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  • The Invisible Advantage

    The Invisible Advantage

    IQOS joined the Tobacco 10 ranking in 2023, achieving a brand value of $3.25 billion—higher than combustible brands such as Chesterfield or Rothmans. Photo: elenavah

    Intangible assets remain a major contributor to the real value generated by the tobacco industry.

    By Stefanie Rossel

    Brand value is a nonphysical asset but one of the most important issues for every brand owner. Brand valuations are used for several purposes such as tax calculation, finance and marketing. They function as interpreters between the language of marketers and finance teams and provide structure for both to work together to maximize returns. Measuring such intangible assets is complex—the most common metrics on which brand performance and thus brand equity can be judged include market penetration, frequency of purchase, repeat purchase, customer loyalty and the ability of a brand to command a price premium versus other brands in its sector.

    In 2023, the global value of intangible assets owned by the world’s largest companies stood at $61.9 trillion in 2023, up from $57.3 trillion one year previously, according to the Global Intangible Finance Tracker (GIFT) report, which is published annually by Brand Finance, an independent, U.K.-based brand valuation and strategy consultancy.

    While tech giants like Apple (with intangible assets of $2.7 trillion) and Microsoft ($2.3 trillion) continued to lead the pack in the 2023 analysis, last year’s most intangible sector in relative terms, with 91 percent of total enterprise value, was tobacco and e-cigarettes, as companies invested heavily in proprietary technology and patented intellectual property around vaping devices to drive growth, according to Brand Finance.

    In the company’s Tobacco 10 ranking, Marlboro remained the undisputed leader with a brand value of $34.74 billion followed by Pall Mall ($6.54 billion) and L&M ($6.35 billion). The list is dominated by combustible brands, but there are two noteworthy exceptions—smokeless tobacco brand Copenhagen and heated-tobacco product (HTP) IQOS.

    Despite being the most intangible sector, tobacco products across all categories experienced significant brand value losses. “The performance decline witnessed in combustibles across extensive tobacco portfolios during the years 2022 and 2023 directly contributed to the decrease in brand value within our rankings,” explains Brand Finance’s global managing director, Richard Haigh. “Specifically, the decline in the volume sold of traditional oral cigarettes has been a consistent trend over the years. This can be attributed to reduced consumption and an accelerated shift in consumer preferences, leading to category switching. As we delve into the intricacies of this development, it becomes apparent that the challenges faced by combustible brands played a pivotal role in shaping the dynamics of brand value within the Tobacco 10 for 2023.”

    BAT’s $31.5 billion impairment on the value of some of its U.S. cigarette brands last December resonates with Haigh’s observations. “The decision to write down the value of some of its brands was a bold step for BAT because despite the short-term pain, the reality is that the market for cigarettes is shrinking, and pretending otherwise would be irresponsible on the part of management,” he says.

    Nevertheless, it is difficult to predict at this point who will need to follow BAT’s example. “The decision by BAT to impair its U.S. cigarette brands may not necessarily set a direct precedent for other companies. Each tobacco company’s considerations and actions are likely to be influenced by their unique brand portfolios, acquisition histories and strategic priorities within the evolving tobacco industry landscape.”

    Marlboro remained the undisputed leader in Brand Finance’s tobacco ranking, with a brand value of $34.74 billion. Photo: jetcityimage

    A Win-Win Move

    In the GIFT ranking, BAT retained its position as the most intangible entity within the sector, boasting a total intangible value of $135.2 billion despite several acquisitions by its competitors. According to Brand Finance, China National Tobacco Corp. (CNTC) stood out in the 2023 GIFT study for accumulating substantial disclosed intangibles and goodwill. Its position was bolstered by its $63.4 million acquisition of China Tobacco International Brazil in late December 2021. Similarly, Philip Morris International’s acquisition of Swedish Match added approximately $18 million in goodwill and intangible assets to its financial statements.

    “The acquisition of Swedish Match by Philip Morris International has proven to be mutually beneficial for both companies,” says Haigh. “PMI gains access to significant smoke-free brands, enriching its portfolio, while Swedish Match benefits from the resources and expertise offered by a larger organization. An intriguing aspect of this acquisition is the creation of an impressive, combined portfolio of smoke-free brands.”

    He adds that the Tobacco 10 2023 ranking, which closely followed the November 2022 acquisition, did not show immediate noticeable impacts on the brand values of Swedish Match. “It was considered too early to discern any substantial changes. The anticipation now shifts to the upcoming 2024 tobacco ranking, where the performance of Swedish Match within this context will be pivotal in assessing the positive impact on both the financial and brand value performance for both Swedish Match and PMI. This evaluation will shed light on the effectiveness and synergies generated by the acquisition, providing valuable insights into the long-term implications for the brands involved.”

    “The decision by BAT to impair its U.S. cigarette brands may not necessarily set a direct precedent for other companies.”

    Richard Haigh, global managing director, Brand Finance

    On the Way Up

    Even before its takeover of Swedish Match, PMI succeeded in building a valuable reduced-risk brand. In 2023, its HTP IQOS joined the Tobacco 10 ranking for the first time, achieving a brand value of $3.25 billion—higher than combustible brands such as Chesterfield or Rothmans. In the 2024 ranking, IQOS has climbed three spots following an 8 percent brand value increase, Haigh points out. “The brand is currently valued at $3.5 billion. This notable increase is attributed to robust performance in the recent financial year. The brand has demonstrated improvement in revenues, expanded market share and witnessed a significant influx of customers switching to IQOS. These factors collectively contribute to the upward trajectory of IQOS in terms of brand value since its initial tracking in 2020.”

    There is, however, still a substantial gap in terms of brand value between IQOS and Marlboro, which is valued at $32.5 billion in this year’s ranking. Since 2015, Marlboro has maintained its position as the world’s most valuable tobacco brand, and its resilience is evident, as the company celebrated its 50th anniversary in 2022, he says. “Despite recent challenges, such as disposable income pressures in various markets and the impact of cannibalization from IQOS, Marlboro has demonstrated enduring strength.”

    The considerable difference in brand value between the two products is attributed to Marlboro’s extensive market presence, reflected in higher shipment volumes and revenue generation within the Philip Morris portfolio, Haigh explains. “Although IQOS exhibits consistent growth, surpassing Marlboro in brand value necessitates a substantial increase in its revenue contribution within the PMI portfolio. As IQOS continues to expand its market share and revenue, the potential for it to catch up with or overtake Marlboro in brand value remains contingent on its sustained growth and further integration within PMI’s overall portfolio. The journey to equivalence or overtaking Marlboro is a dynamic process, influenced by various factors that will shape the evolving landscape of PMI’s brand portfolio in the coming years.”

    CNTC stood out in 2023 for accumulating substantial intangibles and goodwill.

    There’s Value in Alternatives

    So far, no vape product brand has made it onto Brand Finance’s Tobacco 10, which, according to Haigh, has been dominated by combustibles, traditional oral and smoke-free brands since 2015. The market for reduced-risk products (RRPs), in particular e-cigarettes, is highly fragmented. Since their first introduction to the market 20 years ago, a myriad of smaller brands has emerged, manufactured by smaller players, among them, only very few iconic ones.

    However, there has been a gradual but steady entry of smaller RRPs into the rankings, says Haigh. “While the Tobacco 10 ranking primarily features established names, it is noteworthy that smaller players in the reduced-risk product category are gaining visibility in our rankings,” says Haigh. “Notable examples include IQOS, Glo (brand value $2.3 billion in 2023), Vuse ($1.4 billion) and Velo ($580 million). These brands, although not reaching the high values necessary to secure a spot in the top 10 globally, have made a significant impact on the market and our ranking. Over the past three years, all these brands have exhibited double-digit growth, reflecting their increasing presence in markets and contributing to their upward trajectory in our ranking. While their individual brand values may not place them among the top 10, the consistent growth signifies a notable trend in the industry. This gradual ascent of reduced-risk products and the sustained growth of these brands underscore their evolving significance in the market and their potential to further reshape the dynamics of the tobacco industry in the coming years.”

