Blog - Tobacco Reporter

PMI Describes Difficulties of Ukraine Production

The realities of war make it cheaper for Philip Morris International Ukraine to import cigarettes from Poland than to manufacture them domestically, reports Interfax-Ukraine, citing comments made by PMI Ukraine Deputy General Director for Corporate Relations Mykhailo Poliakov during a seminar devoted to business and the ongoing conflict with Russia.

PMI opened a cigarette factory in the Lviv region in May 2024 and recently compared the production costs of its new facility with that of its factory across the border, in Krakow, Poland.

Due to the war, PMI’s Ukrainian operation must contend with higher rates of employee absenteeism. In addition, the Lviv facility is forced to cease operations during air raids. Frequent power failures add to the production cost, as the local grid was not designed to accommodate the large number of enterprises that have relocated to the region after the start of the conflict. Curfews too pose challenges for PMI’s workforce.

The combination of these factors makes it 10 percent cheaper for PMI to produce cigarettes in Poland and bring them to Ukraine.

Since starting operations in Ukraine in 1994, PMI has invested more than $700 in the country. After Russia’s 2022 invasion, the multinational suspended operations at its factory in the Kharkiv region and started importing products from PMI factories outside the country. It also temporarily licensed the production of some PMI brands to another multinational factory in Ukraine.

In 2022, due to the war, PMI reduced shipments to Ukraine by 30.1 percent to 11.07 billion cigarettes and tobacco sticks, but in 2023, it managed to increase shipments of finished products by 8.4 percent, including 14.9 percent in the fourth quarter. In October last year, the company reported the restoration of its share in the Ukrainian market to 24 percent after falling to 14 percent from 28.5 percent in the first months after the Russian invasion.

PMI has invested $30 million in its Lviv factory. Eventually, the factory will have five production lines. The first was launched in May, and four more will be put into operation by the end of 2024, which will bring the factory’s production capacity to 10 billion cigarettes per year.

October 3, 2024

Regulations Decimate Philippine Vape Sector

Onerous government regulations have forced about one-fifth of Philippine vaping companies out of business, according to Philippine E-Cigarette Industry Association President Joey Dulay. Importers, he added, have found it easier to comply than their domestic counterparts.

“But we are pushing them to try and comply,” Dulay was quoted as saying by Business World.

Under the Vaporized Nicotine and Non-Nicotine Products Regulation Act, manufacturers or importers must register their products and secure licenses to operate.

They are also required to adhere to packaging standards and pay duties and taxes.

Manufacturers, distributors and importers were given an 18-month transition period to comply with the regulations laid down in the vape law.

Dulay noted that many vape brands and manufacturers have yet to secure their Philippine standard quality and/or safety mark and import commodity clearance sticker.

By the end of August, the Bureau of Customs had confiscated PHP6.5 billion ($115.21 million) worth of illegal vape products, mostly from China.

The government is estimated to miss around PHP5 billion yearly from illicit vape products.

October 3, 2024

Ispire Launches New Vape Filling Machine

Ispire Technology is launching a new vapor device filling machine. Scheduled to be unveiled at the Benzinga Cannabis Capital Conference in Chicago Oct. 8–9, the I-80 can fill and seal 4,000 0.5 mL vapor devices per hour.

According to Ispire, the machine is 10 times faster than traditional manual methods and twice as fast as current automated systems. It is also cost-effective, saving $1,000 for every 10,000 units produced, the manufacturer wrote in a press release.

Ispire says its self-sealing devices remove the need for separate capping, boosting overall workflow efficiency by 1,000 percent over manual methods and 100 percent over other automated systems.

“The I-80 isn’t just a machine; it’s a game-changing solution to the capacity challenges that have hindered cannabis operators for years,” said Ispire Co-CEO Michael Wang.

“We’re not just improving productivity—we’re leading a paradigm shift in cannabis production efficiency. This innovation aligns with our mission to push the boundaries of technology for the benefit of our customers and the adult consumers they serve.”

