Top News - Tobacco Reporter

J.P. Morgan: War Could Thwart PMI’s Smoke-Free Ambitions

The war in Ukraine could seriously impact sales of Philip Morris International, reports MarketWatch. Earlier this week, J.P. Morgan downgraded the multinational’s shares to “neutral” from “overweight,” citing the company’s exposure to Russia and Ukraine.

PMI derives about 8 percent of group sales from Russia and Ukraine combined, according to the investment bank. The two countries account for about 23 percent of PMI’s heated-tobacco unit (HTU) volume. Heated-tobacco products are key to PMI’s next-generation growth strategy as they are reportedly less harmful than cigarettes.

PMI entered the Ukrainian market in 1994. In 2021, Ukraine accounted for around 2 percent of PMI’s total cigarette and HTU shipment volume and under 2 percent of PMI’s total net revenues. The company has one factory and approximately 1,300 employees in the country.

Russia accounted for almost 10 percent of PMI’s total cigarette and HTU shipment volume and around 6 percent of PMI’s total net revenues in 2021. PMI opened its first representative office in Russia in 1992 and has more than 3,200 employees in the country.

PMI’s cigarette shipments to Russia in 2021 fell to 52.5 billion units from 55.6 billion units in 2021, and the percentage of total cigarette shipments fell to 8.4 percent from 8.8 percent, according to a company filing with the U.S. Securities and Exchange Commission.

For HTUs, Russian shipments rose to 16.3 billion units from 13.6 billion units while the percentage of total HTU shipments slipped to 17.2 percent from 17.9 percent.

Meanwhile, PMI’s HTU market share in Russia improved to 7.4 percent from 6.3 percent while the company’s overall HTU market share increased to 3.5 percent from 3 percent.

On March 9, PMI announced the suspension of its planned investments in Russia, including all new product launches and commercial, innovation and manufacturing investments. PMI has also activated plans to scale down its manufacturing operations in Russia amid ongoing supply chain disruptions and the evolving regulatory environment.

March 10, 2022

New Report on Cigar Health Effects

The National Academies of Sciences, Engineering and Medicine (NASEM) has published an independent report on the health effects of premium cigars. Commissioned by the Food and Drug Administration and the National Institutes of Health, the report provides a comprehensive review of the scientific literature on these products.

For example, the report includes information on short-term and long-term health effects, patterns of use, marketing and perceptions, and product characteristics of premium cigars.

The early to mid-1990s saw a large surge in U.S. cigar consumption, including premium cigars. Based on recent import data, premium cigar use may be increasing, though premium cigars currently make up a small percent of the total U.S. cigar market.

Premium cigars have also been the subject of legal and regulatory efforts for the past decade. In 1998, the National Cancer Institute undertook a comprehensive review of available knowledge about cigars—the only one to date. The resulting research recommendations have largely not been addressed, and many of the identified information gaps persist. Furthermore, there is no single, consistent definition of premium cigars, making research challenging.

In response, the FDA and the National Institutes of Health commissioned the NASEM to convene a committee of experts to address this issue. The resulting report, Premium Cigars: Patterns of Use, Marketing and Health Effects, includes 13 findings, 24 conclusions and nine priority research recommendations and assesses the state of evidence on premium cigar characteristics, current patterns of use, marketing and perceptions of the product, and short-term and long-term health effects.

March 10, 2022

Firms Scale Back in Russia and Ukraine

The leading tobacco companies are adjusting their strategies in Russia and Ukraine following the war between those countries.

Philip Morris International announced the suspension of its planned investments in the Russian Federation, including all new product launches and commercial, innovation and manufacturing investment. PMI has also activated plans to scale down its manufacturing operations amid ongoing supply chain disruptions and the evolving regulatory environment.

“We have watched with shock the war in Ukraine and condemn the violence in the strongest possible terms. We stand in solidarity with the innocent men, women and children who are suffering,” said PMI CEO Jacek Olczak in a statement. “We join the many voices calling for an immediate end to the war and the restoration of peace.”

