issues, such as flavors, youth access, acceptability of ingredients and the ability to switch smokers to your product. Get expert feedback to identify gaps; give priority to filling the ones that take time to address. Then, when your letter comes, the workload will be manageable. And you can get some sleep.

    However, there are no guarantees. This is not a check-the-box exercise. The FDA has made it clear that getting authorized depends on both the information in your original PMTA and your response to questions. If you’ve made a solid data-based case that your product is APPH, the agency will probably come to that conclusion too. If you don’t give them what they need to evaluate, they can’t.

    As of this writing, everyone is still somewhere in the process; FDA had not issued any marketing authorizations for PMTAs submitted in September 2020. But if you haven’t heard about acceptance of your application soon after you read this (by mid-July to late July), reach out to the CTP for an update.

    *A pseudonym

    Common PMTA Gaps Raised in Deficiency Letters

    As consultants, we’re seeing some patterns in the letters our clients receive. Here’s what your PMTA may be missing:

    • Behavioral science: Perception and intention studies and actual use studies. Confused about what the FDA wanted, many companies submitted marketing research data, information on their product category (e.g., consumer perceptions of vaping instead of views on their vape) or just skipped these parts.
    • HPHC (analytical chemistry): A common oversight was testing liquids for toxicants but not testing the aerosol.
    • Limited toxicology review: Either not enough tests or not good enough explanations to show that it’s OK to inhale the ingredients (e.g., there are no carcinogens, or they’re at very low levels).
    • Proof of action: Many PMTAs we’ve read talk about great stuff people do to make their product and to keep it out of the hands of youth. But it’s all talk. They provide no certificates of analysis or data to support what they say. You need details and “teeth.” For example, how and when will you monitor youth purchase attempts? And what are the penalties for failure?
    Willie McKinney is the founder of McKinney Regulatory Science Advisors. He’s held senior regulatory roles at major tobacco product companies and served for three years as the industry representative on the FDA’s Tobacco Products Scientific Advisory Committee.
    Cheryl K. Olson is a California-based public health researcher who specializes in behavioral health issues and consults on tobacco product behaviors. She spent 15 years on the faculty of Harvard Medical School.
  • Back to the Future

    Back to the Future

    Korean smokers have embraced heat-not-burn products not only because of their potentially reduced risk to health, but also because they create less odor than conventional cigarettes. (Photo: KT&G)

    KT&G continues to invest in its heat-not-burn segment while retaining its domestic lead in traditional cigarettes.

    By George Gay

    According to how most of us perceive time, the past, present and future stand separate but in a linear, “progressive” relationship in which past events affect what happens in the present, which in turn impacts the future. It is counterintuitive, but not impossible, however, for a tide of cause and effect to move in the other direction. For instance, we sometimes, though not often enough given the climate emergency, tailor our actions during the present to prepare us for what we think will be happening in the future. It is even possible for the present to influence the past, though, as far as I am aware, this normally involves only interpretations of past events that might be given new perspectives by current thinking.

    However, if you’re willing to use a little imagination, it is possible to identify in respect of the tobacco and nicotine sector a recent instance of the present’s affecting the past. As most readers of this magazine will know, people in South Korea took quickly to heat-not-burn (HnB) products, almost certainly because, in part, the consumer base was generally tech-savvy and eager to move from traditional, combustible cigarettes to what were perceived to be less risky products. But another reason why these new products were quickly embraced was that people apparently liked the fact that consuming HnB sticks created less smell than did smoking combustible cigarettes. That this was deemed important was made clear in a July 2019 report in The Korea Herald in which Japan Tobacco International Korea was said to have announced the upcoming release of its “odor-reduced” tobacco vapor product Ploom Tech.

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    The reaction to the demonstration of this consumer preference was interesting and far reaching. For instance, KT&G established a “Smell Care Center” in 2019 to develop technology that could reduce the smell of tobacco smoke on the breath, hands and clothes of smokers. And the upshot of such developments was that manufacturers started to launch on South Korea’s market combustible cigarettes that, like those available in Japan for many years, created less smell than did traditional cigarettes. KT&G alone has seven what it calls “smell-down” cigarettes on the market.