    Establishing an iconic e-cigarette brand necessitates a dual focus, Haigh stresses, judging from his experience of evaluating the prominence of e-cigarette brands within leading tobacco companies. “It requires technological advancement, involving continuous product development and research and development. Simultaneously, building a robust online presence across multiple channels emerges as a crucial strategy to drive sales and effectively capitalize on the growing market demand for these products.”

    With combustible cigarettes experiencing declining volumes, smoke-free products have been consistently ascending in rankings over the last three years.

    Remaining Agile

    The report underscores that despite increasing regulations on traditional tobacco products in developed markets, e-cigarettes remain in a nascent stage and are currently generating high intangible value. “This is primarily due to the lack of marketing regulations governing these products,” says Haigh. “The absence of stringent rules allows e-cigarette manufacturers to continuously iterate on device design, flavors and other product attributes, enhancing appeal and driving sales growth.” Of course, this sector’s outlook may be dampened by anti-tobacco harm reduction sentiments, especially in the wake of the recent Conference of the Parties to the World Health Organization Framework Convention on Tobacco Control.

    “As e-cigarettes are currently enjoying high intangible value partly due to a lack of marketing regulation, any future regulations may influence the competitive landscape and strategies of tobacco companies, potentially affecting the brand value of RRPs,” says Haigh. “The ability of companies to adapt their marketing approaches and navigate evolving regulatory environments will likely play a crucial role in determining the impact on brand value in the realm of RRPs.”

    In the near term, Haigh expects the development of nicotine brands’ value to undergo several significant shifts as global cigarette sales volumes continue to decline. “With combustible cigarettes experiencing declining volumes, smoke-free products have been consistently ascending in rankings over the last three years,” says Haigh. “This ascent is driven by their increased market share and revenue generation, signaling a notable trend in consumer preferences toward reduced-risk alternatives.”

    Business model transformations will become another important factor. In response to the risk posed by declining shipments and revenue in the traditional cigarette market, companies are actively initiating transformations in their business models. “This involves a strategic shift toward becoming truly multi-category consumer products businesses,” says Haigh. “By diversifying their product portfolios to include smoke-free alternatives, companies aim to adapt to changing consumer demands and mitigate the impact of declining cigarette sales.”

    Finally, tobacco companies will likely place greater emphasis on sustainability. “Consumers are prioritizing sustainable practices, and major tobacco companies are responding accordingly,” says Haigh. “Initiatives such as sustainable farming and waste reduction are being embraced, exemplified by [BAT’s] hiring of its first chief sustainable officer in late 2022. Similarly, Philip Morris International has introduced a bespoke sustainability index, demonstrating a commitment to measuring its ESG performance.”

    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.
  • A New Reality

    A New Reality

    Photo: Delovoy Petersburg

    Two years into the Ukrainian conflict, tobacco businesses still scramble to adapt.

    Contributed

    Since Russian forces crossed the Ukrainian border on Feb. 24, 2022, tobacco business on both sides of the conflict has been a roller-coaster ride. As the second anniversary approaches, tobacco companies have yet to fully adapt to the new reality.

    In 2022, sweeping Western sanctions triggered massive disruptions in the supply of raw materials for tobacco factories in Russia and Belarus. The logistics havoc that followed the first EU sanctions packages took a heavy toll on production costs. Besides, the restrictions directly prohibited the delivery of some raw materials to the country.

    Nearly two years since, this issue is yet to be fully solved, according to Sergey Glushkov, head of the communications department at Japan Tobacco International Russia.

    “Two years ago, 100 percent tobacco and more than 90 percent of nontobacco materials were produced abroad. However, after necessary raw materials were included in the list of dual-use products and were placed under the U.S., EU and Japanese sanctions, tobacco companies operating in Russia started diligently looking for suppliers in China, India and other markets,” Glushkov said on the company’s social media networks in Russia.

    In addition, to mitigate risks, the company puts a lot of effort into import replacement. JTI Russia has localized foil, plastic film, cardboard packaging, most paints and some raw materials. As a result, the share of localized raw materials has nearly tripled compared to pre-sanction times, though it is still falling miles short of the desired level.

    Raw material supply is still a pressing issue, which is far from being sorted out, Glushkov admitted.

    There are many reasons why sanctions keep executives of the Russian tobacco factories awake at night. As Western technologies are no longer available on the Russian market, modernization issues also come to the fore.

    Some necessary equipment and production lines are nearly impossible to get, Glushkov stated, adding that this situation might push factories to somehow rejiggle operations. He didn’t elaborate, only admitting that this would incur costs.

    Numerous reports indicated that Russian businesses find creative and effective ways of circumventing Western sanctions, sourcing necessary raw materials in third countries like Turkiye, China, Kazakhstan and Georgia.

    However, as Western countries double down on their efforts to close the existing loopholes allowing Russian firms to bypass the restrictions, this work is growing trickier by the day. U.S. President Joe Biden signed an executive order in December announcing secondary sanctions on foreign banks suspected of supporting Russia’s campaign in Ukraine.

    This move has seemingly hit the target, as banks in Turkiye, one of the largest hubs for re-exporting Western goods to Russia, have started closing Russian corporate accounts following threats of secondary sanctions from the United States, the local press reported, citing market players.

    There are problems in China as well. A major Chinese bank for Russian importers, Chouzhou Commercial Bank, ceased operations with Russian and Belarusian companies. Occasional reports indicate difficulties Russian business has in other jurisdictions.

    In Ukraine, plans are drafted to move cigarette factories to safer territories (Photo: Fifth Channel)

    Seeking a Safe Harbor

    On May 28, a kamikaze drone hit Imperial Tobacco Group’s factory near Kyiv, Ukraine. Although the destructions reportedly were insignificant, this event once again reminded foreign investors operating in the country that in the context of constant shelling, no place can be considered entirely safe.

    Imperial Tobacco Group resumed operation soon after the Russian troops fell back from Kyiv. Galina Vorobieva, director of Imperial Tobacco Production Ukraine, claimed that the company faced a hard choice whether to resume operation, as safety risks were undeniable.

    Plans were drafted to move the production to a Western region, which is considered safer, but the wheels are yet to be set in motion.

    Philip Morris International, in turn, has recently confirmed plans to build a new cigarette factory near Lviv, not far from the Polish border, to manufacture around 7 billion cigarettes per year.

    Maxim Barabash, director of Philip Morris Ukraine, explained that the company is primarily driven by safety concerns, as the factory in Kharkiv in the eastern part of Ukraine sits too close to the battlefields.

    The Ukrainian authorities estimated that every third building in Kharkiv had been damaged by shelling. For this reason, putting the local factory into operation never seemed like a feasible option.

    “We understand that in the medium term, it will be challenging for us to put the Kharkiv factory back into full operation. And we need local production as soon as possible to meet the demand on the Ukrainian market,” Barabash told local press.

    In the good old days, the Kharkiv factory manufactured 20 billion cigarettes per year, of which nearly half was exported. It is hard to imagine this now, but a share even landed on the Russian market.

    The Lviv factory will manufacture less because export is not in the cards. Besides, the demand on the domestic market has plummeted by roughly a third as millions of Ukrainians fled from the country seeking shelter in the neighboring countries.

    The fate of the Kharkiv factory remains vague. According to Barabash, Philip Morris is not contemplating shutting it down completely, but the company also won’t need two production assets.

    Almost all smaller tobacco factories continue operation in the country despite multiple challenges, spanning from worsening labor shortage to waning demand and flourishing illegal trade. A recent report by the Kyiv School of Economy indicated that the share of the shadow segment of the cigarette market in Ukraine spiked to a record-breaking 20 percent.

    Illicit cigarettes remain a problem in both Russia and Ukraine. (Photo: Russian government)

    Looming Nationalization

    Since early 2022, all leading Western firms have been pressured to sever their ties with the Russian and Belarussian markets. Not all tobacco firms, however, were quick to do so.

