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  • Conquering the World

    Conquering the World

    On Jan. 30, KT&G CEO Baek Bok-in and PMI’s Jacek Olczak signed an agreement to intensify their companies’ cooperation in smoke-free products. Photo: KT&G

    KT&G is making steady progress toward its ambition to become a “global top-tier” tobacco company.

    By Stefanie Rossel

    Things are going well for KT&G: In its ambition to become a global top-tier tobacco company, South Korea’s leading cigarette manufacturer reports steady progress, having broken sales records every year for the past five years.

    During an investor day on Jan. 26, 2023, CEO Baek Bok-in presented the company’s vision for 2027 and outlined growth strategies that focus on three core business areas: heated-tobacco products (HTPs), health functional food (HFF) and overseas business. Three days later, the company secured a long-term supply and distribution contract with Philip Morris International to commercialize KT&G’s Lil HTP outside of South Korea.

    KT&G, which increased its sales from KRW5.23 trillion ($4.26 billion) in 2021 to KRW5.9 trillion in 2022, aims to generate KRW10.2 trillion in annual sales by 2027. More than half of the company’s sales are supposed to come from overseas by then, Baek said during the investor conference. In 2022, overseas sales accounted for around 33 percent of KT&G’s annual sales.

    To achieve its goal, KT&G announced an investment of KRW4 trillion over the next five years. The company plans to establish a “virtuous cycle” by investing the earnings from its cigarette and other core businesses into new businesses.

    Focus on Heated-Tobacco Products

    KT&G CEO Baek Bok-in during the company’s recent investor day.

    A top priority in KT&G’s strategy is the global expansion of its HTP segment. Of the company’s overall sales in the nicotine category, around 76 percent are currently generated by the cigarette division and 24 percent by the HTP business.

    “Our revenue target for the HTP business by 2027 is KRW2.08 trillion, which is 138 percent growth compared to 2022’s estimated KRW0.87 trillion,” says KT&G Senior Executive Vice President Bang Kyung-man. “To reach the target, we will increase investments in R&D capabilities and production capacities to respond to the worldwide growing demand for HTPs.”

    As Bang pointed out during the investor day, KT&G is considering Kazakhstan and eastern Europe as possible locations for a new factory. To raise the necessary capital, KT&G may sell some of its current financial assets, Bang said.

    In its domestic market, KT&G dominated the category, with a share of 48.5 percent in the third quarter of 2022, according to The Korea Herald. South Korea’s highly competitive HTP category has been growing at a remarkable speed. In 2022, manufacturers sold 538.6 million packs of consumables, up 21.3 percent over the same period of the previous year, according to the ministry of strategy and finance.

    To stay ahead of its rivals, KT&G has invested heavily in R&D over the past years.

    Last November, the company introduced two new Lil models, Lil Aible and Lil Aible Premium, which deploy artificial intelligence to optimize the heating temperature, calculate the number of available puffs and measure the battery percentage. The premium version comes with an additional OLED touchscreen and a mobile app that among other things allows the user to receive calls and messages on his or her device. Shortly after the launch, PMI started selling its latest HTP model, IQOS Iluma, in South Korea.

    Fruitful Cooperation

    Outside South Korea, KT&G and PMI have successfully partnered for the past three years. In January 2020, they entered into an agreement that gives PMI exclusive access to KT&G’s smoke-free brands and innovation pipeline and provides KT&G with access to PMI’s global commercial infrastructure and experience in commercializing smoke-free products. As a result of the collaboration, Lil is currently present in 31 countries in Central America, Europe and Central Asia, with both market share and profitability continuing to grow significantly, according to Baek.

    On Jan. 30, 2023, PMI and KT&G turned their agreement into a 15-year contract. To respond to evolving market conditions, the agreement calls for frequent performance evaluations. Both companies expect their commitments to increase over the duration of the agreement, starting with a commitment for the first three-year period equivalent to 16 billion consumables.

    KT&G expects its HTP overseas sales and consumables volume to grow 20.6 percent and at a 24 compound annual growth rate for the next 15 years through the collaboration with PMI. Based on that assumption, JP Morgan anticipates KT&G’s combined domestic and overseas HTP sales to reach KRW5.8 trillion, which is almost equivalent of the current consolidated annual sales of KT&G group. Hanwha Investment & Securities, meanwhile expected the cumulative revenue from the 15 year contract to be KRW31.5 trillion.

    While stepping up its efforts in next-generation products, KT&G will continue to focus on the conventional cigarette business. “For our overseas cigarette business, we aim to reach KRW3.8 trillion by 2027, which is 44 percent growth compared to 2022’s estimated KRW2.7 trillion,” said Bang. “We will increase the number of overseas subsidiaries and further implement the direct business model in the overseas market.”

    KT&G currently has four tobacco manufacturing plants, one each in South Korea, Russia, Turkiye and Indonesia, with a combined annual production capacity of 13.6 billion cigarettes of overseas facilities, excluding Korea.