    So here was a case of the present, in the form of new-generation products, affecting products many people would have said had been consigned to the past. Whether this is progress or regression I shall leave for readers to decide, along with the questions it raises about how consumers view risks and weigh them against perceived benefits. But what is not in question is that the popularity of these newly reinvigorated combustible cigarettes put a dent in the advance of HnB products.

    HnB devices were first introduced to South Korea’s market with the launch of Philip Morris International’s IQOS in June 2017, from which time the HnB sector quickly expanded during the next two years as British American Tobacco and KT&G launched their own HnB devices, Glo and Lil, respectively, and many smokers switched fully to HnB products or became dual users of combustible cigarettes and HnB products.

    But this rapid expansion of the HnB sector was slowed by the success of the reduced-smell combustible cigarettes and by the introduction of government taxation and other policies that led to the prices of HnB sticks and combustible cigarettes, and the regulations governing them, being almost aligned. And, ironically, it was only with the arrival last year of the Covid-19 pandemic that the HnB sector started to recover from this setback, a recovery that was possibly caused in part by people spending more time indoors. In any case, at the beginning of this year, the HnB sector had increased during the previous few months by about three or four percentage points to take it to where it was accounting for about 15 percent of the overall tobacco and nicotine market.

    You can look at this 15 percent figure from a glass half-full or half-empty perspective, but manufacturers seem to be plumping for the former. While acknowledging that 15 percent is a reasonably small share of the overall market, KT&G, for instance, perceives it as pointing to a huge opportunity, and an opportunity that will be realized in part because of a growing focus on tobacco control worldwide. Consequently, manufacturers are putting major efforts into supporting the HnB sector as is evidenced by KT&G, which, since 2017, has launched seven different Lil device variants and 19 different Fiit and Miix consumables, which are the tobacco sticks used with its HnB devices.

    “This year, KT&G will strive to secure a leadership position in the market and seize opportunities in the rapidly changing world economic order.”

    Bok-In Baek, CEO, KT&G

    New Nostalgia

    KT&G is aware that while the HnB sector is a hugely important and increasing part of South Korea’s tobacco and nicotine product market, it is vital that the company maintains its leadership position in the combustible cigarette sector given that sector’s dominant market position. South Korea’s combustible cigarette market last year stood at 65 billion pieces, of which KT&G accounted for 41.6 billion pieces or 64 percent. By comparison, the company accounts for 38.4 percent of the HnB stick sector, up from 31.7 percent in 2019 and 34.3 percent in 2020.

    Maintaining a dominant position on South Korea’s combustible cigarette market will not be easy because, since the market will not grow, competition will be fierce. Additionally, the challenges will come not only from other manufacturers. The market, as elsewhere, is beset by increases in regulations and taxation. Six different imposts are levied on combustible cigarettes, and they account for 73.7 percent of the retail price. Although, having said that, the retail price of a pack of 20 combustible cigarettes is generally—with few exceptions—KRW4,500 ($3.99), which KT&G describes as being “affordable for anyone.” In addition, the tax levied on HnB sticks, at 66.8 percent, amounts to much the same as that on combustibles, and, while for the time being imposts on e-cigarettes are not as high as those on combustible cigarettes or HnB sticks, the government apparently intends to increase them.

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    Meanwhile, there has been another trend on South Korea’s tobacco market, this one demonstrating the more usual direction of travel whereby the past influences the present. “Newtro,” apparently a term combining the words “new” and “retro,” is a trend in which younger generation people are attracted to earlier styles, mostly from the 1980s, and older generation people are nostalgic for such styles. This trend led last year and this year to companies operating across South Korea’s food and beverage market to relaunch, with much success, products from the past. And, in March, KT&G took advantage of this Newtro trend to relaunch, under the banner “88 Returns,” its 88-cigarette brand, which was introduced as a celebration of South Korea hosting the 1988 Olympic Games.

