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The voices of vapers and other tobacco/nicotine consumers are being heard more than ever, but we might be overestimating the implications.

By Carl V Phillips

Social media and enthusiasm about vaping have created an unprecedented consumer voice for tobacco/nicotine product use. Tobacco-control messages from government and anti-tobacco organizations are met with floods of opposing responses. Vapers rallied to soften the restrictions on vapor products in the EU’s revised Tobacco Products Directive. There is a resurgence of smokers’ rights, such as NYC CLASH’s “Smoking is Normal” campaign, pushing back against “denormalization.” The expanding nanny state has inspired wider sympathy for those who were once its main targets. With the exception of smokeless tobacco users, who remain as voiceless as ever, there is a heady belief that a “people power” revolution is changing everything.

Unfortunately, history shows that people power seldom generates more than a show of enthusiasm, and for good reason. The rational choice for any individual is to not donate the time or money needed for ongoing advocacy. If everyone did so, they could all come out ahead. But each decides only for herself and so cannot reasonably hope to influence the outcome. Even adamant belief in a cause is seldom enough to inspire actions if they are not either trivial (e.g., clicking to send a form letter) or personally rewarding (e.g., testifying at a hearing or attending mass protests). This collective action problem means that even with strong consumer support for a goal, it is organized interests—collective actors who have more at stake, are able to act in a focused manner and do not have life’s million other problems to worry about—who dominate the fight. To say that issue advocacy is a marathon, not a sprint, grossly understates what a slog it really is, as well as how tactically complicated it is.

So what can we say about the successes of consumer advocacy?

First, a barely organized mob can play pretty good defense against even a focused opponent. Picture Lionel Messi trying to get through a hundred amateur defensemen (American readers who do not get the reference can substitute the grief a restive population can inflict on an elite occupying army). For several years, The Consumer Advocates for Smoke-free Alternatives Association (CASAA), where I was chief scientist from 2012 until earlier this year, marveled at our success in mobilizing vapers against U.S. anti-vaping legislation. We saw the defeat of almost every restriction at the state level (where consumer voices have the most impact) and most of the local ones. Unfortunately, the political science research on state and local legislation suggests that widely adopted regulations usually experience a yearslong lull, with only a few early adopters, followed by an explosion of what gets called “diffusion,” with an accelerating feedback process like a contagious disease. This pattern seems reasonably likely in the present case. A temporary victory is better than none, but the purely defensive nature of those successes means nothing is secure. A victory that consists stopping a stroke of the pen can be undone with the next stroke of that pen. The clock keeps running, and the attackers only need to find the goal once.

Second, consumer activism carves out a wider Overton window for organized interests (i.e., industry) to act. Consumer advocacy changes what is considered normal and acceptable to claim. Enthusiastic support for vaping or smoking makes it much easier for industry to portray its organized political efforts as defense of consumer choices and rights. Of course, the attackers will always pretend otherwise, but those open to the evidence cannot help but notice the genuine consumer interest.

Third, the constant pushback against anti-consumer rhetoric and proposals prevents anti-tobacco activists from fully controlling the mindspace as they did for decades. Unfortunately, the disorganized approach, while far better than no voice, is losing ground. Public opinion about vapor products is trending negative in most places (for cigarettes there was really no room to drop any further). There are a lot of social media retorts but few carefully crafted letters to media outlets or politicians who make anti-consumer claims. Organized anti-tobacco interests, by contrast, send out their boilerplate replies systematically. Once again we see the collective action problem: Clever retorts on social media have consumption value (i.e., in addition to being useful, it is a fun way to spend two minutes), but the thankless task of sending out ten formal communications a day, most of which will never appear publicly, does not.

Missing from this list of accomplishments is any actual turning of a corner, away from playing only a desperate reactive defense. In issue politics, people power seldom accomplishes this without first coalescing into an organized interest, providing the strategic leadership that is required for going on the attack and also overcoming the collective action problem. In the U.S., far more people oppose animal cruelty or erosions of civil liberties than oppose restrictions on tobacco/nicotine products, but it is not the public clamor (and certainly not the ballot box) that wins political and legal battles. It is organized interests like the Humane Society and the American Civil Liberties Union. In the vapor advocacy space, numerous groups have risen, declined, merged and disappeared. But the credible organizations have conspicuously avoided trying to play any strategic leadership role. None appear able to turn the corner, creating an organization that transcends the volunteered efforts of a tiny group of highly dedicated individuals. The few victories that we can really “put in the bank” and build upon—which arguably consist only of blocking total or near bans of vapor products—clearly owe more to organized industry efforts than to consumer advocacy. A mob can defend its goal, but it is unlikely to put any points on the board.

The most organized consumer advocacy group, the smokers’ rights group Forest, offers a useful contrast. Forest is a constant proactive voice and thereby established itself as a go-to source on tobacco consumption issues in the U.K. and Ireland. It is leading the call to reintroduce smoking rooms in pubs, something that might succeed with the push from relevant industries and is enabled by the consumer activism. If that succeeds, it will be an important turned corner, an actual rollback of anti-consumer rules. A key difference between Forest and other consumer groups is that it receives adequate funding from industry to function as an organized interest. This does not make it less a legitimate voice for consumers (though anti-consumer interests insist otherwise), but it bypasses rather than solves the collective action problem. An unorganized mob of smokers’ rights advocates plays the same roles as vapers’ rights advocates (albeit rather less effectively). But the strategic organized interest, much like the organized interests supporting drug legalization, depends on funding from other organized interests.

Perhaps no solution to the collective action problem is even possible. As a percentage of the population in Western countries, tobacco/nicotine consumers are at their lowest ebb. But that larger historical population of smokers was never mobilized as an effective political force. We can hope that because vapers are “born” empowered—in contrast to smokers who were slowly boiled, like the proverbial frog, into self-loathing and political weakness—it might be different. However, the material harm vapor enthusiasts suffer from vaping restrictions is really not much different from the accumulated annoyances suffered by smokers.

When the U.S. Food and Drug Administration (FDA) dragged its heels on possible HIV/AIDS treatments in the 1980s, protesters stormed meetings and took to the streets. They were highly motivated since the FDA could effectively block the development or availability of treatments they desperately wanted. While the talk about the FDA threatening lifesaving vaping sounds similar, the motivation level is very different. Motivated vapers have figured out how to access alternative supplies—via a combination of black markets, shadow markets and do-it-yourself manufacturing—in jurisdictions where e-cigarettes are severely restricted. Restrictions will impact smokers who might have switched products, and they could devastate the e-cigarette industry, but restrictions do not create the consumer desperation that can overcome the collective action problem. Vapers who are most motivated to take action are also best prepared to subvert any restrictions. Imagine how much sooner cannabis sales would have been decriminalized if the well-functioning black market did not make it easy to not care it was criminalized.