October 3, 2024

Switzerland Implements National Age Restrictions

Switzerland has enacted a new federal law requiring all cantons to restrict the sale of tobacco products to adults, reports SWI.

The new tobacco products act ends the cantonal patchwork of rules on cigarettes and tobacco-related products.

Before Oct. 1, when the new law took effect, the cantons of Schwyz and Appenzell Innerrhoden had no age restrictions on tobacco sales. In other cantons, potential buyers had to be 16 or 18 years old.

The new federal law also restricts advertising. Tobacco advertisements are no longer permitted on public property, and on private property only if they cannot be seen from public property. Events aimed at minors are no longer permitted to have tobacco sponsors. Free promotional gifts related to tobacco consumption are also no longer permitted.

Public smoking restrictions now apply to all tobacco products.

It remains unclear however how the federal law will be implemented as enforcement remains the responsibility of individual cantons.

October 2, 2024

Illegal Factory Raided in Bulgaria

Bulgarian authorities uncovered a large illegal cigarette factory near Sofia, reports the Bulgarian News Agency.

The facility, which produced fake versions of well-known cigarette brands, was capable of producing some 2,400-2,800 cigarettes per minute. The police also found some 20 tons of processed tobacco, designated to be packaged and branded as cigarettes.

Pre-trial proceedings have been initiated and a witness has been questioned. The operation was conducted under the Customs Agency’s direct supervision.

October 2, 2024

Lithuania Takes Aim at Cigarette Balloons

Lithuania may permit its border guards to shoot down balloons carrying contraband from Belarus or Russia when they cross the border, reports The Baltic Times.

“In my opinion, border guards should have the right to shoot them down in the air,” Defense Minister Laurynas Kasciunas told reporters on Sept. 30.

The minister’s comments came after a balloon, suspected to have come from Belarus and carrying smuggled cigarettes, fell within Vilnius Airport’s airfield on Sept. 28.

Rustamas Liubajevas, the commander of the Lithuanian State Border Guard Service (SBGS), said that border guards have neither the necessary weapons nor the legal authority to shoot down objects that illegally cross the Lithuanian border by air.

He explained that border guards use assault rifles, which do not have the technical capability to shoot down higher-flying objects.

The SBGS has recorded around 250 incidents involving such balloons in the past month.

Poland too has recorded increased attempts to smuggle cigarettes into its territory by air.

October 2, 2024

Battery Law Forces IQOS from Kiwi Store Shelves

Philip Morris International pulled its IQOS tobacco heating device from New Zealand store shelves after a new law took effect requiring vaping devices to have removable batteries, reports RNZ. Tobacco heating products (THPs) are classified as e-cigarettes in New Zealand.

RNZ says it has seen PMI emails sent to suppliers saying IOQS is “unavailable for purchase due to a regulatory change on 1 October 2024 affecting vaping devices.” In a statement, the multinational said it always complies with all necessary regulations, including on electronic devices.

IQOS consumables, known as Heatsticks, remain available for sale in New Zealand.

The news follows controversy about Associate Health Minister Casey Costello’s July announcement of a 50 percent cut to THP excise taxes—a move that critics say benefits only PMI, which is the sole supplier of the products in New Zealand.

Costello argues the tax cut will encourage smokers to switch to THPs, which are believed to be less harmful than combustible cigarettes. Costello’s plan is to have more than 7,000 people switch to THPs, which she sees as a tool to achieve New Zealand’s smoking reduction targets.

Prime Minister Christopher Luxon has backed Costello, telling RNZ the excise tax cut plan was a 12 month trial to “see how it goes” with HTPs lowering smoking rates.

Health advocates have accused the ruling coalition of caving to pressure from tobacco lobbyists. In late 2023, the government scrapped the country’s controversial generational tobacco ban, which would have prohibited tobacco products for people born after 2009.

In a briefing published Jan. 31 by the Public Health Communications Center, three University of Otago public health academics highlight links between government members of parliament and the tobacco industry.