Olczak said PMI had helped evacuate more than 800 people from the most impacted areas; provided critical aid to employees who remain in Ukraine; and provided those who have left the country with logistical, medical, financial and other practical support in neighboring countries. PMI is continuing to pay salaries to all its Ukrainian employees during this period, the company said.

Ukraine accounted for around 2 percent of PMI’s total cigarette and heated-tobacco unit shipment volume and under 2 percent of PMI’s total net revenues in 2021. The company has one factory and approximately 1,300 employees in the country.

In 2021, Russia accounted for almost 10 percent of PMI’s total cigarette and heated-tobacco unit shipment volume and around 6 percent of PMI’s total net revenues. The company employs more than 3,200 people in the country.

BAT, which employs more than 1,000 people in Ukraine and around 2,500 people in Russia, said it had suspended all business and manufacturing operations in Ukraine and suspended all planned capital investment into Russia.

“In Ukraine, we have suspended all business and manufacturing operations and are providing all the support and assistance we can to our colleagues, including relocation and temporary accommodation. Our businesses bordering Ukraine are providing assistance to the humanitarian relief effort,” the company wrote on its website.

“In Russia, we have a full establishment of our people right across the country, including substantial local manufacturing. Our business in Russia continues to operate. As a key principle, we have a duty of care to all our employees at this extremely complicated and uncertain time for them and their families.”

Japan Tobacco International, which has four factories and nearly 4,000 employees in Russia, announced the suspension of all new investments and marketing activities as well as the planned launch of its Ploom X heated-tobacco product in Russia, citing the unprecedented challenges of operating in Russia at this time. “Unless the operating environment and geopolitical situation improve significantly, JTI cannot exclude the possibility of a suspension of its manufacturing operations in the country,” the company wrote in a press statement.

Imperial Brands also suspended all operations in Russia, halting production at its factory in Volgograd and ceasing all sales and marketing activity.

“We have already suspended our operations in Ukraine in order to prioritize the safety and well-being of our 600 employees in that country,” the company wrote in a statement.

Russia and Ukraine are relatively small markets for Imperial Brands, representing around 2 percent of net revenues and 0.5 percent of adjusted operating profit in 2021.

March 10, 2022

Synthetic Nicotine Regulation Clears House

The House of Representatives approved a $1.5 trillion spending package that would give the U.S. Food and Drug Administration authority to regulate synthetic nicotine. The bill now goes to the Senate.

Synthetic nicotine—nicotine that is made in a lab rather than derived from tobacco—has long existed in a legal gray area, and many companies started using it after their natural nicotine products were denied market access by the FDA. Public health groups have been warning that synthetic nicotine e-cigarettes, such as Puff Bar, have grown in popularity among teens while skirting FDA oversight.

The Food, Drug and Cosmetic Act, which includes the 2009 Tobacco Control Act, defines a tobacco product as “any product made or derived from tobacco that is intended for human consumption, including any component, part or accessory of a tobacco product (except for raw materials other than tobacco used in manufacturing a component, part or accessory of a tobacco product).”

If the spending bill currently under consideration passes, the language of the Tobacco Control Act would change to define a tobacco product as “any product made or derived from tobacco, or containing nicotine from any source, that is intended for human consumption.”

The synthetic nicotine provisions are set to take effect 30 days after the bill’s passage. Synthetic nicotine producers then have 60 days from its enactment—or 30 days after it becomes effective—to file premarket tobacco product applications with the FDA to legally stay on the market. Ninety days after the effective date, or 120 days after the bill’s passing, these manufacturers will have to stop selling their products if the FDA has not authorized them. At that point, the FDA can exercise its enforcement discretion.

