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  • Eye of the Tiger

    Eye of the Tiger

    Photo: byrdyak

    Turning Point Brands is embracing next-generation tobacco and alternative products by taking calculated risks.

    By Timothy S. Donahue

    It’s hard to argue the success of Turning Point Brands (TPB). In business since 1988, during the past decade, the company has been turning the typical tobacco business model on its head. It is involved in almost all aspects of the industry, generating nearly $450 million in sales every year. From its iconic brands like Zig-Zag to its more recent investments in the growing legal cannabis industry, TPB is turning heads.

    Headquartered in Louisville, Kentucky, USA, TPB’s business includes three operating segments. Its main line of revenue comes from its “smoking” segment, which includes the rights to the Zig-Zag brand in the U.S. and Canada, according to Scott R. Grossman, TPB’s vice president of corporate development. Zig-Zag is one of the oldest, most recognized “other tobacco products” (OTP) and cannabis accessory brands. “Founded over 150 years ago, Zig-Zag holds the No. 1 share of both rolling papers and wraps in North America, and its products can be found in more than 200,000 retail outlets,” says Grossman. “Given that Zig-Zag generates roughly 40 percent of TPB’s revenue and a majority of our operating income, the brand and its growth initiatives are a major focus for us.”

    TPB’s second segment is “smokeless,” which is predominantly the Stoker’s brand, a leading player in the moist snuff tobacco and chewing tobacco markets. The company also owns the Beech-Nut brand and a diverse collection of other chewing tobacco products. Another compelling segment of the TPB operation is its new generation of products (NewGen), which covers the company’s electronic nicotine-delivery system (ENDS) and cannabis brands.

    NewGen includes an assortment of brands serving multiple industry segments, such as TPB’s business-to-business (Vapor Beast) and business-to-consumer (International Vapor Group) distribution platforms and its new product engine, Nu-X Ventures. The company has online platforms under brand names such as VaporFi, South Beach Smoke and DirectVapor. TPB also owns the e-liquid brand Solace and within its NewGen segment includes recent minority investments in the emerging cannabinoid space, including brands such as Old Pal, Dosist, Docklight and Wild Hemp.

    TPB was one of the first traditional tobacco companies to publicly announce its foray into the legal cannabis market. That decision came under the leadership of TPB’s former president and CEO, Larry Wexler, who retired from the company and was succeeded by Yavor Efremov on Jan. 11. “Larry took the company public in 2016 as an OTP business, and over the next five years, he successfully drove significant initiatives to drive value, including the investment in new talent to drive TPB forward,” says Grossman. “We’ve been strategically focused on introducing new products to serve both B2B and B2C customers across on-premise retail and online channels.”

    Yavor Efremov

    Bump in the Road

    Being a business with major assets in ENDS comes with challenges. TPB was one of the first major companies to receive a marketing denial order (MDO) from the U.S. Food and Drug Administration after the agency’s Sept. 9, 2021, deadline to decide on premarket tobacco product applications (PMTAs). Convinced that the FDA’s decision was unjustified, TPB immediately filed a legal challenge. Before the lawsuit made its way through the courts, the FDA rescinded the MDO it issued to TPB. The term “Fatal Flaw” was used by the FDA for PMTA submissions that lacked certain studies. The term has been at the center of nearly all lawsuits filed against the FDA for its handling of the PMTA process.

    “The Fatal Flaw standard is obviously one that departs from the pre-September 2020 guidance. In fact, it’s in direct conflict with that guidance. It’s helpful that [our MDO] was rescinded and that the agency admitted it had not reviewed certain [TPB] studies,” explains Paul Blair, TPB’s vice president of government affairs, adding that TPB made the decision to file suit because there was information that the regulatory agency overlooked in its review process. TPB wasn’t unique in that respect; however, the agency didn’t look at specific study data for several businesses.

    “[The rescission] is an important recognition that our denial was not related to nitpicking over data. The science we submitted about transitioning combustible cigarette consumers to our products in particular … It was an oversight. And that’s helpful not only as we try to navigate the process moving forward but also because it doesn’t seem it was an attack on the body of our application generally,” explains Blair. “We maintain that we provided data that is sufficient for the agency to authorize the marketing of our PMTAs. It’s fair to say, though, there’s not a publicly announced standard for the approval process, whether it’s for open system products, closed system products, flavors and, honestly, even tobacco and traditional flavored products.”

    That’s what Blair believes the FDA is doing now; the agency is probably reviewing its communications plan on how to reassess the PMTA process and come to some conclusions on deciding on a standard for authorizing products. Traditionally, the FDA would engage in good faith conversations with businesses trying to get products approved and offer some clarity on what information the agency needs. According to critics, the FDA’s Fatal Flaw analysis for ENDS products proved this isn’t the case anymore.