    Exploring a Growth Market

    For the HFF business, which is part of KT&G’s Korea Ginseng Corp. (KGC) subsidiary, the company has set a revenue target of KRW2.1 trillion for 2027, an increase of more than 58 percent over 2022. “We plan to support our subsidiary to expand its presence in the overseas market, especially the U.S. and China, by leveraging its strong competitiveness in the domestic market,” said Bang.

    KGC aims to become a global nutrition solutions provider. HFFs are a growing market worldwide. Spherical Insights & Consulting values the global market for functional foods and drinks at $189.5 billion in 2021 and expects it to increase to $285.3 billion by 2030. Consumer demand for products with enhanced nutritional profiles, the consultancy said, has been spurred by changing lifestyles and rising affluence. In 2020, North America dominated the global functional food market owing to the prevalence of chronic diseases and increasing consumer knowledge of the benefits of functional foods.

    In South Korea, sales of HFFs generated KRW3.1 trillion in 2020, according to the Ministry of Food and Drug Safety’s Food and Drug Statistical Yearbook for 2021. In addition, the country exported health functional food worth KRW226 billion. KGC is estimated to generate annual revenue of KRW1.4 trillion in 2022.

    KT&G remains committed to KGC despite calls by Flashlight Capital Partners to spin off the subsidiary. The Singaporean activist fund noted that while many overseas funds are interested in the company’s ginseng business, they are currently unable to invest in it because of their environmental, social and corporate governance principles against tobacco.

    In its annual meeting, however, KT&G said there was no plan to divest of its ginseng unit. “We will not decide on spinning off our ginseng business at this point,” Bang told Tobacco Reporter, adding that it is unclear whether the spinoff will enhance shareholder value in the long-term perspective.

    Bang also disagreed with suggestions that KGC is undervalued, pointing out that research analysts are applying higher EV/EBITA multiples to KGC than they are to its peers. “Also, KGC has been benefiting from synergies with KT&G Corp. as it has been leveraging KT&G’s overseas business network and infrastructure,” Bang said.

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

    Sales Down at Turning Point

    Photo: crizzystudio

    Turning Point Brands reported consolidated net sales of $103.4 billion the fourth quarter of 2022, down 1.8 percent from the comparable 2021 quarter. Gross profit decreased 1.5 percent to $49.6 million. Net sales for the Zig-Zag and Stoker products increased 0.9 percent and 2.6 percent, respectively, while sales of new-generation products declined by 11.1 percent.

    For the full year, consolidated net sales decreased by 6.8 percent to $415 million. Gross profit was down 5.6 percent to $205 million. Net sales for Zig-Zag and Stoker’s products increased 7.9 percent and 5.3 percent, respectively, while sales of new generation declined by 35.2 percent

    “The fourth quarter operating results finished in-line with our expectations with solid execution across our segments,” said TPB President and CEO Graham Purdy in a statement.

    “The Zig-Zag segment grew during the quarter despite the impact of a previously disclosed pull-forward in the prior quarter, benefitting from continued market share gains and the contribution from a full quarter of CLIPPER lighters. We are pleased with the ongoing roll-out and strong channel receptivity to the world’s No. 1 reusable lighter. Stoker’s MST experienced strong share gains as consumer trade-downs to value accelerated, consistent with the current inflationary and economic backdrop.

    “The challenging regulatory environment continues to negatively affect the NewGen segment which was down materially vs. 2021, but with declines moderating in the back half of the year. In addition to returning capital to our shareholders through share repurchases, we opportunistically purchased $10 million notional of our convertible notes during the fourth quarter while maintaining a strong cash balance.

    ”Over the last few months since taking on the CEO role, my primary objective has been to re-direct our focus and energy towards driving organic long-term growth. This starts with allocating resources to products, initiatives, and channels best positioned towards this goal. Our organization is now better aligned towards capitalizing on the opportunities in front of us and we look forward to delivering against our long-term plans going forward.”

  • Researchers Condemn Medical Body’s Position on E-cigarettes

    Researchers Condemn Medical Body’s Position on E-cigarettes

    Colin Mendelsohn

    Australia’s National Health and Medical Research Council’s (NHMRC) statement on e-cigarettes fails to meet the scientific standard expected of a leading national scientific body, according to 11 addiction scientists, reports Medical Express.

    Published in June 2022, the NHMRC statement aims to provide “public health advice on the safety and impacts of electronic cigarettes (e-cigarettes) based on review of the current evidence.”

    This critique of the NHMRC statement, published in Addiction, argues that the statement inaccurately summarizes the current evidence on e-cigarettes. The authors contend that the NHMRC exaggerates the risks of vaping and fails to compare them with smoking;  incorrectly claims that adolescent vaping causes subsequent smoking; and ignores evidence of the benefits of vaping in helping smokers quit.

    The NHMRC statement also ignores evidence that vaping is likely already having a positive effect on public health and misapplies the precautionary principle, which requires policymakers to compare the risks of introducing a product with the risks of delaying its introduction.

    “Many leading international scientists in the field hold more supportive views than the NHMRC on the potential of e-cigarettes as a strategy to improve public health,” said Colin Mendelsohn, lead author of the Addiction article. “In particular, invoking the precautionary principle to prevent the use of much less harmful smoke-free products is unjustified in the face of the massive public health burden of smoking.”