October 2, 2024

FDA clears RespiRx IND

The U.S. Food and Drug Administration has cleared an Investigational New Drug (IND) application for Qnovia’s RespiRx nicotine inhaler (QN-01).

According to Qnovia, the RespiRx is the first truly inhalable nicotine replacement therapy (NRT) to assist smokers attempting to quit smoking.

The company will initiate a Phase 1, randomized, crossover, open-label trial to determine the pharmacokinetics, safety and tolerability following self-administration of nicotine-containing products in up to 24 healthy adult subjects who currently smoke combustible cigarettes.

“The FDA clearance of our IND application for QN-01 marks a significant achievement for Qnovia as we transition to a clinical-stage therapeutics company,” said Qnovia CEO Brian Quigley in a statement.

“Our U.S. clinical development plan is derisked by the positive first-in-human data we generated last year in support of advancing QN-01 in the United Kingdom where we demonstrated pulmonary delivery and a superior pharmacokinetic profile for the RespiRx when compared to existing nicotine replacement therapies,”

“The next step for our U.S. program is to initiate a randomized Phase 1 trial that evaluates QN-01 compared to the Nicotrol Inhaler and combustible cigarettes in a head-to-head comparison. We remain on track to dose our first patient in the fourth quarter of 2024 and in parallel will be advancing to a pivotal clinical trial in the U.K. to support an MAA submission [Marketing Authorization Application] to the MHRA [ Medicines and Healthcare products Regulatory Agency] in 2026.”

Qnovia’s proprietary drug/device combination already demonstrated dose-dependent pharmacokinetics, pulmonary delivery and was well tolerated in a first-in-human study conducted to support advancing QN-01 in the U.K., according to the company.

“There have been no treatment options for smoking cessation approved in the U.S. in over 20 years. As a result, attempting to quit ‘cold turkey’ remains the most popular method of quitting smoking,” said Mitch Zeller, Qnovia’s policy and regulatory strategy advisor.

“There is an extraordinary public health need for truly innovative products to help health-concerned smokers stop using cigarettes. Any effort to reduce the death and disease caused by tobacco use must include new and better tools in the treatment toolkit,” Zeller added.

October 1, 2024

Global Synergy

Stuart Buchanan discusses KT International’s partnership with KT&G.

By Marissa Dean

As the tobacco industry changes and evolves, companies are adapting in different ways. Recently, KT International (KTI) and KT&G entered into a manufacturing license agreement, allowing KTI to manufacture and distribute KT&G’s products in Europe.

KT&G is a leading tobacco manufacturer in South Korea and the fifth largest in the world by sales volume, with an annual sales revenue of approximately KRW6 trillion ($4.5 billion). KTI, established in 2008, has built its reputation as one of Europe’s fastest-growing independent tobacco companies. The company has also earned recognition for its strong and credible footprint across Europe along with world-class production facilities within the European Union.

The agreement between the two companies was signed on Oct. 20, 2023. Under the terms of the deal, KTI received exclusive rights to manufacture and distribute KT&G’s products within the EU region for three years. The two companies have agreed to a market entry plan aimed at expanding into strategic markets within the Western European region, with a specific focus on KT&G’s Esse products. Esse, a flagship brand of KT&G, is renowned for its premium quality and holds the distinction of being the world’s bestselling super-slim cigarette brand. While the two companies will initially focus on Esse products, the product range expansion will be discussed and announced in due course.

Tobacco Reporter recently discussed the arrangement with Stuart Buchanan, chief commercial officer of KTI.

Tobacco Reporter: Your company, KTI, entered into a partnership agreement with KT&G, one of the world’s largest cigarette producers. Why was KTI chosen as a partner of KT&G?

Stuart Buchanan: After three years of collaborative efforts leading to the signing of this agreement, we have developed a strong cultural fit between our two companies in terms of people and commercial objectives. We expect the synergy between our complementary brand portfolios to strengthen the market position of both companies. A significant amount of time has been taken to structure a competitive business model and to develop an innovative and consumer-relevant product portfolio that is consistent to the global objectives and standards of KT&G.