    As I remember things, 88 was something of a product pointing to the future—a relatively low-tar, low-nicotine (LTLN) cigarette, or at least a brand with a LTLN variant. Through the 1970s and 1980s, cigarettes with relatively high levels of tar and nicotine were popular in South Korea, and it wasn’t until the next two decades that LTLN cigarettes gained popularity. The fall in tar levels during the 1990s and 2000s can probably be attributed to the impressive economic and societal improvements that took place during this period and that brought with them an increase in consumer awareness of tobacco-related health concerns. At that time, of course, it was not unusual for such concerns to be “addressed” by consumers moving from cigarettes with high tar and nicotine deliveries to LTLN cigarettes, and, in the late 1980s, cigarettes with tar deliveries under 10 mg per cigarette started to appear. Since then, tar and nicotine levels have been reduced further, and KT&G took a lead in this market trend by launching LTLN cigarettes, such as ESSE in the 1990s and The One in the 2000s. There are variants of ESSE and The One that deliver tar levels as low as 0.1 mg per cigarette.

    The LTLN market is expanding, not only in South Korea but also in many other countries, and, as a result, the total sales volume of ESSE, taking in both domestic and overseas markets, currently stands at more than 700 billion pieces. According to Euromonitor International, worldwide, ESSE, a super-slim LTLN cigarette, has been the best-selling super-slim cigarette brand for five consecutive years.

    Catering to nostalgic smokers, KT&G recently launched “88 Returns,” a revamp of its 88 cigarette brand, which was introduced as a celebration of South Korea hosting the 1988 Olympic Games.

    Determined to Recover

    The Covid-19 pandemic, which had its roots in the recent past, is with us in the present and will be with us in the future, has had a negative impact on South Korea’s tobacco and nicotine industry, especially considering the lockdowns that have occurred domestically and around the world, because of such factors as the downturn in the duty-free sector. In March, addressing KT&G’s 34th annual shareholders’ meeting, CEO Bok-In Baek said that in the face of the heightened uncertainties created by the pandemic, KT&G was using “resilience” as the keyword for 2021’s business management goal—a resilience that reflected the company’s determination not only to recover from the negative impacts of Covid-19 but also to leap forward. “This year, KT&G will strive to secure a leadership position in the market and seize opportunities in the rapidly changing world economic order,” he said.

    KT&G’s mid-term to long-term plan is to focus further on and increase the portion of “direct business management” by establishing more local subsidiaries and manufacturing plants in overseas markets. KT&G established its fifth local subsidiary in Taiwan this March, the other four being those in Turkey (established 2008), Russia (2009), the U.S. (2010) and Indonesia (2011). The plan also includes increasing investments in the already existing local subsidiaries, especially in KT&G Indonesia. Indonesia is the world’s second-largest cigarette market, and KT&G, which is the sixth-largest manufacturer in Indonesia by market share, is striving to increase its presence with plans for launching 10 new cigarettes in 2021 while also increasing its kretek product line, which currently included 30 products.

    George Gay is Tobacco Reporter’s European editor, but his territory spans the globe. Based in London, George has covered the tobacco industry since 1982, initially for a U.K.-based publication and since 2004 for Tobacco Reporter. George’s understanding of industry issues, combined with his keen sense of observation and dry wit, have earned him a loyal following among Tobacco Reporter’s readers.
  • Heating Up

    Heating Up

    Photo: JT

    Massive growth in Japan’s tobacco heating products market has helped push cigarette sales to historic lows.

    By Timothy S. Donahue

    Japan is the world’s largest market for heated-tobacco products (HTPs). Brands like Philip Morris International’s IQOS, Japan Tobacco’s Ploom and BAT’s Glo have garnered a significant share at the expense of their combustible counterparts.

    In the first quarter of 2021, domestic cigarette sales in Japan totaled about 25 billion sticks. In 2016, during the same period, Japanese smokers bought 43.6 billion cigarettes. Over the past five years, cigarette sales have declined nearly 43 percent, according to Euromonitor International.

