Category: Print Edition

  • Promoting Inclusiveness

    Promoting Inclusiveness

    Photo: Tobacco Reporter archive

    Turkey instructs cigarette makers to use more local leaf

    By George Gay

    According to the Local Tobacco Inclusion in Tobacco Products law that came into force in October, tobacco manufacturers in Turkey will have to achieve, within four years, a 30 percent inclusion rate of locally produced leaf tobacco within their Turkish market cigarettes.

    Currently, the manufacturing industry is estimated to use about 12 percent local leaf, mostly made up of classical oriental tobaccos (COTs) such as Izmir, Samsun and Basma. But while the increases in inclusion rates—17 percent this year, 21 percent in 2022, 25 percent in 2023 and 30 percent in 2023—might at first glance appear to be an opportunity for the COT industry, in reality, the limitations imposed by cost and blend-composition factors will mean that very little, if any, of the increased local demand will be made up of COTs. Additionally, the increased local demand is expected to be met in part by the diversion of tobacco previously earmarked for overseas production centers.

    In any case, the requirement to increase local content is expected to see a rise in the inclusion in local cigarettes of sun-cured Virginia tobacco, of which Turkey currently grows about 1,500 tons to 2,000 tons annually but which, under the new requirements, could be expanded to an annual crop of about 15,000 tons. While this type of tobacco does not attract the sorts of prices paid for COTs, manufacturers are likely to meet both blend and cost challenges in including it, partly because an established local illicit cut-rag manufacturing industry uses this type (along with some COTs and imported tobacco) and, without the inconvenience of having to pay taxes, is in a good position to compete for the volumes available.

    Meanwhile, producing a bigger sun-cured Virginia crop that is of the required quality and that can be sold for a reasonable price will require dealers and manufacturers to invest in processing and agronomy. The tobacco traditionally grown in the east and southeast of the country was originally cultivated from Virginia seed that, because of the way it was cultivated, adapted to local conditions and produced what became known as a semi-oriental tobacco. The risk of this happening in the future is said to be high unless new seed is introduced and growers are supported in, and compensated for, introducing good agronomic practices. Historically, it is said, growers had little interest in producing quality leaf, preferring instead to concentrate on yields since, for political reasons, they were well compensated for doing so.

    Whatever is the extent of the increase in demand that is generated by the new law, it comes at an interesting time because there are supply-side challenges that have been raised by labor issues and the difficulties encountered in introducing mechanization on COT farms—difficulties to do with, on the one hand, the need to overcome farm terrain obstacles and, on the other, the need to finance the necessary investments. Not unreasonably, farmers are not willing to continue growing tobacco unless the returns are, in their eyes, sufficient.

    For the time being and the near future, such issues will not be overwhelming because the devaluation of the Turkish lira—down by 40 percent against the U.S. dollar in 2020—will take some of the pressure off grower returns. Additionally, an official inflation rate of 15 percent might allow grower premiums to be paid. But relying on the devaluation of the lira as a long-term strategy would be fraught.

    Turning away from local supply issues to those to do with international demand, one factor in the future success or otherwise of Turkish COTs can be examined through the lens of the consumption of American-blend (AB) cigarettes worldwide. Looking at TMA cigarette consumption data, I found 36 countries where, in 2019, AB cigarettes accounted for 50 percent or more of their overall cigarette consumption. Of those 36 countries, 31 countries recorded decreases in the consumption of AB cigarettes between 2015 and 2019, a period that saw falls in the total (all blends) consumption of cigarettes in 28 countries. And looking at the 10 top countries for AB cigarette volume consumption in 2019, the average decline in such consumption between 2015 and 2019 was 10.8 percent compared with 9.6 percent in the case of all types of cigarette consumption in those 10 countries.

    On the face of it, this does not look good for the future of Turkish and, indeed, other COTs. But care has to be taken here. Although the above figures give a snapshot of what is going on, it would take a lot of delving to obtain an accurate picture. For one thing, the term “AB cigarette” is used by the tobacco industry fairly loosely, and the inclusion rates of COTs differ widely—down, in fact, to zero—from region to region, country to country and brand to brand within countries.

    Given all of the above, it is probably no surprise that Turkey’s estimated volumes of 2020-grown COTs are expected to meet the firm local demand and the less-than-firm overseas demand. The country is thought to have produced about 40,000 tons of Izmir; 4,350 tons of Basma; and 3,500 tons of Samsun along with 10,500 tons of Izmir East (Adiyaman); 3,000 tons of sun-cured Virginia; and 3,000 tons of other types. Overall, Turkey’s crops are thought to be average to above average in quality—slightly better than those of 2019.

    But let me digress for a moment. In examining the demand for AB cigarettes, I went looking for those countries with markets with relatively high levels of AB cigarettes to discover whether AB cigarette consumption had declined between 2015 and 2019, but one of the most interesting aspects of the exercise turned out to concern one of the countries where such consumption had risen: Turkey.

    According to the TMA figures, Turkey’s American-blend cigarette consumption rose by 0.5 percent between 2015 and 2019. Such an increase will not have set the COT industry alight, but there is something interesting here because Turkey is often in the news for its anti-smoking policies. And yet, it is one of only five countries within my sample of 36 countries where AB cigarette sales rose. In fact, it gets more odd. Turkey’s all blends cigarette consumption between 2015 and 2019 increased by 15.2 percent.

    And it gets more odd still. A story on May 31 on the online news site, Ahval, mentioned how the country’s president, Recep Tayyip Erdogan, was a fierce opponent of tobacco smoking and had “long waged anti-smoking campaigns in Turkey.” But despite the fact that the main thrust of the story concerned how Turkey had recorded its highest-ever cigarette consumption in 2019, 119.7 billion, there was no pause to consider whether the anti-smoking strategy might need revisiting, revising and reinvigorating. —G.G.

     

    The author would like to thank Frederick de Cramer, doyen on the Turkish tobacco industry, for his input into the leaf tobacco information and data included in this piece.

    Expanding Latakia tobacco production and marketing

    Frederick de Cramer, who for many years has been heavily involved in the Turkish oriental tobacco business, has, through his consultancy, Cramer Tobacco, linked with ASTAB in a joint venture (JV) partnership, which aims, among other things, to expand ASTAB’s Latakia tobacco production and marketing.

    The JV is using high-quality Izmir leaf and curing it in the traditional Latakia way in barns filled with smoke from burning shrubs that are found only in Turkey and some neighboring countries, a process that gives the tobacco its distinctive aroma.

    De Cramer told Tobacco Reporter that this tobacco was highly sought after, especially for inclusion in pipe tobacco blends but also in some other product types.

    To satisfy the demand from existing customers, who are mainly based in Scandinavia and the U.S., the JV is planning to increase capacity, in part by investing in new barns. But it is focusing, too, on new customers that have been unable to source Latakia tobacco and have been using mainly artificial flavorings instead.

    ASTAB, which was founded in 2007 in Izmir by Haldun Babacan and Selcuk karagozler, was successful in automating the oriental tobacco curing system known as the Vento system and, in doing so, expanded the Izmir crop by more than 10,000 tons in the East Adiyaman area.

    De Cramer and ASTAB’s Latakia operations will be the subject of a report in Tobacco Reporter’s February 2021 issue. —G.G.

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

    Rolling With the Punches

    Photos courtesy of Kavex, Silversun, NewCo and Leaf Only

    Independent leaf merchants have managed to adapt to this year’s unprecedented conditions.

    By Stefanie Rossel

    Although analysts have rated the tobacco industry “resilient” and “recession-proof” many times, the sector couldn’t avoid being affected by the Covid-19 pandemic. The leaf-growing segment, especially, saw disruptions, with auctions being suspended or interrupted in key markets. Travel restrictions led to shortages of agricultural inputs and seasonal workers. Growers were not allowed to be present during the sales process while international leaf dealers couldn’t attend the auctions. For many independent leaf merchants, the unparalleled situation brought about new challenges. Nonetheless, they managed to find positives in the experience.

    With the 2020 Chinese New Year falling at the end of January, Kohltrade of Brazil had scheduled its business travel to start in mid-February. “Then the pandemic began, and in March, we started working from home with the factory closed for three weeks,” relates Kohltrade General Manager Hardy Kohl Jr. “During this period, we had a lot of uncertainty and insecurity about what the rest of the year would be like; how long would it take,” he continues. “After these eight months, we tried to adapt. Business trips and trade shows did not happen; we did not have buyers visiting us. We focused and invested more in remote contacts, business intelligence, video conferencing, and at the end, we will finish the year with a performance a little higher than 2019. What we think is almost good!”

    Rainer Busch, managing director and owner of NewCo Global, says that despite the circumstances, business has gone well for his company. “We are fortunate to have our colleagues in the origins to be in touch with the source and factories,” he says. NewCo is present in 16 tobacco origins through marketing agreements with nonmultinational factories. “With no one able to travel to the origins and customers, I felt we were not being punished and disadvantaged,” says Busch. “There was more time for follow-up and brainstorming new ideas. For the future, I take with me that travel can be reduced. We have also invested in better virtual communication, which is very useful and saves some travel.”

    Dora Gleoudis

    Business also continued smoothly for Nicos Gleoudis Kavex, which focuses on Greek oriental tobacco varieties, and JEB International Tobacco of Danville, Virginia, USA, which specializes in selecting, shipping, processing and storing all tobacco varieties and runs a 2,000-acre farm in North Carolina. For Austrian leaf dealer Silver Sun, which is active mostly in Bulgaria, only personal interactions remained an issue. “Our business is very much person-related, and many things cannot be communicated just over the telephone or by video conference,” says Franz Szoncsitz, director at Silver Sun. Holding a sizeable stock of tobaccos from South America, Africa, the Far East and Europe in its Bulgarian warehouses for its European customers, his company has been unaffected by the long-term storage problems that analysts had identified as a potential concern during the Covid-19 crisis. “Although we had to stay in a so-called home office for a certain time, logistics worked, and we did not face any difficulties from this side,” says Szoncsitz.

    Obviously, ample storage space is helpful when vessels were delayed or rerouted. Nevertheless, logistics remain an issue. Border restrictions, along with shortages of trucks and containers, result in unpredictable freight rates, according to Busch. “Obviously, this is a serious problem for companies working with small margins as an increase in transportation costs could easily cut margins by 50 percent,” he says.

    Kohl notes his company’s main problems were logistics, expensive freight and sending samples for customer evaluation. “We also had difficulties in finding space on vessels, port congestion and shipping delays,” he says. The company is working to minimize the impact on customers of such disruptions by absorbing increased costs and anticipating shipments to avoid delivery delays, among other measures. “Advance planning is essential,” he says.

