Category: Featured

Regulatory Environment ‘Manageable’ in U.S.

Photo: Miriam Doerr | Dreamstime.com
Tobacco companies will have plenty of time to adopt to a U.S. menthol ban, if one is ever implemented, according to financial analysts quoted by the Winston-Salem Journal.
On April 29, the U.S. Food and Drug Administration announced its intention to ban the flavoring in combustible cigarettes and cigars. The agency expects to unveil product standards in 2022. The FDA would then have to submit its proposal, consider comments and prepare a final proposal, which could take multiple years, according to RBC Capital Markets analyst Nik Modi.
That’s not counting expected multiple rounds of lawsuits, some of which could advance to the U.S. Supreme Court to resolve. The FDA is required to base its rulemaking on science, and the tobacco industry is likely to challenge the scientific basis for a menthol ban.
“The published science does not support regulating menthol cigarettes differently from nonmenthol … nor does it support that menthol cigarettes adversely affect initiation, dependence or cessation,” Reynolds American said on April 29.

We consider the U.S. regulatory environment to be manageable. We expect any menthol ban, if one comes, to be years and years away.
Michael Lavery, analyst, Piper Sandler
Goldman Sachs analyst Bonnie Herzog noted that the FDA didn’t also reveal plans to dramatically reduce the nicotine levels in cigarettes during the menthol ban announcement.
“It is not surprising to us given less urgency around this issue, i.e., no court-imposed deadline, but we still think there’s a possibility that something could be announced in the coming weeks/months ahead … as the critical premarket tobacco [product] application process for e-vapor unfolds,” Herzog was quoted as saying.
“Both issues entail a complex and lengthy process that, based on precedent, will likely take several years to be successfully implemented, if at all.”
In 2018, the agency officially announced its intention to require cigarette manufacturers to lower the nicotine levels in their products to nonaddictive levels, but the FDA has not yet acted. In the weeks prior the menthol announcement, speculating mounted that the agency would soon act on its reduced-nicotine plan.
Piper Sandler analyst Michael Lavery said, “we consider the U.S. regulatory environment to be manageable. We expect any menthol ban, if one comes, to be years and years away.”
May 5, 2021
Activist Groups Plead Against Menthol Ban

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Americans for Tax Reform has released a letter signed by 36 organizations representing millions of taxpayers and consumers throughout the United States urging the Food and Drug Administration to reject a proposed ban on menthol cigarettes.
The letter notes the social impact of criminalizing an activity undertaken by over 18 million Americans, primarily from minority communities, asserting, “If this proposal were to be enacted, it is inevitable that it would lead to further confrontations between individuals and law enforcement and break down trust even further. In addition, by diverting law enforcement resources to preventing the sale of menthol cigarettes, this policy will reduce the resources available for the prevention and solving of property and violent crimes.”
The letter continues, “We further draw your attention to the fact that any comprehensive analysis of the data from jurisdictions where menthol products have been banned demonstrates that, while the majority of users switch to nonmenthol cigarettes, over 20 percent of menthol smokers moved to purchasing illicit products through the black market. Not only does this put all parties involved at risk of police involvement, the illicit tobacco market has increasingly been run by sophisticated international criminal syndicates, often with links to sex trafficking, money laundering and even, increasingly, terrorism.”
For these reasons, as the letter noted, the U.S. State Department has explicitly called tobacco smuggling, “a threat to national security.”
The letter also recognized the importance of promoting harm reduction over prohibition, writing, “If the FDA wishes to reduce smoking rates, the best way of doing this is not through bans but rather embracing life-saving new technologies to help smokers quit.
“The science is now overwhelming that the most effective way for smokers to quit is through the use of noncombustible reduced-risk tobacco alternatives, ranging from vapor and “heat-not-burn” devices to oral nicotine-delivery systems or moist loose tobacco (which the FDA already allows to be marketed as reducing the cancer risk for persons who make the switch).”
If the FDA wishes to reduce smoking rates, the best way of doing this is not through bans but rather embracing life-saving new technologies to help smokers quit.
Americans for Tax Reform
The letter concluded by urging the FDA to “engage in evidence-based policymaking and embrace new technologies and alternative nicotine-delivery systems that have been proven will be able to save millions of American lives.”
Earlier, the American Civil Liberties Union also sent a letter, signed by 27 civil liberty and racial justice organizations, expressing its concern about the impact on minorities of a menthol ban.
“At this pivotal moment, as the public demands an end to police violence erupting from minor offenses, we call on the Biden administration to rethink its approach and employ harm reduction strategies over a ban that will lead to criminalization,” said Aamra Ahmad, senior legislative counsel for the ACLU.
“As we approach the one-year anniversary of the murder of George Floyd—only a few years removed from the killing of Eric Garner, a Black man killed by NYPD for selling loose, untaxed cigarettes—the racially disparate impact of the criminal legal system has captured the nation’s attention. It is now clear that policies that amount to prohibition have serious racial justice implications.”
Anti-tobacco activist Stanton Glantz dismissed the argument that getting rid of menthol would lead to more police violence against African Americans as baseless. He accused the ACLU of advocating tobacco positions after taking industry money.
“The ACLU has been carrying the tobacco industry’s water for decades,” Glantz wrote on his blog. The ACLU has opposed clean indoor air laws since shortly after I first got involved in trying to pass them in 1978, arguing against the evidence that secondhand smoke was dangerous and that there was a right to smoke.
“Why? Thanks to a series of reports in the early 1990s by legendary Washington Post investigative reporter Morton Mintz (Nieman Reports, Advocacy Institute), we now know that the ACLU secretly accepted millions of dollars from the tobacco industry,” he added.
May 5, 2021
Think Tank Urges Easing of ENDS Restrictions