What happens to consumer advocacy if it cannot be transformed into an organized interest?

British and some other European vapor advocates seem to be pursuing a strategy of subsuming the consumer movement into existing organized interests, specifically public health power bases in universities and organizations that are sympathetic to vaping. There are some individuals actively trying to engineer this, though it appears to be mostly inadvertent. The people power evolved organically, and those interests happened to be in a position to run with it—or co-opt it, depending on one’s point of view. This might prove an effective way to turn a corner, creating a persistent voice that already has sufficient funding and visibility. However, there are concerns this comes at the expense of empowering an organized interest that shares some consumer interests (keeping vapor products available for smoking cessation) but clearly not all (making vapor products generally available, high quality and unburdened by many of the restrictions faced by smokers). Perhaps more importantly, it reduces the incentive to create an independent power base that is not subject to the shifts in political winds that could end support for vaping among institutions, a problem that snus users in Sweden recently discovered the hard way.

In the U.S. no such strategy is available due to the unified opposition from “public health” organized interests. There have been moves by at least one radical-right anti-government organization to capture vapers as part of its constituency, and some advocates have endorsed this, but it is unlikely to get traction. The only organized interest for semi-organized consumers to ally with is industry, and that is just what has occurred worldwide.

This is the common story of consumer advocacy. Consumers speak up, but it is the companies that can profit from consumer demand that function as organized interests, either individually or collectively, after solving their own (much smaller) collective action problem. Industry interests are hardly perfectly aligned with consumers, but healthy market competition keeps most of the misalignments in check. Across many product sectors, industry is the only organized interest that mostly defends consumer interests. But as with most everything else in the tobacco sector, that relationship is rather more complicated. Many smokers despise industry for “getting them hooked” or for seeking arrangements with tobacco control at consumers’ expense. Many vapers blame the traditional tobacco companies for anti-vaping efforts. There are at least three tiers of producers in the vapor product space with radically different incentives and relationships with consumers, which creates serious collective action problems.

Most important—though discussed far too little—is that in other sectors government regulation and a few organized watchdog organizations diminish the misalignment between consumer and industry incentives. Government forbids various profitable but consumer-harming choices industry might make, and the watchdogs investigate and highlight problems that government is too slow or too captured to address. But in the tobacco/nicotine sector, so-called regulators are really crypto-prohibitionists, adamantly opposed to consumers’ real interests rather than attempting to protect them, and the usual consumer watchdogs are, at best, indifferent about tobacco consumers. To “regulators” in this sector, the harm done to consumers by oligopoly pricing, for example, is a feature, not a bug. Consumers who are desperately defending their rights against government and its allies can spare little attention to defend themselves against industry behavior that harms them.

It is from this complex muddle of incentives and challenges that advocacy for consumers’ interests sufficient to resist the enormous power of the attackers must emerge. Or not. It is difficult to be optimistic. Echo chamber-fueled optimism about people power is further reason for pessimism because it reduces the motivation to somehow create effective organized interests. Industry seems to be floundering about how best to use people power as an auxiliary for its (not terribly) organized efforts, employing astroturfing and sometimes cheerleading for consumer groups, but not enough to really empower them. The Forest model—independent consumer voice but openly industry-funded—is the only proven model, but there is little sign of industry interest in replicating it.

After being forcibly ejected from COP6, editorial writer Drew Johnson hopes this year’s gathering won’t be quite so physical.

By Timothy S. Donahue

When the media sign was taken down, Drew Johnson knew something was afoot. “The media is banned,” said a burly security guard as he confronted Johnson. There had been no formal vote during the plenary session at the sixth session of the Conference of the Parties (COP6) to the World Health Organization (WHO) Framework Convention on Tobacco Control (FCTC) to ban the media, so Johnson felt the guard must have been mistaken. When he began to argue his position, the security guard grabbed him by the arm and swiftly lifted him out of his chair. Johnson quickly pulled away.

The guard told Johnson that he was going to get the police and have Johnson “carried out” and arrested for not leaving. “He walked off and came back with of few of his buddies. They grabbed me by my arms and forcibly removed me from the conference,” Johnson told Tobacco Reporter. During his involuntary exit, Johnson witnessed a German reporter being escorted out even more violently than he was. “The only time the media should be banned is if discussions will pertain to national security or, possibly, if a country is going to be reprimanded,” said Johnson. “A United Nations-funded organization isn’t supposed to be in the business of backroom deal-making. They definitely shouldn’t be manhandling journalists.”

WHO officials and delegates argued that banning the public was necessary because of fears that tobacco growers and cigarette company operatives had infiltrated the meeting. The objective of the WHO FCTC is to provide a framework for tobacco control measures to be implemented by the parties at national, regional and international levels. The Conference of the Parties is the convention’s governing body and comprises all FCTC signatory countries.

During COP6, which was held in Moscow, Oct. 13–18, 2014, the WHO banned the public on its first day and all media on the second day of the conference. The WHO formally voted to ban the public from the convention but never formally voted to ban the media, as the WHO did at its 2012 convention in Seoul, South Korea.

In anticipation of the seventh session of the Conference of the Parties (COP7), scheduled Nov. 7–12, 2016, in New Delhi, Tobacco Reporter caught up with Johnson to talk about his experience.

Tobacco Reporter: What happened after you were forcibly removed?
Drew Johnson: I went back to the media area and there were no WHO officials to be found. Eventually, someone came in and told all of us that we were all banned from the rest of the conference. They literally said, “You don’t even need to come back until the end.” They just wanted us to show up on the last day for a press conference where they would tell us what was accomplished.

Did you just wait until the last day?
No. Absolutely not. After the very next break I asked a delegate what they were voting on inside. I was told that they voted on the international tobacco tax. On the first day, we were told that item wouldn’t come up until Thursday or Friday. [It was] the most impactful thing the FCTC has ever done and literally the biggest tax increase in the history of the world, and they passed it in maybe an hour. I was told delegates tried to express concern, but anyone who had a differing opinion was essentially ignored and not given the opportunity to speak. I wasn’t there, but this information came from trustworthy delegate sources who were there. [One of the first decisions approved by the parties during COP6 was on its Article 6 guidelines, devoted to tax measures to reduce the demand for tobacco.]

Why do you attend the COP conferences? Do you have anything to do with tobacco?
I have no affiliation with tobacco companies or growers. I attended the COP5 in 2012 and COP6 in 2014 and plan on going to COP7 later this year because of the international tax policy implications. I do a lot of writing on taxation and regulatory policy. In 2014, I believe I was the only American journalist. This year, I plan to attend as a reporter for The Daily Caller. My main concern in 2014 was the global cigarette tax requirement that would slap a mandatory 70 percent excise tax on tobacco products in countries that ratified the United Nations anti-tobacco agreement. [The United States did not sign the agreement, but most other Western nations have.] After the doors were slammed shut and the meeting resumed, it became clear why the delegates chased the public away: They wanted to work on passing a global tax on tobacco in secret.