    Paul Blair

    Embracing Change

    Unlike most traditional tobacco companies, TPB isn’t shy about its cannabis investments. The company’s management team and its board have embraced legalization, according to Grossman. Currently, 37 U.S. states have legalized medical cannabis and 18 have approved it for recreational use. During the past few years, the company has invested in several cannabis operations. In 2021, TPB completed an $8 million strategic investment in Old Pal Holding Co., a cannabis lifestyle brand, and an $8.7 million strategic investment in Docklight Brands, a consumer products company led by its anchor brands Marley Natural and Marley CBD. In 2020, TPB entered into a long-term distribution and profit-sharing arrangement with Wild Hempettes, the Texas-based manufacturer of Wild Hemp Hempettes brand smokable CBD, and made a $15 million strategic investment in the global cannabinoid company Dosist.

    Grossman says that while every investment needs to be able to stand on its own, TPB’s strategy is focused on finding highly synergistic companies that strengthen the current TPB platform. Old Pal is a good example of how its strategy is being deployed—Old Pal sells roll-your-own (RYO) cannabis products with rolling papers inside the packaging. “Zig-Zag has historically been mainly focused on the convenience store channel, so this investment enables TPB to further accelerate growth in under-indexed stores such as dispensaries and head shops while supporting the growth of Old Pal,” says Grossman.

    In August, TPB made its first move into the international market by increasing its stake in ReCreation Marketing, a Canadian distribution company with ties to Canada’s recreational cannabis culture. In December, ReCreation Marketing rebranded as Turning Point Brands Canada. “TPB Canada has a number of proprietary branded products in its portfolio, and we are exploring strategies to leverage that proven model and its portfolio to increase distribution within the U.S.,” says Grossman. “We are one of a select group of established companies—especially public companies—that are actively looking to deploy capital in the cannabinoid space. Historically, we’ve been predominately focused on brands given our expertise, but we’re exploring many verticals within the cannabinoid sector. Our pipeline is very healthy, but at the same time, we have to remain highly disciplined with how we spend our time and capital.”

    It’s not just vaping and cannabis products in TPB’s future. In July, the company acquired certain cigar assets of Unitabac. The acquisition was for a portfolio of cigarillo products and all related intellectual property, including cigarillo non-tip, homogenized tobacco leaf, rolled leaf and natural leaf cigarillo products. “The cigar business is a $2.5 billion wholesale business in the United States. We’ve historically participated in that market, but we didn’t have the scale necessary to be really competitive. The Unitabac acquisition allows us to further extend into the cigar market,” says Grossman. “You’ll see a number of initiatives with that asset rolling out natural leaf products and other cigar assets, both under the Unitabac portfolio of brands as well as extending it to Zig-Zag.”

    Scott Grossman

    Facing Uncertainty

    The FDA will soon have a new leader (Biden’s appointee, Robert Califf, had yet to be confirmed at press time). The FDA’s Center for Tobacco Products (CTP) will also have a new leader; its current director, Mitch Zeller, plans to retire in April. Blair says that the individuals in those positions will have a significant role to play in determining how the agency and CTP will work with stakeholders and communicate policies about how those regulations will go into effect. The FDA, he says, doesn’t have any previous experience regulating vaping products, so there is going to be a lot of action, reaction and learning along the way.

    “It’s not as if Congress explicitly wrote how the approval or denial process might look. In fact, they didn’t write the details,” says Blair. “At least [the FDA is] thinking about the process, and they’re thinking about the consequences. But there is this opportunity beyond vapor product PMTAs in 2022 for a future generation of products to have some certainty because at the end of this, whether it’s because of litigation, because it’s further issued guidance, because it’s approvals or denials, there will be a pathway for companies and a better understanding of how the process works.”

    Blair says that overcoming the challenges of getting a PMTA approved will be stepping stones toward determining how the company approaches the future regulation of other products, such as cannabis. He says there is a real opportunity for TPB to play a critical role in the future of cannabis regulation and policy. “I think our action is going to be guided by our business’ experience as a regulated tobacco business. There are other tobacco businesses that have cannabis interests or investments, but there aren’t many that are willing to publicly engage in the way that ours is as an advocate for legalization, as an advocate for appropriate regulations. There needs to be a balance of consumer protection with entrepreneurship and opportunities in the investment space.”

    Grossman says the future of TPB is to align itself with the growth of the cannabinoid industry and possibly make more direct cannabis investments outside its current portfolio. “We are concentrated on trying to learn and execute on a variety of cannabinoid initiatives,” he says. “Although we’ve historically focused on brands, we are deeply embedded in the sector and are actively studying many verticals across value-added products and services, brands and distribution. We believe the U.S. cannabis market will exceed $50 billion over the next five to 10 years, which we clearly think will benefit TPB over the long term.”

    Timothy Donahue is the assistant editor of Tobacco Reporter. Since joining our team in January 2013, he has become not only an expert on the traditional tobacco business but also a well-respected voice in the rapidly developing vapor industry. Tim spends much of his time on the road, attending conferences and interviewing industry representatives. His networking skills, work ethic and quick mind are valuable assets to our diverse audience.
  • The Ties That Bind

    The Ties That Bind

    Photos: HB Fuller and Baumer hhs

    Despite challenging times, optimism prevails among manufacturers of adhesives and adhesive application equipment.