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The U.K. Vaping Industry Association (UKVIA) has welcomed the Adam Smith Institute’s report published today. “The Golden Opportunity—How Global Britain can lead on tobacco harm reduction and save millions of lives” warns that the U.K. is on course to miss its “smoke-free by 2030” target unless regulations around alternative products are relaxed.
The UKVIA has consistently called for the U.K. to make the most of the opportunities presented by leaving the European Union, which are now available to the vaping sector. This includes removing unnecessary regulations, which the association believes are often a barrier to harm reduction and tackling misinformation about e-cigarettes. The UKVIA included these matters in its recent submission to the government’s consultation on the Tobacco and Related Products Regulations (TRPR) published in March.
The U.K. has taken a world-leading role in harm reduction in this area, and it should continue to do so, according to the UKVIA. To achieve smoke-free status, however, more work still needs to be done. The report points out that despite huge take up in smoking cessation products in recent years, there are still 7 million smokers in the U.K., which equates to 14.1 percent of adults. There is a concern within the sector that current low rates for smoking could be reversed by an increase in social smoking because of recent Covid-19 lockdowns.
The Adam Smith Institute report, written by its head of programs, Daniel Pryor, also calls for “ineffectual warnings” on some vaping products to be replaced and argues that the U.K. should “robustly defend its approach to tobacco harm reduction” at the global Framework Convention on Tobacco Control’s COP9 and related World Health Organization meetings later this year.

This report is welcome as it shows the opportunities which are now available for the U.K. vaping sector in terms of increasing smoking cessation and promoting harm reduction.
John Dunne, director, gereral, UKVIA
Following the recent announcement of a trial of e-cigarette products taking place in five hospital A&E departments later this year, the sector anticipates an additional boost to the numbers of people switching to e-cigarettes and awaits the results of the trial with interest.
“This report is welcome as it shows the opportunities which are now available for the U.K. vaping sector in terms of increasing smoking cessation and promoting harm reduction, which is why the UKVIA called for vape retail outlets to be classified as ‘essential retail’ throughout the recent lockdowns,” said UKVIA Director General John Dunne.
“The Adam Smith Institute’s report builds on our own proposals, which we submitted to the government’s TRPR consultation. We support the report’s proposals on opposing ‘counterproductive regulations,’ which can harm efforts to get smokers to switch to safer alternatives.”
“The UKVIA is already working with international partners ahead of the crucial COP9 summit later this year. We will continue to represent the sector as a whole and highlight the consensus opinions of U.K. public health bodies on the safety and efficacy of e-cigarettes to policymakers. We will continue to encourage the government to allow ‘Global Britain’ to use its newly independent position to encourage the World Health Organization to adopt a more reasonable approach with regards to reduced-risk products.”
May 4, 2021
Menthol Ban Would Hasten Volume Decline