After the first day’s ban of the public during COP6, you wrote, “The tyrannical attack on the principles of transparency and accountability took place when delegates from more than 175 countries, who are part of the Framework Convention on Tobacco Control, a UN global anti-tobacco treaty, agreed unanimously to boot spectators.” Some of those banned blamed you; was your article responsible for the media ban?
The first people from the media I saw that morning told me they felt that the media was kicked out because of the column I wrote the day before, disagreeing with the decision to ban the public from the conference. There was that feeling among some that the column was a part of it. It wasn’t unanimous by any means; there were journalists who agreed with my decision to tell the story of what was going on. I felt that when a UN organization, which has a responsibility to the public that it creates rules for, denies that very public access to it meetings, we are walking on very shaky ground. What precedent do they believe they are setting?

What are your expectations for COP7?
I have no doubt that the delegates will vote to ban the media and public. It will be even easier to ban everyone this year. The FCTC formally ratified policy to include the media as part of the public. The way they figure it, after they ban the public, the media, by extension, will be banned.

The hypocrisy of the kicking the media out of a UN event, an organization that sponsors the World Press Freedom Day [annually observed on May 3 by the UN General Assembly to inform the international community that freedom of the press and freedom of expression are fundamental human rights] is disturbing. It’s chilling. The FCTC now claims there is no difference between the public and the press. If that’s the case, why have I gone through an arduous process to get credentialed for the previous two COPs? It is totally absurd.

Don’t get me wrong. The public should have a right to go, too. It’s their money being used to put on these lavish meetings and tours and dinners. The policies they create impact nearly everyone in the world. To not give those taxpayers a voice is just disgusting. In order to be taken seriously when making regulations that affect more than 90 percent of the world’s population, the FCTC and the WHO need to be more transparent. There is nothing worse than the UN telling the world how to treat the media when it is busy treating the media unfairly.

You were let go from The Washington Times for confirming the National Enquirer story that former U.S. presidential hopeful Ted Cruz had multiple affairs. After that, you tweeted, “I now see the need for a platform to hold politicians/preachers/teachers/media & others w/power accountable. I promise to create such a site.” Is this website/app actually going to happen?
I am developing this. I can’t really discuss it in detail right now, but if an individual anywhere in the world witnesses abuse of power, we will give them a platform to tell their story, as well as benefit from providing that information. It’s something I really believe is needed. Governments need to be held accountable.

Any words for COP7 delegates?
I hope that I, along with some of the other journalists who were banned at COP6, have been able to explain just how troubling and creepy and wrong it is for delegates to ban journalists from a publicly funded meeting where policies that impact the lives of billions of people are made. I would encourage COP7 delegates to refrain from banning the media this year. They need to realize that banning the press and the public kills the FCTC’s credibility. It implies they have something to hide. COP delegates do some good things that they should be proud of, but by banning the media it casts a dark shadow over the process.

After a promising test-marketing phase, Philip Morris International’s iQOS is moving into additional markets.

By Stefanie Rossel

In the not too distant future, the Marlboro Man had better bring his power bank to the campfire—at least that’s what Andre Calantzopoulos, CEO of Philip Morris International (PMI), recently seemed to suggest. At the Consumer Analyst Conference Group of New York, in February, he said that it was his company’s stated ambition to convince all adult smokers who intend to continue smoking to switch to reduced-risk products (RRPs) “as soon as possible.”

He went on elaborate on iQOS, the company’s most prominent alternative to combustible cigarettes. Introduced in 2014, iQOS is a heat-not-burn (HnB) product consisting of a rechargeable, pen-like device into which a short, cigarette-like tobacco product, called a HeatStick, is inserted and heated to create a tobacco-flavored nicotine aerosol. No combustion takes place, and the product is heated to a temperature of less than 350 degrees Celsius (662 degrees Fahrenheit).

“For the first time in history, we have products with the real potential to both accelerate harm reduction and grow our business,” Calantzopoulos commented. He said he was confident that PMI’s range of RRPs could achieve a market share, net of cannibalization, of between 3 to 5 percent of the global cigarette market by 2020, with the incremental volume of 30 to 50 billion units generating a potential additional margin of between $720 million and $1.2 billion per year. One of the prerequisites, he added, was that regulators and anti-tobacco groups embraced the principle of harm reduction and implemented appropriate frameworks and unambiguous communication that would “drastically accelerate” current smoker adoption of RRPs and further foster innovation in this area.

Analysts share Calantzopoulos’ optimism, as the device not only mimics the smoking ritual but also provides real tobacco taste—something that has thus far proved difficult to achieve with e-liquid. James Bushnell, an analyst at Exane BNP Paribas, said iQOS was “the closest yet that the industry has got to the holy grail of a commercially successful ‘safe’ cigarette.” Wells Fargo Securities analyst Bonnie Herzog forecasts the device to achieve a volume of 5.3 billion sticks this year, which represents 0.6 percent of PMI’s total cigarette and HeatStick volume. By 2025, she estimated, iQOS will account for 366.9 billion sticks, excluding the U.S., or 35.9 percent of the company’s combined combustible and HeatSticks volume. Including the U.S., she predicted that as many as 420.1 billion HeatSticks could be sold per year by 2025. PMI’s new HnB technology, she said, could displace up to 30 percent of the combustible cigarette industry in developed markets by 2025 and had “the potential to change the trajectory of smoking.”

Fresh approach

Whether the analysts have looked into the correct crystal ball remains to be seen. The introduction of iQOS followed a series of hapless launches of other HnB products, among them R.J. Reynolds’ Premier (1988), Eclipse (1994) and, most recently, Revo (2014), for which marketing support was discontinued after five months of test-marketing in Wisconsin, USA, last year. Philip Morris had its Accord (1998) and Heatbar (2007). Most of these products failed because of poor consumer reception. During the recent TMA conference in Williamsburg, Virginia, USA, one speaker derided his company’s first HnB product as “smelling like a fart and tasting like shit.”

IQOS is different from its predecessors in many aspects. For starters, it is backed by significant investment. In 2014 PMI built a €500 million (then $680 million) new factory near Bologna, Italy, to produce the tobacco components of its HnB products. Altogether, the company has invested $2 billion in its RRP product portfolio over the past decade. Furthermore, iQOS features a slimmer, lighter design and new technology. Importantly, it offers an improved taste and sensorial and ritual experience over former HnB devices, according to PMI. At the same time, iQOS appears to deliver on its promise to reduce output of harmful and potentially harmful constituents (HPHCs). According to comprehensive studies carried out by a 300-strong scientific team dedicated to PMI’s novel product portfolio, the aerosol generated by iQOS contains on average 90 percent less of all classes of HPHCs compared with the smoke of the standard reference cigarette. Further studies showed that the product does not negatively affect indoor air quality. Toward the end of 2016, PMI intends to submit a modified-risk tobacco product application to the U.S. Food and Drug Administration.