    Franz Szoncsitz

    Focus on the customer

    Rainer Busch

    Global tobacco leaf production experienced a significant decrease in 2020, declining from 5.13 billion kg of green leaf in 2019 to an estimated 4.91 billion kg in 2020. The drop impacted all tobacco varieties except dark air-cured. Analysts are slightly optimistic that production will pick up again in 2021, forecasting a crop of 4.95 billion kg of green leaf amid further challenges.

    “I fully expect larger crops from all major supply origins in 2021,” says Jay Barker, founder of JEB International Tobacco. “With that said, I personally think global supply/demand is in good shape.”

    According to Busch, certain types of tobacco remain in oversupply. “This year, we definitely have a surplus of high-nicotine tobacco. As a result, we lack medium-[quality] to high-quality nicotine tobacco products.” However, a shortage of tobacco could benefit companies such as NewCo, according to Busch. With access to a broad global portfolio, Newco can help customers find the right tobacco for their needs, he says.

    “Due to weather conditions and labor shortages, tobaccos produced in Greece—Basma, Katerini, FCV [flue-cured Virginia] and burley—are shorter in quantity but better in quality compared to the 2019 crop,” observes Dora Gleoudis, managing director of Nicos Gleoudis Kavex. “Prilep of North Macedonia is about the same as 2019 crop quantity-wise but lower in quality. It is too early to make any prediction for the 2021 crop, but a further small decline of the tobacco production in the Balkan area is possible.”

    To increase sales, suppliers should focus on the market rather than on production, according to Kohl “Our focus is to meet our customers’ demand—and, believe me, they have very different demands,” he says. “What some love, others hate, and we need to be on top of this. The major challenge in the pandemic situation is how to be close to them without the eye-to-eye contact.” Kohl expects 2021 to be even more difficult than 2020. “On the one hand, the quality seems to be better than 2020, but I expect that the worldwide economy will be in a more difficult situation,” he says. “The market in general seems to me unbalanced between supply and demand.”

    Because tobacco is an agricultural product grown under natural atmospheric conditions, it is difficult to predict both the final production volume and quality at the time of transplanting, according to Szoncsitz. That means supply and demand seldom match.

    “Comparing the figures some 40 years ago with the ones of the last couple of years, the amplitudes got smaller and smaller, which is a good sign in getting more stability for everybody in the chain,” he says. After losing market share to international companies, SilverSun stopped contracting with farmers. “As a small dealer, the global decrease or increase of leaf production does not significantly affect us,” says Szoncsitz.

    Uncertain times

    More detrimental than the tobacco surplus has been the continuing decline in cigarette consumption. For leaf merchants, it can be difficult to discern the annual requirements of their customers. “On the other hand, dealers are signing early each year cultivation contracts with their farmers,” says Gleoudis. “We feel it is unfair what happens lately: customers undertaking commitments toward their dealers much later—i.e., at a time when dealers have already undertaken their obligations towards their growers. This policy can create uncommitted stocks as well as financial difficulties to the dealers.”

    “In my opinion, the biggest issues we are facing as leaf dealers are the cigarette consumption decline and the consolidation of manufacturers,” says Barker. “It’s a double whammy that directly affects a leaf dealers’ bottom line. The only way to survive is [to] tighten your belt and deliver superior product and customer service.”

    Given the developments in the tobacco landscape in recent years and the long-term economic effects of the Covid-19 pandemic, the future remains uncertain.

    The key, according to Kohl, is knowing how to deal with competition, the restrictions on face-to-face contacts and reduced margins. “There was euphoria in 2020 after the end of the lockdowns to meet the repressed demands and logistic difficulties of this period,” he says. “Now we see that we have second, third and who knows how many waves of infection coming. Governments will have to pay the bill for emergency support, and this bill will come due in 2021. How long will it take to get a vaccine? How efficient will it be? What will the world unemployment numbers be at the end of this? Those questions are still open.”

    Busch is more confident. “Consumption is likely to increase during the pandemic, which is a positive aspect,” he says. “Consumption may change from normal cigarettes to making or rolling your own products; the home office will have its effect. Less tourism means fewer cigarette purchases in duty-free shops and fewer takeaways from tourist countries where cigarettes are cheaper. Thankfully, our industry in general is one of the industries less affected and damaged by the pandemic.”

    Unforeseen opportunity

    Could a pandemic also have a positive side? John Wallace, principal at Leaf Only, would say so. Established in 2009 and based in Connecticut, USA, his company has chosen a different business model of supplying raw tobacco: The company caters to both the wholesale and retail leaf market, supplying a large variety of tobacco leaves, including cigar wrappers, binders and fillers as well as unprocessed cigarette tobacco and pipe and hookah tobacco.

    “It was really strange, actually,” says Wallace, referring to when the coronavirus broke out. “In April, May, June and July, we saw record sales—even to the point where we could not fulfill orders due to lack of staff. It was as if our business nearly doubled in a matter of a few weeks. Since then, it has leveled off, and we are almost back to normal, but it was definitely a wild ride! If I had to guess, I think people might have been panic buying for whatever reason. Thinking things would be harder to obtain or that prices would go up dramatically? Not too sure.”

    Importing leaf from certain countries had been challenging, however. “In some cases, it still is,” says Wallace. “We’ve been waiting on a container from India since June, for example. It is finally supposed to arrive in the next couple of weeks, but it should never take so long. As far as I know, most of the delay was due to Covid-19 restrictions and issues with various countries and shipping agencies. Sourcing here in the USA has remained unphased, which is really great for us since that is most of what we sell.”

    For 2021, he forecasts a return to a more steady and predictable business. “I think it now more depends on the growing season, leaf quality and the overall market economics rather than outside factors such as Covid-19. Hopefully, it ends up being a good year.” —S.R.

    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.
  • More than a Cigarette

    More than a Cigarette

    Taat CEO Setti Coscarella
    Setti Coscarella
    (Photos courtesy of Taat Lifestyle and Wellness)

    Taat products offer smokers their familiar ritual without the disadvantages of nicotine and tobacco.

    By Marissa Dean

    In recent years, we’ve seen the tobacco and vapor industry change dramatically—focus has been shifted to less-risky products, including heat-not-burn and low-nicotine products. Now, enter hemp.

    In 2018, U.S. Congress passed the Farm Bill, legalizing hemp with less than 0.3 percent THC, the psychoactive component in cannabis, in all 50 states. Since then, some tobacco farmers have either shifted to growing hemp or added it to their repertoire as an additional income source. In the November 2020 election, some states voted on cannabis legislation, deciding whether to legalize medical and/or recreational cannabis.

    This poses the question of how the hemp and cannabis industry may interact with or change the tobacco and vapor industry. Some major tobacco companies have taken a stake in the hemp industry as it has grown while others are hesitant to go that route due to regulations and legality questions across states. Taat Lifestyle & Wellness seems to be bridging the gap between the two industries—its products will offer smokers a direct, comparable alternative to traditional combustible tobacco cigarettes.

    Taat Lifestyle & Wellness is a publicly traded company based in Vancouver, British Columbia, Canada. According to its website, it is an early stage life sciences company. The firm says it aims to provide smokers with a better overall experience than smoking traditional cigarettes. Taat CEO Setti Coscarella notes that Taat is not your traditional cigarette. In fact, he classifies it as a completely new product.

    “Nicotine is a problem,” said Coscarella, who was previously a lead strategist at Philip Morris International where he worked on the IQOS heated-tobacco product and studied smokers. “None of the tobacco companies or vape companies can wrap their mind around selling something that isn’t addictive. … [O]ur product is nonaddictive. So it has hemp, yes; it has CBD, but I’m not positioning it as a hemp cigarette with CBD because it doesn’t have the same experience as a hemp cigarette.”

    Taat has created this new product using its proprietary Beyond Tobacco filler, a hemp-based filler that is processed to smell, taste and look like traditional tobacco but without the nicotine. “Nicotine as a drug is a very useless drug,” Coscarella said. “It does nothing other than keep you addicted to doing the thing that you need in order to consume that drug.”

    The company’s goal with Taat cigarettes is to offer users another alternative to traditional tobacco products that will not become addictive. “I want to give smokers the freedom to choose; if they want to smoke, they can smoke; if they don’t, then they don’t have to. I think that is a very important freedom we want to give back to smokers. That’s ultimately why we exist.”

    Taat cigarettes are designed to offer users an alternative to traditional tobacco products that will not become addictive.

    Coscarella hopes Taat’s new products will allow smokers to make a choice—continue smoking traditional cigarettes or using vapor products, all with some level of nicotine in them, or switch to Taat, which offers the ritual of traditional cigarettes but does not contain any addictive drugs. Coscarella believes that choice is important. “I don’t think nicotine is the main reason people smoke; if it were, then for everybody who wants to quit, the [nicotine] patch would work. … If it were, then the vapes and the heat-not-burn products would have a higher long-term efficacy rate with actual smokers because I’m just giving you nicotine. But they don’t. [Smokers] go back [to smoking traditional combustible cigarettes] because there’s a certain ritualistic component on the other side that none of these other things have. I think it’s important to try to match that ritual where I think the low-nicotine products obviously would have something from that standpoint, but you still have a physiological piece that needs to counterbalance somehow.”

    Low-nicotine products are attempting to “fix” the smoking problem—the idea behind these products is that smokers can switch to low-nicotine cigarettes and then eventually stop smoking. However, Coscarella does not think they will work very well. “You haven’t replaced it [nicotine] with anything. You’re just giving your consumers less of something.” Taat, however, aims to avoid that issue by replacing the nicotine with CBD in the products. Many people erroneously think that cigarettes calm them down, according to Coscarella, when in reality they feel calm after smoking only because they were experiencing nicotine withdrawal. Smoking provides the nicotine your body was craving. Taat products can give consumers that calming feeling to counteract the feeling generated from nicotine withdrawal, thanks to the CBD in the Beyond Tobacco filler.

    Taat products will soon be on the market; on Dec. 11, products will be shipping to Ohio distributors for sale. Each pack will retail for $3.99—allowing users of any cigarette brand to afford Taat—and will be available for purchase by those aged 21 or older. Taat will have online age verification for purchases through its website and much like tobacco, will work with retailers to ensure their customers are of legal age as well. “We’ll have a self-declaration online, so someone should be over the age of 21. And then from a retailer standpoint, they should endeavor to police this as they do any combustible cigarette product that they would otherwise sell,” said Coscarella.

    Currently, hemp is not regulated in the same ways that tobacco and vapor products are. Outside of the Farm Bill, regulations vary from state to state, and hemp products are not under the oversight of the U.S. Food and Drug Administration (FDA) or subject to anti-smoking bills or certain federal, state or municipal excise taxes. “That being said,” said Coscarella, “it’s imperative that we’re able to communicate what the value of this product is from a societal standpoint,” in much the same way that the premarket tobacco product application (PMTA) process aims to do with tobacco products.