    By Stefanie Rossel

    Tobacco industry suppliers have gotten used to annual statistics revealing declining cigarette consumption. News about additional restrictions is unlikely to shock them. Covid-19, however, took challenges to a new level, including for suppliers to tobacco adhesives.

    “A prolonged period of high demand and tight supply is resulting in the highest inflation of raw material costs this industry has seen in living memory,” says Selda Akbasli, global business manager for rolled paper and tips at H.B. Fuller in the U.S. “Most forecasts indicate that costs will continue to increase through at least the end of the second quarter of 2022.”

    Selda Akbasli

    Logistics also remain an issue, with global demand for containers remaining high and rates likely to further increase in 2022. “The logistics industry continues to be disrupted by Covid-19 and capacity shortages. Container availability and air capacity remain tight; waiting times for vessels outside of ports remain lengthy, and warehousing capacity continues to be a bottleneck,” says Akbasli. “Congestion at both ocean and rail terminals and container freight stations, namely in the U.S., persists. In Greater China, power outages and blackouts are impacting manufacturing outputs; however, demand for shipping container space is still high in the region. Our goal is to keep our customers informed as we monitor this dynamic and essential situation for our business.”

    According to Akbasli, 2021 was a year like no other for manufacturers, with the supply chain crisis delaying goods and creating raw material shortages. “What it really highlighted is the importance of a robust and secure supply chain,” she says. “At H.B. Fuller, we are proud of how our teams in sourcing, manufacturing and logistics worked together with our global and regional supplier partners to ensure minimal disruption for our customers. Our range of adhesives with global formulations really proved their worth in providing manufacturing and sourcing flexibility.”

    For 2022, the company will focus on people’s safety, sustainable product innovation and security of supply. To this end, H.B. Fuller is working with responsible global vendors who have strong partnerships within their supply chains networks, according to Akbasli.

    Baumer has increased the performance of its products and solutions to ensure maximum reliability.

    Fit for the Future

    Judging from market forecasts, Akbasli is confident that the value of the global tobacco business will continue to increase in the next years. “This industry is constantly evolving, and our customers are always open for opportunities to improve their product performance and overall manufacturing efficiencies,” she says. “We believe the changes we made over the past years, including our organization realignment and our approach to doing business differently during the pandemic, will serve as a competitive advantage in the years ahead.”

    Tobacco remains an important segment for H.B. Fuller. The company, which had a fiscal net revenue of $2.8 billion in 2020, develops adhesive products for many markets across the world, from packaging to solar panel assembly, electronics to automotive, disposable hygiene to woodworking.

    Floriano Erario

    Floriano Erario is business development manager of tobacco packaging at Baumer hhs, a manufacturer of glue application and quality control systems. The company is headquartered in Germany and present in more than 90 countries through an international network. Erario is equally optimistic. “Although the decline in cigarette users worldwide is a fairly consolidated fact, our activity of designing and manufacturing glue systems for various types of projects is in continuous development, and we continue to assist our customers day after day constantly,” he says.

    Baumer remains focused on innovation for the tobacco sector. By creating a tobacco competence center, which was opened in October 2018, Baumer brought its expertise for the cigarette market to Milan, Italy. “The Italian team, assisted by the headquarters in Germany, has a very broad portfolio of solutions for the traditional—or commonly called high-risk—cigarette business,” he says. “These solutions are by now consolidated and range from systems for filter makers, combiners or tubes. We are strongly active in the packer machine to finish with the production of cases for cigarette packets and the end-of-line case packer. We also design and customize dedicated systems and dedicated solutions for our customers every day.”

    H.B. Fuller’s focus, meanwhile, is to create a global portfolio of innovative adhesives and systems that significantly reduce costs, improve efficiency and make products more sustainable. Recently, the company introduced Swifttherm 6200, a hot melt for all filter types. According to H.B. Fuller, Swifttherm 6200 delivers a superior bond strength, both during production and storage, increasing productivity while reducing the share of rejects. With a long “open time” and short setting time, it can be used for conventional and new-generation products, reducing complexity. According to H.B. Fuller, customers can reduce the number of filter hot melts to just one adhesive.

    The company has also launched a solution for bonding untreated filmic carton board, such as Transmet, laminated and metallized boards. Ipacoll 2948 is a water-based adhesive.

    With the Ipacoll 2600 series, the company has developed a range of high-performance tipping adhesives that allow customers to simplify their adhesive needs across their entire manufacturing network, Akbasli says.

    Catering to a Highly Regulated Market

    Regulatory compliance remains among the most important requirements. “The tobacco industry is one of the more highly regulated markets in which H.B. Fuller operates,” says Akbasli. “We have specialized industry expertise and know-how to keep products compliant with manufacturing requisites and regulation that, as you can imagine, are completely different in each market and each region,” she says.