What necessitated this synergy?

The KT&G partnership is certainly our most significant and strategic partnership; however, we have other partnerships with large global players, and in most cases, these synergistic partnerships have developed through taking time upfront to understand each other’s strengths and weaknesses. This in itself is a process as it takes time to develop trust and a collaborative working environment that is open and transparent, particularly in cases where we are competitors in other parts of the world.

Why do you think more global players are forming partnerships with KTI?

When we started our international expansion, we were an unknown company, and we found it very difficult to find importers and distributors in strategic markets. From the outset in our first three proper international markets, Spain, France and the Czech Republic, we committed to working with credible world-class importers and giving them the level of service they would expect from a major multinational. By maintaining our business standards and building our corporate reputation, we now work with some of the world’s best partners, like KT&G, and new business is self-generating as we are the first point of call for credible, reliable partners.

Our corporate reputation extends beyond just how we operate externally in our markets but also how we operate internally through things like properly vetting our supplier base, health and safety for our employees and most recently our environmental and sustainability strategy where we have installed a 5 MW photovoltaic solar park to be sustainably self-sufficient for over 40 percent of our energy needs.

This is probably also our biggest learning; in building our corporate reputation by doing things properly from how we manage our business partners, our brand and product development, our people development, through to our investment strategy, sometimes takes longer, but the payback is significantly higher.

What is most important in your business? What is the strategic potential of your company and the key to your success?

First and foremost, our people. In both our production and commercial business units, we have prided ourselves on building a world-class organization with locally developed talent.

Operating across 70 countries, our commercial teams have developed not only the commercial acumen to compete with the world’s best, but we have embedded a culture where we understand and respect cultural differences. This applies not only to the professionalism with which our teams engage with many different countries and cultures but also in how we deploy our brand portfolio by being flexible to the consumer needs of different markets and consumer segments.

Secondly, our production capabilities. We have one of the world’s most modern factories and service these 70 countries from one factory. We are one of the few global companies across any category that services their total demand from one production facility. Whilst creating a highly complex production environment, it provides for global brand consistency and quality standards and a single point of business contact, which is seen as a significant benefit to our partners.

This is particularly relevant to European partnerships as we have a core production strength in being able to operate across this highly complex environment with multiple EU-driven product registration processes. This applies not only to physical production but also to logistics, product development, commercial contracts and market implementation.

What is your outlook for the future of the tobacco industry?

As a company, we fully respect and support sensible regulation for what is an adult category of choice. We do, however, recognize the role and growth of next-generation products (NGPs) and reduced-risk products and believe these will continue to become an integral part of a broadening category. We also support the recent moves across Europe to regulate these products along similar lines to traditional tobacco with regards to excise, legal age and product registration as it will provide higher levels of consumer protection against cheap, low-quality imports, particularly in the disposable vaping category.

Now that, in general, across Europe there is a much clearer regulatory outlook, we have recently launched our own NGP range under our brand in Spain and Bulgaria and aim to follow across major European markets, including Germany, the U.K., France, Czech and Italy, where we have a strong presence in our traditional cigarette brands.

Looking at the longer term horizon on the future of the category, I personally believe a natural consumer-driven balance will develop between cigars, pipe tobacco, rolling products, traditional cigarettes and NGPs, where each will have a place in the consumer repertoire.

How is KTI adapting to changing markets and consumer needs?

Tobacco and nicotine alternatives are a highly regulated category, and as such, it is difficult to provide the same level of consumer interaction as other categories, and to a large extent, price and brand value provide the key consumer drivers. That being said, in our traditional business, we have always believed in providing different and innovative formats that go beyond the traditional brand, price, value equation in driving purchase. It is one of the key reasons for our growth.

Does KTI have any plans to expand into reduced-risk products or other types of tobacco products aside from cigarettes and traditional leaf tobacco?