    Coscarella believes the FDA will eventually get involved with hemp. “If cannabis were to be legalized—depending on how the election pans out—it’s likely that it will require regulation, and if that happens, I don’t think they’ll carve out hemp. No different than how it was done in Canada. When they passed the Cannabis Act—the Cannabis Act encompasses both cannabis and hemp.” So while Taat isn’t currently faced with major restrictions, that could change.

    Much like the rest of the world, the Covid-19 pandemic has affected the launch and marketing of Taat. While in-person events would help with building the buzz, Coscarella said, the company’s marketing plan will be heavily online-based. “I think you get a better return on investment from a digital ad that can be served to somebody when they’re in the time to see it.”

    Taat cigarettes will be an interesting addition to the ever-changing smoking industry. As the company prepares to roll out this initial product, Coscarella is already looking ahead. “I think there are other areas within the tobacco space that would be interesting for us to look at, whether it be through different delivery mechanisms or different formats. … But initially, I think the exercise is to go after the biggest category and build a family of brands that can help capture some of those ancillary areas.”

    Marissa Dean joined Tobacco Reporter in the summer of 2018 as a copy editor.Since that time, she has taken on additional responsibilities, including feature writing.Her skills span the publishing industry from layout and design to copy editing to content creation.
  • Reinforcing Resilience

    Reinforcing Resilience

    Photo: Taco Tuinstra

    During its general meeting, ITGA debated tobacco growers’ challenges in the wake of the Covid-19 pandemic and a deepening economic crisis.

    By Stefanie Rossel

    Antonio Abrunhosa

    Superlatives were close at hand when describing 2020. Speaking at the International Tobacco Growers Association’s (ITGA) “issues day” on Nov. 24, ITGA Chief Executive Antonio Abrunhosa called it the worst year since World War II. Robin Lowe, Malawi’s minister of agriculture, spoke of “the worst economic crisis in a hundred years.”

    Covid-19 presented new challenges to tobacco farmers, who before the pandemic were already juggling issues such as good agricultural practices (GAP), proper use of agrochemicals, child labor prevention and the struggle against deforestation.

    As tobacco farmers’ only global voice, ITGA’s mission is to defend leaf growers worldwide. The organization makes sure that there are markets for leaf tobacco and that they work. It supports growers in negotiations with buyers and protects farmers against overregulation.

    More challenges loom already. For example, the World Health Organization Framework Convention on Tobacco Control’s (FCTC) next Conference of the Parties, COP9, which will take place in November 2021, is likely to look closely at the environmental impact of tobacco production.

    Global tobacco production declined steeply in 2020
    (Photo: Silversun)

    Volatile market

    Ivan Genov

    Global tobacco production experienced a steep decline in 2020. Farmers harvested an estimated 4.91 billion kg of green leaf this year compared to 5.13 billion kg of green leaf in 2019, according to Ivan Genov, tobacco industry expert at ITGA. Flue-cured Virginia (FCV), which accounts for 80 percent or 3.49 billion green leaf kg (2020 estimate), was the main driver of the decrease, with most impact coming from Africa and the Middle East. However, production of all other tobacco types declined too. Combined with the rising cost of inputs, the pandemic created a volatile situation, Genov said. Volumes are expected to recover slightly, to 4.95 billion kg of green leaf in 2021.  

    China, which accounts for around 50 percent of global FVC production, has stabilized its production since 2018, a trend expected to continue during 2020 and 2021. Production in these two years is expected to reach 1.74 billion kg. Brazil turned out to be the main beneficiary of the trade war between the U.S. and China, whereas many U.S. growers filed bankruptcy.

    Unlike for FCV, where average leaf prices were lower in 2020 than in the previous year, prices for burley remained relatively stable. Production in 2020 amounted to an estimated 483 million green leaf kg, down from 548 million green leaf kg in 2019. Oriental production reached an estimated 157 million green leaf kg last year as opposed to 164 million green leaf kg in 2019. Dark-air-cured tobacco was the only variety to see a rise in production, up from 122 million green leaf kg in 2019 to an estimated 126 million green leaf kg in 2020.

    Brazil earns the most from leaf tobacco, generating $2.05 billion from tobacco leaf exports in 2019. At the other end of the scale, Tanzania earned $67 million from its tobacco sales. With the difference between costs and revenue razor-thin, profiting from FCV or burley cultivation is a difficult task, Genov noted.

    Covid-19-related travel restrictions created shortages of tobacco-farming inputs and migrant laborers, who often also struggled to secure visas, Genov said in a joint presentation with Shane MacGuill, senior head of tobacco research at Euromonitor International. In many countries, including Argentina, Brazil, India, Malawi, Zambia and Zimbabwe, the marketing season was delayed, briefly interrupted or it began with additional protective measures. Growers were prohibited from attending sales and many international leaf dealers were unable to visit auctions. The industry also struggled with a lack of long-term leaf storage facilities. What’s more, lower tobacco consumption caused demand for leaf to decrease. Countries that did not deem tobacco an essential business often closed sales points, leading to an abrupt decline in demand for legal cigarettes and a flourishing illicit trade. Manufacturing facilities in some markets were forced to close, decreasing production and inventories.

    Some cigarette markets remained surprisingly robust during the pandemic.
    (Photo: JTI)

    Impact on generations

    Shane Macguill

    “Covid-19 is a multigenerational financial crisis,” MacGuill said. “We saw a 5 percent loss in the gross domestic product (GDP) globally this year and expect downtrading in tobacco products over the next years.” The pandemic could also drive additional restrictions on tobacco as Covid-19 has broadened support for large-scale coordinated actions on health issues. In many markets, governments will likely increase tobacco taxes to help pay for their responses to Covid-19. MacGuill anticipates this trend to extend to vapor products in some markets.

    While there was downward pressure on cigarette volumes during the pandemic, some markets remained surprisingly robust, according to Euromonitor. Consumers bought 5.06 trillion cigarettes in 2020; excluding China, they purchased 2.75 trillion units, representing a decline of 3.7 percent compared to 2019 (-5.6 percent excluding China). The global cigarette market value stood at $692 billion in 2020, a decline of 0.1 percent over 2019, or 0.3 percent excluding China. Illicit cigarette trade stood at 12 percent outside of China in 2020, according to Euromonitor. It is anticipated to rise to almost 16 percent by 2024.

    While combustible cigarette volume and value will likely decline further in the next five years, Euromonitor predicts a rise in vapor products value, especially for closed systems and heated-tobacco products. Modern oral products, by contrast, are expected to gain momentum as people spend more time in private settings. The category was worth $800 million globally in 2020, MacGuill said, and is forecast to grow by 8 percent to 2025.

    MacGuill expects demand for new substances and natural actives to increase. Global cannabis sales, which stood at $35 billion in 2020, will reach $95 billion by 2025, according to Euromonitor.

    Hemp as the savior?

    William Snell

    William Snell, co-director of the Kentucky Agricultural leadership program, investigated the potential of hemp as an alternative for tobacco growers to help offset declines in demand for their original crop. The value of tobacco production in Kentucky fell from $980 million in 1992 to $230 million in 2020. For tobacco farmers, the switch to hemp should be a relatively smooth one as they have experience with a similar production model, an established infrastructure and are familiar with producing a labor-intensive crop subject to strict government oversight.

    The 2018 U.S. Farm Bill approved commercial hemp production nationwide. Total returns above variable costs per acre for hemp production amounted to $20,283, which was higher than that for tobacco cultivation. Farmers in Kentucky and other states substantially increased their hemp crops, which resulted in overproduction by 2019. Growers faced processing challenges, investors exited the business or went bankrupt and prices fell by around 75 percent.

    The prospects for 2021 are bleak as the industry still struggles with unsold stocks and adjusts to regulatory changes. Going forward, Snell expects hemp growers to face challenges similar to those in tobacco, including regulatory uncertainty, a trend toward contracting and consolidation.

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    Making farming more efficient

    Lea Scott, vice president of agronomy services at Universal Leaf, called for tobacco growers to diversify to sustain their operations. Diversification, he said, could even include nonfarming activities, such as opening a Bed and Breakfast. Before diversifying, however, growers should carefully examine environmental conditions, skills and resource requirements, among other factors.

    To enhance tobacco farmers’ livelihoods, British American Tobacco (BAT) has set up its “Thrive” program, which includes 250,000 growers and covers more than 80 percent of the company’s leaf purchases. In addition to focusing on natural resources, the program aims to protect human rights in optimizing farm profitability and ensure farmers’ health and safety. In 2019, BAT commissioned independent climate change impact assessments in ten countries to support its farmers in increasing their resilience to climate change.

    Gary Foote, head of global sustainability at Alliance One, advised participants in the conference on the correct use of crop-protective agents, and Rodrigo Tessera, head of business at Kilimo, presented his company’s project on irrigation efficiency. By 2030, half of the world population will live in regions with severe water scarcity, and two-thirds of the world population could be under stress conditions.

    Average global irrigation efficiency currently stands at 59 percent, wasting 20 trillion liters of water each year. Kilimo has developed a tool that can measure, reduce and exchange the potable water used in the field on a global scale with the help of small satellites and weather stations. Through its “irrigation academy,” the company has trained more than 5,000 smallholder farmers online. In 2019, it helped save more than 19 billion liters of water.

    The future of agriculture is digital, and it can save farmers a lot of money, believes e-agriculture company Agrivi. CEO Matija Zulj explained how its software solutions for the agricultural value chain can contribute to managing the supply chain more efficiently and sustainably.

    The tobacco industry remains strongly committed to preventing child labor in its supply chains.
    (Photo: TacoTuinstra)

    Eliminating child labor

    As became clear during the issues day, the tobacco industry remains strongly committed to the fight against child labor. Regulators, too, are cracking down. In early 2021, the European Union (EU) will present a legislative proposal on mandatory human rights and environmental due diligence in supply chains, which is expected to be implemented in mid-2021 to late 2021 and will also apply to non-EU companies conducting business in the EU.

    Supply chain due diligence is an ongoing improvement and risk management process. In the past decades, there has been an increasing global focus on human rights and the environment, which reached its tipping point with the U.N. Guiding Principles on Business and Human Rights in 2011.

    In 2015, the United Nations introduced its Sustainable Development Goals (SDG), which must be met by 2030. Meanwhile, many countries, such as Germany, France and the Netherlands, have implemented national laws to make sure processes are in place. Companies must demonstrate that a certain degree of due diligence has been implemented, for example. Tobacco companies cannot import cigarettes into, for example, the Netherlands, if there are underage workers in their supply chains.

    Established in 2000, the Eliminating Child Labor in Tobacco Foundation (ECLT) is a platform for coordinated action, uniting the main players in the industry to accelerate progress against child labor in areas where tobacco is grown. Led by Karima Jambulatova, ECLT’s executive director, the organization has been extending its reach to other crops to prevent child labor displacement between crops and sectors. The goal is to eliminate child labor not only in tobacco but in all agriculture.