    “To navigate the complex world of regulatory matters, we have dedicated regional regulatory teams within our regulatory global function that work directly with industry associations, governmental agencies and our own technical and sales units to make sure we are engineering the right products for today and the future. The specific adhesive performance requirements can vary from customer to customer, but in general they require a consistent adhesive performance that enables their production to run seamlessly without any adhesive-related downtime. That consistent performance includes clean application through the adhesive equipment and profile-optimized adhesive setting for the range of machine speeds and substrates, secure adhesion both during production and in the hands of the consumer.”

    Sustainability has become another driver in the tobacco industry. “We have seen a rise in demand for greener products as regulations around the handling of chemicals have become tighter, especially in Europe,” she says. “Around the world, natural-based articles are in high demand, and it’s a trend set to continue apace. The global tobacco market changed dramatically over the last ten years, and we expect this pace of change to continue. Adhesives are a key enabler for our customers to produce more sustainable products, whether they are natural/bio-based, compostable or recyclable.”

    H.B. Fuller has multiple projects involving top scientists designing and engineering technologies that contribute to the circular economy and help customers meet their own sustainability goals. Projects range from formulating adhesives using bio-sourced raw materials to developing new, natural and responsible sourced adhesive raw materials. “We already have an advanced solution that enables our tobacco customers to significantly reduce the carbon footprint of their production facilities,” says Akbasli. “It requires them to work in a slightly different way, but the customers partnering with H.B. Fuller are excited to see what they can achieve in 2022 and beyond.”

    H.B. Fuller aims to create a global portfolio of adhesives and systems that reduce costs, improve efficiency and make products more sustainable.

    Dedicated Solutions for NGPs

    Next-generation products (NGPs), too, are high on the agenda of adhesives and adhesive application manufacturers. “Baumer hhs has been active in the New Generation Project (low-risk cigarette) market since its inception,” explains Erario. The company has also been exploring opportunities beyond tobacco. “We also have ready-made solutions for the new—even if it’s not really ‘new’—cannabis market or even pre-roll hemp. Our knowledge in terms of contact and noncontact glue application, the knowledge of world players will help our consolidated customers and new ones in this new business.”

    For the new generations of cigarettes and the packages that contain them, Baumer is drawing on its know-how of the traditional cigarette market. “We have developed dedicated solutions and at the same time increased the performance of our products and solutions to ensure maximum reliability for our customers’ machines,” says Erario. “Today, this is recognized by having systems on the market that guarantee flexibility, sturdiness and ease of use, our customers say.”

    H.B. Fuller says it has a market-proven range to produce consumables for all NGPs, regardless of brand. The key differences in the production of heat sticks for heated-tobacco devices involve the design of the stick, the filter, the materials used to manufacture the stick and the mode of operation, explains Akbasli.

    “The filters are designed differently using new materials, and they have a more complex construction,” she says. “With this comes new and additional issues related to adhesive performance requirements. Higher grammage papers used are stiffer in nature, the nonwrap acetate filter material is harder to bond and the smaller length used presents process challenges. All this combined requires the use of an adhesive with higher wet tack and a stronger setting bond.

    “Overall, the heat stick and filter consist of more parts versus a conventional cigarette. Many of these parts have a reduced level of elasticity when compared to conventional cigarettes, and this means they are harder to form into the desired shape for the stick during production. This has been a challenge for suppliers and NGP producers to overcome through extensive collaboration that required the design of new machines, materials and adhesives. And lastly, the mode of operation for these products is different. They are only heated and not burned, posing different challenges for the adhesive to remain functional whilst the cigarette stick is being used.” 

    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.
  • Greening the Golden Leaf

    Greening the Golden Leaf

    Photo: Tobacco Reporter archive

    Independent leaf merchants are working to improve the sustainability of tobacco cultivation.

    By Stefanie Rossel

    With only eight more years to go until most of the United Nations (U.N.) Sustainable Development Goals (SDGs) are to be achieved, sustainability is becoming ever more critical in the tobacco sector.

    “In recent years, we have seen sustainability grow in importance to a point where it is addressed in almost all key internal and external engagements,” notes Mat Wilde, head of group sustainability at Contraf-Nicotex-Tobacco (CNT), a Germany-based company involved in the worldwide growing, sourcing, developing, processing, extracting and producing of leaf tobacco, nicotine and natural ingredients, among other agriculturally derived products.

    Set up in 2015 by the U.N. General Assembly, the SDGs comprise 17 goals designed to be a “blueprint to achieve a better and more sustainable future for all.” Goals include the elimination of poverty and hunger, quality education, health and well-being, gender equality, clean water and sanitation as well as the reduction of inequality, responsible consumption and climate action.

    While the leading international tobacco manufacturers in 2016 launched the Sustainable Tobacco Program (STP), an initiative that operates in more than 52 countries and gathers data on more than 180 suppliers of tobacco across 5 million smallholders, independent leaf merchants have also intensified their endeavors to support tobacco growers in their work toward more sustainable production.