Anti-smoking activists welcomed the legislation. “By using synthetic nicotine, e-cig companies are avoiding public health protections for flavored tobacco products and still hooking teens,” tweeted billionaire philanthropist Michael Bloomberg. “With millions of kids still using e-cigs, we must get synthetic nicotine products off the market.”

Consumer advocates, by contrast, warned the move would deny adult smokers access to lower risk alternatives. “Only the largest and most powerful vaping and tobacco companies can afford the lawyers and the time necessary to complete the paperwork necessary to pass the FDA’s process, meaning thousands of hard-working American business owners will now be forced to close, depriving millions of adult consumers of harm reducing options,” said Yael Ossowski, deputy director of the Consumer Choice Center.

The FDA appears keen to crack down on synthetic nicotine. During his Senate confirmation hearing, FDA Commissioner Robert Califf vowed to close what he described as the synthetic nicotine “loophole.”

Earlier, FDA Center for Tobacco Products Director Mitch Zeller indicated that the synthetic nicotine could be considered a component of e-cigarettes, which would have allowed the agency to assert authority over the substance under existing legislation.

March 10, 2022

Strong Cigar Sales Boost STG’s Results

Scandinavian Tobacco Group (STG) reported net sales of DKK8.23 billion ($1.21 billion) in 2021, up 4.5 percent organically from the previous year. Earnings before interest, taxes, depreciation and amortization (EBITDA) before special items grew by 18.4 percent organically to DKK2.23 billion, with free cash flow before acquisitions stable at DKK1.39 billion.

Net sales for the fourth quarter were DKK2.01 billion, reflecting 1.8 percent organic growth over the comparable quarter in 2020. EBITDA before special items was DKK474 million, up from DKK397 million in the previous year’s quarter.

The fourth-quarter results were driven by continued strong demand for handmade cigars in the U.S., price increases across most product categories and continued cost efficiencies. The integration of Agio Cigars approaches completion, according to STG.

“We deliver particularly strong financial results for 2021 based on a strong demand for handmade cigars in the U.S., Agio synergies and a favorable market mix,” said STG CEO Niels Frederiksen in a statement. “During the year, we showed good progress on our strategy ‘Rolling Toward 2025’ across the business and edged closer to our vision of becoming the undisputed global leader in cigars.”

STG expects organic EBITDA growth in 2022 to be in the range of 0 percent to 6 percent.

At the annual general meeting on March 31, 2022, the board of directors will propose an increase in the ordinary dividend of 15 percent to DKK7.50 per share. The board has also approved a new share buyback program with a value of up to DKK700 million to adjust the capital structure and meet obligations relating to the group’s share-based incentive program.

March 9, 2022

KAC: Number of Vapers up Significantly

The number of vapers worldwide increased by 20 percent from 2020 to 2021, according to the latest research by the Global State of Tobacco Harm Reduction (GSTHR), a project from Knowledge Action Change. The organization estimates that there are now 82 million vapers worldwide.

The updated calculation was made possible by the release of a range of new data, including the 2021 Eurobarometer 506 survey, and is revealed in a new GSTHR briefing paper. The figure is based on 49 countries that have produced viable survey results on vaping prevalence.

To address the problem of missing data, the GSTHR used an established method of estimating vaper numbers in countries that currently have no information by assuming a similarity with countries in the same region and economic condition for which data points were available.

This estimate considers three factors—sales regulation status, World Health Organization regions and World Bank income groups—along with the Euromonitor data on vaping product market size from 2015 to 2021.

This [increase in vapers] is in spite of prohibitive policies in many countries who follow the World Health Organization’s anti-scientific stance against tobacco harm reduction, thanks to Michael Bloomberg’s billions and his personal zeal for a war on nicotine.”

Gerry Stimson, director, KAC

“As well as the substantial growth in the number of vapers globally, our research shows there has been rapid uptake of nicotine vaping products in some countries in Europe and in North America,” said Tomasz Jerzynski, data scientist at GSTHR. “This increase is particularly significant, because in most markets, these products have been available for only a decade.”