    Photo: Silversun

    Challenges to tobacco growing

    During its issues day, ITGA also provided an overview of the situation in various leaf-growing regions. Mayiwepi Jiti, president of the Zimbabwe Integrated Commercial Farmers Union (ICFU), described the most pressing issues for her country. Zimbabwe has committed itself to the UN SDG to end child labor, respect the rights of workers and ensure workplace health and safety. Compliance with these practices, however, also increases growers’ cost.

    The requirements hit an agricultural economy with mostly small-scale farmers who already face a decline in the production area from last year’s growing season. The Tobacco Marketing and Industry Board (TIMB) expects farmers to plant 150,000 ha of tobacco in the 2020–2021 season.

    While school is compulsory, it is not cost-free. Many small-scale farmers cannot afford hiring labor and often rely on family instead. Underfunding leads to labor issues, while there is a lack of care for the farming communities. Profits for farmers are slim, whereas corruption is widespread. While Covid-19 has given Zimbabwe’s tobacco industry some insights on keeping children from auction floors, Jiti said, clean water and proper housing for growers should be made mandatory.

    Heliodoro Campos Castillo, manager of the National Tobacco Fund in Colombia (Fedetabaco), related a tale of tobacco growers’ resilience in his country. Tobacco cultivation in Colombia decreased from 9,589 ha in 2011 to 3,550 ha in 2019.

    Previously, the Colombian industry comprised small companies with established links to local communities. After multinationals started entering the market in 2006, many farmers had trouble adapting to the new systems and left the sector. Between 2011 and 2019, Fedetabaco initiated programs to improve housing conditions, food safety and the supply chain. Investments were financed by municipalities, the tobacco industry and institutions. In 2019, Philip Morris International (PMI) left the country; BAT will follow in 2021. PMI’s exit meant that 1,340 families lost the ability to cultivate tobacco, leading to an economic impact of $4 million. With support of the Department of Agriculture, famers were encouraged to diversify into crops such as lemons, manioc and corn.

    The EU is home to 250,000 tobacco growers, families and seasonal workers, most of whom are in economically less-developed regions, explained Parszem Noworyta, secretary general of UNITAB, the international union of tobacco producers, explained. Tobacco cultivation secures farmers’ income as the regions where it is grown are often unsuitable for other crop or nonagricultural activities.

    Throughout the EU, leaf tobacco production decreased significantly between 2009 and 2019. Reasons included higher production costs compared to countries outside Europe, the pressure on the tobacco industry and changes in multinationals’ purchasing policies, which involved reducing orders for European tobacco.

    According to Noworyta, there are additional threats ahead, including illicit trade, regulation and EU resistance to financial support for tobacco growers. Meanwhile, the parties to the FCTC are talking about nicotine levels, alternatives to tobacco growing, and sustainability, among other topics, without involving the sector in the discussions.

    Stabilizing tobacco cultivation and stopping the downward trend hence remains a struggle, according to Noworyta. Growers need to adapt to the market. One opportunity is seen in smokeless tobacco products. For UNITAB, Noworyta concluded, being a proactive force playing an important part in the debates of international and European organizations is vital to secure the future of European tobacco cultivation.

     

    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.
  • The Oriental Express

    The Oriental Express

    Photos courtesy of Nikos Tzoumas

    Years of hard work and investment are rewarded with a new oriental tobacco harvester.

    By George Gay

    Historically, classical oriental tobacco (COT) production has been associated with tradition, which, looked at from one viewpoint, was epitomized by the often-exquisite packaging of the relatively tiny leaves of the highest quality tobaccos while, looked at from another direction, it was personified by the huge amount of labor that went into forming such presentations—such works of art.

    Of course, while such traditions encompassed values that transcended the field of economic activities, many of them could not survive the shifts in business priorities that gathered pace, especially during the final quarter of the 20th century. Consequently, changes were gradually introduced to the way that COTs were produced so as to conform to new marketplace and social realities while safeguarding the essentials: the unique tastes and aromas that these tobaccos imparted to the smoker.

    But even with such changes having gathered pace during the past 10 years or so, it is somewhat surprising to learn that two major developments in the field of COTs came to fruition in 2020, a year that most businesses and industries, including the tobacco industry, were glad to see the back of.

    Nikos Tzoumas, managing director of Missirian and president of the Hellenic Inter-professional Organization, told me in November that, after nine years of hard work and substantial investments by his company, VIT SA, and Philip Morris International (PMI), a second model of the HMO-2020-2R oriental tobacco harvesting machine was ready for the market.

    The new harvester had been tested and trialed during the summer of 2020 when it was used to harvest crops in four stalk positions, Tzoumas said. With only two people, the machine proved capable of harvesting eight hectares of oriental tobacco during a season—up to 12 tons of cured oriental tobacco, which is a far cry from traditional harvesting in which teams of hired labor and family members have to undertake back-breaking work in high temperatures to bring in the tobacco by hand. Little wonder, then, that Tzoumas said farmers, especially younger ones, were eager to embrace such new technology.

    Meanwhile, the curing of the leaves, which, with the advent of mechanical harvesting, caused a bottleneck in the process, has been sped up with the use of a system initiated and supported by PMI over a number of years. The harvested tobacco is placed by hand in long gauze “socks” through which the air can pass and which can be hung in the shade in an otherwise traditional way. Apart from the speed of the new process, it has the advantage of doing away with the strings on which the tobacco was previously threaded and hung and which could end up as nontobacco-related material, a bane of the manufacturing process. 

    Gauze curing

    Another 2020 marker saw the arrival of a new pure line of Basma seed, the fruition of a project initiated by Missirian in 2013 and co-financed by PMI. Tzoumas said the aim of the project had been to develop a new Basma variety that could provide higher yields than were obtainable with existing varieties while retaining the stable, desirable agronomic and quality characteristics of Basma.

    The project was undertaken by the Centre for Research & Technology Hellas at the Institute of Applied Biosciences in Thessaloniki under professors Panagiotis Madesis and Eirini Nianiou-Obeidat. They used conventional plant breeding techniques and molecular markers but without producing genetically modified plants. And, after eight years of work, the project was concluded with the researchers having developed the F10 lines with the requested specifications. The new seed is expected to deliver a 20 percent increase in farmers’ yields with quality maintained. 

    An application has been made to the Greek Ministry of Agriculture for registration of the new genotypes.

    Turning to more immediate matters, the marketing of 2020-grown oriental tobaccos started in November and is due to end next month or in March. From what could be estimated at the end of November, Greece had produced 8,500 tons of Basma, down 20 percent from the 10,600 tons grown during 2019, along with 4,500 tons of Katerini, down 12 percent from 2019’s 5,100 tons. North Macedonia was estimated to have grown 27,000 tons of Prilep, up 3 percent from the 26,200 grown the previous year; and Bulgaria was estimated to have produced 5,000 tons of Krumovgrad, the same amount as was grown last year, 500 tons of Katerini, down 38 percent from the 800 tons of 2019, and 600 tons of Basma, up 50 percent from the 400 tons of 2019.

    Farmer yields were described as favorable in all growing areas, and estimated production is generally in line with contracted quantities, except in North Macedonia, where 2020’s estimate of 27,000 tons was 17 percent above the contracted 23,000 tons. The quality of the 2020 crops was described as medium, with Basma quality better than that of the 2019 crop, Katerini quality being about the same, and the quality of the Prilep and Krumovgrad crops being lower.

    Demand seems to be weaker than it was last year, especially for A grades.

    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.
  • Known Unknowns

    Known Unknowns

    Andrey Popov | Dreamtime

    The case for realistic optimism in the wake of America’s recent election

    By Chris Greer

    I always admired Donald Rumsfeld’s turn of an opaque phrase. As America’s former secretary of defense memorably explained in a 2002 news briefing on the U.S. invasion of Iraq, crystal ball gazing into the future is nothing if not an embrace of the mist and fog. However, anticipating what may come is not just an amusement, it can be a valuable strategic planning tool during a change of U.S. presidential administrations.

    I am often asked to provide my opinion on picks, replacements and likely policy directions. As president of TMA, I cannot provide an opinion. TMA has, for more than a century, striven to be an unbiased convener and place of understanding for those engaged in the complexities of tobacco and nicotine. So why should you continue to read after I just told you that you are not getting an opinion on leadership picks and policies?

    I think the perspective offered by a more dispassionate observer is warranted and useful to prepare for January’s changes. There are areas we can be realistically optimistic about, and it is more than an aphorism that what comes next is largely a “known unknown.” That is especially true when we consider the natural starting point of conversations like these: comparing the outgoing administration to what we think will happen during the new one.

    A realistic perspective

    I will give you one opinion: I believe few people in the tobacco and nicotine industry or harm/risk reduction stakeholder community consider the last four years an uninterrupted halcyon summer. If you do not share my opinion, then we can all at least agree they were eventful and highly consequential. Just naming a few events off the top of my head reveals:

    • The early but highly prominent miscommunications on e-cigarette or vaping product use-associated lung injury (EVALI)
    • Policy by tweet
    • No exemptions for premium cigars
    • A ban on most mass market flavored electronic nicotine-delivery system (ENDS) sales
    • Uncertain U.S.-China and U.S.-EU trade conditions for leaf and ENDS products
    • A global pandemic and its economic and social consequences
    • An order by a Maryland federal judge that moved forward, by several years to September 2020, due dates for provisional substantial equivalence and premarket tobacco product application (PMTA) submissions for deemed products
    • An order from a Massachusetts federal court directing a rule on cigarette graphic health warnings be promulgated by March 2020

    I ask you, is the reality of the last four years really all that different or better than the preceding eight years? Before you answer, consider my list of highlights and where we find ourselves now: farmers struggling, preliminary consumption data indicating no 2020 decline in cigarette consumption, increasing survey evidence showing more people believe any product containing nicotine is no better than a combustible cigarette, a once-in-a-century global pandemic and resulting economic conditions not seen since the Great Depression.

    Realistically, despite the overall business-friendly orientation of many Trump policies, what occurred over the last four years was profoundly turbulent and challenging to many aspects of tobacco and nicotine and harm/risk reduction efforts. Not feeling so cheery? Sorry, that was not my intention. But this is the reality we face and, therefore, the starting point for your comparison against what might happen under a Biden administration.

     

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    Optimism

    Now for the optimism. Provisional submissions for deemed products, including the entire ENDS category, are at the U.S. Food and Drug Administration (FDA). The proverbial elephant left the room. Seems bleak to lead the optimism section with completion of a regulatory submission that only starts an entirely untested process. But it was a millstone around the industry’s neck. And it was an exposed flank that lead to attacks from public health groups against the FDA. What the FDA does with these submissions will be a point of contention in 2021, but it would have been no matter when the submissions ended up being due.