    Since the introduction of IQOS in Japan in 2014 as part of a trial, the annual cigarette volume decline has accelerated beyond its historical trend of 3 percent to 4 percent. Last year, sales dropped 4.2 percent; in the first quarter of 2021, they fell by another 6.5 percent in the first quarter, according to Pieter Vorster, managing director at Idwala Research. HTPs have continued to grow and held a 30 percent share of the total market in the first quarter of 2021, he said. This is up from 26 percent in 2020 overall and 28 percent in the fourth quarter of 2020.

    In an interview with Nikkei, Japan’s economic newspaper, Jacek Olczak, who took over as PMI’s CEO on May 5, predicted that Japan will become a smoke-free society within 10 years. PMI expects to gradually pull out of combustible tobacco products globally in the next 10 years to 15 years, and Olczak said he wants the transition to happen first in Japan.

    Following its successful trial in 2014, PMI began selling its IQOS device nationwide in Japan in 2016. The company held a 70 percent share of Japan’s market for HTPs in 2019, according to Euromonitor International, while JT held 10 percent and BAT held 20 percent. In June, BAT stated that its reduced-risk products had gained share in all key markets, including the United States and Japan, with the company adding 1.4 million new customers in the first quarter.

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    The Japanese reduced-risk tobacco product market is unique in that nicotine vaping products are banned whereas HTPs have been embraced, according to Vorster. Consumers who take up HTPs also tend to switch completely from combustibles faster than they do with e-cigarettes, where prolonged dual use is not uncommon.

    “The net result of this is the direct substitution effect that we have seen in Japan since 2017, when IQOS first started making headway in the market. For Japan Tobacco, it has been problematic because, as the largest cigarette producer, it has lost the most volume to HTP,” said Vorster.

    Japan’s Pharmaceutical Affairs Law classifies nicotine-containing liquids as drugs and liquid-inhaling devices that contain nicotine as medical devices, according to Dinesh Babu Thotakura, general manager of JT’s Media & Investor Relations Division. “Therefore, vaping products sold in Japan are nicotine-free. Currently, we do not have plans to launch vaping products in Japan.”

    Nicotine-containing e-cigarettes are regulated by the Japanese Ministry of Health Labor and Welfare, according to Vorster. “Private importation is allowed, provided it is for personal use only and amounts to less than one month’s supply,” he said. “HTP, on the other hand, is classified as a tobacco product and therefore regulated by the Ministry of Finance.”

    While part of the success of HTPs is due to Japan’s ban on e-cigarette sales, the country’s comparatively accommodative regulatory framework has made an impact as well, according to Thotakura. Last year, when Japan restricted smoking in restaurants, it made an exception for HTPs, which can be consumed in bars and restaurants if certain conditions, such as having ventilation equipment in place, are met.

    “The Japanese [combustible cigarette] market had been declining historically even before the introduction of HTPs; however, the introduction of HTPs has accelerated that decline,” said Thotakura. “Although we are aware that the number of cigarette smokers in Japan is on a downward trend due to a combination of factors, including tighter regulations, aging population and increased health awareness, our Ploom series of HTPs are gaining popularity among consumers who are especially conscious of their surrounding environment.”

    When asked if there is room in Japan for another HTP product besides the Big Three, Vorster said it is hard to see the status quo changing meaningfully. “For either BAT or JT or a new entrant to make meaningful inroads, they would need to offer a product that provides consumers with a superior sensorial and nicotine-delivery experience compared to IQOS,” he said. “A product that can deliver an experience closer to a cigarette stands to gain meaningful category share and expand the category to those smokers who have not been prepared to switch to currently available products.”

    For either BAT or JT or a new entrant to make meaningful inroads, they would need to offer a product that provides consumers with a superior sensorial and nicotine-delivery experience compared to IQOS.

    Pieter Vorster, Idwala Research

    Another challenge to the continued growth of HTPs is the World Health Organization’s opposition to tobacco harm reduction. In 2004, Japan joined the WHO Framework Convention on Tobacco Control (FCTC). The treaty’s guidelines are intended to assist parties in fulfilling their obligations under the Convention and are not legally binding to impose new obligations on the parties, according to Thotakura.