2023 saw the launch of our LIV brand, which is our noncombustible brand. We have launched a range of travel-friendly nicotine pouches as our first step into the noncombustible category.

Marissa Dean joined Tobacco Reporter in the summer of 2018 as a copy editor. Since that time, she has taken on additional responsibilities, including feature writing. Her skills span the publishing industry from layout and design to copy editing to content creation.

October 1, 2024

In the Shadow of War

With normal supplies cut off due to the Hamas-Israel conflict, cigarettes are selling for $30 per stick in Gaza.

TR Staff Report

Israel’s market has seen an upswing in cigarette consumption as war-related stress and anxiety take a toll on the population, especially on soldiers and their families. In the meantime, on the other side of the barricades, traders are selling cigarettes at some of the world’s highest prices, according to observers.

Import dynamics and tax receipts are two key indicators describing the state of play in the Israeli cigarette market.

In 2022, tobacco companies paid NIS7.5 billion ($2 billion) to the national treasury, according to the Tax Authority. Import volume was consistent throughout most of 2023, until October, when it jumped by 21.5 percent, the official data indicated.

A senior official in the customs brokerage industry, speaking to a local publication Finance Walla, suggested that the war could potentially contribute an additional NIS500 million to the national budget, thanks to the increased cigarette sales.

Tobacco consumption in Israel has long been the subject of increased attention and strong concerns among government officials and anti-smoking organizations.

According to a 2021 report by the Taub Center for Social Policy, nearly 20 percent of Israeli adults consume tobacco, which is higher than the Organisation for Economic Co-operation and Development average. A quarter of men and 15 percent of women smoke, with rates higher among Arabs than among Jews.

The Israeli Health Ministry estimated that tobacco consumption in the country declined between 1998 and 2019. The Covid-19 pandemic triggered a slight increase in cigarette consumption, though the impact seems to be incomparable to that of the Gaza war.

Hedva Elmackias, deputy director of finance and marketing operations at the Taub Center, told Tobacco Reporter that no up-to-date information was available to judge how the Gaza war impacted the tobacco market in Israel.

However, the Gaza war has brought tobacco sales in the country to heights not seen for a long time. The link is obvious: People smoke more to combat stress and anxiety.

“The situation is obviously incredibly distressing,” Yahel Silberberg Vulej, a spokesman for Philip Morris International, told Tobacco Reporter, declining to discuss what impact the war produced on the company’s business in the country. “Throughout this situation, our priority has been to look after our people, ensuring our colleagues and their families are safe,” he added only.

Nevertheless, the impact of the war on Israeli tobacco sales is undeniable.

“A great deal of money has entered our business since the beginning of the war, millions of additional shekels,” What Alon, the owner of a cigarettes and smoking products distributor, told Finance Walla.

In physical terms, cigarette sales in Israel jumped to nearly 400 million packs against 352 million packs in the previous year, the official statistical data indicated. This is equal to 8 billion cigarettes.

While the surge in tobacco industry taxes may seem beneficial in the short term, economists caution that the long-term implications of the current trend in the Israeli tobacco market demand urgent attention and action from the authorities and social organizations.

The Abrahamson Network of addiction treatment centers allows every regular soldier to receive free smoking cessation treatments at any of its eight locations in Israel.

“This is a volunteer program in which all 50 of the company’s employees, therapists, service and support staff, nutrition consultants and Abrahamson’s operations and logistics team participate,” said Ehud Abrahamson, the company chief.

The World’s Most Expensive Cigarettes

Meanwhile, in Gaza, cigarettes are selling for record prices.

According to the Progressive Survey of Chronic Diseases conducted by the Palestinian Ministry of Health in 2022, the percentage of smokers in Palestine is the highest in the Middle East, reaching about 34 percent.

The survey results indicate that 55.1 percent of males and 12.1 percent of females are smokers, and more than a third of smokers are young people aged between 18 and 29.