    “I have always supported the growers,” says Rick Smith, founder of Wilson, North Carolina, USA-based Independent Leaf Tobacco Co. “They must be made whole for the industry to thrive. I have stepped up my efforts recently, certainly on types in short supply.”

    CNT works directly with its stakeholders on its sustainability efforts and supports its farmers in implementing best practices. “At the core of our approach with our farmers is our training program, where we aim to train growers on both the ‘why’ and the ‘how’ of sustainability topics,” says Wilde. “Understanding the context in each local operation, the root cause of prioritized issues and ensuring farmer financial sustainability is embedded within our programs. All are vital in working with our farmers to meet our common goals. Integrating key stakeholders, including farmers, farmer organizations, community, nongovernmental organizations and experts, within our projects and programs increases the impact and level of success.”

    Rick Smith

    Creating Awareness

    In a world characterized by declining smoking rates, sustainability includes ensuring financial viability for tobacco growers. For this reason, Norton Leaf Tobacco (NLT) of Zimbabwe educates its farmers on the need for diversification. “The government of Zimbabwe has introduced initiatives such as pfumvudza, a farming approach designed to maximize efficiency of labor and input resources,” explains NLT General Manager Alice Mukome Chiwanza. “NLT has field staff trained in the practice that ensures its farmers are able to increase both hectarage and yield of grains. Thus our officers are now training farmers to employ this method to encourage food security at [the] household level while assisting with the growing of the tobacco crop.”

    While NewCo Global Tobacco Trade and Service does not interact directly with farmers (it buys from partners and other leaf merchants), sustainability plays a key role in all of the German company’s activities. In September 2021, the company established NewCo Pro Services and Trade to handle the group’s diversification efforts and nontobacco activities.

    “This company’s main focus is to provide a proactive approach to global, social and environmental challenges as well as partner with entrepreneurs that have innovative solutions for a better future,” says Jose Maria Costa, senior executive advisor with NewCo Tobacco Services. “Through NewCo Pro Services and Trade, we are committed to doing our best efforts to make the United Nations Sustainable Development Goals a reality. As such, we are in the process to market Sydney 905 water filters globally. These filters have proved to be one of the most efficient ways to get safe water regardless of water source. By providing access to safe water, we eliminate the need to use charcoal, which in many parts of the world is used to boil the unsafe water.”

    NewCo has also started replacing the plastic bags that are still used in the tobacco industry for tobacco samples with more environmentally friendly alternatives. “Most of the plastic bags that are used today for storing and shipping tobacco samples are not biodegradable and therefore they are not environmentally friendly. After several months of research and testing, we have placed our first order for the new bags, which are made out of potato starch and are 100 percent compostable and food-certified. Our plan is to contact all our suppliers, vendors and customers and offer them the possibility to make the same change NewCo has made and contribute to a world that is more sustainable.”

    Jose Maria Costa

    New EU Anti-Deforestation Law

    Worldwide, regulatory pressure on tobacco and tobacco products continues to increase, also in terms of sustainability issues. On Nov. 17, 2021, the European Commission announced a plan to ban the sale of agricultural products raised on deforested and degraded lands. The move is an attempt to ensure forests around the world remain intact and continue to absorb carbon dioxide as they grow. According to the U.N., the world has lost 420 million hectares of forest in the past 30 years—an area larger than the EU. During the recent U.N. Climate Change Conference, more than 100 states pledged to end deforestation and land degradation by 2030. For the time being, the European Commission’s list targets soy, beef, palm oil, coffee, cocoa and wood; while tobacco is not part of the commodities mentioned, the draft leaves room for future amendments.

    In a 2017 report on the environmental impact of tobacco, the World Health Organization expressed concern about the impact that leaf cultivation has had on forests since the mid-1970s. The health body estimates that 11.4 million tons of wood are required annually for tobacco curing. After processing, additional wood is needed for the production of cigarette and rolling papers as well as for packaging. As tobacco requires lots of nutrients, with soils being leached after two years to three years, land extension leads to further forest depletion.

    Smith notes that regulation should strike a balance. “Any laws restricting free trade affect us all and are usually detrimental to the people they are intended to help,” he says.

    “The tobacco industry needs to act responsibly to ensure that sustainability is at the center of all its activities,” Costa says. “From the farmers to the cigarette manufacturers, the entire value chain needs to protect all natural resources, including the forest.”

    Newco has been marketing Sydney 905 water, which allow users to get safe water regardless of source. (Photo: NewCo)

    Comprehensive Measures

    NLT is a member of the Sustainable Afforestation Association (SAA), a Zimbabwean nonprofit organization funded by tobacco merchants that was established in 2013 (also see “Taking Root“). “NLT has been a member since we started operations in 2018,” says Chiwanza.

    The SAA aims to retain and grow existing indigenous commercial forests. One of the ways in which it has sought to do this is by entering into joint ventures with farmers in tobacco growing areas to set up eucalyptus plantations. Eucalyptus not only grows quickly but also provides good firewood.