Into the world

First launched in Japan and Italy, iQOS is currently being test-marketed in selected cities in seven countries, among them Switzerland, Russia, Romania, Portugal and Ukraine. PMI plans to introduce the device to another 13 markets globally by the end of the year.

At the Goldman Sachs Global Staples Forum in May, PMI Chief Financial Officer Jacek Olczak said that in its main test market Japan, iQOS had by now achieved a full conversion rate of 60 percent from combustible cigarettes. Sales figures look promising, too: According to PMI’s 2015 annual report, the device generated an “off-take” share of 2.4 percent in Tokyo and 1.6 percent in the expansion areas outside Tokyo; the weekly off-take share was reported to be growing. PMI said it had to postpone the national rollout date for iQOS in Japan to mid-April, citing potential supply shortages due to the popularity of the device.

While iQOS is not the only product currently competing in this segment—in November 2015, British American Tobacco started to test-market Glo iFuse in Romania, and in January 2016, Japan Tobacco launched Ploom Tech in its home market—PMI’s timing may have been just right: The device enters the market as the initially phenomenal growth rate of vapor has ebbed, and some smokers who had switched to e-cigarettes have returned to combustibles. According to Euromonitor International, vapor sales have decelerated considerably; the research company has cut the category’s forecast five-year compounded annual growth rate of 114 percent to 57 percent.

In addition to being a “first mover” with regard to commercialization and clinical trials, PMI also benefits from its ability to leverage the ubiquitous Marlboro brand globally. Except for Russia, where HeatSticks are sold under the Parliament brand, iQOS is offered with Marlboro HeatSticks.

To ensure communication with potential users of their new device also in highly restricted marketing environments, PMI has created specialized points of sale—dedicated flagship stores the company calls “iQOS embassies,” which are reminiscent of Nespresso shops. It also uses grass-roots marketing and an e-commerce platform for distribution.

IQOS is one of four RRP platforms PMI is currently developing and the first of two HnB platforms; the other one—for the time known as Platform 2—uses a pressed carbon heat source that, once ignited, heats the tobacco to generate a nicotine-containing aerosol. Platform 2 has been designed to resemble a cigarette as closely as possible, the company says, and is scheduled for an initial city test still this year. At the end of 2015, the device passed a four-week whole-offer test in Romania, where it led to 60 percent of smokers using the device predominantly.

Platform 3 is an inhaler more similar to the current e-cigarettes. Using acquired technology, it creates an aerosol of nicotine salt formed by the chemical reaction of nicotine with a weak organic acid. Product development was also progressing for Platform 3, PMI said. The company expects to conduct a city test for the device in early 2017.

By George Gay

Despite its unrivaled scale, the Chinese cigarette market shares many characteristics with markets elsewhere.

China is different.

What’s wrong with the above statement, which I read recently on the internet while researching this story? Well, as most of you will have noticed, it’s the start of a comparison that has not been completed. I mention this partly because it seems to me that in recent times there has been a proliferation of failures in written and verbal English-language communications either to complete comparisons or to get them right: China sold fewer cigarettes than last year.

Of course, most people would say that the example with which I end the previous paragraph doesn’t cause a problem because what has been left out is “understood.” We know instinctively that the sale of cigarettes isn’t being compared with the sale of last year, and we would anyway probably understand from the context that this is not a China-sold-fewer-cigarettes-than-bottles-of-beer sentence. What is meant is China sold fewer cigarettes this year than it sold last year.

“China is different” is a little more problematic. While I think it is clear that China is being compared with other countries, simply because any other comparison would be too odd to contemplate, there must be something more to it than this; there must be something specific. After all, the same could be said about all countries—they’re all different, and therefore all the same in being different.

But in a way, “China is different” has a ring of truth about it for many of us who don’t live there, partly because the country is difficult to get to know. There is, generally speaking, less information available in respect of China than is the case with most other countries, and some of the information that is available turns out to be unreliable. And, from a tobacco perspective, the information that is available is different from what we’re used to seeing. For instance, as is well known, the country develops numbers—leaf production, leaf consumption, tobacco products manufacture, tobacco products consumption—that are much bigger than those of other countries, something that is often recognized in the “global” figures that are bandied about with the proviso “excluding China.” Clearly it would never be noted that “global” tobacco consumption figures excluded those from Chad or Papua New Guinea.

But in many ways, the borrowed statement with which I start this piece is misleading. China’s tobacco industry, for instance, is comparable to those of other countries in many ways. It uses similar machinery to that used elsewhere to produce from universally applied materials cigarettes that resemble closely those produced in other countries, and it packs them in boxes that, apart from their designs, would be familiar anywhere.

The other day, however, I did read something in which the point was made that China operates its tobacco industry almost exclusively as a monopoly, and this would make it different from most other countries, which either never had or a long time ago did away with their monopolies.

But while it is different, it is not very different from a lot of other countries in this respect. I was made aware of this by a piece in The Korea Times in April. According to the Times, South Korea’s Fair Trade Commission (FTC) has said that it will review the government’s regulations on the nation’s tobacco market (along with its beer and whiskey markets), which it sees as being dominated by a small number of players. An FTC official said that, based on market concentration research in 2013, tobacco companies in Korea enjoyed high net value returns on sales but spent too little on R&D, raising concerns about their competitiveness and consumers’ rights. “The government should consider competition-increasing policies in those markets,” the official said.

There are a number of interesting points here, one of which is that South Korea’s tobacco products marketplace doesn’t seem to be a particularly concentrated one when you look at the likes of the markets in Brazil, the U.S., India, the U.K. And while China’s tobacco industry is a monopoly, within it have been created a number of companies that, in theory at least, compete with one another.

The important question here surely is whether or not consumers are provided with a good variety of products from which they can choose. And I suspect that the answer to that question is possibly not, whether you are talking about China or most other countries, as the people at South Korea’s FTC have come to realize. In most places, including China, choice is being reduced in the name—sometimes unstated—of corporate efficiency, because of regulations and by tax policies.

So will the probe in South Korea be the start of a new dawn for smokers? I think not, even though reduced levels of competition almost certainly play into the hands of the illegal trade in tobacco products. Again, whether one is talking about China or another country, governments are aware that cigarette excise tax is a most efficient tax to collect but that that efficiency will drop away as the number of companies that enter the market increases. And governments are addicted to tobacco tax. In China, in 2015, total industrial and commercial profits and taxes from the country’s tobacco manufacturing sector amounted to cny1.1 trillion ($176.1 billion), of which commercial profits and taxes accounted for almost 35.3 percent of total profits, according to State Tobacco Monopoly Administration figures quoted by TMA. Profits and taxes taken together were up by more than 8.7 percent, or more than cny91.8 billion, when compared with 2014’s total profits and taxes. It would, I think, be unwise to treat such a revenue stream in a cavalier manner.