    In August 2023, Ukraine’s National Agency on Corruption Prevention even added Philip Morris International and Japan Tobacco International to the list of “international war sponsors” for not pulling a plug on Russian operations. The Ukrainian government agency claimed that both companies generated solid revenue in Russia and kept paying taxes to the Russian budget.

    Imperial Brands was the first of the global tobacco firms to leave Russia in April 2022, followed by BAT in September 2023.

    JTI Russia decided to continue its business in the country to not deprive customers of the products they are accustomed to, Glushkov unveiled. Despite that, JTI will not introduce a new generation of tobacco-heating devices to the Russian market. JTI also complies with all regulatory rules when working on the Russian market, Glushkov emphasized.

    In March 2022, JTI announced that it suspended new investments and marketing activities in Russia. In April 2022, the company claimed it mulled various options for developing its business in Russia, including transferring it to new management.

    Negotiations on the sale of PMI’s Russian business have reached a dead end, Jacek Olczak, CEO of PMI, told the Financial Times in February 2023. He explained that PMI’s position was that it would rather keep its business in Russia than sell it on unfavorable terms, at an unfair price to shareholders.

    However, the reality is that Western firms running business in Russia no longer have an option to sell it, at least under reasonable terms. Since the middle of 2022, the Russian authorities have been consistently tightening screws for the foreign companies seeking an exit from the market.

    In October 2023, the Russian government stipulated that to sell Russian assets, investors from the countries deemed as unfriendly will need to make a voluntary contribution to the Russian budget comprising at least 15 percent of the cost of the deal. During the previous year, this contribution was limited to 10 percent.

    Besides, the Russian government commission on foreign assets requires Western firms to offer a nearly 50 percent discount on their assets for the deal to get a green light from the Russian regulator.

    However, even fulfilling these terms doesn’t guarantee a success. In July 2023, Russian President Vladimir Putin signed an order to nationalize the Russian operations of Danone and Carlsberg—both companies were working on selling their Russian assets.

    The move, among other things, has largely discouraged other foreign firms from executing their exit plans. The threat of forced nationalization has been looming over assets of foreign firms during the past two years.

    The Russian tobacco industry must be nationalized, claimed Biysultan Khamzaev, a member of the State Duma Committee on Security and Anti-Corruption, in an interview with state press on Jan. 19, 2024.

    “I would nationalize [assets of] all tobacco corporations in Russia. I would do it following the example of China. They established the China National Tobacco Corp. The system should be in the hands of the state, not private corporations. But it turns out that they earn money while the burden on the state, healthcare and social services rise,” Khamzaev said.

    Although the public attention to hostilities in Ukraine has tangibly diminished, the challenges they brought to the tobacco business are still as real as ever. As the war grinds into the third year, the future of the tobacco factories in all countries involved remains highly uncertain.

  • Battening Down the Hatches

    Battening Down the Hatches

    Photo: Synthex

    Having weathered the supply disruptions of Covid-19, tobacco freight forwarders must now dodge missiles in one of the world’s busiest waterways.

    By Stefanie Rossel

    Forwarding businesses that are specialized in the shipping and storage of tobacco have gone through some challenging years: The Covid-19 pandemic led to a scarcity of containers and caused shipping rates to skyrocket in 2020–2022. The situation eased in 2023 when inflation tempered demand and eventually even reversed the supply and demand balance.

    The end of last year, however, brought about a new test for the sector. Just as global supply chains returned to normal, the Houthis, a Shia Islamist political and military organization that emerged from Yemen in the 1990s, began attacking container ships and oil tankers passing through the southern Red Sea and even hijacked one of the vessels.

    The attacks with ballistic missiles and drones near the entrance to the Bab-el-Mandeb Strait—a vital corridor for global shipping—started Nov. 19, shortly after the outbreak of the war between Israel and Hamas in early October. The strikes are in retaliation for Israel’s military offensive in the Gaza Strip, which by mid-February had killed around 27,500 civilians, according to Gaza’s health ministry. The Houthis claim that they target vessels linked to Israel and its U.S. and British allies, although ships associated with other nations have reportedly been hit as well.

    There is strong evidence that Iran is bankrolling and arming the militants, who have meanwhile extended their attacks to include the neighboring Gulf of Aden. In response to the continuing attacks, U.S. and British forces have struck Houthi targets in Yemen to secure the waterway. The European Union is also planning a military operation to protect one of the world’s most important maritime trade routes.

    Despite the airstrikes on the Houthis’ bases in Yemen, the rebel group’s drone and missile activity continues. Shipping companies began avoiding trade routes via the Suez Canal In December, rerouting their journeys via Africa’s Cape of Good Hope—a detour that greatly increases the time and cost of many shipments. According to data from supply chain platform Project44, the number of container vessels sailing through the Suez Canal fell by about 65 percent between December 2023 and the end of January 2024.

    Longer Travel Time, Higher Costs

    The Suez Canal carries an estimated 12 percent of global trade and is the shortest sea route between Southeast Asia and Europe. Cargo travels 8,500 nautical miles in 26 days to be shipped from Singapore to Rotterdam, for instance. By contrast, the trip around the southern tip of Africa takes 36 days and measures 11,800 nautical miles.

    The Red Sea shipping disruptions impact many nations, but European countries are likely to feel the heaviest impact, according to business intelligence firm Euromonitor International. While electronics, chemicals, automotive, machinery and other engineering industries in Europe—which rely heavily on components imported from Asia—are the most vulnerable to trade disruptions, production disruptions would also impact upstream industries and cause temporary deficits of components or manufactured goods. “In turn, this would add to the higher inflationary pressures across Europe,” writes Euromonitor in a report. “Companies are also likely to face greater pressure on their profit margins as slower economic and consumer income growth make it more difficult to fully pass on cost increases to the end consumer.”

    Nonetheless, Euromonitor says that large-scale trade disruptions as witnessed during the Covid-19 pandemic are unlikely because global production capacity remains sufficient and shipping companies and buyers have greater flexibility in adjusting their trade routes and production processes. This, however, will result in higher logistics costs for the companies. Euromonitor estimates that the 10 extra days needed to sail around the Cape of Good Hope require approximately $900,000 in additional fuel. Increased travel time and higher insurance costs for shipping companies also directly impact shipping rates, the research company points out. “For example, freight prices for a 40-foot-equivalent container on Asia-Europe routes have more than doubled to $4,000.”

    The shipping disruptions lead to a series of other issues, including delays further down the transportation network. “Changes and disruptions to shipping schedules will cause challenges in ports and put greater pressure on cargo handling and road transport sectors to efficiently handle the goods and avoid major delays,” writes Euromonitor. “For buyers of logistics services, it will likely result in higher prices, as logistics providers will face higher labor, fuel and fleet management costs.”

    Challenging Shipments

    Lisa Rautenbach | Photo courtesy of Andromeda Forwarding

    Sea freight accounts for 80 percent of Andromeda Forwarding and Logistics’ operations. While it offers all the services of a carrier, the Rotterdam-headquartered company does not own any vessels.

    Until the Houthi attacks began, 80 percent of Andromeda’s shipments went through the Suez Canal, according to Lisa Rautenbach, Andromeda’s tobacco department manager. “This issue has so far impacted all commodities that have to be transported through the Red Sea and the Suez Canal,” she says. “Routings dramatically changed, with the result that they have a very long transit, and some routings have added an extra 30 days prior to arrival.”

    Meanwhile, shipments are being delayed, leading to longer transit times and additional surcharges, with minimum equipment and space available for new bookings. Vessels are overbooked, leaving little space for additional shipments. “Blank sailings,” which is when an ocean carrier cancels or skips a scheduled port of call or region in the middle of a fixed rotation, also occur.

    Freight rates increase, and liners use the Red Sea crisis as an excuse to raise rates for routings that don’t even need to be rerouted or were never planned for the Red Sea route, according to Rautenbach. “After finally having seen stable rates after the pandemic, we now have to cope with supplementary fees that are added to pending shipments already sailing; with shipments forced to be rerouted while already on route; and, unfortunately, with disappointing our customers, which is out of our control.”