    Some of the actions on my list of events from the last four years were the result of trends picked up in the National Youth Tobacco Survey and rising anecdotal evidence of an unwelcome rise in youth using ENDS products. Thankfully, 2020’s survey showed 2 million fewer teenagers falling into the survey’s “user” category than in 2019. Optimists may believe that the tide is turning on youth vape issues. There is a lot to be optimistic about here: Fewer kids taking up vapor products is good for everyone. This trend may absorb a lot of the electricity generated over the last few years. Quieter contemplation may be good for all stakeholders.

    The FDA was also busy making history with several breakthrough authorizations. These include the first modified-risk marketing order for Swedish Match’s General snus and the first modified exposure order for Philip Morris International’s (PMI) IQOS and Marlboro Heat Sticks. This is a big deal. They are not only the first instances of tobacco products that can legally claim users will experience a reduced risk or exposure to smoking-related illness (with exclusive use), but they open the pathway to a number of other products that sit on the lower end of the risk spectrum. Most encouragingly, this was done without hyperbole, based on evidence, following a rigorous but clear(ish) process, in a climate of open hostility toward nicotine-containing products, and it is repeatable for other products pending before the Center for Tobacco Products (CTP).

    Lastly, I am writing at the end of 2020, the year best described as a dumpster fire. I feel good that the year is ending, and we have not endured anything else. Honestly, I would not be surprised if we are attacked by the Stay Puft Marshmallow Man or wake up to aliens landing on the National Mall. There is a vaccine or three on the horizon. I am optimistic 2020 will end, and we will all be glad that it never again darkens our doors.

    Knowns and unknowns: Knowing the difference

    We know things will change. Focus will shift, emphasis will alight on other priorities, political appointments in federal public health agencies will be filled by new people. All of this will occur in the charged atmosphere of a global pandemic, a highly fractured political environment and during an economic crisis.

    The biggest unknown is the capacity of the Biden administration to deal with issues not related to the big four: ending the pandemic; addressing the pandemic’s economic fallout; addressing the erosion of faith in the basics of the American political system; and finding the political capital to execute the new administration’s core economic agenda. Each one of these could easily consume all the new administration’s time, energy and goodwill.

    It would be reasonable to assume that, regardless of the outcome of Georgia’s January runoff election, the partisan disfunction and the math of Congressional majorities that frustrated much of the Trump legislative agenda after the 2018 mid-terms will persist into the Biden administration. Therefore, a Biden legislative agenda will be difficult to achieve, and the administration will likely be more active on the administrative and regulatory front, especially for noncore issues.

    That leaves the tobacco, nicotine and harm reduction agenda in an exposed position, especially given the powers in the vast and unexplored space of product standards. It is conceivable that an active FDA commissioner would implement a more expansive regulatory agenda. However, we must consider the reality of the situation confronting the Biden health policy team.

    We are not facing the same level of pressure or attention. Youth ENDS use is trending down. The CTP is quite busy with PMTA submissions. Pathways for modified-risk products, with very robust post-market surveillance, are now functioning and have a pipeline of pending applications. And most curiously, EVALI now languishes in that part of the internet where forgotten news and Paris Hilton reside.

    It is a fact that most of the people on the list for responsible positions within the Biden health team have track records in prior offices, or have advanced public positions, that are considered challenging for many harm reductionists and certainly for the industry itself. However, as we have all come to know, facts and truth are different. Truth, while composed in part of facts, is also made of other things like circumstances, possibility, achievability, consequences and priorities. The truth is, we simply do not know what will happen. However, it is equally truthful to point out that the overall instability of the country and an already full plate of the industry’s primary regulator suggests the frying pans remain filled with a lot of uncooked fish.  

    So, what is my point? Well, we can surmise that tobacco, nicotine and harm reduction will not be a core focus of the Biden administration. Statutory action is unlikely, bouncing the action back to the regulatory sphere. However, the responsible regulatory agencies are also the ones hopefully closing out the pandemic. Some of the key pressure points that emerged during the Trump administration are shrinking, and the CTP has a few items already in its “In” box. What people have done or said in the past is instructive but not determinate for what will occur in the future. Most importantly, and it cannot be understated, one of the core principals of U.S. public health regulation is a basis in evidence and the rule of law.

    On this last point, I will veer into opinion once again because my position affords me the ability to compare regulatory structures around the world. The people I meet in responsible federal regulatory positions are thoughtful and dedicated. They always strike me as committed to their mission of going where the science and evidence takes them, upholding the rule of law and taking action in the best interests of the American people—and that includes adult Americans who smoke or are choosing to transition away from smoking using reduced-risk products. Likewise, the industry and large parts of the stakeholder community are similarly dedicated to these principals.

    I do look with realistic optimism at the next four years under President Biden. I think we will experience a recovery from the social and economic dislocation caused by Covid-19, and that includes struggling segments of tobacco and nicotine like retailers, small manufacturers, distributors and growers. I trust that our nation can begin to recover and reconcile from the caustic divisiveness that mars our conversations of late. And I hope we can see that fellow Americans are people who may hold different views but are not the enemy incarnate.

    The reality of 2021 is much like the reality of 2018–2020: It’s mostly unknown. It is highly charged and divided. It is uncertain and dynamic in ways both positive and negative. It also holds opportunities for the stakeholder community to engage constructively with our regulators as we examine the issue of nicotine and harm reduction. With everyone at the table, dedicated to similar purposes, all stakeholders can advance policies and enact programs that continue to nurture the seeds planted over the last four years.

    I invite all stakeholders to use forums like TMA for that purpose. We stand ready to assist the community to turn uncertainty into positive action. Change is unavoidable; the only choice we have is to be shaped by it or take a shot at being the sculptor.

    Chris Greer is the president and CEO of TMA. Before joining TMA, he was director of corporate affairs and communications at JTI USA. He joined the tobacco and nicotine community from telecommunications and has spent his career in government and regulatory affairs, compliance, and corporate communications. Founded in 1915, TMA is a member-driven organization dedicated to convening all stakeholders in open, welcoming forums and providing unbiased information and understanding.
  • Uphill Struggle

    Uphill Struggle

    Image: KAC

    To break through globally, the concept of tobacco harm reduction must still overcome lots of challenges.

    By Stefanie Rossel

    The figures sound impressive: Globally, 98 million people have switched to safer nicotine products (SNP), according to the report Burning Issues: The Global State of Tobacco Harm Reduction (GSTHR) 2020, which was published by Knowledge Action Change (KAC) on Nov. 4.

    Yet the data look less glorious when put into perspective. With 1.1 billion smokers worldwide, there are only nine SNP users for every 100 smokers. And most of them are in high-income countries, with 68 million vapers living in the U.S., China, Russia, the U.K., France, Japan, Germany and Mexico. Around 20 million people, mainly in Japan, use heated-tobacco products (HTP) whereas 10 million are U.S. smokeless or snus users.

    Harry Shapiro

    “The two years since the last edition of this report have been a very difficult time for tobacco harm reduction [THR],” said lead author Harry Shapiro. “The estimated 1.1 billion smokers around the world deserve a better deal and better options. We need to hasten the demise of combustibles and encourage the use of safer noncombustible ways of using nicotine. Evidence from several countries shows that the availability of SNP helps people to switch from smoking.”

    There is an urgent need to scale up THR, the report insists. Despite billions spent by governments and the World Health Organization (WHO) on tobacco control, the number of smokers has not declined for the past two decades, and it is estimated to remain unchanged until the end of the century, which is a poor result for public health efforts. THR, the report claims, is a human right, and this is particularly disregarded in low-income and middle-income countries (LMIC), where tobacco control measures are often poorly or partially implemented. Eighty percent of tobacco users live in LMIC, with meager means to deal with tobacco-related consequences and the least access to affordable SNP.

    These countries also tend to have comparatively high levels of smoking, and poor and marginalized groups are disproportionately affected, with an estimated 8 million people dying due to smoking-related disease each year. In 22 LMIC, 30 percent or more of the overall adult population are smokers. While smoking prevalence in developed countries has decreased in recent years, the rates of decline in LMIC have slowed or smoking prevalence continues to grow, often due to population growth.

    While SNP clearly provides a solution at almost no cost for governments, many regulators have legislated against such products. Thirty-six countries have banned the sale of nicotine vapor products, among them Australia, India, Thailand and Turkey. Interestingly, Uruguay, which in 2013 became the first country to legalize cannabis, prohibits vapor products. Three countries have lifted their vapor product bans since the first GSTHR report was released in 2018, but this is offset by new restrictions, such as flavor bans, in several U.S. states in the wake of the 2019 EVALI crisis, which was mistakenly attributed to licit nicotine vapor products.

    Vapor products are currently regulated in 75 countries whereas 85 countries have no specific laws or regulations on nicotine vapor products (one country, Bhutan, prohibits the sale of all tobacco products, although it has suspended its ban for the duration of the coronavirus pandemic to deter illegal sales). HTPs are marketed in 51 countries but banned in 13 countries. Snus can be legally bought in 81 countries but is banned in 39 countries, including those of the EU, which permits snus only in Sweden for cultural reasons.

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    Vested interests

    Remarkably, the greatest obstacle to SNP is the WHO, according to the report, which meticulously investigated the health body’s funding sources.

    Billions of dollars come from well-funded anti-tobacco organizations, most notably those run by Bill Gates and Michael Bloomberg. Their networks of foundations, among them the University of Bath and the Bureau of Investigative Journalism, are actively supporting campaigns against THR, thus influencing decision-making at the WHO.

    They are aided by foundations supported by the pharmaceutical industry, which fears losing revenue from their nicotine-replacement therapies to SNP. Finally, among the WHO Framework Convention on Tobacco Control (FNTC) members are 17 signatories with vested interests in the continuation of combustible cigarette consumption: governments that own stakes of at least 10 percent in tobacco companies. Through its tobacco monopoly, China alone was responsible for 38 percent of the world’s cigarette volume in 2017.

    The spread of SNPs has also been slowed by the initial lack of scientific data. However, this has massively expanded to more than 6,300 scientific publications, mostly on vaping. In the meantime, misinformation has proliferated due to flawed science and a lack of knowledge about less-hazardous nicotine products among medical doctors. Politicians who don’t comprehend the technology and science behind THR have added to the problem while the consumer’s voice is often ignored in policymaking.

    Critical for LMIC

    David Nutt

    Assessing comparative harms of nicotine-delivery products has become the basis of THR science. In 2014, David J. Nutt, a British psychiatrist and psychopharmacologist, developed a test to define the harms of different nicotine products. Combustible tobacco products are the most harmful. “Apart from the health issues caused by consumption, cigarettes are responsible for most fires in the world,” said Nutt. “There is a high product-specific and a product-related morbidity as well as high economic cost. The impact beyond the user is enormous.” Snus, with its much lower impact overall, is at the other end of the scale, which has come to be known as the continuum of risk.