    “The bulk of Zimbabwe’s tobacco is grown by small-scale farmers who use wood-fired barns to cure their tobacco,” Chiwanza says. NLT also holds field days and workshops, encouraging farmers to grow trees and offering advice on best practices. SAA’s activities should help Zimbabwe remain compliant with anti-deforestation laws, such as the one pending in the EU.

    Fighting deforestation has been a priority at CNT for years, Wilde emphasizes, primarily for flue-cured tobacco in origins that use fuel wood but also for other tobacco types—with deforestation linked to curing fuel, barn construction material and land clearance. “Addressing deforestation has been a focus prior to external regulation, with necessity of ensuring continuity of the industry in some locations being a key driver for change, along with meeting communities’ expectations of the business and ensuring our ‘social license to operate.’ Having a robust traceability system in place, connecting tobacco to its growing source, farmers and the activities carried out on farm is key for transparency and meeting increasing supply chain legislation—both for human rights and the environment.”

    The company has identified high-risk origins within its supply chain and implemented systems aimed at mitigating deforestation. “The EU draft law on supply chain deforestation highlights the priority of this topic and reinforces the urgency of addressing these issues in high-risk origins, both as a company and as an industry,” says Wilde.

    CNT’s reforestation efforts comprise education and awareness programs for its farmers, community and stakeholders. “Training farmers on legal requirements, conservation and reforestation practices, and listening to our stakeholders on localized issues helps to address deforestation and reforestation,” Wilde points out. “Training is supported by farmer monitoring by Extension staff, the results of which are analyzed to feed back into response projects and training cycles. We run various reforestation and carbon projects within our origins. Tailoring reforestation and conservation response programs to the local context and working with expert partners in addressing the local hurdles to success is core in our sustainability strategy.”

    Spying Opportunity: Norton Has Great Expectations of Zimbabwe’s Tobacco Transformation Plan

    In September 2021, Zimbabwe’s government approved the tobacco value chain transformation plan, which aims to transform the sector, currently valued at $1.2 billion, into a $5 billion industry by 2025. Launched by the Tobacco Industry and Marketing Board (TIMB), the initiative aims to turn the economy around through agriculture, boosting national income and foreign exchange to the levels from before Zimbabwe’s land reform program, which turned the industry from one dominated by large-scale commercial tobacco plantations to one characterized by smallholder production.

    The plan calls for an increase of annual tobacco production from 200 million kg to 300 million kg, the exploration of alternative crops in anticipation of lower smoking rates and an increase in value addition and beneficiation from 1 percent of the tobacco crop to 30 percent.

    Alice Mukome Chiwanza

    Farmers have welcomed the initiative. “I believe this to be a great idea,” says Alice Mukome Chiwanza, general manager of Norton Leaf Tobacco (NLT), a local tobacco merchant. “Under the TIMB, Zimbabwe only exports at the very least semi-processed tobacco. Further beneficiation can be understood to mean [anything from] increasing the local production of regular—combustible—cigarettes to producing vaping devices. This will do wonders for the tobacco industry as it will mean employment, investments in the form of infrastructure, such as processing plants, and greater revenue as we will be exporting end products as opposed to raw materials that still need further processing.”

    According to Chiwanza, this would also present a welcome opportunity for NLT to grow its sales to supply products, such as cut rag, to local cigarette manufacturers while eliminating shipping costs that have been a large deterrent in exporting. “It may also create the option of partnerships allowing companies such as ours to venture into new technology and therefore [new] markets. The ministry’s plans also include localization of tobacco financing, which should significantly reduce borrowing costs for companies such as NLT. Being a wholly Zimbabwean company, NLT is poised to grab any plans encouraging increased local involvement in the tobacco industry.” – S. R.

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

    Taking Freight

    Photo: Transcom Sharaf

    The Covid-19 pandemic continues to disrupt tobacco shipments and storage.

    By Stefanie Rossel

    While the tobacco industry, famed for its resilience, has fared comparatively well during the Covid-19 pandemic, an essential part of the business continues to face challenges: the segment specialized in the shipment and storage of leaf tobacco.

    The outbreak of the coronavirus severely disrupted the global supply chain, leading to a persistent worldwide shortage of containers. As the pandemic spread from Asia, many countries enacted lockdowns, thereby halting economic movements and production. Temporary factory closures caused large numbers of containers to pile up at ports. Carriers reduced the number of vessels to control costs and avoid the erosion of shipping rates. Such moves strangled import and exports. Consequently, empty containers were no longer picked.

    This problem especially affected Asian traders who couldn’t retrieve containers from North America. When Asia’s economy started recovering and China resumed exports even as other countries were still dealing with restrictions, a reduced workforce and minimal production, almost all remaining containers in Asia headed out to Europe and North America, but they failed to return quickly enough for the next shipments.  