  • EAS Launches Caffeine Pouch

    EAS Launches Caffeine Pouch

    Photo: EAS

    E-Alternative Solutions (EAS) has introduced Mojo Balanced Energy Pouches in the United States.

    Each pouch contains 50 mg of caffeine derived from coffee beans, as well as a proprietary blend of ingredients such as ginseng root, yerba mate, B-vitamins and amino acids.

    “We are thrilled to launch Mojo Balanced Energy Pouches and offer consumers a convenient alternative to traditional, overly caffeinated energy drinks and specialty coffee,” says Mike Sullivan, senior director of trade marketing operations for E-Alternative Solutions. “The Mojo product portfolio was specifically developed to capitalize on the latest trends to become a force of change within the caffeine and energy segment.”

    Available in a wide range of flavors like caramel mocha, mint, orange burst, lemon lime, berry, and mango, Mojo Balanced Energy Pouches are sugar-free, zero calories.

  • Vector Group Reports Fourth-Quarter and Full-Year Results

    Vector Group Reports Fourth-Quarter and Full-Year Results

    Image: Tobacco Reporter archive

    Vector Group reported record annual tobacco segment revenues in 2022, fueled by continued strong volume.

    In the fourth quarter, consolidated revenues were $363.8 million, up 16 percent, or $50.1 million, compared to the prior year period. Tobacco segment revenues were $363.8 million, up 18.6 percent, or $57.2 million, compared to the prior year period. Tobacco segment wholesale and retail market share increased to 5.5 percent and 5.8 percent from 4.4 percent and 4.4 percent, respectively, in the prior year period. Reported operating income was $89.3 million, up $20.7 million compared to the prior year period. Tobacco segment operating income was $93 million, up 11 percent, or $9.2 million, compared to the prior year period, primarily attributable to the transition of the Montego brand strategy from volume-based to income-based.

    For the full year, record consolidated revenues were $1.44 billion, up 18 percent, or $220.3 million, compared to the prior year. Tobacco segment revenues were $1.43 billion, up 18.5 percent, or $222.6 million, compared to the prior year. Tobacco segment wholesale and retail market share increased to 5.4 percent and 5.5 percent from 4.1 percent and 4.2 percent, respectively, in the prior year. Reported operating income was $339 million, up $18.6 million compared to the prior year. Tobacco segment operating income was $347 million, down 3.7 percent, or $13.3 million, compared to the prior year, primarily attributable to the investment in Montego’s significant volume and market share growth.

    “Vector Group delivered record revenues in 2022 by capitalizing on opportunities to substantially increase our market share, thus driving value for stockholders,” said Howard M. Lorber, president and CEO of Vector Group. “The 11 percent increase in our tobacco segment’s operating income in the fourth quarter reflects the recent and ongoing transition of our Montego brand strategy from volume-based to income-based. In 2023, we will continue to focus on optimizing long-term profit by effectively managing our volume, pricing and market share.”

  • Alex Norcia Leaves Filter

    Alex Norcia Leaves Filter

    Image: Charnchai saeheng | Adobe Stock

    Tobacco harm reduction (THR) reporter Alex Norcia is leaving Filter magazine “and [departing] from journalism,” he wrote.

    Norcia has written for Filter for the past two years, and he wrote for Vice before that.

    “I will remain involved in THR,” Norcia wrote. He broke the story about the U.S. Food and Drug Administration’s “Fatal Flaw” standard as well as dug into synthetic nicotine before the topic caught fire.

    “Reflecting on the events I’ve reported for the better part of four years leaves me with a sense of just how fast the news moves. But it can get, unfortunately, repetitive,” he wrote about his experiences. He cited cyclical news like flavor bans that have spread across states and the impacts of such laws. He noted his favorite moments as well, detailing a well-rounded career in THR reporting.

    “Now, like everybody else, I’ll be waiting to see if the FDA bans menthol combustibles or lowers the nicotine levels in cigarettes or ever authorizes a flavored nicotine vaping product (even menthol),” he wrote. “Or whether, on the world stage, more countries will follow pathways like the United Kingdom, Sweden or Japan—or, conversely, prohibition-oriented responses like India, Taiwan and Mexico.

    “I don’t know the answers to these questions. Like other observers in this rapidly evolving field, I’ve never been able to predict the future. But I’ll still be doing what I can to address the present.”

  • An Essential Component

    An Essential Component

    Nina Ritter-Reischl |Photo: Glats Feinpapiere

    Manufacturers of tipping papers adapt to a changing cigarette market.

    TR Staff Report

    Valued at $1.6 billion in 2021, the global cigarette paper market is projected to reach $2.2 billion by 2031, according to Allied Market Research. Tipping base paper represents only a small part of this market but is an essential component in cigarette construction, where it has to meet many requirements.

    “As tipping base paper is a printing paper, the printability is most important,” says Nina Ritter-Reischl, CEO of German cigarette paper manufacturer Glatz Feinpapiere. “Printability is mainly depending on sheet formation and smoothness as well as the sizing. The latter is important to prevent color bleeding in the printing process. Our papers show a very good printability due to their formation and constant quality parameters, especially in sizing. Our know-how in tipping base paper goes back for decades and is one of our main assets.”