    Harm reduction has proven its value in other fields, such as alcohol and drug abuse, Nutt pointed out. He said opposing THR might well be the worst example of scientific denial since 1616 when the Catholic Church banned the works of Copernicus and denied ongoing research findings for 150 years. “If the WHO doesn’t accept the concept of THR, its credibility is at stake,” said Nutt.

    During the GSTHR launch event, three experts shared their firsthand experiences in LMICs. While Africa has applied the concept of harm reduction in many sectors, such as HIV prevention, SNPs continue to face an uphill battle, according to Chimwemwe Ngoma, a tobacco harm reduction advocate in Malawi.

    Many LMICs are insufficiently resourced to implement THR strategies. Besides, they rely on flawed public health information. In most LIMCs, SNP are banned or taxed so heavily that they become unaffordable. In Malawi, the cheapest e-cigarette costs $75 whereas combustible cigarettes sell from as little as $0.50 per pack, according to Ngoma. “Millions of people shouldn’t be denied access to products that can help them avoid poor quality of life, disease and premature death,” he said. An alternative to make THR more affordable in LIMCs, Ngoma added, would be snus.

    Mwawi Ng’Oma

    Mwawi Ng’Oma, program manager for St John of God Hospitaller Services in Malawi, also attributed the lack of progress to limited research, capacity and resources. “There is a lack of research concerning substance use and misuse, including tobacco and THR, in most LMICs,” she said. “Central systems for the collection of data don’t exist. There are also only inadequate addiction recovery services to support current smokers willing to switch.” Furthermore, tobacco smoking is socially accepted in some African cultures and commonly used in certain ceremonies, likely making it difficult for people to accept THR measures. Health priorities in the region, she concluded, are mainly on communicable diseases.

    Samrat Chowhery

    The situation is also dire in India, a country with 120 million smokers, second only to China in terms of tobacco consumption. Most combustible tobacco is consumed in the form of bidis, hand-rolled, inexpensive cigarettes that contain more nicotine, carbon monoxide and tar and present a greater risk of oral cancers than conventional cigarettes. In addition, India has about 200 million users of smokeless tobacco. Contrary to snus and modern oral products, Indian smokeless is very deadly. India’s oral cancer rate is the highest in the world.

    In 2019, India banned vapor products nationwide. Samrat Chowdhery, founder-director of the Association of Vapers India (AVI) and president of the International Network of Nicotine Consumer Organizations (INNCO), spoke about the ban’s impact on consumers and the economy. “Implementation of FCTC measures is generally low, but governments follow WHO guidance,” he said. “In most countries with a ban on vaping products, they are meant to ‘save the country’ but result in the emergence of black markets.”

    A decisive year

    Marina Foltea

    Although the FCTC aims to protect present and future generations from the damages of tobacco and smoke, it has largely ignored the potential of THR, according to Marina Foltea, founder and managing director at Trade Pacts, a Swiss-based trade and investment consultancy.

    “The FCTC has focused on supply and demand, on taxation, packaging, labeling, illicit trade, the prevention of sales to minors and alternative crops to tobacco rather than harm reduction,” she said. “The original wording of the treaty doesn’t mention SNP because these products arrived later on the market.”

    The Conference of the Parties (COP) started talking about SNP much later, basing its discussions on scientific reports commissioned by the WHO, such as a recent one that described banning SNPs as a legitimate regulatory approach despite findings that they are less harmful than cigarettes. The most recent COP session, which took place in 2018, only took stock of what member states do about THR and gave recommendations. Presently it seems that the WHO has expressed support for THR only in medical form. Consultations have been put on hold because of the pandemic.

    The next COP, scheduled for November 2021, is likely to be influenced by the recent SCHEER report, a scientific review on the health effects of e-cigarettes prepared for the European Commission in preparation for the 2021 revision of the EU Tobacco Products Directive (TPD). However, scientists have criticized the report as fundamentally flawed as it contradicts commonly acknowledged scientific evidence on vapor products.

    Other factors expected to influence the COP include Brexit—Public Health England appears to be more cautious now on their liberal approach to SNP—the 2019 U.S. EVALI crisis and the U.S. Food and Drug Administration’s (FDA) modified-risk approvals of Swedish Match’s General snus and Philip Morris International’s IQOS heat-not-burn product.

    Potential ways out

    Fiona Patten

    Although highly important, the consumer has been conspicuously absent as a voice in the THR debate. “The discussion seems to be dominated by two men [Bloomberg and Gates] who buy governments around the world and are driven by advisers who give them the wrong idea of what THR is,” lamented THR advocate Martin Cullip.

    By commissioning scientific studies with preconceived results that are widely published, the “philanthrocapitalists” create insecurity among consumers while misleading media reports lead to harmful policy, according to Cullip. “There is a massive imbalance in power and influence,” he said. “Consumers have to continue to stand up and raise their voices and fight against these people.”

    Politicians should start listening to unbiased scientists, said Fiona Patten, leader of the Australian Reason Party. In Australia, she noted, politicians had banned vapor products based on the wrong assumptions, including fear for children’s safety and the involvement of Big Tobacco. Instead, Patten said, politicians should ask where the products should be sold and to whom. “Instead of asking ‘Is it safe?’ they should ask ‘How can we reduce harm?’ and ‘What are the experiences of the people who have lived this?’” she said. “Those are the questions asked in all other areas of harm reduction efforts.”

    Jena Fetalino

    Clive Bates, director of The Counterfactual, called for a better understanding of how THR works. “We need more mindfulness of the pervertedness of disproportionate regulation and replace it with a story that is more helpful. We need to be less liberal on more-harmful and more liberal on less-harmful products regarding, for instance, taxation or advertising,” he said. “And we need a deep rethink of nicotine as a popular consumer drug that could have its place like caffeine.”

    Instead, everything is being done to degrade less-harmful products, to create barriers to the entry and to make the transition from smoking to vaping less attractive. “As a consequence, we will see more smoking, black markets, more home smoking and a lot more harm,” said Bates.  

    To counter misinformation, Philippine PR practitioner Jena Fetalino recommended getting the THR story shared as widely as possible. Scientific evidence, she said, is the best offense and the best defense because experts are more trustworthy than prohibitionists. “Consider media as an ally rather than an enemy,” she suggested. “Remember social media can magnify your voice, and consistency is the key.”

    A stony path

    Burning Issues says the primary aim of tobacco control should be to offer smokers suitable exit strategies. The WHO should encourage FCTC signatories to take a more balanced view of SNPs to help encourage a switch away from combustibles while consumer well-being should be at the center of international planning and policy. Governments should hasten that switch instead of preventing it, and no action should be taken that favors smoking over SNPs.

    Hurdles, however, remain high, especially with the philanthrocapitalists’ funding of anti-THR strategies. “This is not simply a question of equally valid differences in scientific interpretations,” Shapiro told Tobacco Reporter. “The evidence in favor of safer nicotine products is clear and consistent. These products are substantially safer than cigarettes; they offer a realistic off ramp for people who want to switch away from smoking while they are not a gateway to smoking for young people,” he said.

    “Unfortunately, this science is being contested by a public health narrative, which is morally based in a refusal to accept recreational use of nicotine and an entirely bogus claim that the whole SNP enterprise is literally a smokescreen by Big Tobacco to get kids hooked on nicotine to compensate for falling sales, at least in higher income countries,” Shapiro added. “It’s hard to see how you combat a belief system with actual evidence, but we have to keep trying and hope to push anti-tobacco harm reduction elements onto the wrong side of history.”

    While THR is specifically mentioned in the preamble of the FCTC, Shapiro sees little chance of forcing the organization to include THR in its strategy through legal measures. “The reason [THR] is there is that the architects of the FCTC back in the 1990s actually sat down with industry who were making some attempts at producing safer products. The problem was that they all involved combusting tobacco so were never going to work as safer products,” he said.

    “Even so, the idea of THR was written into the FCTC as there was another declaration that the FCTC would keep up with the scientific evidence. The implication was that should there be viable SNP developments, then they would become part of FCTC strategy,” Shapiro said.

    “However, once new products became available, the WHO completely reneged on this commitment and instead insists there are ‘irreconcilable differences’ between public health and the industry. I doubt there are any ways to force the WHO to change its stance—but bear in mind that the FCTC is only a framework convention, not a treaty. This allows signatories maximum latitude over regulation and control, unlike the EU TPD, which is legally binding.”

    THR’s prospects are also not great for the upcoming TPD revision, judging by the tone of the recent SCHEER report, according to Shapiro. “Negative comments by EU health officials on World No Tobacco Day earlier this year concerning SNP and the fact that the EU works hand-in-glove with the WHO based in Geneva all point to a hardening of approach in the next iteration of the TPD,” he said.

    Flavor bans proposed in the Netherlands, Denmark and Belgium would exacerbate the situation for THR, Shapiro explained. On the positive side, the FDA’s MRTP approvals for General snus and IQOS may set a precedent against which THR opponents will have to justify unwarranted regulation. “It opens the door to the idea that there is now some official acceptance that these products can be marketed as safer than cigarettes,” said Shapiro. “It is also a recognition that it is possible for industry science to successfully make the THR case.”

     

    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.
  • Change of the Guard

    Change of the Guard

    Photo: David Mark from Pixabay

    What might the new U.S. administration have in store for the vapor industry?

    By Patricia Kovacevic

    At the time of writing, the results of the U.S. elections are still contested by the presidential incumbent, a Republican, via various vote recount requests and litigation; however, it is a virtual certainty that the U.S. will have a new president, representing the Democratic Party, as of Jan. 20, 2021.

    The heads of departments, including the head of the Department of Health and Human Services (HHS), are appointed by the president, subject to confirmation by the Senate, and typically change with the administration. In turn, the Food and Drug Administration (FDA), which is the agency within the HHS with primary jurisdiction over tobacco products (including electronic nicotine-delivery systems, or ENDS) as well as drugs, foods and other products, will be led in the new administration by a new commissioner.

    Given the Covid-19 crisis, the new president will be under immense pressure to appoint a new FDA commissioner immediately. Interestingly and somewhat surprisingly, a former FDA commissioner, David Kessler, was recently named co-chair of the new administration’s Covid-19 task force, although Kessler resigned his commissioner role in November 1996 amid controversy for overbilling his travel expenses during his tenure.

    Also during Kessler’s tenure, the FDA attempted to regulate tobacco products as “delivery devices for the drug nicotine” to bring tobacco products under FDA jurisdiction. Tobacco companies challenged the rules all the way to the Supreme Court and won (FDA v. Brown and Williamson Tobacco Corp.). The Supreme Court ruled that “Congress has clearly precluded the FDA from asserting jurisdiction to regulate tobacco products. Such authority is inconsistent with the intent that Congress has expressed in the FDCA’s [Food, Drug and Cosmetic Act] overall regulatory scheme and in the tobacco-specific legislation that it has enacted subsequent to the FDCA. In light of this clear intent, the FDA’s assertion of jurisdiction is impermissible.”