    While it is uncertain how much longer the security crisis in the Red Sea will last, shippers, vessel operators and manufacturers may perhaps take comfort in the fact that they have learned from the Covid pandemic. In a recent article on U.S. National Public Radio, supply chain experts noted that affected companies quickly evaluated the emerging threat this time and took action much sooner. Manufacturers benefit from having gone back from a just-in-time to a just-in-case inventory due to the pandemic, experts said. The bottom line, however, is that all stakeholders involved in the forwarding business must learn to live with uncertainty.

    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.
  • Versatile Verification

    Versatile Verification

    Fluxcode’s solution has been designed to be flexible so that both small and large companies can comfortably operate it.

    German software supplier Fluxcode has developed a track-and-trace solution for all needs.

    By Stefanie Rossel

    The illicit cigarette trade has reached a disturbing level: According to Euromonitor International, it accounted for just under 12 percent of global cigarette sales, excluding China, in 2022. Driven by higher taxes and consumers’ greater price sensitivity, it is expected to increase to just below 14 percent by 2027. The World Bank estimates that illicit tobacco trade causes tax collectors to miss out on $40 billion to $50 billion in revenues per year. Authorities have also identified it as a primary source of revenue for organized crime and terrorism.

    Among the strategies aimed at combatting the problem are track-and-trace (T&T) protocols. Using serialization technology, these systems monitor the manufacturing and distribution of tobacco products.

    The governing body of the World Health Organization Framework Convention on Tobacco Control (FCTC) adopted the Protocol to Eliminate Illicit Trade of Tobacco Products in 2012. Having entered into force in 2018, the treaty mandated the creation of a global tracking and tracing regime within five years to closely control and monitor the legal supply chain of tobacco products.

    By September 2023, all 68 parties to the protocol had to have their T&T systems deployed. The required global information exchange mechanism, however, had not been established at that time, and the deadline for implementation is likely to be postponed further as such a global system requires international standards and guaranteed interoperability, and solutions to technical and regulatory challenges. The current generation of T&T systems hence remains limited to national or regional jurisdictions.

    In the EU, which was the first to officially introduce a track-and-trace system, T&T has been mandatory for cigarettes and fine-cut tobacco under the Tobacco Products Directive (TPD2) since May 2019. As of May this year, other tobacco products such as pipe tobacco, chewing tobacco or nasal snuff must also be tracked and traced.

    The process requires a highly developed IT infrastructure, as the example of the EU experience has demonstrated. The system mandates that each tobacco package carry a unique identifier (UI) code that has to be requested by European manufacturers or importers of tobacco products for each individual pack from an independent organization appointed by EU member state authorities.

    The UI code must be scanned and recorded all along the distribution chain and transmitted to both the manufacturer’s and the EU database, thus enabling authorities to trace and authenticate tobacco products. Manufacturers and importers must install and integrate a database, a so-called primary repository, to store all data related to each individual package. This information is copied into a secondary repository that is operated by another independent third party appointed by the European Commission.

    Mitja Carstensen

    Outside the tobacco sector, T&T has long been used by many other highly regulated industries. The scope of functions offered by T&T solution providers is generally quite similar, according to Mitja Carstensen, managing director of Fluxcode. Unlike other companies in this field, however, his Lubeck, Germany-based business has more than 30 years of experience in the tobacco industry. “We are acquainted with many of the problems or pitfalls of technology a tobacco company may encounter when implementing and conducting track and trace and can support them in advance with our experience,” says Carstensen. “In addition, we always keep production staff in mind when developing the software—it must be easy and intuitive to use for all users and work reliably. We are very close to our customers during the entire implementation process and also help with marginal issues, such as the registration for ID Issuers or the optimization of processes.”

    Industry Independent

    Carstensen founded Fluxcode together with his former colleague, Rene Petton. The two met when they were working as software developers at the IT department of a medium-sized German tobacco products manufacturer.

    “In general, we always tried to develop all production-relevant software for our former employer ourselves, particularly because a medium-sized enterprise can’t be handled according to the book and because history has shown that there are various special cases for which standard solutions would have become difficult,” Carstensen explains.

    At that time, in 2016, the only T&T solution available for tobacco products was Codentify, a system developed by Philip Morris International and licensed to BAT, Imperial Tobacco Group and Japan Tobacco International. Today the product is marketed by Inexto. “There were no other providers,” says Carstensen. “Since the Codentify solution would also have been very cost intensive, we decided to develop the required software ourselves. With a project scope like TPD2, this was of course a complex endeavor. After we had completed our software solution and it became known within the tobacco industry that we had a functioning alternative to Codentify, we were approached by several smaller and mid-sized companies who acquired the solution we had then, which was called Red Carpet.”

    As T&T gained importance, Carstensen and Petton decided to take their software to a broader, more professional level, and in 2020, they established Fluxcode. The Red Carpet software was resigned to history. In its place, Carstensen and his team developed a completely new solution in such a way that it can also be used to track products in other sectors. The company is already negotiating with manufacturers of drinks and tires.

    Fluxcode developed the Fluxcode Suite, which is independent from the tobacco industry and divided into five core modules—one for ordering and downloading of the UI, one to create a globally unique identifier with included additional customer information, one to provide the correct UI to the production line printers, one to connect to the aggregation system and one for sending previously elaborately processed data to a repository. Modules can be purchased individually, depending on the requirements of the customer. Security against piracy is provided by encryption of the most important Fluxcode Suite codes, which users can only access by deploying a license key to unlock them.

    Fluxcode also provides storage for the considerable amount of data generated, says Carstensen. “Many of our competitors rely on cloud hosting of the database. This means that the track-and- trace data of a manufacturer are being stored on the server of a service provider, to which the manufacturer himself potentially has no access. He will be able to retrieve a part of the data through various sighting processes but won’t have administrative sovereignty over the data. We don’t think that this is very practicable, as from our point of view, the data belong to the customer.”

    Therefore, Fluxcode offers data storage on the manufacturer’s server. “This goes down well with our customers,” says Carstensen. “We have optimized the amount of data so that a small enterprise can produce several years with our software, and its data storage will remain in the low double-digit gigabyte zone.”

    The company supplies only the software part of the track-and-trace system, but it has long-term partners from the respective hardware areas, including aggregation systems, printer manufacturers or external repositories. “At the request of the customer, there is also the option that one party acts as the general contractor,” says Carstensen. “This way, the customer has only one contact person and one contracting party without having to negotiate with each provider individually.”

    Flexibility is Key

    Fluxcode’s solution has been designed to be flexible so that a small manufacturer of handmade cigars can use it just as well as a multinational company, says Carstensen. Most of the company’s clients are medium-sized companies with between five and 50 production lines. They are highly diverse, ranging from cigarette and roll-your-own manufacturers to moist snuff, cigar and cigarillo makers. With T&T becoming mandatory for other tobacco products in the EU starting this May, the company has witnessed increased demand for its offerings. “Many companies, especially smaller ones, are very insecure and have no concrete idea what this obligation will mean for them,” says Carstensen. “Apart from software, this requires a lot of educational work.”

    Despite its complexity, Fluxcode is easy to use and stable, according to Carstensen. “Principally, there are very few cases where support is needed since our software enables the customer to solve many issues himself with a simple click. Besides, it runs reliably and provides the user with information before a potential data error occurs.”

    Should support be required, response times are low compared to other companies, stresses Carstensen. “In most cases, issues can be solved within hours.”

    Currently, the majority of Fluxcode’s customers have their manufacturing sites inside the EU, but the company is in advanced talks with clients in Asia and South America. The system is highly compatible with the various T&T requirements of individual regions, according to Fluxcode. Differences can be found not only in international tobacco markets but even within the EU. “Registration with an EU ID issuer is not standardized, hence each country has its own system and interface for this,” says Carstensen. “Registration can be more or less demanding—in Italy, for example, the process takes several weeks. In other countries, registration takes place with a few mouse clicks.”