    In the U.S., which is also struggling with labor shortages and more complicated customs procedures due to stricter border controls, containers began to pile up. According to Hillebrand Freight Forwarding, out of every 100 containers that arrive in the U.S., only 40 are returning to Asia, with the remainder accumulating in ports and storage facilities.

    A global slowdown in container production due to the Covid-19 pandemic as well as raw material shortages have added to the crisis, as have Covid-19-related port closures. In July 2021, only 36 percent of ships arrived on time, according to Invest Monitor. Unsurprisingly, the costs of transporting goods by container ship have gone through the roof over the past two years.

    Guy Harvey

    Limited Availability, Exploding Rates

    Kyle Kok

    For logistics and storage providers, the situation remains serious. “Our biggest challenge has been obtaining suitable equipment for packing and shipping,” says Guy Harvey, CEO of Transcom Sharaf Group, which is headquartered in Beira, Mozambique. “With reduced vessel callings caused by congestion, slower container turnarounds and reduced imports, it has been a struggle to find enough containers. Some shipping lines prioritized the evacuation of containers to Asia to take advantage of the inflated ocean freight charges and high demand. The increased demand for empty containers also meant empty container free days were drastically reduced and detention charges increased. The reduced vessel callings have made it extremely difficult not to incur demurrage and detention by the time the vessels arrive and sail.”

    Susceptible to pests and diseases, leaf tobacco is a demanding good to transport and store. “The lack of containers has also meant we have had to lower the high standards we set for tobacco grade containers and have had to heavily invest and incur cost upgrading containers ourselves and in partnership with the lines,” Harvey continues. “With fewer vessel callings, shipping has been slower; we have gone from four or eight vessels a month to two at best. Two of the bigger lines have had limited or zero space availability at all to Europe for most of the season due to congestion at their transshipment hubs and overbooking on their European routes. This has meant more pressure has been placed on one shipping line to export the tobacco and reduced competition that affects service delivery and pricing. We have seen transit times to destination more than double as well and often extended dwell times in less-than-satisfactory ports where cross-infestation of tobacco beetle is highly prevalent from past experiences.”

    Kyle Kok, account executive for tobacco at Andromeda Forwarding and Logistics of Rotterdam, Netherlands, hopes that space will free up on vessels by the end of January or in February when the crunch in cargo from the holiday season is out of the way.

    “However, please note that shipowners will not reduce their rates any time soon. What we also have noticed during this pandemic is that many shipowners have their personnel work from home, which does not result into a better productivity, getting answers or even making quick bookings.”

    Lisa Rautenbach, Andromeda’s manager of the tobacco department, estimates that since the beginning of 2020, shipping rates have increased by a factor of five to seven. “But this also differs from which route is being undertaken. For example, cargo to the USA has increased by 530 percent since the beginning of this year.”

    Harvey has seen the cost go up 10-fold on certain routes and in response has reduced orders for shipments to certain destinations. “The limited options and flexibility to some destinations being monopolized by one shipping line has caused costs to spiral,” he says.

    Lisa Rautenbach

    Increased Need for Storage

    Transcom Sharaf and Andromeda Forwarding have been looking for ways to avoid the chaos that currently plagues global supply chains. “We have seen a lot of traditional routes, such as Durban, move back to Beira in some cases and vice versa, where often the decision is based purely on container availability at any given time,” notes Harvey. “Due to the lack of containers in the hinterland, there has been a huge increase in break bulk tobacco to the ports for containerization, which has also led to a bigger and longer storage requirement. We are fortunate that tobacco is a high-value commodity for the region, and as such, we can get some sort of priority on vessel space allocation, but again, it is dependent on container availability.”

    “Vessels remains fully booked as the shortage of containers remains,” observes Andromeda’s director, Bart Brouwerens. “We are looking for all and any options, not only via the regular lines but also via outsiders with smaller vessels, which also want to take part in this market with these high freight rates! Furthermore, Andromeda tries to look at every shipment from every angle, truck/barge/rail connections, etc.”

    To handle the bottlenecks in ports and longer-than-usual storage periods, Andromeda has secured some guaranteed space at certain lines and for certain vessels, Rautenbach explains. But this comes at a price. If forwarders and their clients are unwilling to pay such premiums, shippers may very well delay the shipment or roll the cargo onto another vessel in favor of more profitable cargo.

    Harvey says that Transcom Sharaf has sufficient storage capacity. “But we also had lower-than-average production in the region this year—at the right time for us, fortunately. There have been some tense moments, though; we have had to re-look at the one-third to two-thirds split on container storage space versus warehouse space and will put this into our future development plans now that we have seen how fragile the supply chain can be. We are fortunate to work so closely with our clients and plan openly and accurately on all our movements and timings—without these relationships and the communication lines, the season would have been extremely problematic. We have to forecast months in advance in order to position sufficient empty containers in time.”

    Supply chain disruptions have forced freight-forwarders to reevaluate the amount of space they devote to container storage and warehousing, respectively.