    Kessler’s wish to see tobacco regulated by the FDA was eventually granted by Congress in June 2009 through the bipartisan passage of the Family Smoking Prevention and Tobacco Control Act. While some speculate that Kessler may be on the short list for HHS commissioner, it is likely that the administration will bring forward new faces. Still, Kessler’s life-long anti-tobacco stance and past working relationship with the current head of the Center for Tobacco Products might give an indication of the increased scrutiny of the tobacco sector in the years to come.

    The ENDS industry status quo, from a legislation point of view, while far from ideal, is by now familiar to the ENDS industry. The recent premarket tobacco product application (PMTA) filing deadline has come and gone, and, as expected, we have not seen a flurry of warning letters post-September 2020 ordering certain vapor manufacturers to stop selling their products because they did not submit a PMTA.

    The FDA is, however, expected to start enforcing this legislation sooner or later. For any dramatic change to occur, the governing legislation, the Food, Drug and Cosmetic Act, would have to be amended, which is not likely to be top of the list for the upcoming Congress given the priorities the new administration announced during the election campaign. Still, the House of Representatives, one of the chambers of the U.S. legislature, remains dominated by the Democrats, the same party whose representatives initiated several tobacco-related bills and called for confrontational hearings on vapor products. The most recent one, in February 2020, was relatively tame compared with the tone of the July 2019 Juul hearing and even with the June 2014 Senate hearing. 

    Senate races in Georgia will require runoff elections on Jan. 5, 2021. If Democrats gain both Senate seats in Georgia in January, there would be a 50-50 tie in the Senate, and the vice president would have the tie-breaking vote in case the Senate is deadlocked on a piece of legislation. When the House, Senate and White House are controlled by the same party, the chances of the current administration to pass laws in support of its agenda are greatly increased, though divisions exist within each party, and surprises always happen. Furthermore, 34 out of the 100 Senate seats are up for regular election in two years as well as all 435 House seats; these will be a trying two years for Americans in an economic crisis, and the public sentiment can swing in the other direction. Thus, the new president may have only two years, if even that long, to pass a flurry of laws, and there may be more urgent matters than revisiting the Tobacco Control Act, which, for better or for worse, has worked so far.

    The FDA already has broad powers to expand requirements and restrictions involving ENDS products, including the authority to impose product standards through notice-and-comment rulemaking. Ingredient caps and bans are among the standards the FDA has the authority to promulgate via regulation.

    The latest unified agenda of regulatory and deregulatory actions

    As of spring 2020, active regulatory actions include four potential future regulatory actions by the FDA, rolled over from previous agendas, with no clear deadline for publication of a proposed rule:

    • Requirements for Tobacco Product Manufacturing Practice (colloquially referred to as “Good Manufacturing Practices”)
    • Tobacco Product Standard for Characterizing Flavors in Cigars (follow-up to the 2018 Advance Notice of Proposed Rulemaking); this is unlikely to move into the final rule stage on account of recent courtroom successes by the cigar industry.
    • Modified-risk tobacco product applications; this future proposed rule would establish content and format requirements to ensure that modified-risk tobacco product applications contain sufficient information for the FDA to determine whether it should permit the marketing of a modified-risk tobacco product. Additionally, the proposed rule would set forth the basic procedures for modified-risk tobacco product application review and require applicants receiving authorization to market a modified-risk tobacco product to establish and maintain records, conduct post-market surveillance and studies, and submit annual reports to the FDA.
    • Premarket tobacco product applications and recordkeeping requirements, a 2019 proposed rule, which would have as a next step at some point in the future, likely in 2020, a final rule.

    Notably, ingredient bans and nicotine caps are not on the regulatory agenda. A first step toward an ingredient ban would likely be an Advance Notice of Proposed Rulemaking (ANPRM), although the FDA can in theory skip this step and move directly to a proposed rule, open a docket for comment, collect comments and consider whether it has sufficient information to finalize the rule. Given the complexity of the issue and the current research focusing on flavor ingredients in ENDS, if the FDA determines that an exploration of a flavor ban is desirable, the FDA will probably go through the ANPRM step.

    One would have to wonder, though, why engage in rulemaking when the FDA already reviews all relevant information about every ENDS product on the U.S. market, present and future, through the PMTA process—thus allowing the agency to make a case-by-case determination—and the FDA will no doubt pay considerable attention to certain flavored products. In the author’s personal opinion, the PMTA process is the FDA’s preferred avenue to make decisions on individual products rather than issuing rules on product categories, which can also be challenged—and the current Supreme Court might entertain challenges to the FDA’s behavior if it came to it down the road.

    Meanwhile, the majority of states by number still lean conservative, which likely means fewer developments in taxation, some scrutiny of ENDS but not necessary priority placed on shrinking the lawful ENDS market as there is no immediately quantifiable health benefit from doing so, and many potential harms. Of note are the California litigation and the potential referendum in California to overturn SB 793 (the flavor ban legislation). By the time this you read this article, we should know whether the bill opponents succeeded at collecting the necessary signatures to place the referendum on the November 2022 California elections ballot and suspend the application of the California flavor ban until then and pending the referendum’s outcome.

    The question we must also ask, given the political, public health and economic crisis context is whether ENDS are a threat to anyone and why any administration would, at this juncture, prioritize overregulating a harm reduction asset over the important, systemic changes Americans expect from the administration and drastically mitigating the Covid impact. The industry is likely to consolidate and survive.

    A global legal and compliance nicotine industry expert, Patricia I. Kovacevic has experience that includes general counsel and chief compliance officer roles at Nicopure Labs as well as leading senior legal and regulatory positions at Philip Morris International and Lorillard. Kovacevic served on the board of directors of the Vapor Technology Association and on the advisory board of the Global Tobacco & Nicotine Forum. She is the founder of RegulationStrategy, a global legal and compliance FDA-regulated industry consultancy.
  • Resilience in Adversity

    Resilience in Adversity

    Photo: PMI

    The Altria Group continues to deliver a strong 2020 performance despite a challenging economy.

    By Timothy S. Donahue

    Despite a challenging economic environment, Altria Group’s net revenues rose by 3.9 percent to $7.12 billion in the third quarter of 2020. Through the first nine months of the year, the tobacco giant’s net revenues grew by 3.9 percent to $19.85 billion. During its third-quarter conference call with investors, Altria CEO Billy Gifford said that the company demonstrated its resilience during the third quarter while continuing to navigate the adversity produced by the Covid-19 pandemic.

    Altria’s third-quarter adjusted diluted earnings per share (EPS) was unchanged at $1.19. Gifford explained that for the first nine months of the year, adjusted EPS grew 5.6 percent to $3.37, driven by the strong financial performance of Altria’s tobacco businesses. The smokable products segment delivered third-quarter adjusted other comprehensive income (OCI) of $2.8 billion, up nearly 10 percent from the same period last year. And for the first nine months, the smokable segment adjusted OCI increased 10.5 percent to $7.7 billion, according to Altria’s third-quarter report.

    “In the third quarter, our tobacco businesses delivered strong financial performance once again, and we made steady progress against our 10-year vision,” said Gifford. “At the same time, we’re pursuing our vision to responsibly lead the transition of smokers to a noncombustible future.”

    Smokeless and next-generation tobacco products continue grow in Altria’s portfolio. The company has made steady progress with expansion plans for its On! and IQOS brands. These products, alongside Altria’s moist smokeless business and its investment in Juul Labs, present significant opportunities for smoker conversion to noncombustible alternatives, according to Gifford. Altria subsidiary Helix Innovations is responsible for marketing, manufacturing and distribution of On! nicotine pouches globally.

    “We believe On! is a strong proposition and has been successful with both smokers and dippers. On! was sold in 56,000 stores at the end of the third quarter, up 40 percent from the second quarter and more than tripled the store count from the end of last year,” said Gifford. “In stores with distribution, On! achieved a retail share of 2.1 percentage points of the oral tobacco category in the first nine months of 2020. Helix continues to test different trial-generating promotions and has benefited from strong trade partnerships.”

    In the vapor category, Altria submitted its premarket tobacco product application (PMTA) to the U.S. Food and Drug Administration (FDA) for its Juul product and four flavors of pods. That application is currently under scientific review. Gifford believes that a sustainable vapor category is one that exists with solely FDA-authorized products.

    “We encouraged FDA enforcement against noncompliant manufacturers, including those who continue to sell e-vapor products without a PMTA submission,” he said. “We estimate the total e-vapor volumes decreased by 13 percent for both the third quarter and the first nine months of 2020. We believe the e-vapor category will continue to undergo a transition period over the next few years as [the] FDA makes market determinations on the thousands of PMTAs before the September [2021] deadline.”

    Altria’s valuation of Juul Labs dropped to less than $5 billion, down from $38 billion two years ago. In September, Juul Labs announced a strategic update, which included its plans for a significant global workforce reduction, evaluation of resource allocation and the possibility of exiting various international markets.

    “I think while we’re disappointed in the investment, we do believe that e-vapor will play an important role as we progress harm reduction, especially in the U.S. but even worldwide,” Gifford told investors. “In preparing our third-quarter financial statements, we performed a valuation analysis of our investment in Juul, which considered both its international prospects and current U.S. e-vapor category dynamics. As a result of this analysis, we’ve recorded a $2.6 billion impairment to our Juul investment, bringing its carrying value to $1.6 billion as of Sept. 30.”

    Pamela Kaufman, an analyst with Morgan Stanley, asked Gifford to explain the rationale behind the magnitude of the Juul Labs write-down, which implies a total value for the company of about $4.5 billion—well below Juul’s reported internal valuation of about $10 billion.

    “When we put together a valuation for the company, we do our best to make the best assumptions we can based on the future cash flows, how large we would expect [the industry] to become both on the domestic side and the international side,” said Gifford. “We highlighted for you that we believe the category is going to go through a two-[year] to three-year transition as all manufacturers in the e-vapor category navigate this FDA regulatory process. Certainly, we’ve seen a number of manufacturers get fairly competitive and step up their competitive activities in the marketplace. And we believe as the FDA makes decisions and products can remain and some products leave the category that there will be consumers at play. And so, all of those factors went into the valuation that we have, and we came forward with our best estimate.”

    Meanwhile, Altria subsidiary Philip Morris USA (PM USA) continues to expand the footprint of the IQOS heated-tobacco brand in the United States under an agreement with Philip Morris International. Gifford said that the FDA’s recent authorization of a reduced exposure claim for IQOS has allowed the tobacco company to use its “robust digital assets and tobacco consumer database” to communicate with smokers, including through websites, email and direct mail.