    Production outside the EU may require other parameters, such as the obligation to print two codes on the packaging. The different product categories also present different challenges. “Cigarettes have a faster production speed than cigars or shisha tobacco, hence there is more motion along the entire production line,” says Carstensen. “This can cause print images to blur or smudge. This requires precise interaction of speed adjustment, production line design and print control. Cigars, on the [other] hand, will have to be printed and labeled individually. If sold in wooden boxes and stored, they require a label that will stick to the box for years and a code that will still be legible [after that time].”

    With a majority of countries committed to tracking and tracing tobacco products in accordance with FCTC requirements but only a few having introduced T&T products yet, Carstensen sees vast potential for his solution. “Tobacco products are only the beginning. In Russia alone, several sectors are required to track and trace, such as milk, baby food or alcohol. Here, new markets will emerge in the future.”

    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.
  • Tobacco Control’s Nervous Breakdown

    Tobacco Control’s Nervous Breakdown

    Photo: Xalanx

    Innovation in the recreational nicotine market is revolutionizing the tobacco industry and disrupting tobacco control.

    By Clive Bates

    In his groundbreaking 1997 book, The Innovator’s Dilemma, Clayton Christensen defined the concept of “disruptive innovation.” The term is often used carelessly, but disruptive innovation has several characteristics that apply in today’s tobacco and nicotine market. In essence, it is a theory of how entrants to a market can challenge incumbents by focusing on unmet needs using novel business models exploiting simple enabling technologies.

    In the nicotine market, the lithium-ion battery provided a critical enabling technology with sufficient power and energy density to replace combustion with electrical heating to create an inhalable aerosol in a compact and convenient form. Once the concept took off in the early 2010s, the technology rapidly evolved through at least four major generations during the decade. The disruption has never stopped, and the emerging incumbents in the vape industry now face disruption from disposable single-use vape products. It isn’t just technology; the business model has changed and adapted over time, embracing user-driven innovation, new retailing models such as specialized vape shops and international e-commerce, and a pro-health marketing proposition spread through social media.  

    A new wave of innovation is now breaking with the rapid rise of oral nicotine pouches. This newer trend may prove even more disruptive—a low-tech, low-cost nicotine delivery with negligible health consequences, no intrusion on others and none of the stigma attached to tobacco. Through vaping, consumers have deconflated tobacco and nicotine use and are now primed to adopt this technology.

    The regulatory environment also played a critical role, but more for what it didn’t do than what it did. In the United States in 2009, the U.K. in 2010 and the European Union in 2013, there were failed attempts to classify and regulate vaping products as medicines. Several core pharmaceutical regulation concepts are hostile to vaping. Vaping products are not smoking cessation therapies but pleasurable consumer alternatives to smoking that require nicotine delivery equivalent to cigarettes. Medicine regulators are not at ease with pleasure, or what they would call “abuse liability,” yet pleasure is integral to their success as consumer products.

    Let’s delve deeper and ask who is disrupted and how.

    First, the incumbent tobacco companies. In the standard model of disruptive innovation, these giants would be caught off guard by fast-moving entrants bringing new technology to a vanguard of early adopting consumers, rapidly changing the market dynamics. This would be felt most keenly as a loss of “pricing power” (the ability to raise prices to compensate for declining cigarette volumes) and a squeeze on margins and revenue in the profitable incumbent cigarette business. This should happen as the existing customer base of people who smoke is exposed to a wide range of low-cost alternatives without many downsides. So far, I don’t think this squeeze on the cigarette business has happened to anything to the extent it might have and still could, even though the companies have entered these markets and developed heated-tobacco products. The reason is that regulators are slamming on the brakes in response to activist and political pressure—disrupting the disruption. Regulatory excess has combined with activists and academics working tirelessly to nurture false risk perceptions and reinforce doubt about the wisdom of stopping smoking by switching to a reduced-risk product. The tobacco industry has been protected from the most severe disruption with the unintentional help of the tobacco control mainstream.

    Second, disruption has wrong-footed regulators and legislators. In response to rapid changes in the market, regulators and legislators have blundered in without first understanding (or perhaps without caring about) the complex adaptive system in which their rules would be applied. Because the new products function as economic substitutes for cigarettes, we expect three primary responses to excessive regulation: more smoking than there otherwise would be, more illicit trade in the new products, and consumers adopting risky workarounds, such as mixing their own flavored e-liquids. For example, limiting nicotine strength in the European Union made it harder to bring to market the pod devices that have been successful in reducing smoking in the United States. Flavor bans in the United States made vapes less appealing and caused more people to smoke, in some cases including young people. The prescription-only availability of vapes in Australia has led to a chaotic, lawless mess, with more than 90 percent supplied via informal, illegal channels. With their mission to protect the young from vaping, regulators forgot that in a world without vaping, many young people would smoke and, therefore, are benefiting from vaping.

    Third, the rise of the confident consumer. Consumers are the primary beneficiaries of the radical reduction in health and welfare detriments of smoke-free products. We are used to smokers burdened with regret, challenged with stigma and punished by anti-smoking policies. But all of that is driven by the health implications of smoking and the policy response that started in the early 1960s. How does the recreational nicotine consumer change if they are no longer troubled by the health and welfare implications of nicotine use and related policies? Simple economic theory suggests that if the costs and nonmonetary detriments of nicotine use fall, then demand will rise. It is likely, in my view, that there will be new users of nicotine who would never have become smokers in the absence of much safer products. For some, that is profoundly disturbing. For me, it is almost an inevitable consequence of having far lower risks and there being a latent demand for the real or perceived hedonistic, functional and therapeutic benefits of nicotine. Public morality may be shocked, but more people (of any age) using much safer products should not cause a public health crisis—we would be moving to substance use more like drinking coffee.

    Fourth, the existential threat to the tobacco control complex. The public discussion of the emerging landscape of low-risk consumer products seldom focuses on the interest group that is most vulnerable to disruption: the mainstream of tobacco control. It is a complex of interests comprising nonprofit activists, academics, medical and health societies, major institutions (such as the World Health Organization or the U.S. Food and Drug Administration), philanthropists and research-funding bodies. The problem for the mainstream of tobacco control is that without serious harm, the whole movement loses its purpose and its reason to exist. When it comes to low-risk alternatives to smoking, this complex is profoundly confronted by the threat of having nothing to control, no case for intervention and no reason to be. It is a powerful incumbent interest group challenged by new technology, new suppliers and new consumer confidence.

    As a result, the mainstream of this interest group has rejected tobacco harm reduction as a strategy for addressing its own notional goals of reducing death and disease from tobacco use. Instead, it has mounted a rear-guard defense based on a range of strategies, including the following:

    • Falsely implying that noncombustible products are no less risky than cigarettes, that data is too uncertain or short-term, or asserting that reduced risk is no more than a marketing claim of tobacco companies.
    • Asserting that harm reduction is merely a commercial strategy of tobacco companies. The aim here is to attach the reputational baggage of “Big Tobacco” to these new developments. Yet, many independent experts support tobacco harm reduction, and it is good if tobacco companies adopt a business model aligned with reducing health impacts.
    • Excluding or stigmatizing contrarian opinions and creating sealed bubbles open to groupthink. The WHO Framework Convention on Tobacco Control has taken this to new extremes.
    • Shifting emphasis to problematize nicotine rather than the “tar” of cigarette smoke that is the cause of nearly all tobacco-related disease. We are hearing more about “addiction” and less about cancer. Yet, a dependence only meets the definition of addiction if there is serious net harm to the user.
    • A relentless focus on the supposed interests of children without recognizing that would-be smokers among adolescents also benefit from low-risk products and that the demand for nicotine has persisted across generations for hundreds of years. Young people have an interest in the health of the significant adults in their lives as carers, breadwinners and role models.
    • Pressing for prohibitions or equivalent regulation to cigarettes, often with manipulation of language to imply equivalent risk, for example, by stating that heated-tobacco products produce “smoke” or that all tobacco products should be treated the same even though they have very different risks.
    • A blunt refusal to face trade-offs (for example, between the interests of youth and adults) or unintended consequences (for example, increases in smoking) arising from favored policy positions.