While reliable data on the impact of the war on tobacco consumption in Palestine is scarce, local resident Ayad Thabet told Al Akhbar that the percentage of smokers has surged since the conflict began, painting a stark picture of the situation.

This happened even though a single cigarette can sell for $30 in the Gaza market, as estimated by the local press.

Currently, the Gaza tobacco market is primarily composed of poor-quality cigarettes of unknown origin smuggled from Egypt. Cigarettes of international brands can be rarely met here since the conflict started. The market is also highly speculative.

A local cigarette seller told Al Akhbar: “A few days before Hamas agreed to the Egyptian truce proposal, the price of a cigarette was NIS30 [$8], and minutes after Hamas agreed, its price dropped to NIS20, and after Israel and Netanyahu in their stubbornness rejected the truce, its price jumped to NIS100.”

Speaking about cigarette consumption, however, he argued that it went down dramatically due to a lack of supply and because people had no money to spare. He estimated that before the war, he used to sell 40 packs of cigarettes per day, but now he is lucky to sell two packs.

Cigarettes have become like a new gold in Gaza, a U.N. official described the present market situation to The Wall Street Journal.

Juliette Tourwa, director of communications for the United Nations Relief and Works Agency, told Tobacco Reporter that the organization doesn’t have reliable information about the state of the tobacco market in the Gaza Strip.

Cigarettes are smuggled to the Gaza Strip primarily from Egypt, sometimes even in the humanitarian aid trucks. Some reports indicate that the flow of contraband cigarettes has somewhat narrowed since the Israeli army attacked Rafah in early May.

Reselling cigarettes has become an extremely perilous profession in the Gaza Strip, as sellers are frequently targeted by desperate consumers.

Khaled Omar, another local resident, told Al Akhbar that when it comes to the tobacco market, “Gaza is like another planet” as the price per pack of cigarettes of international brands can reach $600 per pack. He assumes there is no place in the world where the price would be that high.

Omar also blames unscrupulous sellers for the market manipulation, assuming that they “are waging war against Palestinians, just like the Israel Army.”

Revival of the Illegal Segment

Not only did Gaza experience a jump in cigarette smuggling amid the ongoing war. The surge in tobacco sales in Israel, coupled with the general war-related turbulence, reportedly triggered a rise in cigarette smuggling to the country too.

In 2023, the Israeli Customs Service seized 36 containers filled with contraband cigarettes against only 17 in the previous year. Law enforcement agencies also warned at the airports and Israel’s land borders with Jordan and Egypt that the smuggling of cigarettes has become particularly frequent. In addition, thousands of packs of illegal cigarettes are regularly being seized at the seaports.

Smuggling cigarettes has become increasingly profitable among criminals in recent years due to the growing price differences between cigarettes in Israel, which are taxed at a high rate, and their prices in the neighboring countries, not only Jordan and Egypt but also European countries.

In 2024, the tobacco market is braced for another tax hike. The sales tax on cigarettes will rise from 270 percent and a price of NIS444.03 per thousand cigarettes to NIS850.62 per thousand cigarettes, to 270 percent and NIS 524.50 per thousand cigarettes, up to not less than NIS930 per thousand cigarettes.

The purchase tax on processed tobacco is also set to jump from 270 percent and NIS634.34 per kilogram to NIS1,215.18 per kilogram, to 270 percent and NIS749.29 per kilogram to NIS1,328.57 per kilogram.

In addition, the sales tax will be increased on other tobacco products, including tobacco-heating devices that use tobacco units and tobacco-heating devices that use tobacco. A tax of NIS113.39 per kilogram will be imposed on packages of loose tobacco for cigarettes.

At the end of 2023, cigarettes in Israel cost 80 percent to 100 percent more than in the neighboring Middle Eastern countries. The new tax increase should make the gap even wider.

A senior official at the Tax Authority told a local news outlet, Ynet, that law enforcement agencies are now bracing for a surge in the number of smuggling attempts, citing the existing price situation as the reason.

October 1, 2024