    Other considerations are water absorption, which determines ink absorption; smoothness, which plays a role in printability; and a “dynamic contact angle” for the gluing process; along with flammability, according to Liem Khe Fung, Innovation Center director at Indonesian cigarette paper manufacturer BMJ.

    Liem Khe Fu

    “The print quality of BMJ’s tipping base paper is excellent,” says Liem. It allows for 12-color print and the inclusion of tactile and embossed features along with security features. Flavored and sweetened papers are also possible, according to Liem. The company started to significantly supply the market only a few years ago, so the potential growth for BMJ in this field is still high, according to Liem.

    Ritter-Reischl views her company as a specialist for tipping base paper within the cigarette industry. “Therefore, we started focusing even more on our tipping base paper customers and were able to raise our sales within this market segment,” she says. “Tipping base paper customers are demanding and have high quality standards; they expect close customer relationships and interlinks in addition to excellent services. Those are challenges we can meet and are specialized in. As an example, we even deliver our tipping base paper with our own transportation company to one of our most valued customers, door to door every day.”

    The tipping base paper market has become highly competitive. Liem, whose company mainly caters to the Asian market, says that price competition is the main challenge, followed by small order quantity per stock-keeping unit.

    Julius Glatz is strong in Europe. “However, we also deliver to Asia and Latin America as there are printers too,” says Ritter-Reischl.

    As tipping base paper is an essential part of the cigarette, the tipping base paper market is facing the same challenges as the cigarette market in general. “Rising inflation and therefore declining purchasing power of consumers, political instability, rising costs and stumbling logistics worldwide are afflicting the market,” says Ritter-Reischl.

    Following a modest uptick during the Covid-19 pandemic, when many people where stuck at home, global cigarette consumption has resumed its long-term decline. In 2024, Statista projects volumes to shrink by 0.4 percent. That still leaves a market of around 5 trillion cigarettes, however—and the vast majority of them will require a tipping paper.

  • A Blunt Tool

    A Blunt Tool

    Photo: MichaelJBerlin

    Unless properly structured, Europe’s tobacco and vapor tax plans may not achieve their public health objectives.

    By Stefanie Rossel

    The European Commission’s (EC) December 2022 proposal for an update to the 2011 EU tobacco excise directive came with a first: In addition to a significant hike in cigarette excise rates, the draft also calls for a bloc-wide vaping levy.

    According to the proposal, the current minimum EU excise tax rate of €1.80 ($1.92) should increase to €3.60 per pack of 20 cigarettes. This would double excise duties in member states with low cigarette taxes (in eastern European countries, a pack of cigarettes can currently sell for under €3) and affect excise duties in countries such as Luxembourg and Austria, where cigarette prices are low relative to income. The EU hopes to generate an additional €9.3 billion in revenue from the tax harmonization, which would be a welcome windfall for pandemic-struck and inflation-struck member states. If enacted, the proposal would also increase taxes on hand-rolled tobacco.

    E-cigarettes with less than 15 mg of nicotine per milliliter of liquid would attract a 20 percent excise duty, and stronger products would be subject to a duty of at least 40 percent. In the EU, nicotine content of e-liquids is limited to 20 mg per milliliter. According to the draft proposal, heated-tobacco products (HTPs) would attract a 55 percent excise duty, or a tax of €91 per 1,000 items sold.

    The proposed legislation would harmonize the fragmented EU vapor market, where each member state taxes vapor and HTP products at its own rates. It is part of a push aimed at accelerating the reduction of smoking rates throughout the EU. As part of the common market’s Beating Cancer Plan, introduced by the EC in February 2021, health officials seek to lower the current EU smoking prevalence of 26 percent to 20 percent by 2025 and achieve a “tobacco-free generation”—that is, a smoking rate of below 5 percent—by 2040.

    The draft was released only weeks after the EC imposed a ban on flavored HTPs to cut the growth in demand among younger consumers. Responses were mixed. While some argued that union-wide taxes are necessary because less harmful products still present risk, tobacco harm reduction advocates warned for unintended consequences.

    Too High, Too Complex

    David Sweanor

    “Simply increasing cigarette taxes is a blunt instrument when trying to reduce the health toll from cigarette smoking,” says David Sweanor, adjunct professor of law at the University of Ottawa in Canada. “It is far more powerful than other standard anti-smoking measures but has limitations and constraints that are often overlooked. Price sensitivity is real, but many people who smoke cigarettes will seek to deal with increased costs through access to contraband, the cross-border trade, simply changing the way they smoke without achieving health improvements, or further diminishing their overall well-being by redirecting expenditures from healthier purchases to the purchase of cigarettes.”

    Taxing low-risk alternatives reduces the incentive to switch from cigarettes and can make illicit cigarettes more competitive, according to Sweanor. In his view, it is akin to making alcoholics who give up drinking by taking up jogging pay a tax on running shoes. “It misses the point of how taxes can be justified due to the relative health impact of certain behaviors,” he says.