    I have watched on in horror as the leadership in tobacco control, albeit with many honorable exceptions, has dogmatically denied and suppressed the opportunity to radically reshape the recreational nicotine market to cause vastly reduced harm and avoid hundreds of millions of premature deaths. It looks like a nervous breakdown is developing in tobacco control in response to profound disruptive innovation. I doubt they will survive it.

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

    After Disposables

    Photo: Image: Viktoria Ostroushko

    It is opportune for the industry to revisit the fundamental purpose of vaping—harm reduction and providing a superior consumer experience.

    By Douglas Ming Deng

    Pro or against? It is undeniable that disposable e-cigarettes have been the most popular format in the market over the past four years. Despite earlier predictions of their imminent disappearance, recent events like TPE24 and Champs in February suggest that manufacturers and distributors are still committed to showcasing elaborate disposable models. With features such as increased puff capacity, larger screens and vibrant colors, there seems to be no limit to the innovations of the disposables they’re introducing.

    However, changes are on the horizon, especially since the British government announced a ban on disposable e-cigarettes. The ban has sparked growing concerns among industry stakeholders regarding the life cycle of this category. While compliance has always been a central issue, the heightened emphasis on enforcement in the past months has prompted industry-wide apprehension. Yet, for those familiar with the evolution of vapor products, the shift in exterior designs should not be surprising given the industry’s history of transitioning from closed systems to open systems then to pods, pod-mods and now disposables within the past two decades.

    At the TPE24 and Champs Trade show, numerous disposable products were exhibited with minimal differentiation among them. Instead of specifying their current preferences for an ideal e-cigarette, both distributors and shop buyers voiced their anticipation for what would become popular six months down the line. To predict the future trends of products, it becomes essential to unravel the reasons behind the success of disposables.

    The affordability of disposables lowers the threshold, allowing for a smoother transition for those seeking to switch from combustibles to risk-reduced products (RRPs). Disposables possess clear advantages over device-based systems, particularly in terms of portability, while retaining key features such as noncompatibility of fake cartridges and adjustable coil voltage. In addition, they contribute to relative environmental protection with the increasing volume of liquid filled. However, the downsides of disposables are apparent. Firstly, their disposability sparks significant environmental protection debates, necessitating solutions that incur additional costs and subsequently leading to a general rise in the price of vapor products. Therefore, the next-generation vapor products will be sold at a higher price margin than the current disposables.

    Recently, solutions like paper-based bodies with biodegradable plastic components have been introduced to disposable e-cigarettes. In the EU, regulations mandate the rechargeability of batteries in vape products, establishing a reusable device as the minimum standard for the next generation of e-cigarettes. Moreover, the widespread use of disposables among underage individuals has cast a shadow over the entire category since its inception. While recent reports suggest a decline, with some teenagers deeming vaping immature, the issue remains pertinent. If even a single producer persists in designing disposable vapes with toy-like appearances and cotton candy flavors targeting underage kids, the entire industry could face consequences. This negative externality has become more critical than ever, emphasizing the need for the industry to unite and reach a consensus on addressing these public enemies. It is the right time to reconstruct the value of the whole industry and shape a new image of vapor.

    Noteworthy Changes

    Since the beginning of 2023, the evolution of disposable e-cigarettes has undergone a remarkable surge. For many, the exterior appearance of these products has transformed so swiftly that some manufacturers express concern that their latest models could become outdated before even hitting the market. The size has shifted from compact to large, the weight from light to heavy and the e-liquid tank from small to enormous. The rapid evolution of disposables suggests that the category is approaching the culmination of its development.

    One noteworthy change, above all, is the incorporation of screens on these products. While screens have appeared on vapor products before, recent developments significantly differ, particularly from those on open systems. Within just one year, screens have evolved from simple black-and-white displays to color ones then to TFT-LCD, and some brands have now introduced new products with LED touch screens. The on-screen features change from display of battery life and e-liquid contents to fancy animations ranging from alien UFOs shooting off to fireworks blasting, and they seem to emerge one after another. One might question: Are these high-end features really necessary for a disposable vape product priced at $30?

    As a scholar closely studying the industry over the past two decades, I strongly believe that the integration of screens on disposable vapes marks a significant breakthrough in vape products and could mean the evolution of vapor toward an advanced step. Interactivity is poised to become the defining characteristic of next-generation e-cigarettes. This interactivity fosters a dialogue between end users and other stakeholders in the industry chain.

    Currently, a major obstacle hindering the expansion of vapor to those who seek RRPs is the lack of communication among manufacturers, sellers, end users and regulators. When end users visit a shop, they often lack knowledge about why they are buying an e-cigarette and what product suits their needs. Shop assistants, with varying levels of expertise, recommend products, and some may lack technical knowledge about flavor differences. Neither end users nor sellers often realize that tobacco harm reduction (THR) is the real selling point of vape products. However, a smart device could facilitate communication between end users, manufacturers and sellers, allowing real smoking experiences to be reported to manufacturers for them to conduct consumer-oriented innovation. During my keynote speech at GTNF 2023 in Seoul, I emphasized the concept of a regulatory sandbox. Such a sandbox would only be viable with the presence of a smart vape device. It would enable vape products to be regulated in a closed loop, fostering innovation by allowing regulators to monitor real-time product testing. Enterprises would receive regulatory feedback promptly, adjusting their research and development accordingly. This approach enhances regulatory efficiency and ultimately builds trust among regulators, enterprises and consumers. Thus, the transition will be achieved from “wait and improve” to “test and innovate.”

    In 2022, the introduction of the Lil Aible by KT&G was groundbreaking. This smart device seamlessly integrates the use of heated-tobacco products (HTPs), incorporating both granular and reconstituted tobacco, along with vape technology. The exterior of Lil Aible mirrors the trend observed in disposables today—a robust device featuring a high-definition touch screen. However, the interior features of Lil Aible offer a glimpse into the future of vapor products: the incorporation of an AI function powered by a robust digital CPU. This function not only empowers the e-cigarette to optimize the smoking behavior of each individual user, enabling them to control the total puffs consumed every day, but also enhances harm reduction capabilities. Moreover, the implementation of facial recognition on a smart vape device, when used with due consideration for privacy, can effectively prevent usage by minors. This technology alleviates the burden on regulators for monitoring purposes.

    Furthermore, an AI-empowered device would revolutionize the flavoring process. Currently, manual flavoring is often considered an art, with the addition of various flavor chemicals relying on the blender’s personal taste and experience. However, in the era of digital flavoring, the process resembles coding basic substances through chromatographic fingerprints. The flavor can be precisely replicated on an AI smart vape device, a concept known as decoding. It’s crucial to recognize that e-cigarettes possess a natural electronic endowment, making them inherently suited for digital flavoring. In comparison to substances like alcohol or perfume, e-cigarettes have a distinct advantage in executing digital flavoring. This advantage is particularly pronounced in tobacco-flavored e-liquid, where manual methods may fall short of achieving promising results. The inherently possessed electronic capabilities of e-cigarettes may facilitate more straightforward communication between producers and users.

    Computer Chips Vs. Potato Chips

    Instead of dwelling on the next exterior appearance of e-cigarettes after disposables, it is opportune for the entire industry to revisit the fundamental purpose of vaping—harm reduction and providing a superior consumer experience. Shenzhen, China, renowned as the “Vape Valley,” possesses the capability to spearhead the creation of the next generation of e-cigarettes. During GTNF 2023, we delved into discussions about the future trends of vapor products. Moving forward, professional and technical forums like CORESTA or the Tobacco Science Research Conference serve as valuable platforms to gauge the direction of the next generation of vape products. It is in these forums that the industry can collectively shape the future while staying true to the core principles of harm reduction and delivering an enhanced user experience.