Familiar issues
China is not so very different from other countries in other respects, also. I wrote above that “China sold fewer cigarettes than last year” as an example of a misaligned comparison, but the idea behind it was not wrong. Volume sales of tax-paid cigarettes in China last year, at 2.49 trillion pieces, were down by almost 2.4 percent from those of 2014. According to a Bloomberg News story, there were a number of reasons why this was the case, most of which would be familiar to people researching cigarette sales declines in other countries. Cigarette consumption tax was increased in China in May 2015 and, in general, cigarette prices have been increasing at a faster rate than the prices of other consumer goods. In addition, Beijing introduced a tobacco smoking ban in all indoor public places and some outdoor areas, effective June 1, 2015.

And sales don’t look set to increase significantly in the near future. Cigarette prices were increased by 6.3 percent in February, when compared with those of February 2015, while, at the same time, the prices of all consumer goods were increased by 2.3 percent. In addition, smoking among male teenagers in China has been declining during the past 25 years. A February news story citing research from Saint Louis University and Chongqing University, noted that two-thirds of Chinese men become daily smokers before they turn 25 years of age, with the vast majority starting the habit when they are between 15 and 20 years of age. “Even though the smoking rate remains high in China, over the last 25 years the rate of adolescent males starting to smoke has gotten smaller by an average of one percent a year,” said Jin Huang, one of the paper’s authors and assistant professor of social work at Saint Louis University’s College for Public Health and Social Justice. “Our findings suggest over the long term we might see reduced smoking rates in China.” Females were not included in the study because fewer than 4 percent of them smoke.

It is difficult to understand why this decrease might have occurred, given what we are told about the power of advertising and retail displays, because, according to a report in the China Daily in January, students in Beijing have easy access to tobacco products and are regularly exposed to tobacco advertising.

But then it is difficult to understand also why these students are still so exposed to tobacco advertising. China’s revised advertising law, which came into force in September 2015 after having been approved by the Standing Committee of the National People’s Congress in April 2015, specifically prohibits advertisements that target minors and specifically bans tobacco advertising in schools and educational materials. More generally, the law bans tobacco product advertising in the mass media, in public places and on public transportation, and it bans also the use of tobacco brand logos and trademarks in support of other products and services.

Another factor to be taken into account is that while, at 27 percent, China’s adult smoking prevalence is at the same level now as it was in 2010, the total smoking population has risen by 15 million to 316 million, according, that is, to the results of a survey carried out toward the end of last year. The Chinese Adult Tobacco Use Survey 2015, conducted by the Chinese Center for Disease Control and Prevention, found that, currently, more than half of Chinese adult men and 2.7 percent of adult women smoke. It found also that, on average, each smoker consumed 15.2 cigarettes a day, compared with 14.0 in 2010, when the previous survey was conducted. More than 15,000 people over the age of 15 were interviewed as part of the survey, the results of which were released in December.

Looking further ahead, it is possible to speculate about whether China’s move from a one-child-per-family system to a two-children-per-family system might have any effect on smoking levels. Taken at face value, this move could mean that the smoking population would increase significantly in 15–18 years’ time. But this would depend on how strictly the one-child policy was enforced and how strictly the two-child policy will be enforced—in other words, on how much real difference the change will mean.

Of course, it is to be hoped that in 15–18 years’ time, wiser heads will have prevailed and the whole world—not excluding China in this case—will have embraced tobacco harm reduction in the form of vaping or whatever new development has come along (also see “A preventive strike,” page xx). Certainly, it is to be hoped that we’re not fighting the same old battles with the same old weapons, such as graphic health warnings.

China has for the moment said no to such warnings. A top tobacco monopoly official was quoted as saying at the National People’s Congress in March that graphic health warnings would be incompatible with “Chinese cultural traditions.” Duan Tieli, deputy director of China’s State Tobacco Monopoly Association, told reporters the monopoly therefore had no intention of applying graphic warnings to its cigarette packaging. Just how long China can hold this line against the importuning of the World Health Organization is not clear, however. Voices in South Korea, I seem to remember, used to say that such warnings were incompatible with local culture, but they are due to appear there from the end of this year.

Tobacco companies demand more transparency and accountability in the FCTC’s policymaking processes.

By Stefanie Rossel

From Nov. 7–12, the World Health Organization’s (WHO) Framework Convention on Tobacco Control (FCTC) will have its seventh session of the Conference of the Parties (COP7), this time in Noida, New Delhi, India. It is highly likely that the gathering, like the two previous events, will take place in the absence of the public and the media.

For anyone related to the tobacco industry in any way, attending COP sessions as public observers has always been challenging, as participants in a recent panel discussion related during a Women In Tobacco meeting at Japan Tobacco International’s (JTI) new headquarters in Geneva. The panelists shared their experience of queuing in Durban, South Africa, and Punta del Este, Uruguay—host cities to former COP events—from the small hours to obtain one of the 30 passes reserved for the public. While sitting in the public gallery did not mean they were allowed to actively participate in COP proceedings, they at least had the opportunity to closely observe the process, which ensured a certain degree of transparency and accountability. Once those who had snatched a pass were allowed to enter, however, they encountered a hostile atmosphere: One of the panelists, for example, was confronted with numerous posters showing her portrait with the headline “Beware! The merchants of death are here” (also see “The impact,” page xx).

At the last two COPs in Seoul, South Korea, (2012) and Moscow (2014), as well as at the session on the WHO’s Protocol to Eliminate Illicit Trade in Tobacco Products in between, all lining up was in vain. The media, legitimate businesses and experts were thrown out immediately after the opening remarks and were prevented from observing discussions throughout the entire event. Their exclusion was heavily criticized, and not only by tobacco industry members. Critics argued that the lack of transparency would corrupt policymaking processes and that the FCTC’s secretive course undermined its legitimacy as it attempted to explore serious regulatory issues.

To better understand FCTC proceedings, a closer look at the organization and its development might help. The FCTC is an intergovernmental contract, covering every aspect of the tobacco supply chain, that was adopted in 2003 and became internationally binding law in 2005. By now, 180 governments—or “parties”—have ratified it. The COPs are part of the “treaty machinery,” as a panelist dubbed it, meant to work on, interpret and define the FCTC’s general, broadly formulated articles and thus provide more specific guidance for the governments, which will then transpose the treaty into national law.