    Dustin Dahlmann

    Dustin Dahlmann, president of the Independent European Vape Alliance, believes that EU policy should be guided by scientific evidence. “Science around the world agrees that vaping is significantly less harmful than smoking,” he says. “E-cigarette taxes that are too high [to] prevent socially disadvantaged groups in particular from switching to e-cigarettes. In the first instance, there should not be excise duties for electronic cigarettes, as they are a means for smokers to switch to less harmful alternatives. If further harmonization of excise duties is considered, legislators should take into account the significant differences in risk profile between tobacco cigarettes and electronic cigarettes and apply the excise duties methodology accordingly, i.e., proportionality to the harm reduction benefits brought about by tobacco replacement products.”

    In practice, this would mean a maximum excise duty of €1 per 10 mL or €0.10 per 1 mL of e-liquid, and it should be applied only to e-liquids with nicotine, according to Dahlmann. “The EU draft imposes a combination of an ad valorem and a specific volume base excise that would be an administrative burden for small and medium enterprises and fiscal authorities due to the additional complexity. Giving two options will lead to uncertainty, defeating the purpose of a harmonization of excise rates.”

    Illicit Trade Could Increase

    The question about how the EU’s revised tobacco tax directive would impact the illicit cigarette market is justified. The experience of France provides a cautionary tale. Following a tax increase of almost three times the EC’s minimum level, the illicit market in that country more than doubled, from 13.7 percent in 2017 to 29.4 percent in 2021, leading to an estimated loss of €6.2 billion in tax revenues in 2021, according to a KPMG report. In general, the study found, illicit consumption in the EU increased by 3.9 percent, or 1.3 billion cigarettes, in 2021, which corresponds to a loss of €10.4 billion in taxes.

    How the suggested excise duty increase would impact markets with relatively low income and high smoking levels, such as Greece (42 percent smoking prevalence) and Bulgaria (38 percent), is anybody’s guess. “I have worked globally on illicit trade issues for decades,” says Sweanor. “There is much we can do to limit the trade, but the economics makes [illicit cigarette trade] so lucrative that it is hard to imagine bringing it under control so long as there remains a significant market for cigarettes. Markets meet needs, including illicitly. Cigarettes are extraordinarily inexpensive to make, and taxes and the huge profit margins of Big Tobacco create a business opportunity many people can be expected to see as a money spinner. The real answer is to facilitate disruptive technology that makes cigarettes as undesirable to consumers as unsanitary food or leaded petrol.”

    To achieve the latter, the EC would have to acknowledge the harm reduction and smoking cessation potential of novel tobacco products. In February 2022, the EU Parliament became the world’s first elected chamber to endorse THR when it adopted a resolution on cancer prevention and treatment that notes that e-cigarettes “could allow some smokers to progressively quit smoking.” Dahlmann praised the move as a “landmark declaration” that would help reassure smokers of the benefits of switching to vaping. “All other EU institutions—and in particular the European Commission—should take this on board and ensure that policy follows science, not the other way around,” he said at the time.

    Sweanor is less upbeat. “The taxation of low-risk products reflects an understanding of differential risks. But it fails to come to terms with the full magnitude of the harm from cigarette smoking and the enormous potential to dramatically reduce it. When we are looking at hundreds of thousands of annual deaths, surely it is a public health emergency—and policies should reflect that. Language such as “could allow some smokers…” and policies that limit the relative acceptability of low-risk alternatives indicate that the extent of the public health opportunity is not fully grasped.”

    Differentiated Approach Required

    Whether the EU is prepared to part ways with anti-novel nicotine product sentiment of the World Health Organization Framework Convention on Tobacco Control (FCTC), which the common market has ratified, remains to be seen.

    “The EU is obligated to support tobacco harm reduction as a signatory to the WHO’s FCTC as stipulated in the introduction, article 1 (d) of the treaty,” says Dahlmann. “The FCTC requires the EU to not only allow reduced-risk products but to actively promote them. However, this definition is not actively supported by the WHO. The rule here is much more ‘quit or die.’”

    “The WHO’s FCTC process has followed in the footsteps of narcotics protocols in being hijacked by ideologues who seek an abstinence-only approach on drugs where total abstinence is simply not a viable nor a humane goal,” Sweanor adds. “As with those narcotics protocols, caring governments that follow the Enlightenment principles of science, reason and humanism will either creatively skirt such guidelines or simply ignore them. This is something we are now seeing unfolding globally with cannabis policies.”

    The goal of the new tax directive to create a smoke-free European society, he says, is noble and achievable—and far more quickly than envisioned in that 2040 goal. “But it requires bold rather than tentative steps. Policymakers should act in ways consistent with cigarette smoking being a public health crisis of enormous importance,” says Sweanor. “The best way to tackle this is by use of cross-elasticities, of empowering and facilitating people who smoke cigarettes to make healthier choices. This is accomplished by measures such as the widest possible cost differential between lethal cigarettes and low-risk alternatives. Given the horrendous death and disease tool from cigarettes, this should be a huge priority.”