Indeed, the rise in the number of global vapers comes despite the GSTHR’s database showing nicotine vaping products are banned in 36 countries, including India, Japan, Egypt, Brazil and Turkey.

The new data also shows the U.S. is the largest market for vaping at $10.3 billion, followed by Western Europe ($6.6 billion), Asia-Pacific ($4.4 billion) and Eastern Europe ($1.6 billion).

“As this updated data from the Global State of Tobacco Harm Reduction shows, consumers find nicotine vaping products attractive and are switching to use them in increasing numbers worldwide,” said Gerry Stimson, director of KAC and emeritus professor at Imperial College London. “This is in spite of prohibitive policies in many countries who follow the World Health Organization’s anti-scientific stance against tobacco harm reduction, thanks to Michael Bloomberg’s billions and his personal zeal for a war on nicotine.”

March 9, 2022

FDA Likely to Regulate Synthetic Nicotine

A bill intended to fund the U.S. government through September includes language that would give the Food and Drug Administration authority to regulate synthetic nicotine. The House of Representatives could vote on the legislation as early as today.

Synthetic nicotine is currently not explicitly regulated by the FDA, and many companies started using it after their natural-nicotine products were denied market access by the agency. Public health groups have been warning that synthetic nicotine e-cigarettes such as Puff Bar have grown in popularity among teens while skirting FDA oversight.

The Food, Drug & Cosmetic Act, which includes the 2009 Tobacco Control Act, defines a tobacco products as “any product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product (except for raw materials other than tobacco used in manufacturing a component, part, or accessory of a tobacco product).”

If the spending bill currently under consideration passes, the language of the Tobacco Control Act would change to define a tobacco product as “any product made or derived from tobacco, or containing nicotine from any source, that is intended for human consumption.”

The synthetic nicotine provisions would take effect 30 days after the bill’s passage. Synthetic nicotine producers would then have 60 days from its enactment—or 30 days after it becomes effective—to file premarket tobacco product applications with the FDA to legally stay on the market. Ninety days after the effective date, or 120 days after the bill’s passing, these manufacturers would have to stop selling their products if the FDA has not authorized them. At that point, the FDA could exercise its enforcement discretion.

Consumer advocated have criticized the attempt to “sneak in” the synthetic nicotine provision into the spending bill.

“The byzantine process of asking permission to sell harm reducing vaping products in the 21st century is asinine in itself,” said Yaël Ossowski, deputy director of the Consumer Choice Center. “But using sleight of hand during an emergency government funding bill to castigate millions of vapers and the entrepreneurs who make and sell the products they rely on is the definition of active harm.”

“Only the largest and most powerful vaping and tobacco companies can afford the lawyers and the time necessary to complete the paperwork necessary to pass the FDA’s process, meaning thousands of hard-working American business owners will now be forced to close, depriving millions of adult consumers of harm reducing options.”

The bill is purportedly backed by Juul Labs and Reynolds American, both of which face competition from Puff Bar and from e-liquid sold in vape shops and online.

March 8, 2022

Europol: Pandemic Has Boosted Illicit Trade

The distribution of counterfeit goods, including cigarettes, has thrived during the Covid-19 pandemic, according to the latest Intellectual Property Crime Threat Assessment, published by Europol and the European Union Intellectual Property Office (EUIPO).

The health crisis has presented new opportunities for trade in counterfeit and pirated products, and criminals have adjusted their business models to meet the new global demand.

Imports of counterfeit and pirated goods reached €119 billion ($129.61 billion) in 2019, representing 5.8 percent of all goods entering the EU, according to the latest data from the Organisation for Economic Co-operation and Development and the EUIPO.

“The COVID-19 pandemic has presented new business opportunities for criminals to distribute counterfeit and substandard goods,” said Europol Executive Director Catherine De Bolle in a statement. “At best, these products will not perform as well as authentic ones. At worst, they can fail catastrophically.”