    “Although we cannot speak on behalf of the Japanese government on the country’s stance in its involvement with the WHO and FCTC, the JT Group’s fundament lies on the belief that the use of tobacco products entails health risks and that appropriate regulations are necessary from the perspective of preventing underage smoking,” said Thotakura. “We believe that regulations in the Japanese market have already been evaluated and implemented appropriately by the relevant authorities, taking into account the environment surrounding tobacco in Japan. We will continue to operate our business in an appropriate manner in accordance with the laws and regulations of Japan and other countries/regions.”

    Vorster believes that Japan’s involvement in the FCTC will have little to no impact. “Overall, the Japanese government has been slow to introduce smoking restrictions, and I suspect it is unlikely that it will change its view on HTPs because it is a signatory to the FCTC,” he said.

    When asked why Japan’s success in reducing combustible use through HTPs is not viewed as a “success story” by other countries, Vorster said that few countries have embraced the principle of harm reduction when it comes to tobacco, partly because the WHO advocates abstinence. Governments, he says, are often forced to find a balance between WHO recommendations and what actually works.

    “Governments can only create a regulatory and tax framework conducive to reduced-harm products being accessible and affordable and provide smokers with accurate information about the relative risks posed by these products,” said Vorster. “Consumers will ultimately decide whether they want to switch and which products they will use. The U.K. is about the only market I can think of where this is the case. When HTPs were introduced into the U.K., there was already a large and established e-vapor category, and thus far, it [the HTP sector] has had limited traction with consumers.”

    Appreciating consumers’ diversifying needs, JT aspires to offer them an even greater choice of products by focusing on quality, innovation and the reduced-risk potential of products, according to Thotakura.  “We believe that the options for tobacco products should not be limited to a specific category or product, but rather, it is important for consumers to have the freedom of choice to choose the most suitable product according to their preferences, living environment and life-stage transitions,” he said.

    PMI is expected to launch its next generation of its IQOS, ILUMA, before the end of the year. The innovative device is supposed to play a major role in the company’s transformation, according to Olczak. “IQOS ILUMA is simple and intuitive,” explained Olczak. “It self-activates and requires less explanation, which will save time and cost of acquisition as well as aftercare and retention. It supports easier switching and higher conversion for legal-age smokers.”

    PMI Chief Financial Officer Emmanuel Babeau expects consumers to embrace ILUMA. Because the product is more intuitive and easier to use than previous IQOS iterations, PMI may be able to convert smokers whom it had not been able to convert before, he said during a call with investors. “We’re going to also have a number of IQOS users or other [HTP] users switching to ILUMA because it’s really a … product with a lot of benefit for the consumer.”

    JT, meanwhile, intends to continue improving consumers’ user experience through the evolution of the HTP category, and not just with hardware. JT also plans to expand its flavor portfolio to meet consumers’ diverse preferences.

    JT is the parent company of Japan Tobacco International. JT directly manages the Japanese-domestic tobacco business while JTI directly manages the international tobacco business. Currently, operations and resources are distributed between these two organizations. In recent years, JT’s and JTI’s R&D functions have been cooperating to develop next-generation HTP products with the goal of introducing and expanding these products on a global scale, according to Thotakura.

    In the second half of 2021, the company intends to launch Ploom X—first in Japan, then in Russia and other markets.

    Starting in 2022, the JT Group will combine its Japanese and international operations into a single business. “We will utilize the entire JT Group’s resources to provide products and services that exceed the needs and expectations of consumers,” said Thotakura.

    There is no denying the role HTPs have played in reducing the number of combustible cigarette smokers in Japan. Vorster said the world should take notice. “Japan has been a showcase for many years now of reducing the harm caused by combustible cigarettes,” he said. “Whilst the category’s growth will likely slow without the introduction of more satisfying products, there is no evidence of that yet.”

    Timothy Donahue is the assistant editor of Tobacco Reporter. Since joining our team in January 2013, he has become not only an expert on the traditional tobacco business but also a well-respected voice in the rapidly developing vapor industry. Tim spends much of his time on the road, attending conferences and interviewing industry representatives. His networking skills, work ethic and quick mind are valuable assets to our diverse audience.