    “E-cigarettes need to remain accessible and affordable to smokers from all socioeconomic backgrounds who wish to quit smoking,” says Dahlmann. “E-cigarettes offer smokers an alternative that is 95 percent less harmful than smoking. Switching from tobacco to vapor has positive individual, social and economic implications and should be encouraged, not penalized by the tax system. If taxes make vaping more expensive than smoking, many smokers will lose an incentive to switch to the much less harmful alternative. We therefore would see no chance of achieving the EU’s ambitious goals.”

    Before it is enshrined in law, the proposal will have to be agreed on by all EU member states. BAT already noted that this is merely the beginning of a long legislative process. “I assume there will be amendments, but we do not yet know their likely nature,” says Sweanor. “The proposal could be changed to help facilitate a rapid public health breakthrough as people abandon lethal cigarettes in huge numbers. Or it could be amended to make that a pipe dream.”

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

    Into Indonesia

    By Yutong Song and Alan Zhao

    Chinese e-cigarette manufacturers are expanding into Indonesia to better serve export markets.

    By Yutong Song and Alan Zhao

    China’s rules for the vaping industry are stringent. They do, however, allow leniency for most exports. There is one rule, though, that can make shipping product to some countries nearly impossible: China’s regulations state that all products produced for export must comply with the regulations and laws in the destination country, according to 2FIRSTS, a vaping industry vertical media firm. If a country does not regulate e-cigarettes, China’s rules for vaping products would apply to those exports, including bans on flavors and synthetic nicotine.

    To better serve countries that have not yet created regulations for electronic nicotine-delivery system products, manufacturers are opening factories outside of China. Many of those companies are moving into Indonesia where there are more than 70 million combustible cigarette smokers. The preference of Chinese manufacturers for Indonesia is also evident from a set of recent news headlines:

    • “Jinjia Group’s manufacturing base in Indonesia to provide integrated e-cigarette services.”
    • “Smoore Technology Indonesia (STI), a subsidiary of one of the largest e-cigarette manufacturers, has invested $80 million to establish e-cigarette factories in Indonesia.”
    • “The Indonesian factory of Zhijing Precision, an e-cigarette assembly supplier, is to be operational by 2022.”

    The cost factors, such as land and labor, make Indonesia the first choice for e-cigarette companies setting up abroad, but the country has more to offer. Garindra Kartasasmita, secretary general of the Indonesian Vapor Entrepreneurs Association, mentioned in his keynote speech at the IECIE Vape Show that the Indonesian vaping market has been growing since 2013, with an annual rate of 50 percent except for the year 2021, when it shrank by 7 percent due to the Covid-19 pandemic. It is expected to rebound to 50 percent growth in 2022.

    Integration of Production and Sales

    Indonesia is ripe for helping to grow vaping businesses and boost the harm reduction potential of vaping products. One major advantage of moving e-cigarette production into Indonesia is the ease of integration and sales offered by the country’s large population. With 280 million people, Indonesia is the world’s fourth most populous country, accounting for 40 percent of all people in Southeast Asia. Moreover, Indonesia has 70.2 million smokers, which translates into a smoking rate of 34 percent.

    The presence of so many nicotine consumers means e-cigarettes produced in Indonesia could also be sold domestically. Indonesia’s regulatory environment is conducive to the marketing of nicotine products that present lower risks than combustible cigarettes. Indonesia is the only country in Southeast Asia that allows tobacco advertising on television and in the media. It also has a place for e-cigarette bloggers and cross-category blogging, such as beauty and skin care. Indonesia has the second-highest number of posts on Instagram sharing vaping and related devices among all countries.

    E-cigarette brands can be imported and sold in Indonesia only if they are recommended by the country’s National Agency of Drug and Food Control (part of the Ministry of Health) and the Ministry of Industry. Additionally, the products must be certified by the Indonesian National Standard. The policies are a positive for Chinese e-cigarette manufacturers.

    Commenting on Smoore’s plant in Indonesia, Bahlil Lahadalia, Indonesia’s investment minister and director of the Investment Coordinating Board, publicly stated, “We need cooperation, we need jobs, we need opportunities that will make our brothers owners of our country.” And Clayton Shen, president of Smoore Indonesia, expressed his gratitude for the support of the Indonesian government, including the tariff-free incentives granted by the Ministry of Investment for the company’s much-needed machinery that needed to be imported.

    Challenges Ahead

    There are some challenges in the Indonesian market, however. Although the Indonesian market represents a large pie for Chinese manufacturers, it is not easy to navigate the market. A well-known Chinese e-cigarette manufacturer intending to build a factory in Indonesia revealed to 2FIRSTS that logistics is a problem for manufacturers, and currently no good solution is available.

    For example, if the end products are filled and assembled in China and then sent to Indonesia, the amount of time the products could be held at customs is unpredictable. “I had a batch of goods that arrived at customs the end of last month, but they are still in customs as of the 20th of this month,” the manufacturer said. “If it was assembled in Indonesia and sent from the Indonesian factory, the time difference in delivery is not much different from if it were delivered from China.”

    There is also a lack of e-cigarette machinery. Another vaping product manufacturer told 2FIRSTS that “there’s a critical lack of tools and machinery to keep pace with the production lines. Should factories be built here, machinery must be transported from China, which is a critical problem to tackle. It’s a misconception that the only shortage we would face is raw materials.”