The COPs are the key decision-makers; the sessions comprise the parties who have ratified the FCTC, as well as intergovernmental and nongovernmental organizations accredited as observers. This latter group of about 200 people consists exclusively of tobacco control lobbying groups who can actively participate; during the Moscow meeting, it included organizations such as the Framework Convention Alliance, Corporate Accountability International, the International Network of Women Against Tobacco and the World Self-Medication Industry. In a statement published after the Moscow session, JTI criticized the huge disparity between the representation of tobacco control lobbyists and members of the public—in contrast to those 30 places shared by the media, legitimate businesses and experts, the 200 tobacco control lobbyists also sat in on many delegations.

JTI said the sessions had been “hijacked by special-interest groups.” It also remarked upon the worrying culture of bullying that had been allowed to develop at the COP.

The nature of the sessions has changed over time, too, as one panelist pointed out: The delegates representing the 180 signatories to the FCTC, she said, are “professional COP-goers,” the majority of whom are at the technical divisions of ministries of health. This is increasingly becoming an issue because the topics of the sessions have moved away from health issues to more complex and varied matters, such as tax (Article 6), illicit trade (Article 15) and agricultural policies (Articles 17 and 18)—topics in which health ministry technical experts have limited expertise and that fall into the competencies of finance, customs and agricultural ministries.

Questionable procedures

The exclusion of the tobacco industry from the COP sessions is largely based on the FCTC’s Article 5.3, which states that “[i]n setting and implementing their public health policies with respect to tobacco control, parties shall act to protect these policies from commercial and other vested interests of the tobacco industry in accordance with national law.” By also banning the public and the media from attending the sessions, however, COP has breached its own rules of procedure, as Sir Franklin Berman, an international law expert and arbitrator, pointed out in early 2014 after having been commissioned by JTI with the investigation of the legality of Article 5.3-based bans. In his opinion, he concluded that the series of decisions taken first in the intergovernmental negotiating bodies and later in the COP to exclude parts of the general public from both working and plenary sessions were “highly questionable” and that these procedures “[fell] short of the recognized international norms and standards governing the operation of international organizations,” which also apply to the “organs established under the FCTC as they do to the WHO, a UN Specialized Agency of near-universal membership.”

Mark Littlewood, director general of the London-based Institute of Economic Affairs, says that the use of Article 5.3 in this fashion was “an absolutely classic example of extreme ‘gold-plating,’ an irritating, dangerous and widespread phenomenon whereby the original, modest intentions of a rule or regulation is extended to cover an enormously wider scope than could conceivably have been intended at the outset. To this extent, the gold-plating of Article 5.3 should not come as a surprise,” he said.

“However, the article does have some unique elements in it that should cause particular concern,” he explained. “The prevention of undue influence in a public policymaking process cannot reasonably be a concern that is limited exclusively to the tobacco industry. In a capitalist economy, there are endless vested interests, but this does not mean they need to be apologized for. No doubt, the automobile industry has a range of vested interests in rules and regulations pertaining to motorcars. This surely doesn’t mean that BMW should be silenced in all discussions pertaining to legislation that affects cars. We either need to rediscover the principle that interests are sometimes rendered transparent or we need to apply the principles of 5.3 to every single area of policymaking, not merely tobacco issues.”

Involving national stakeholders

So what can be done about the exclusion of the tobacco industry? “In the context of the FCTC COP, there is no procedure by which we could file a complaint or raise a question regarding such exclusionary practices,” explained Nataliya Prongue, global regulatory strategy director at JTI.

Following COP5, JTI wrote a letter to the WHO director-general about the exclusion of the public, highlighting that by doing so, COP breached its own rules at that time, and that making the reference to Article 5.3 in such decisions is incorrect. First, Article 5.3 does not suggest that any stakeholder should be excluded from observing proceedings of the international body, and second, it applies only to national policies and has no application to international meetings or negotiations. The short reply the company received three months later by one of the deputy directors brought JTI right back to the start, saying that the interpretation of Article 5.3 was up to the parties to the FCTC and how they intended to proceed.

“We then decided to raise this issue with decision-makers in countries where JTI has its operations to ensure that governments that participate in the process do not deviate from their own rules of integrity, accountability and transparency,” Prongue related. “In every policymaking process in a democracy, stakeholders need to be consulted. This is not the case in the WHO.”

She suggests that the FCTC COP should improve its own rules to ensure that transparency and integrity are respected and that decision-making at COP is protected from any and all vested interests, just as it would in any meeting organized by other UN agencies. For example, a code of conduct could be developed with very clear rules for all stakeholders, including not only the tobacco industry but also tobacco control lobbyists. “This would allow for a process of checks and balances, which is currently missing,” she said.

Learning from pharma

Perhaps a look at other industries will provide suggestions for good practice in the tobacco industry. The pharmaceutical products and medical devices industry, for example, is highly regulated by national and pan-European regulatory agencies, such as the Food and Drug Administration in the U.S., the Medicines & Healthcare products Regulatory Agency in the U.K. and the European Medicines Agency across the European Union, explained Nermeen Varawalla, executive vice president at U.K.-based Lambda Therapeutic Research. “In addition, bodies such as the National Institute for Health and Care Excellence opine on the clinical value of products and hence the pricing that they may deserve. The WHO has no regulatory function. Regulatory agencies approve the conduct of clinical trials with new products and authorize their marketing approvals; hence interaction with the regulators is critical for pharmaceutical companies. It is industry practice for pharmaceutical companies to obtain formal scientific advice from regulatory agencies so as to design their product clinical development plans and approval pathways.”

Understanding the importance of the regulatory environment, the pharmaceutical industry engages with regulatory agencies and other stakeholders from an early stage of product development—something the tobacco industry certainly missed out on. The panelists in Geneva agreed that tobacco companies didn’t group together because they didn’t realize that the FCTC would become so serious; however, it needs to be noted that tobacco is also quite a unique industry since it is dominated by four multinational companies and a monopoly—China National Tobacco Corp., the world’s biggest cigarette manufacturer, a state-owned company. The Chinese government is part of the delegations to the FCTC. Add the tobacco industry’s inglorious but, in public health circles, never-forgotten past when it was found guilty of deliberately understating the health risks of smoking, and you know that participating in COP sessions even as mute observers is a tough, if not impossible, task.

Varawalla hence suggests that in order to build a transparent and trusted relationship with the public, regulators and governments, tobacco companies might consider obtaining clinical data to demonstrate or compare the influence of their products on health outcomes. “For example, it would be valuable to compare the incidence of respiratory infection in e-cigarette users as compared to traditional cigarette users. It is claimed that about two-thirds of smokers are unable to stop smoking following a diagnosis of lung cancer. It would be valuable to collect clinical data to assess whether the use of e-cigarettes helped smokers with lung cancer stop or reduce smoking of conventional cigarettes. Meeting with regulatory agencies to obtain their scientific advice on the design of such clinical studies would be a great way to build a transparent and science-based relationship with regulators.”

Make it known!