Photo: Валерий Моисеев
The U.S. Food and Drug Administration’s plan to ban menthol cigarettes and flavored cigars is credit negative for the tobacco industry and settlement asset-backed securities because, if enacted, the initiatives would accelerate cigarette volume declines and hurt profitability, according to Moody’s Investor Service.
Tobacco companies that sell menthol cigarettes in the U.S. market would be negatively affected, although some existing smokers will likely migrate to nonmenthol cigarettes, thus limiting the negative impact of such measures on consumption.
Given their strong financial metrics, tobacco companies would likely be able to absorb any decline in performance without a major deterioration in their credit metrics. Approximately 29 percent of cigarette sales in the U.S. are menthol flavored per Euromonitor.
On April 29, the FDA said that it would work toward developing a regulation banning menthol cigarettes and flavored cigars within the next year. Moody’s expects tobacco companies would seek to strike down such a ban through the courts, so implementation could be years away. Any ban would need to be science-based or it would not withstand judicial review.
The investor service estimates that U.S. cigarette volumes will decline between 3 percent and 5 percent over the next three years to five years excluding a menthol ban. However, it believes a menthol ban would likely accelerate that rate of decline to the low double-digit level. “We expect tobacco companies would be able to take pricing actions to initially offset this decline, but their ability to do so would diminish over time as cigarettes become less affordable,” Moody’s wrote in a note to investors.
“We believe that banning menthol cigarettes, which represent around 29 percent of U.S. cigarette sales by volume, would also likely increase illicit trade, resulting in a loss of revenue for legal manufacturers as well as a loss of tax revenue for federal, state and local governments.”
Among the companies with the most exposure are British American Tobacco (BAT) and Altria Group, according to Moody’s. Through its subsidiary, Reynolds American Inc., BAT generates approximately 20 percent to 25 percent of its operating profits from menthol cigarettes. Altria Group Inc. generates approximately 20 percent of its sales from menthol cigarettes.
Given their strong financial metrics, tobacco companies would likely be able to absorb any decline in performance without a major deterioration in their credit metrics.
Moody’s Investor Service
BAT relies on the U.S. for about 45 percent of its operating profits, of which underlying menthol cigarette volumes account for around 50 percent. Moody’s estimates that Imperial Brands generates around 10 percent of its operating profits from sales of menthol cigarettes, based on a U.S. contribution to total profit of around 25 percent, of which underlying menthol cigarette volume accounts for 45 percent. Like Altria, BAT has alternative products, too, in the U.S. market, such as oral tobacco and vaping products, which could at least partly offer alternatives to menthol smokers.
Altria would be impacted by a menthol ban given its large market share; however, several factors would mitigate this impact. Altria offers a suite of noncombustible alternative products, such as e-cigarettes (through its 35 percent investment in Juul) and oral tobacco, that smokers could potentially convert to should a menthol ban be implemented. Altria also sells the IQOS heat-not-burn device in the U.S. under a licensing agreement with Philip Morris International (PMI). The FDA has authorized IQOS as a modified-risk tobacco product, and IQOS could gain new users if menthol products are banned.
Finally, Altria has strong financial metrics and could potentially shift its financial policy to offset a decline in operating performance, including decreasing its dividend payout or share repurchase activity.
PMI has no direct exposure to the U.S. cigarette market and would not be negatively impacted by this ban, according to Moody’s.
The FDA stated that it intends to start the process for advancing two tobacco product standards for menthol in cigarettes and all flavors in cigars with the aim to ban these products. The agency specifically seeks to reduce the number of new smokers, increase the likelihood that existing menthol smokers quit smoking and address health disparities among minority communities, where the FDA says usage of flavored cigarettes is high.
We believe that banning menthol cigarettes, which represent around 29 percent of U.S. cigarette sales by volume, would also likely increase illicit trade, resulting in a loss of revenue for legal manufacturers as well as a loss of tax revenue for federal, state and local governments.
Moody’s Investor Service
Tobacco companies believe that the published science so far has not supported regulating menthol cigarettes differently from nonmenthol and that scientific evidence does not show a difference in health risks between menthol and nonmenthol cigarettes. The companies say that scientific evidence does not support that menthol cigarettes adversely affect initiation, dependence or cessation.
Other markets have imposed similar bans, including Canada in 2017 and the European Union in 2020. Although the impact of such bans on overall cigarette consumption is still being evaluated, the rate of decline in the overall cigarette volumes sold by tobacco companies has not significantly changed so far.
A ban on menthol cigarettes in the U.S. would also be credit negative for long-dated tobacco settlement bonds backed by the 1998 Master Settlement Agreement (MSA) payments. The performance of those ABS directly depends on annual U.S. cigarette volumes, and an accelerated volume decline will materially lower revenue to the bonds. Certain alternative tobacco products, such as the heated-tobacco units used with IQOS2, are included under the MSA as part of revenue to the ABS. But these alternative products are currently in their infancy in the U.S., and their sales will not offset the material decline in revenue should the FDA implement its menthol cigarette ban, according to Moody’s.
May 4, 2021
China Now Top Market for Cuban Cigars