    In the years to come, e-cigarettes will embody characteristics of both fast moving consumer goods and more advanced, versatile electronic durable goods. Rather than opting for radical change, the transition from disposables to next-generation devices will be gradual. Like I said during a 2023 industry conference in Shenzhen, involution might only lead to the production of “potato chips” instead of “computer chips.” While potato chips can satiate basic appetites, aiming for the sophistication of computer chips elevates the vape industry to a higher standard. It is crucial for the industry to recognize this potential, as failure to do so may result in being confined to the low-end recycling sector.

    In conclusion, the narrative of disposable e-cigarettes mirrors the industry’s dynamic spirit—a story of adaptation, innovation and a relentless pursuit of excellence. The application of screens on disposables might disclose the future of vapor. Standing at the precipice of evolution, the industry is not merely chasing trends but actively shaping a future where harm reduction, end user-centric experiences and technological advancements harmoniously coexist. The tale of disposables is but a chapter in a grand saga, with each exhale marking a step into a future where vaping transcends boundaries and emerges as a beacon of possibilities.

    Douglas Ming Deng is a professor of next-generation products industry studies at Yunnan University.
  • Chilling Effects

    Chilling Effects

    Image: Jolita Marcinkene

    Is a menthol ban appropriate for the protection of public health? Hopes, concerns and a reality check

    By Cheryl K. Olson

    Is a U.S. menthol ban finally coming? The 2009 Tobacco Control Act exempted menthol cigarettes from its blanket ban on candy and fruit flavors. Menthol was left out, according to CNN, due to “serious lobbying from the industry.”

    As the Washington Post reported, plans to finalize the rule have been made—and postponed—multiple times by the Biden administration. The announcement of a finalized rule was planned for this month.

    The Food and Drug Administration first announced its “proposed product standards to prohibit menthol as a characterizing flavor in cigarettes” back in April 2022. The stated purpose? To reduce appeal to and experimentation by youth that will lead to regular smoking addiction and to reduce disease and death among adults via fewer cigarettes smoked and more quitting. A ban is also “expected to reduce tobacco-related health disparities.” The ban would target making and selling not individual possession or use.

    Concerns that banning menthol could exacerbate waning enthusiasm for Biden among Black voters appears to be one factor behind the delay. (Hoping to capitalize on this, one conservative group is reportedly testing menthol-focused ads on Black South Carolina primary election voters.) Four in five Black adults who smoke report choosing menthols. 

    The National Association for the Advancement of Colored People, a venerable advocacy organization for Black Americans, supports a federal menthol ban. In a Jan. 12 press release, its senior vice president of global policy called out “the relentless predatory marketing of menthol-flavored cigarettes, [which] has inflicted devastating consequences on Black communities.” This included ads in Black-oriented media, such as Ebony magazine, and sponsored events, such as the Kool Jazz Festival.

    Other organizations, such as Reverend Al Sharpton’s National Action Network, have argued against singling out menthol for a ban. Sharpton has expressed concern that a menthol focus could increase over-policing of Black communities, pointing to the New York City police killing of Eric Garner, who was suspected of selling “loosie” untaxed cigarettes.

    “The illicit market is always open and doesn’t check IDs.”

    Why Menthol?

    In the U.S., menthol has been added to cigarettes for at least 100 years, at times promoted as throat-soothing for coughs and colds. National government surveys find that, as smoking rates overall trend down, the proportion of menthols smoked has crept up.

    These surveys show that menthol smoking is disproportionately higher among subgroups of people regulators consider disadvantaged or vulnerable. This includes Black and Hispanic adults who smoke, young adults, women and persons reporting serious psychological distress.

    Concern that menthol may be a drag on cessation rates has boosted support for a ban. Because it reduces irritation, menthol may make it easier to start smoking. It’s used more often by people who smoke intermittently or experimentally. Researchers have called for more studies to parse and prove a causal role for menthol in increasing smoking and deterring quitting.

    In this century, smoking rates have been stagnant among African-American adults who smoke. A 2020 analysis of U.S. studies did not find an overall effect of menthol on smoking cessation but did find that among African-Americans who smoked, use of menthol was linked to 12 percent lower odds of quitting. 

    Can bans help people quit smoking? To some degree, yes. Pooled results from a 2024 systematic review and meta-analysis of English-language menthol ban studies found that 24 percent of those who smoked menthols had quit cigarettes a year or two later. But results varied widely; bans took place under a variety of conditions, and most of the studies included had small or unrepresentative samples.

    For example, a survey of San Francisco’s ban of menthol and other flavors in all tobacco products found decreased flavored e-cigarette and cigar use and a slight uptick in smoking. The study used a small convenience sample of 247 young adults. Even rigorous economic studies of bans admit to trouble tracking illicit and cross-border sales and other workarounds.

    Regulators are aware of the need for better research. The FDA recently awarded a $3.6 million grant to researchers at the Medical University of South Carolina to study whether banning menthol in cigarettes (and e-cigarettes) would increase quitting or switching. Meanwhile, Rutgers University received two grants totaling $7 million via the National Institutes of Health to study anticipated “disinformation” from industry, aimed at Black and Hispanic young adults, that could “undermine the impact of a ban on menthol cigarettes and flavored cigars.”

    What Could Go Wrong?

    The FDA expects minimal illegal trade in event of a ban. Richard Marianos disagrees. He is a retired assistant director at the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives and a faculty member at Georgetown University. Marianos says banning products creates crime. 

    Illicit sales of individual cigarettes and contraband packs are already problematic, in part because taxes have driven up costs. Marianos showed me photos of several men, one with a gun in his waistband, at an illegal sales spot outside of a Washington, D.C., Metro station.

    “People come off the train, buy four loosies from the spot, then ration them out during the day,” he says. “You can get your marijuana, your cocaine and your Newports.”

    The flavor ban in California has sparked increased robberies of convenience stores across the border in Arizona, according to Marianos. “A pack of menthol cigarettes that they can steal and sell for $2 apiece at the spot derives a greater profit than a cash register robbery,” he says. “I have videos of crews hitting a Circle K or Wawa, jumping over the counter, sticking up the clerk and—like Santa—putting the cigarettes into a gigantic tarp and taking off.”

    A Canadian study of intended and unintended effects of their menthol ban found that many people purchased menthols on First Nations reserves, where the ban did not apply. Marianos expects that Native American reservations in the U.S. would similarly help meet demand.

    The practical path forward for advocates of an enforceable menthol cigarette ban is to actively promote harm reduction.

    Menthol Workarounds

    The assumption by many tobacco control advocates that Big Tobacco will sabotage menthol bans overlooks the likely ingenuity of individuals. Marianos described one case he ran across: “A guy was going on eBay and buying menthol crystals, spraying regular cigarettes in his basement and then selling them on the corner as menthols.”

    Noting that products to alter cigarette characteristics are illegal under the proposed rule, “FDA does not anticipate a substantial number of individuals would utilize such products.”

    Researchers have documented sales of flavor cards and menthol drops in Canada and various flavor accessories in the European Union to circumvent their menthol bans—predictably leading to calls to ban those items too. 

     “The illicit market is always open and doesn’t check IDs,” notes Nicholas “Grimm” Green, a YouTuber and tobacco harm reduction advocate. “As long as $10 ‘menthol injectors’ exist on Amazon, the idea of a menthol ban is silly.”

    That’s not to say that companies won’t do their part to circumvent a menthol ban. “Tobacco companies have already introduced nonmenthol-menthol cigarettes into the market in California,” says Green. Further, enforcement is lax. “Menthol disposable vapes are available at almost every gas station and head shop in the state,” he adds.

    The California ban, approved by voter referendum, went into effect in December 2022. It covers not just menthol cigarettes but nearly all flavored nicotine products. Researchers have found synthetic cooling agents that give menthol-like effects in cigarettes sold in that state. A journalist from STAT News found widespread sales of flavored products, even in cities that had their own longstanding flavor bans.