Tobacco products feature prominently among pirated products. In 2020, cigarettes represented the ninth most-seized counterfeit item in the EU.

Illicit products represent 7.8 percent of total cigarette consumption and a loss of €8.5 billion in tax revenues in the EU, according to the report. Thirty percent of illicit consumption in the EU in 2020 was driven by counterfeit products. The number of seized counterfeit cigarettes increased by 87 percent from 2019 to 2020.

In 2019, cigarettes were one of the most frequently reported counterfeit goods and the second most frequently seized counterfeit items at the EU’s external border.

Illicit tobacco products are increasingly produced in the EU, in modern and professional production facilities, established closer to destination markets. Illicit flows between member states increased by 1.5 billion in 2020. Illicit production facilities have been detected in Belgium, Bulgaria, Germany, Spain, Hungary, the Netherlands and Poland.

China and Russia are the main countries of origin for counterfeit cigarettes smuggled into the EU. The most popular destination markets are those that feature high retail prices for tobacco products. Illicit tobacco products also transit through the EU to large markets, such as the United Kingdom.

The growth of the e-cigarette/vaping market in recent years has entailed a subsequent increase of counterfeit vaping products entering the EU market.

March 8, 2022

Bantam Vape Exempted from Shipping Ban

The U.S. Postal Service (USPS) has granted Bantam Vape an exception from its ban on shipping vapor products. Bantam Vape will be allowed to ship its e-liquid products to select vape retailers and distributors throughout the United States.

The postal service’s decision comes in response to Bantam’s application for a business purposes exception to the Prevent All Cigarette Trafficking (PACT) Act, which was amended by Congress on Dec. 27, 2020, prohibiting the shipment of e-cigarettes and vapor products through the USPS.

“Bantam’s ability to reengage USPS as a shipper of our high-quality, flavor-filled e-liquids allows us to more effectively serve our trusted retail and distribution partners,” said Bantam spokesperson Anthony Dillon. “Utilizing USPS as an alternative shipping channel provides our business-to-business customers with increased purchase order flexibility and decreased shipping timelines and costs.”

Bantam provided the USPS with the necessary documentation to obtain its exception to the PACT Act prohibition against shipment of vapor products through the USPS. This included submission of applicable state and federal permits and licenses for both Bantam and its customers named in the application.

“We thank USPS for processing our application in a timely manner and in helping us deliver alternatives to combustible cigarettes to our customers across the U.S.,” said Dillon. “As we continue to grow our brand’s customer base, Bantam is committed to adding retailers and distributors to the list of those we can ship to using USPS.”

March 8, 2022

Campaigners Urge Criminal Charges

Tobacco control advocates should consider holding tobacco corporations and executives criminally liable for their actions, according to a study published in Tobacco Control. Doing so, the authors write, could provide a workaround in legislative systems that lack the political will to support or implement tobacco control policies.

The authors highlight what they perceive as shortcomings of civil cases, where victory usually means an award of money to the injured party—which the tobacco industry easily pays and then goes back to business as usual. In the United States, tobacco industry still prevails in at least 25 percent of civil cases brought against it.

A criminal case, by contrast, could include court orders and possibly even the dissolution of the corporation or jail time for executives. It could also help delegitimize the industry, make it harder for tobacco companies to recruit top talent, have a deterrent effect and allow anti-tobacco groups and governments to learn more about the harms perpetuated by the industry through the discovery process, according to the authors.

To support their suggestions, the authors cite a proof-of-concept case in the Netherlands, where an antismoking group asked the public prosecutor to bring criminal charges against Philip Morris International, BAT, Japan Tobacco International and Imperial Tobacco Benelux for fraud, manslaughter and attempted murder. While the public prosecutor eventually declined to press charges, the case generated an enormous amount of publicity about the harms of smoking, resulting in a “communication and education” victory, according to the authors.

March 8, 2022

Category: Top News