Whether any changes can be brought about by November, however, remains doubtful. “My personal view is that it is highly unlikely that such a miracle will happen, but we need to keep raising our voice about these censorship practices,” said Prongue. “Whatever is decided at the FCTC COP is cascaded to national policymaking institutions and has influence on national regulations. Governments should realize that they increasingly have the obligation to scrutinize any decisions which come out of the COPs.”

Littlewood advises the tobacco industry to act less defensively: “I’m not a lawyer, but my sense is that the tobacco industry could be more aggressive in litigating the more bizarre and extreme applications of 5.3. Even if such litigation were unsuccessful, it would have the substantial subsidiary benefit of shining a light on the absurdity of its use in these ways. As the saying goes, sunshine is the greatest disinfectant. I think most people would be appalled by the exclusions at past COP sessions. The industry needs to therefore talk more about due process and fairness and less about the specifics of tobacco policy in drawing attention to this issue. It is almost an irrelevance that the policy areas being considered pertain to tobacco; the real story is that this is an egregious and absurd way to develop policy in any area.”

Littlewood doubts that the bulk of the public health lobby will reach an arrangement that facilitates improved dialogue with the industry anytime soon. “The real need is to draw attention to the issues amongst senior policymakers and the media,” he said. “The public health lobby’s intransigence to any serious dialogue is probably only tolerated because it is largely unknown. When one starts to hear assertions that organizations such as Interpol are covered by 5.3, because they work with tobacco in terms of enforcement, one has to conclude that the lunatics are running the asylum.” Interpol, the world’s largest police organization, of which most of the parties to the FCTC are also members, had been denied observer status during COP5 in Seoul for accepting a donation from the tobacco industry.

Littlewood believes the industry needs to develop stronger relationships with a wider spread of allies in civil society. “Crucially, these relationships need to go far beyond groups of a libertarian persuasion who are intrinsically skeptical about heavy-handed state action. With regard to 5.3 and COP, the industry needs to find allies amongst groups who take an interest in transparency, openness and constitutional structures. Such groups needn’t be sympathetic to the regulatory agenda of the industry; indeed they may even be antagonistic to the industry and tobacco products in general. That needn’t matter—the issue here is about the manner in which policy is developed and created, not the exact content of the policy.”

U.S. cigarette makers’ 2016 prospects are remarkably bright.

By Timothy S. Donahue

It could be called a mini renaissance of sorts. After years of seeing quarterly declines averaging 3–5 percent, U.S. cigarette volume sales increased for the first time in more than a decade during 2015. This is a vastly different scenario from as recently as 2009—the worst year of the global recession—when quarterly U.S. cigarette sales were declining by 12.6 percent year over year. It was the first year since 2002 that sales volumes saw a surge.

During 2015, more than 264 billion cigarettes were sold in the United States—slightly more than in 2014, according to statistics from The Maxwell Report. Four companies—Philip Morris USA (PM USA), Reynolds American Inc. (RAI), ITG Brands and Liggett—accounted for about 91 percent of U.S. cigarette sales. Imports, primarily from Canada and South Korea, accounted for approximately 8.2 percent of U.S. cigarette inventories in 2014 and 8.5 percent in 2015.

Wells Fargo Securities senior analyst Bonnie Herzog said all channel cigarette dollar sales increased 2.2 percent for the 12-week period ending March 26, 2016, and 2.6 percent over the past 52 weeks. Prices during this time rose 3.6 percent, while cigarette sales volumes fell by only 1.8 percent. “Thus, we expect strong manufacturer pricing and profit growth to continue this year,” said Herzog.

Analysts with Stifel Nicolaus have even called the past 18 months the industry’s new “Golden Age.” Lower gas prices along with job and wage growth means smokers have more money to spend on cigarettes and for trading up to premium brands. Stifel analysts noted that somewhat higher than usual price increases last year helped boost tobacco company profits as well.

The latest forecasts by Moody’s Investors Service also make positive predictions for the U.S. tobacco industry in 2016, calling for a 4–5 percent rise in operating profits for the year. But the ratings agency also expects sales volumes to continue to decline, forecasting a 4 percent drop. “Moreover, the expected fall in sales volume could accelerate in the U.S. if e-cigarette sales see stronger than expected growth,” Moody’s senior analyst Nancy Meadows said.

The Big Three

In November, the three major U.S. tobacco manufacturers—Altria, RAI and ITG Brands—raised the list price on traditional cigarettes by $0.07 a pack for the third consecutive round. The list price is what wholesalers pay manufacturers. The increases typically are passed on to customers.

Altria, parent to PM USA, the largest tobacco company in the U.S., with a 51 percent market share, announced strong operating and financial results in 2015 and the first quarter of 2016. “Altria’s 2015 total shareholder return of 23.1 percent far outpaced both the S&P 500 and S&P Food, Beverage and Tobacco Index, marking the third consecutive year that total shareholder return has exceeded 20 percent,” stated Martin Barrington, chairman of the board, CEO and president for Altria. PM USA had a total cigarette shipment volume in the U.S. of approximately 126 billion units in 2015, an increase of 0.5 percent from 2014.

Altria also completed a $1 billion share repurchase program and announced a new $1 billion share repurchase program that it expects to complete by the end of 2016. In 2015, the company’s core tobacco businesses (PM USA, U.S. Smokeless Tobacco, John Middleton, Ste. Michelle Wine Estates and Nu Mark) grew their operating companies income (OCI) and strengthened their market leadership positions.

In the smokable products segment, PM USA and Middleton had an outstanding year, growing adjusted OCI nearly 11 percent. PM USA’s flagship brand, Marlboro, led the way. With more than 60 years of retail share growth, Marlboro continues to enhance its offerings.

Barrington noted that it’s too early to talk about the results of PM USA’s recent national expansion of Marlboro Midnight Menthol, which took place in November. However, he did say the company “expects Marlboro Midnight Menthol to build on the very positive momentum we’ve seen from the Marlboro Black family, which now has grown 20 consecutive quarters.” Marlboro’s retail share increased in 2015 by 0.2 share points to 44 percent, a record high.

RAI, the nation’s second-largest manufacturer at 33.8 percent, stated that its operating companies’ (R.J. Reynolds Tobacco, R.J. Reynolds [RJR] Vapor, Santa Fe Natural, American Snuff and Niconovum) domestic cigarette volumes increased 33.6 percent in the fourth quarter of 2015, driven by the addition of the Newport brand.

Reynolds became a stronger No. 2 when it acquired former No. 3 Lorillard last year. Its overall market share in the U.S. rose to 34 percent from 26 percent. The pearl of the acquisition, the Newport brand, has been a windfall for Reynolds. Newport has been realizing broad-based share gains across both menthol and nonmenthol styles, which analysts say should drive its long-term growth potential. In the fourth quarter of 2015, Reynolds’ domestic cigarette volumes jumped 33.6 percent over the prior year, driven by the addition of Newport. Industry cigarette volume fell 0.5 percent during the quarter and 0.1 percent for the full year, Reynolds said, much lower than the usual declines seen in recent years.