Photo: Timothy S. Donahue
There is a new leader in the Cuban cigar market. During the Habanos World Days event today, Leopoldo Cintra Gonzalez, the commercial vice president for Habanos, made the announcement at a virtual press conference from Havana. “For the first time in our history, China has become our No. 1 market in the world,” he said.
Spain was the previous market leader, and in 2019, China was No. 2. However, growth has accelerated in China; sales to that country increased by more than 50 percent over the past six years. Last year alone, China’s demand for Cuban cigars grew by 5 percent, according to Habanos. While China ranks No. 1, Europe is still the largest region for Cuban cigars. In 2020, 60 percent of Habanos sales came from Europe, according to Gonzalez.
Spain has become the second most valuable market for Cuban cigars, followed by France, Germany and Switzerland to complete the top five markets worldwide. Asia has been the leading growth market for Habanos, according to Gonzalez. He said the region has grown more than 10 percent in the last year, even with the difficulties presented due to the Covid-19 pandemic.

2020 has been a challenging year, not just for our business [but also] for humanity.”
Leopoldo Cintra Gonzalez, commercial vice president, Habanos
The positive outlook from China, however, was offset by a 4 percent drop in Habanos’ total revenues in 2020. The pandemic was said to be the main cause of the drop, with stores closing and the lack of tourism dollars in many nations, but Habanos still earned nearly $507 million in total sales for the year, according to Gonzalez.
“2020 has been a challenging year, not just for our business [but also] for humanity,” said Gonzalez. “But if we analyze it in depth, we see that there are markets especially affected by the drop in tourism, such as Cuba.”
To prevent the spread of Covid-19, Cuba temporarily closed its borders to tourists in March 2020. A reopening in November caused infections to surge, prompting authorities to reduce flights and tighten restrictions again.
“If we discount the negative effect of this specific market, we would only be talking about a [cigar sales] drop in the 2 percent [region],” said Gonzalez.
Gonzalez said that, overall, the future for Habanos was still bright, and the company expects to exceed 2019 sales in 2021. “We must highlight the good mix of launches and actions carried out during the year,” he said. “This year, a total of 19 products have reached the markets to satisfy all the needs of fans where novelties in the standard portfolio are mixed with highly successful and profitable specialties, confirming the high demand in the super premium segment.”
The Habanos World Days event is going to be a new annual event for Habanos. During a Q&A session, Gonzalez told Tobacco Reporter that having an annual online event allows the global Cuban cigar community to learn about the company and experience all that the world of Habanos has to offer firsthand. —T.S.D.
Timothy S. 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.