    There is also a “workers’ gap” that can often create staff training and production concerns. In addition to overcoming cultural and geographical challenges when training local workers, it’s difficult to have the workers adapt to the Chinese style of work, which is very dedicated and focused on teamwork. An insider told 2FIRSTS that some workers have a “casual attitude to being late.” He said that he had to create numerous incentives to discourage employees from being late for work and/or going home early. “This is very different from the Chinese work habits,” he said.

    Migration or Spillover

    Shenzhen is considered the vaping capital of the world. Located just north of Hong Kong, the city designs and manufactures an estimated 90 percent of the world’s vaping and e-cigarette devices. There are more than 1,000 factories and thousands of support companies that form the supply chain throughout Guangdong Province and the rest of China.

    A joint report from the E-Cigarette Professional Committee of the China Electronics Chamber of Commerce and 2FIRSTS anticipates the global e-cigarette market to grow by 35 percent in 2022. The total market is expected to exceed $108 billion. In 2021, China’s total e-cigarette exports were $19.8 billion and were expected to reach $26.7 billion in 2022. The expansion of China’s e-cigarette industry from Shenzhen to Indonesia can more accurately be described as “spillover” rather than “migration.”

    Just because Shenzhen’s e-cigarette manufacturing hub status is unshakable in the short term does not mean that the global manufacturing layout is cast in stone. In fact, over the past five years, the country’s e-cigarette industry has spilled from the city into China’s Greater Bay Area. We have seen spillover from Shajing of the Bao’an District of Shenzhen to the Dongguan area and in between.

    This spillover has not affected the development of China’s electronic cigarette industry, however. During the same time, there was also a period of rapid industrial growth and improvements on the supply chain side of the industry.

    In a recent interview, 2FIRSTS co-founder and Chief Operating Officer Echo Guo said that years of development not only granted the Bao’an District of Shenzhen a number of e-cigarette enterprises but also brought together supporting supply chains, including industrial design, molds, batteries and other essential needs for manufacturing vaping products. “Here to there is a ‘two-hour traffic circle’ within the whole e-cigarette industry, with all of its subbranches cooperating closely,” said Guo. “Even when the manufacturers and customers exchange new ideas, it would take less than two hours to get a prototype ready.”

    The spillover of China’s e-cigarette industry to Indonesia can also be seen as the absorption and utilization of manufacturing resources by China’s e-cigarette industry, which has broken the boundary of China’s Greater Bay Area and extended to a broader region of the Asia-Pacific. The entire region will now have the opportunity to create greater economic success through the growth of the e-cigarette and vaping industry.

  • Bad Science

    Bad Science

    Photo: olly

    What is bad science, and why is there so much of it?

    By Clive Bates

    Every Friday afternoon, I receive the worst email of the week. It is an automated search on the PubMed database, an index of the biomedical literature covering over 30 million published papers. The search tries to pick up new studies relevant to tobacco harm reduction and typically finds 30–70 new papers each week. Once the email comes in, I look through the abstracts and write down hot takes on the ones that seem relevant to policy or practice. Then I share with public health and consumer advocates. To be honest, it is often a dispiriting experience. Despite the scattering of excellent “must-read” papers, many are truly awful. I have been doing this since 2016, and the volume of papers has roughly doubled.

    So, what have I learned by going through this painful weekly ritual? There are distinct patterns repeated in the literature, including poor methodology, poor interpretation of results and, almost always, poor extrapolation from findings to policy. There are obvious biases and sometimes near-comical desperation to find fault in reduced-risk products. Let me provide a list of some of the most common flaws.