The total domestic retail cigarette market share in RAI’s operating companies’ drive brands (Newport, Camel, Pall Mall and Natural American Spirit) increased 0.6 percentage points to 31.3 percent in the fourth quarter and 0.5 percentage points to 31.3 percent for the full year. Natural American Spirit’s Santa Fe brand, the nation’s fastest-growing cigarette trademark, delivered an excellent 2015 performance with reported fourth-quarter operating income increasing 24.4 percent to $112 million. Santa Fe’s adjusted operating income increased 22.9 percent from the prior-year quarter to $111 million, benefiting from higher pricing and strong volume growth from the nation’s No. 1 super-premium brand, Sante Fe’s American Spirit.

When adjusted for wholesale inventory changes, industry shipments were down about 0.2 percent for the quarter and were down about 0.6 percent for the full year. “Reynolds American’s strong fourth-quarter results wrapped up a transformational year for our company,” said Susan M. Cameron, president and CEO of RAI. “Each of our operating companies delivered excellent results both in the quarter and for the full year. The integration of Newport is going extremely well, and I believe we’ve entered 2016 with significant momentum.”

Herzog noted that Newport is “poised for greater than expected share gains and faster growth,” which should strengthen the company’s long-term profitability. Besides Newport, the Lorillard acquisition handed RAI the brands Kent, True and Old Gold. As part of the deal, Reynolds sold Winston, Kool, Salem and Maverick to ITG Brands, the American arm of U.K.-based Imperial Brands.

ITG is now No. 3 in the U.S., with a market share of around 10 percent, up from approximately 3 percent before the RAI/Lorillard deal. Last November, ITG was able to begin selling in a new retail program following the end of an agreed standstill period with RAI. More than 150,000 retailers have signed up for the program, which is supporting new promotional arrangements for its priority brands Winston and Kool and improved in-stor evisibility.

“We’re delighted by the performance of ITG Brands,” Imperial Brands CEO Alison Cooper told investors during a conference call. “The sell-in of the new retail program has been a huge success. … Winston and Kool market shares appear to be responding well, both growing in the last quarter.

“We’ve got more in the pipeline as well, as we look at refreshing the brand equity and doing more in terms of the consumer offering, but at the moment it’s still very much focused on wholesale, primarily on the retail program that we’re executing against.”

Looking ahead

Taxation and regulation remain as constant hurdles to tobacco’s future. The U.S. Food and Drug Administration (FDA) has stated that it continues to believe there is a huge opportunity to develop a “comprehensive nicotine regulatory policy,” taking into account the continuum of risk as it relates to nicotine-delivery products—with combustible cigarettes on one end of the spectrum and nicotine-replacement therapy on the other end.

Whether the FDA moves forward with its plans to regulate menthol in cigarettes is still unknown. The FDA Center for Tobacco Products’ director, Mitch Zeller, has said that any potential regulation as it relates to menthol needs to be based on the science and within the parameters of the Tobacco Control Act.

Further, Zeller has said that the FDA cannot rely on the Tobacco Products Scientific Advisory Committee’s menthol report but noted that it is continuing to explore what the regulation options might be regarding menthol, if anything. Herzog said her thesis regarding potential menthol regulation remains intact. “I adamantly believe an outright ban on menthol is highly unlikely and realistically don’t expect any regulation of menthol for a very long time, if ever,” she said.

The greater challenge to the U.S. cigarette industry moving forward is more likely the rapid growth of vapor products. Currently, 10 percent of U.S. adults vape, according to an online Reuters/Ipsos poll of 5,679 Americans. It’s nearly four times higher than the U.S. Centers for Disease Control and Prevention’s (CDC) estimate of 2.6 percent in 2013.

The study also found that 15 percent of poll participants under the age of 40 are now vapers. In 2013, 18.8 percent of those 18 to 24 years old and 20.1 percent of those 25 to 44 years old smoked cigarettes, according to CDC data.

The vapor industry is expected to further change the tobacco landscape. All three major U.S. cigarette manufacturers sell vapor products. Altria, under its Nu Mark subsidiary, began shipping its next-generation e-vapor product, MarkTen XL, into lead markets in April 2015. MarkTen XL is a larger-format product that delivers twice the liquid and battery life as previous MarkTen products.

Declines in e-cigarette sales continued through the beginning of 2016, down 7.6 percent over the previous 12 weeks ending May 26. The Nielsen data tracks the mass channel and convenience store marketplace. After debuting nationally in June 2014, Vuse quickly became the top selling e-cigarette. It had a 38.9 percent market share, up from 38.7 percent in February. ITG’s Blu was second at 20.4 percent, followed by Logic at 14.2 percent, MarkTen at 8.8 percent and NJoy at 4.3 percent.

The vapor market recorded at least $3.3 billion in sales in 2015: $1.9 billion in vapors, tanks, mods and personal vaporizers, and $1.4 billion from cigalikes. All the major tobacco companies see a future in vapor, and more acquisitions and product releases are going to happen in 2016, according to industry sources.

In December 2013, Altria entered into a series of agreements with Philip Morris International (PMI) providing exclusive license to PMI to sell Altria’s subsidiaries’ vapor products outside the U.S. PMI’s subsidiaries, in turn, provided an exclusive license to Altria to sell two of PMI’s heated-tobacco product technologies in the U.S. In July 2015, Altria announced the expansion of its strategic framework with PMI to include a joint research, development and technology-sharing agreement. Under this agreement, Altria and PMI will collaborate to develop e-vapor products for commercialization in the U.S. by Altria and in markets outside the U.S. by PMI.

Another possible highlight in 2016 is the announcement of a series of product innovations from RJR Vapor; a vapor collaboration is underway with stakeholder British American Tobacco (BAT) to help grow the market. “Vuse remains the vapor category leader, and we expect the brand’s lineup of exciting new formats to generate even more interest from adult tobacco consumers this year,” Cameron said. Reynolds doesn’t disclose sales for its Vuse digital vapor products. However, RJR Vapor accounted for $98 million of the $3.05 billion in total revenue in the fourth quarter of 2015, up from $87 million a year earlier. BAT owns 42 percent of Reynolds’ shares. Analysts speculate that it may try to buy the remaining 58 percent stake, but the analysts are divided on when that may happen, if ever. Analysts see this year’s revenue rising 19 percent and earnings going up 18 percent, according to a Thomson Reuters poll.

What does all this mean? It appears that just when the U.S. cigarette industry had seemingly fallen into a predictable pattern, things changed. Analysts are saying 2016 will be another profitable year for the U.S. cigarette market. Now only one question remains: How high will profits rise?