May 4, 2021
Brazilian Leaf Exports up in 2021

Photo: Taco Tuinstra
Brazil is likely to export significantly more leaf tobacco this year than it did in 2021, according to the Interstate Tobacco Industry Union, SindiTabaco, which expects tobacco export revenues to grow accordingly.
A survey conducted for SindiTabaco by Deloitte shows that shipments should increase between 2.1 percent and 6 percent in volume and between 6.1 percent and 10 percent in value compared to 2020, when exports amounted to 514 million kg and $1.64 billion.
From January to March 2021, exporters shipped 134 million kg of tobacco valued at $418 million, up 19 percent from the same period in 2020, according to the Ministry of Economy.
“Brazil has managed to keep annual exports at approximately 500,000 tons, a fact that attests to stability in the global market even in the face of a pandemic and all its social and economic developments,” said Iro Shuenke, president of SindiTabaco, during a meeting with tobacco supply chain stakeholders on April 28.

It is our expectation that Brazil will continue as leading global tobacco exporter, a position occupied by the country since 1993.
Iro Shuenke, president, SindiTabaco
The Brazilian tobacco growers’ association Afubra expects southern Brazil to produce 606.95 million kg of tobacco in an area of 273,356 hectares this year, according to a report relayed by Kohltrade. The number of tobacco-growing families declined by 6.02 percent to 137,618 this season.
In 2020, tobacco accounted for 0.8 percent of Brazilian exports. In Rio Grande do Sul, which produces nearly half of Brazil’s tobacco crop, the product accounted for 9.5 percent of all exports.
The main destinations for Brazilian tobacco in 2020 were the European Union, accounting for 41 percent of the country’s leaf exports; the Far East (24 percent); and Africa/the Middle East (11 percent).
May 4, 2021
22nd Century Extends KeyGene Partnership

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22nd Century Group will extend and expand its plant research partnership agreement with KeyGene, a global leader in plant research involving high-value genetic traits and increased crop yields. The new partnership agreement extends the length of the collaboration to develop new, disruptive hemp/cannabis plants and intellectual property for the life science, medicinal and pharmaceutical end-use markets.
It also expands the partnership to include research and development activity for noncombustible, alternative tobacco plant applications, such as protein production, and 22nd Century’s third plant franchise, plus it establishes a new governance structure and working model to accelerate development timelines across all three crop/trait programs.
“We have a highly successful relationship with KeyGene, and we are excited to announce this expansion of our partnership that we have been referring to recently,” said James A. Mish, CEO of 22nd Century Group, in a statement.
“Our KeyGene partnership has proven to be crucial for 22nd Century’s growth and success in the hemp/cannabis space. Since launching our collaboration in 2019, we have achieved much together, including a breakthrough in molecular breeding that will significantly reduce the time needed to develop new hemp/cannabis plant lines with commercially valuable traits.”
We have worked together to make game-changing discoveries in hemp/cannabis genetic research.
Walter Nelson, CEO, KeyGene
“Our partnership with 22nd Century Group has been mutually beneficial, as we have worked together to make game-changing discoveries in hemp/cannabis genetic research,” said Walter Nelson, CEO of KeyGene USA.
“This expanded partnership fits well into KeyGene’s push into integrating metabolomics and proteomics with our capabilities in genomics using innovative informatics tools. I am excited to build on this successful relationship and look forward to what we will be able to accomplish in other crops using our technology innovation platforms.”
May 4, 2021
Bahrain Mulls Request for Tobacco Factories