    Uncertain Future

    Just-in-time delivery is virtually impossible nowadays, or available only at premium rates, according to Brouwerens. Andromeda advises its clients to have loading schedules ready as soon as possible in order to reserve space well ahead of the shipping date. “At this stage, we are being forced into a situation that we offer cheap warehousing space in, among other [locations], Antwerp and Dubai and in any city requested via our vast agency network,” he says. “This [is] only because of the unreliability of the services the major shipping lines offer.”

    Brouwerens adds that, regretfully, Andromeda must uphold its credit agreements with its clients strictly as rates are rising considerably. “Shipping lines demand payment either directly or after 14 days,” he says. “If we pay late, shipping lines will cancel the aforesaid 14 days immediately and will fine you with an additional percentage. This all has taken a part of the joy of good communication with lines away, but we, therefore, enjoy extra the good relation we have with our clients and will do so for many years to come.”

    Despite disrupted leaf tobacco deliveries, Harvey expects the big tobacco companies to avoid the experience of the automotive industry, which has been struggling with a shortage of semi-conductors. “Despite the challenges, we have managed to meet our scheduled deliveries fairly well under the circumstances,” he says.

    “I do not see the bigger players being affected or lacking leaf from this region during the current season. However, smaller buyers may definitely face challenges similar to [those of] the automotive industry. Those sourcing from other origins may also be negatively impacted where other commodities may be prioritized above tobacco. Should the situation deteriorate further, there will be an impact on all our customers. If production volumes increase substantially next year, this would also create further disruptions in the current supply chain.”

    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.
  • Rare Spice

    Rare Spice

    Photo: Kavex

    Oriental tobacco production has hit a record low, but crop quality is higher.

    By Stefanie Rossel

    After peaking at 202,000 tons in 2014, oriental tobacco production has seen many ups and downs. This year marked a new low of 128,000 tons, according to International Tobacco Growers’ Association analyst Ivan Genov, citing data from Universal Leaf. Nonetheless, in 2020, Turkey and Greece managed to increase their export earnings from the crop by $6 million and $26 million, respectively, Genov noted.

    According to Dora Gleoudis, managing director of Greek leaf tobacco exporter Nikos Gleoudis Kavex, the classical oriental variety grown in the Balkans, including the Turkish Izmir and Samsun varieties, accounted for approximately 92,0000 tons of the total volume. Gleoudis believes global supply and demand are balanced at current crop size levels.

    Next to dark air-cured tobacco, oriental leaf has always been a low-volume niche. It is nevertheless an important variety as it provides tobacco blends with a distinct, spicy aroma. Oriental tobacco is cultivated in dry areas with little rain and lots of sun, which leads to a lower nicotine content compared to flue-cured Virginia (FCV) and burley styles. Classical oriental tobacco is grown mainly in Turkey, Greece, North Macedonia and Bulgaria. Thailand, India, Albania, the Commonwealth of Independent States countries and China also cultivate certain varieties.

    In contrast to an FCV plant, which can have up to 30 large leaves, the oriental plant can grow up to 100 smaller and darker leaves. Harvesting and curing differs too: The crop is harvested mostly manually and then sun-dried for about a week, a process that contributes to retaining some of the natural sugars in the leaves. The hint of sweetness in oriental and its unique taste make it a key ingredient not only in American blend cigarettes but also in many roll-your-own and pipe tobacco brands as well as in shisha tobacco and heated-tobacco products.

    A Labor-Intensive Crop

    Kavex’ portfolio includes the main oriental varieties, including Basma and Katerini from Greece and Albania; Prilep and Yaka from Macedonia; Krumovgrad and North Bulgaria from Bulgaria, and Izmir and Samsun from Turkey. The recent drop in production volume was driven by a combination of weather and the aging of tobacco growers, among other factors, according to Gleoudis. “Young people still staying in their villages turn to other crops that are easier to handle,” she says. “Additionally, drought during the summer period has negatively affected the crop size.”

    The quality of the current oriental crop, though, she points out, was higher than that of the previous crop, especially in North Macedonia. The Covid-19 pandemic did not have much of an impact on production, said Gleoudis, who is more concerned about the price of energy, which has skyrocketed in Europe.

    Oriental leaf cultivation is known to be costly and labor intensive. Little machinery is used for planting and harvesting. It is estimated that it takes 120 manhours to 150 manhours to cultivate one acre of Greek oriental tobacco.

    Recently, stakeholders have attempted to introduce more mechanization and automation into the cultivation process. A new oriental harvester, developed jointly by VIT and Philip Morris International, was trialed during the summer of 2020 (see “The Oriental Express,” Tobacco Reporter, January 2021). First tests showed that the machine, when used to harvest crops in four stalk positions, was able to harvest eight hectares of oriental tobacco or up to 12 tons of cured oriental tobacco during one season with only two people.

    Whether such efforts will succeed remains to be seen. At press time, the new technologies in curing and harvesting were still at an experimental stage, according to Gleoudis.

    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.