    “We believe that the combination of these modified-risk communications and PM USA’s more disruptive retail fixture will significantly enhance the quality of IQOS awareness among smokers. As smokers move along the journey to engagement and trial, PM USA is providing flexible options to learn about IQOS and purchase devices,” explained Gifford. “PM USA now offers a video chat option for age-verified smokers to use their mobile phones and connect directly with IQOS experts for product education and support.”

    PM USA is also expanding the availability of IQOS devices into the convenience store channel. Beginning next month, PM USA expects IQOS devices to be available in select convenience stores in Charlotte, North Carolina. Gifford said the company estimates the number of tobacco consumer trips to the store rebounded in the third quarter and that tobacco expenditures per trip remained elevated versus a year ago.

    “The IQOS team is looking at how we meet the consumer where they’re at and putting it in select convenience stores; it really is meeting the consumer where they make their point of purchase,” said Gifford. “It’s really an education process. But our IQOS team has done some excellent work. We’re also testing at-home delivery; once the consumer has gone through the tutorial and has been age verified, we could actually have at-home delivery of devices.”

    Altria’s fourth quarter is expected to follow the third-quarter’s and first nine month’s trends. Gifford says that Altria’s tobacco businesses have a track record of delivering strong and consistent financial performance in challenging environments. He said the company will continue to reward its shareholders by returning a significant amount of cash in the form of dividends. “We believe our tobacco business platform has the winning brands and is unmatched,” he said. “We’re excited to make further progress in achieving our vision of responsibly transitioning smokers to a noncombustible future.”

    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.
  • The Wrong Direction

    The Wrong Direction

    Photo: Ded Mityay |Dreamstime

    Current e-cigarette use in Great Britain has declined for the first time, most likely because of misinformation.

    By George Gay

    A number of countries are moving toward severely restricting the flavors that may be included in e-liquids, partly, they say, because certain flavors encourage vaping among young people—“young” being variously defined. Two of three countries that are going down this road and of which I am aware are, at the same time, moving toward bans on the sale of vapor products to young people, and one already has such a ban in place.

    This means that, in these three countries (Denmark, the Netherlands and the U.S.), the proposed bans on generally popular flavors are aimed at discouraging adult consumers from attempting to switch from smoking to vaping and, given that nicotine users are addicted, encouraging vapers to switch back to smoking.

    Nevertheless, these planned flavor bans are being put forward as health initiatives, so the only conclusion that can be drawn from what is going on in these countries is that those promoting the flavor bans believe that smoking is less risky than vaping.

    How did they get to this point? Well, I think that we can rule out that they have been led there by scientists. While there seems to be a band of scientists desperate to prove that vaping is as risky, if not riskier, than smoking, I think I am on safe ground in saying that most scientists well versed in such matters will tell you that vaping is less risky—many would say hugely less risky—than smoking.

    So if those promoting these flavor bans haven’t been led by the science, what has led them to this point? It can’t be politics because, in matters of public health, the politics would be guided by the need to protect people, which takes us back to the science. After all, what better proof could one have of this than the current situation where politicians are being led by the science in making decisions about fighting the coronavirus pandemic? Hmm.

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    Arbitrary choices

    Perhaps it would be wise to take a closer look, and here I move the focus of the story from the three countries mentioned above to Great Britain. At the start of an opinion piece published in The Guardian in October, David Runciman, professor of politics at Cambridge University, quoted the German sociologist, Max Weber, as arguing a century ago that politics can never really follow the science. Later in the piece, Runciman wrote that “[i]n politics, expecting the evidence to point the way does not reduce the arbitrariness of the outcome.” He added that “all political choices are arbitrary to a degree. Using statistics to justify difficult decisions just makes them appear more arbitrary for anyone who happens to disagree.”

    I can see what he is getting at, but this is not to say that politicians should flip a coin to decide policies, so I’m going to turn things around by using some statistics to challenge rather than justify what seem to me to be arbitrary decisions that are already on their way to being made in respect of e-liquid flavors. The reader will have to decide whether the statistics—evidence, science, call it what you will—make the decisions being taken more or less arbitrary.

    The statistics have been taken from a recently published report, “Use of e-cigarettes (vapes) among adults [those over 18] in Great Britain,” which was based on data taken from an annual survey, “Smokefree GB,” carried out for Action on Smoking and Health (ASH) by the market research company YouGov. The survey started to include e-cigarette use in 2010, and the current update includes the results of the 2020 survey carried out in February and March.

    These statistics concern Great Britain, which includes England, Scotland and Wales, but I imagine they would probably reflect, at least partly, the situation in many other countries.

    Let’s start off by looking at what the point of vaping is, viewed solely from the point of view of the smoker and vaper. According to the report, “[a]s in previous years, the main reason given by ex-smokers for vaping is to help them quit (41 percent) and prevent relapse (20 percent)” while “[t]he main reason given by current smokers for vaping is to cut down (24 percent) followed by to help them quit (14 percent) and to prevent relapse (14 percent).” Moreover, the report says that when, in 2019, current vapers were asked about their views on vaping, most e-cigarette users said that improving their health was their number one reason for vaping. “Among all vapers, 60 percent agree that ‘health is my number one reason for taking up e-cigarettes,’” the report said.

    It seems as though, under the current circumstances, these vapers and smokers are making rational decisions about their health, especially given that later in the report, it is noted that recent evidence from a randomized controlled trial showed that vaping was nearly twice as effective as nicotine-replacement therapy (NRT) in helping smokers quit in a Stop Smoking Service setting in England.

    And if the focus is shifted from individual smokers to the wider population, it is worth noting that the report describes how the use of electronic cigarettes is largely confined to current and ex-smokers, with use among never-smokers remaining low, something, I think, that is suggested by the age profile of vapers. “The peak ages for current e-cigarette use in 2019 are among 35 [year-olds to] 44 year-olds (9.5 percent) followed by 45 [year-olds to] 54 year-olds (9.3 percent) and then 25 [year-olds to] 34 year-olds (7.8 percent),” the report says. “The lowest vaping rates by age are 4.3 percent for young adults aged 18 [to] 24 followed by those over 55 at 5.6 percent.”

    John Dunne

    Rational decisions

    This all sounds very encouraging. Generally speaking, those who should have been taking up vaping—smokers—seem to have been doing so while those who shouldn’t have been—never-smokers—haven’t been. But there’s a fly in the ointment. The report says that for the first time (and at a time when there are still nearly 7 million smokers in the country), current e-cigarette use has declined year-on-year from 7.1 percent of the adult population in 2019 to 6.3 percent in 2020—from 3.6 million users to 3.2 million users.

    Unfortunately, this is not surprising. “Misinformation continues to be a huge challenge for the [vapor] industry despite its efforts to make consumers aware of the evidence-based facts, including Public Health England’s statement that vaping is at least 95 percent less harmful than smoking,” said John Dunne, director-general of the U.K. Vaping Industry Association (UKVIA), in reacting to the report’s findings. “Inaccurate and misleading reporting, together with highly questionable research, gives a negative view of vaping to smokers who may otherwise quit. Even worse, it could make current vapers reconsider whether they’ve made the right move by taking up e-cigarettes.”

    One result of the widespread dissemination of misinformation has been that the proportion of the adult population of Great Britain that thinks vaping is more or equally harmful than smoking is five times higher than it was in 2013, up from 7 percent in 2013 to 37 percent in 2020. But as the report suggests, the likely driver for the decline in e-cigarette use between 2019 and 2020 is the impact of the media coverage of an outbreak of serious lung injury among cannabis vapers in the U.S. “While the cause of this outbreak has since been identified as vitamin E acetate used to adulterate cannabis-containing e-liquids, the media coverage of the initial outbreak was far more prominent than the subsequent explanation or the fact that both vitamin E acetate and THC-containing liquids are banned under U.K. rules,” the report pointed out.

    While some of those opposed to vaping might take comfort from the fact that fewer people correctly identify that vaping is less risky than smoking, they would be wise to hold the celebrations. The report points out, too, that only 34 percent of people correctly identified nicotine-replacement therapy as being much less harmful than smoking.

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    Additional discouragement

    So what would happen if, on top of the above discouragements, the vaping environment was hit by significant reductions in the generally popular flavors that were allowed to be used in e-liquids? It seems to me that there would be two major effects—one of which would negatively affect vaping’s image.

    The second major effect was described in the report itself. In 2019, the researchers asked current e-cigarette users what they would do if flavors were no longer available. “Around one in four said they would still try to get flavors, and just under one in 10 said they would make their own e-liquid,” the report said. “The most popular option after continuing to try to get flavors was using unflavored e-liquids/cartridges. However, just under one in five said that they would either smoke more or revert to smoking, and around the same proportion said that they did not know what they would do. Less than one in 10 said that they would stop vaping.”

    There is some encouragement to be had from that last sentence, but I would worry that it masks some potential major problems. I would be concerned about where those replacement flavors would be sourced because we could be setting the seeds for a serious disease outbreak as happened in the U.S. in 2019. And the idea that people might be forced back to smoking is one that no responsible politician should contemplate. As the U.K. Member of Parliament (MP) Gareth Johnson, a member of the All-Party Parliamentary Group for Vaping, was quoted as saying in the UKVIA’s response to the report’s findings: “Vaping is significantly safer than smoking, and false information to the contrary is literally costing lives.”

    What flavors are we talking about? In 2015, the researchers started asking e-cigarette users what flavor they used most often. At that time, tobacco was most popular (38 percent) followed by fruit flavor (25 percent) and menthol (19 percent). Now, fruit flavors are said to be the most popular (32 percent) followed by tobacco (23 percent) and menthol (22 percent). Very few users are using products with no flavors.

    It cannot be denied that there is some conflict here given that fruit flavors are also the choice of many young vapers. One of the report’s references takes the reader to a 2019 report, “Use of e-cigarettes among young people [11–18] in Great Britain,” which states that the most frequently used e-cigarette flavorings for young people have consistently been fruit flavors, the choice of 45 percent of users in 2017, the last time this question was asked. But this has to be set against the fact that, with age restrictions in place, the number of young people vaping is low and should remain low no matter what flavors are available. Under their key findings, the researchers say that data from the 2019 ASH YouGov Smokefree youth GB survey suggest that while some young people, particularly those who have tried smoking, experiment with e-cigarettes, regular use remains low.

    In fact, in reading the 2019 report, I was left with the feeling that young people are not particularly interested in e-cigarettes. I think this was summed up well in a section on brand awareness, which contained the comment, “Unsurprisingly, given the low levels of regular use, 55 percent of those who had ever tried e-cigarettes said they didn’t know what brand they used.”

    Vaping seems to be approaching a watershed at which it cannot afford to be hit by further unnecessary setbacks, such as the withdrawal of some of the most popular e-liquid flavors. “There are still 3.2 million vapers out there who have made the successful switch, but there are also 6.9 million smokers—of which nearly a third have not tried vape products,” said Dunne. “These smokers can still turn to vaping to quit cigarettes and benefit from harm reduction.”

    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.