    • Poor toxicology. The 16th century Swiss physician Paracelsus coined a maxim now expressed as “the dose makes the poison.” The detectable presence of a hazardous chemical does not mean it is toxic. There must be sufficient exposure to the human body to cause harm. As an example, many studies find metal residues in vape liquids and aerosols, but usually at levels that create no basis for concern.
    • Lack of meaningful comparisons. Many studies will present data on the effects of smoke-free products without context, such as a comparison with cigarette smoke, or some objective risk benchmark, such as the standards used for occupational health exposures. Without such context, it is impossible to assess whether the findings are a basis for concern or for reassurance. So, the question is always, “how much exposure, and is that a little or a lot?”
    • Observations versus risks. Nicotine is a stimulant and has many effects on the body, but epidemiological studies do not generally show nicotine exposure to be harmful to health. For example, there are regular headlines reporting that nicotine can cause an acute stiffening of the aorta, the largest artery in the body. But is that bad news? It seems less disturbing when we find that coffee, exercise or even exposure to music can have the same effects.
    • Unrealistic operating conditions. A range of studies makes machine measurements of emissions from heated aerosol products in unrealistic conditions that no human user could tolerate because of the terrible taste. Using this unrealistic method, researchers often find high levels of toxic chemicals. But this is about as sophisticated as testing the residues from the surface of burnt and blackened toast—and concluding that eating toast for breakfast increases cancer risk.
    • Over-interpreting animal and cell studies. There are many studies of human cells tested in Petri dishes (“in vitro”), but these are tests on cells without all the defenses and regenerative capacity they have in the body. Test on animals (“in vivo”) must recognize that animals have very different physiology to humans and are sometimes bred to have vulnerabilities. In both cases, creating a realistic equivalent to the exposures a human would experience can be challenging. These studies can’t tell us much conclusively about human risk. At best, they can provide valuable clues. At worst, they can mislead.
    • The wrong counterfactual. Many studies beg the question, “what would have happened if vaping did not exist?”—without that, it is hard to determine what effect vaping is having. For example, if there were no vape option, would pregnant women who currently vape be abstinent, or would they smoke? That should affect the advice of health professionals. Many are concerned about youth vaping, but for the youth who would otherwise be smoking, maybe vaping provides a significant benefit. That should affect the approach of policymakers and regulators. These assumptions are known as “counterfactuals,” and they are hidden and hard to determine, which makes them open to bias.
    • Correlation ≠ causation. Many studies find a correlation (usually referred to as an association) between vaping and some harmful effect. But too many studies suggest that vaping causes the harmful effect. Take, for example, vaping and Covid-19. A 2020 study suggested Covid was abnormally high in young vapers, concluding that vaping is a “significant underlying risk factor” for coronavirus disease. But critics pointed out that people who vape may be more likely to work in occupations where they are more easily exposed. Are vapers the type of people who are more likely to ignore masking guidelines and stay-at-home mandates? These other risk factors that may be more common in vapers are known as “confounders” and are a pervasive challenge in nicotine and tobacco science.
    • Reverse causation. Some studies find that vaping is associated with, say, respiratory illness. But what if some people who smoke switch to vaping precisely because their respiratory health is deteriorating? There would be an observable association, but the respiratory illness would be causing the vaping, not the other way around.
    • Confounding by smoking history. There has been a recent spate of studies claiming that vaping causes heart disease or respiratory conditions like chronic obstructive pulmonary disease. Almost everyone old enough to both vape and to experience these conditions has a smoking history, usually decades long, contributing to the disease. In such studies, it is impossible to isolate the effect of vaping from smoking. In some cases, the vaping has even commenced after the event or diagnosis.
    • Misunderstanding gateway effects. Does vaping lead to smoking? If that were the case for significant numbers, vaping could be almost as harmful as smoking. There are studies that show that young people who vape are also more likely to smoke. But that does not mean the vaping causes the smoking. More likely, the characteristics of the individual (e.g., rebelliousness) or their circumstances (e.g., parents, peer group) incline them to both smoking and vaping. This is a rival explanation to the gateway effect and is sometimes known as the “common liability” theory.
    • Selection effects. Some studies will focus on people who are unusually dependent on nicotine and therefore find it harder to quit. For example, in some cases, it is more likely that vaping will be tried by people who have not succeeded with any other method. This doesn’t mean vaping is less effective, just that the people using the products find quitting harder. This is a common error in studies of concurrent vaping and smoking, often known as “dual use.” The dual users are more dependent and tend to be more intense smokers with higher toxic exposures.
    • Weird study populations. Not all studies conducted on social media are useless, but most are. The people discussing vaping or smoking on Twitter or Facebook are not representative of the vaping and smoking populations. Their views are not gathered systematically in the way surveys work. Trends over time might be helpful, but most snapshots tell us little.
    • Baseless policy conclusions. Policy conclusions like “ban e-cigarette flavors to protect kids” are disappointingly common in the literature. To justify a policy requires numerous considerations that will go beyond the findings of any single data paper and stretch into economics and ethical considerations. Such considerations would include, for example, the assessment of unintended consequences (will kids smoke instead?) and trade-offs (between the interests of teenagers and adults).

    Such a list does not explain why there is so much bad science, given these errors are simple to understand and mostly avoidable. I believe the answer lies in the incentives of those doing the science. Major U.S. federal research funders are aiming for a “world free of tobacco use,” which also means free of nicotine use. Tobacco regulatory science funded by regulators will be inclined to find justifications for regulation and intervention, not liberalization. There could also be deeper drivers: without the significant harms of smoking, there isn’t much justification for the whole field of tobacco control. Perhaps the emergence of much safer smoke-free nicotine products threatens livelihoods, careers and entire university departments, and bad science is the reaction. Maybe researchers gain prestige from alarming media coverage. These are all subtle conflicts of interest that are never acknowledged or recognized, yet they are pervasive drivers of bias.

    It will surprise some, but I have noticed that science from the tobacco industry rarely crosses these lines. That is also down to incentives. The tobacco and nicotine industry must satisfy skeptical regulators about the safety and effectiveness of its next-generation reduced-risk products. It conducts research for product stewardship reasons and, in part, to take precautions against product liability litigation. The industry is incentivized to do good science.

    It is time to address these problems by establishing a more constructively challenging environment for tobacco and nicotine science. This is not just an abstract academic curiosity. Public health credibility and the lives of millions are at stake.

    Clive Bates is the director of Counterfactual Consulting and the former director of Action on Smoking and Health (U.K.).