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Bahrain’s Shura Council will vote on whether to allow plans to open tobacco manufacturing factories in Bahrain, reports the Gulf Daily News.
However, the council has stated that products produced at the factories should not be sold in Bahrain; they should only be manufactured for export.
The committee also overturned a ban on the import, production and distribution of juices for e-cigarettes and e-shisha.
“In the past, Bahrain was known to be the regional hub for tobacco productions of numerous types with moasil—a shisha tobacco—being the most famous,” said Zayed Alzayani, industry, commerce and tourism minister. “Nowadays, our Bahraini-flavored moasil is being imported from numerous countries like the [United Arab Emirates], Egypt and Jordan. It is being sold using our traditional nametag across the world.”
“We have gotten a request from some investors, from Bahrain and abroad, to open tobacco manufacturing factories in Bahrain with their investments being more than $300 million and offering 400 jobs for Bahrainis, which would be 98 percent of the total workforce,” Alzayani said. “This move would also help provide beneficiary assistance to our logistics, shipping and cargo sectors.”
This move would help provide beneficiary assistance to our logistics, shipping and cargo sectors.
Zayed Alzayani, industry, commerce and tourism minister
Adding tobacco manufacturing would help generate revenue for the government and build necessary infrastructure, according to Alzayani.
Health Ministry officials told the committee that juices are not considered tobacco under the WHO Framework Convention on Tobacco Control. “We don’t have control over juices since it is not considered tobacco, but that doesn’t mean we cannot monitor the content,” officials added.
Anti-smoking advocates worry that allowing manufacturing would increase the number of smokers in Bahrain.
May 4, 2021
Swedish Match Reports Double-Digit Growth

Photo: Swedish Match
Swedish Match reported sales of SEK4.46 billion ($528.46 million) in the first quarter of 2021, up 11 percent over those in the 2020 first quarter. In local currencies, sales increased by 23 percent.
Reported operating profit from product segments increased by 26 percent to SEK2.09 billion. In local currencies, operating profit from product segments increased by 40 percent.
Operating profit, which includes a settlement income of SEK300 million related to a previously ongoing arbitration concerning nicotine pouches, amounted to SEK2.35 billion.
Profit after tax amounted to SEK1.78 billion.
Continued momentum for ZYN drove strong U.S. performance in the smoke-free product segment. In Scandinavia, strong underlying development was enhanced by timing effects on shipments and Covid-19-related channel mix effects.

We remain encouraged by the strong market growth for the nicotine pouch category as consumers continue to seek satisfying alternatives to cigarettes and other traditional tobacco products.
Lars Dahlgren, CEO, Swedish Match
The cigar business featured record volumes, sales and operating profit on the back of strong category growth and improved price mix.
No major operational Covid-19-related disruptions and Covid-19-related effects in aggregate are estimated to have elevated the reported financial performance.
“Swedish Match delivered an impressive financial performance in the first quarter,” wrote Swedish Match CEO Lars Dahlgren in the company’s interim report. “We remain encouraged by the strong market growth for the nicotine pouch category as consumers continue to seek satisfying alternatives to cigarettes and other traditional tobacco products, and we are excited to be well positioned to participate in this market dynamic.
“I am very pleased with our first-quarter performance and look forward to the opportunities and challenges facing Swedish Match with confidence.”
May 3, 2021
UN Global Compact Asked to Expel ECLT

Photo: Lewis Tse Pui Lung
STOP, a global tobacco industry watchdog, has sent a letter to the United Nations asking the organization to remove the Eliminating Child Labour in Tobacco-Growing (ECLT) foundation as a participant in the U.N. Global Compact.
“We, the undersigned civil society representatives,” the letter reads, “request that the Eliminating Child Labour in Tobacco-Growing Foundation (ECLT) be removed as a participant to the United Nations Global Compact (UNGC), in accordance with U.N. policies, including UNGC’s 2017 policy update, the Model Policy for Agencies of the United Nations System on Preventing Tobacco Industry Interference (Model Policy), and the U.N. Sustainable Development Goals (U.N. SDGs), which embody the World Health Organization Framework Convention on Tobacco Control (WHO FCTC). ECLT has undeniable ties with the tobacco industry and has failed in its stated objective of ending child labor in tobacco—a problem directly linked to the exploitative business practices of its funders and members.”
STOP cites the ECLT’s connection to tobacco manufacturers and producers as the main reason it should be removed from the UNGC. According to STOP, the tobacco industry’s interest are irreconcilable with the interest of human rights and sustainable development goals and are antithetical to the UNGC’s mission.
“We urge UNGC to act according to its mandate, practice good governance and align its policies with those of U.N. agencies, international bodies and member states that accord with WHO FCTC Article 5.3 and work to protect policy, health and development objectives by rejecting partnerships and interactions with the tobacco industry and its allies. End ECLT’s participation in UNGC,” the authors write.
May 3, 2021