    Legal Hurdles

    If the menthol rule comes to pass, store shelves aren’t immediately cleared. Flavor bans enacted by states can take effect within months. Because the proposed federal ban comes out of the FDA’s complex rule-making process, it could take years.

    “If they publish that rule on a Monday, the next day, you’ll see a legal challenge filed to prevent it from ever going into effect,” says Jeffrey Weiss, partner at Flagstaff Ventures and formerly chief engagement officer and general counsel at Njoy. 

    He predicts a dead-end fate for the menthol ban, similar to that of the final rule requiring graphic health warnings on cigarette packs. Why?

    U.S. law requires that adoption of tobacco product standards must be appropriate for the protection of public health. In supplementary information to the proposed menthol rule, the FDA cites research, including population models and expert opinions, on what is expected to happen after a menthol ban.

    “They model that a certain percentage will switch to tobacco cigarettes, a percentage will buy black market menthol cigarettes, a percentage will quit and a percentage will switch to an e-cigarette, primarily menthol,” Weiss says. “But that model doesn’t actually exist—in the sense that there are no authorized menthol e-cigarettes for smokers to switch to.”

    Post-ban, more menthol users are expected to switch to menthol e-cigarettes than to quit using tobacco. In sum, much of the health benefit from banning menthol is supposed to come via unauthorized product use. Products that are themselves banned in a growing number of states and localities.

    Regulators are not unaware of this conundrum. FDA Commissioner Robert Califf has publicly expressed concern about the difficulties that people dependent on menthol cigarettes will face if the products are taken away. For example, he remarked at a 2023 Congressional budget hearing, “[W]here do they [menthol users] go to get help, coming off of a terrible addiction? Our healthcare systems are not set up to deal with that right now.”

    What about evidence for a menthol ban preventing harm to youth? The respected nationally representative Monitoring the Future study found that past-month menthol and nonmenthol cigarette use by non-Hispanic black teens is now less than 1 percent. It’s fallen so low in recent years that “prevalence levels approach a floor effect.” Moreover, today’s Black adolescents use menthol cigarettes at lower levels than non-Black youth.  

    A Better Way?

    Given the high risk of unintended effects and the limited certainty of benefits, is a menthol ban our best plan? “It would be best if the government would think first in the direction of ‘how can we affirmatively help people make positive change?’” Weiss says. “Because prohibitions are hard and costly to enforce.”

    The lack of authorized reduced-harm menthol or mint products is just part of the problem. Another is the FDA’s limited and ambivalent reduced-risk communications.

    Weiss points to the FDA’s routine tweeting of its one-page list of 23 authorized e-cigarette products. At the bottom of the page is a disclaimer: Being authorized “does not mean that these products are safe nor are they ‘FDA approved.’ All tobacco products are harmful.”

    “If you want a current menthol smoker who can’t completely quit to switch to a regulated reduced-harm product—how are they going to do that when you’re telling them that none of these products are safe?” says Weiss. “If it’s an unsafe product, why is that a better choice for me” than a tobacco-flavored cigarette or an illicit menthol one? 

    Active promotion of reduced-harm menthol alternatives seems a sensible way to limit ban backfires. A rigorous laboratory study of adults who smoked menthol cigarettes daily found that menthol-flavored e-cigarettes outshone tobacco-flavored ones in reducing cigarette cravings—including urges to smoke for pleasure. According to the authors (affiliated with prominent universities), this is a known strong predictor of successful smoking cessation.

    The practical path forward for advocates of an enforceable menthol cigarette ban is to actively promote harm reduction. “Encourage FDA to start authorizing menthol e-cigarettes, among other things, so that these smokers would have something to switch to,” says Weiss. “And to make it more likely that a menthol ban could withstand a legal challenge.”

    Cheryl K. Olson is a California-based public health researcher who specializes in behavioral health issues and consults on tobacco product behaviors via McKinney Regulatory Science Advisors. She spent 15 years on the faculty of Harvard Medical School.
  • Tax Would Restrict Harm Reduction to the Rich

    Tax Would Restrict Harm Reduction to the Rich

    Photo: Anastasia Kargapolov

    The U.K. risks becoming a harm reduction country for the wealthy only, according to the World Vapers Alliance (WVA).

    The government, led by Prime Minister Rishi Sunak, is reportedly planning to impose increased taxation on vaping products alongside traditional cigarettes. The proposal has sparked significant concern among U.K. vaping advocates, who argue it threatens to undermine the nation’s progress in harm reduction and smoking cessation efforts.

    “It appears that in a bid to generate additional tax revenue, the U.K. government is willing to compromise the health of thousands of smokers,” said WVA Director Michael Landl. “This is yet another step in the wrong direction. By making less harmful alternatives to smoking more expensive, the government is effectively deterring smokers from making the switch. This measure will disproportionately affect the less affluent and exacerbate health inequalities, especially during a cost of living crisis.”

    The WVA cites statistical evidence revealing the disproportionate impact of smoking on lower socioeconomic groups. In 2021, the Office for National Statistics highlighted a stark disparity in smoking prevalence related to economic status in the U.K. Unemployed individuals reported a significantly higher smoking rate (25.7 percent) compared to those in paid employment (13.3 percent). Furthermore, in England, a pronounced smoking prevalence was observed in the most deprived neighborhoods (23.8 percent) in contrast to the least deprived (6.8 percent).

    Landl also criticized the government’s proposed bans on disposable vapes and generational restrictions on heat-not-burn products.

    “Along with the proposed tax increases, these bans will only serve to transform the U.K. from a leader in tobacco harm reduction into a haven for black market activities,” he said.

  • E-cig Harm Perceptions Worsening: Study

    E-cig Harm Perceptions Worsening: Study

    Photo: Asier

    Harm perceptions of e-cigarettes have worsened substantially over the last decade among adult smokers in England, according to a study published by Jama Network Open.

    In 2023, most adults who smoked believed e-cigarettes to be at least as harmful as cigarettes. The timing of the changes in harm perceptions coincided with the e-cigarette, or vaping product, use-associated lung injury outbreak in 2019 and the recent increase in youth vaping in England since 2021.

    Researchers collected data from 28 393 adult smokers. In November 2014, 44.4 percent thought e-cigarettes were less harmful than cigarettes, 30.3 percent  thought e-cigarettes were equally harmful, 10.8 percent thought they were more harmful, and 14.5 percent said they did not know.

    However, by June 2023, the proportion who thought e-cigarettes were less harmful had decreased by 40 percent, and the proportion who thought e-cigarettes were more harmful had more than doubled.

    Changes over time were nonlinear: late 2019 saw a sharp decline in the proportion who thought e-cigarettes were less harmful and increases in the proportions who thought they were equally or more harmful. These changes were short-lived, returning to pre-2019 levels by the end of 2020.

    However, perceptions worsened again from 2021 up to the end of the study period: the proportion who thought e-cigarettes were more harmful increased to a new high, and the proportion who thought e-cigarettes were less harmful decreased to levels comparable to those in late 2019.

    As a result, in June 2023, the perception that e-cigarettes were equally as harmful as cigarettes was the most commonly held view among adults who smoke, with roughly similar proportions perceiving e-cigarettes to be less and more harmful.

  • Poland Mulling Ban on Disposables

    Poland Mulling Ban on Disposables

    Photo: Yelena Belodedova

    Polish Health Minister Izabela Leszczyna is mulling a ban on the sale of disposable electronic cigarettes, according to the Polish edition of Business Insider.

    Leszczyna added that she would like to pursue the fastest possible legislative path to such as measure, given that as many as 64 percent young people in Poland had “contact” with the product.

    The news comes after the United Kingdom announced a ban on single-use cigarettes in January.

    Meanwhile, Poland is preparing to implement the EU directive banning the sale of flavored heated tobacco products. According to local media reports, the regulation may take effect from next year.

    The EU directive prohibits the placing on the EU market of flavored heated tobacco products and removes the possibility for member states to grant exemptions for such products from certain labeling requirements set out in EU law.