Blog - Tobacco Reporter

Altria in Talks to Buy Njoy

Altria Group is in advanced talks to buy e-cigarette startup Njoy Holdings for at least $2.75 billion, the Wall Street Journal reported, citing people familiar with the matter, according to Reuters.

The Njoy deal could be announced as soon as this week, though the talks could still fall through, according to the report.

The proposed deal includes an additional $500 million earnout if regulatory milestones are met.

The potential deal follows Altria’s decision last year to be released from its noncompete deal with Juul Labs almost four years after buying a 35 percent stake in the company. Altria was planning to divest its stake in Juul. As of Dec. 31, Altria valued the stake at $250 million.

It was reported in July that Njoy had hired bankers for a possible sale of the company. The privately held firm is likely to be valued at up to $5 billion.

Njoy has a roughly 2 percent of the U.S. vape market by volume, according to Jefferies, Juul, by contrast, accounts for around a quarter of American vapor product sales.

Unlike Juul, however, Njoy is one of the few vape brands that have permission from the U.S. Food and Drug Administration to continue to sell its products. Juul is waiting to hear whether the FDA will allow its e-cigarettes to remain on the market.

In June 2022, the agency ordered Juul to remove its products from the market after finding that premarket tobacco product application failed to prove they would “appropriate for the protection of public health.

The FDA agreed to take another look at Juul’s application after the company appealed the marketing denial order in court. The company can continue selling its products at least until the agency makes a final decision.

Altria is keen to supplement its income from combustible products with earnings from smoking alternatives, such as e-cigarettes.

Its cigarette sales volumes fell 9.5 percent last year as high gasoline prices and general inflation pinched smokers’ disposable income.

February 28, 2023

Top Court Declines to Hear Flavor Ban Appeal

The U.S. Supreme Court on Feb. 27 declined to hear an appeal by three Reynolds American Inc. subsidiaries seeking to overturn the county of Los Angeles ban on flavored tobacco products, reports Law360.

R.J. Reynolds Vapor Co., American Snuff Co. and Santa Fe Natural Tobacco Co. had petitioned the high court in October to take another look at the case after the full 9th Circuit upheld a lower court’s dismissal of the suit.

The RAI companies said the 9th Circuit had twice before erred in allowing sales bans at the state and local level that were preempted by federal law.

While the federal Tobacco Control Act grants state and local municipalities broad authority to regulate the sale of tobacco products, it does not allow them to completely prohibit the sale of those products for failing to meet state or local tobacco product standards, the companies argued.

In dismissing their initial suit, District Judge Dale S. Fischer in 2021 found that the ban doesn’t regulate tobacco product standards. The judge said the ordinance is protected by the federal law’s preservation clause, which allows states and localities to prohibit the sale of tobacco products even if those bans are stricter than federal law.

The companies appealed, calling the ban unconstitutional and saying state and local governments can’t bar the sale of tobacco products because they disagree with federal tobacco standards.

L.A. County countered that the ban doesn’t pose an obstacle to federal policy since the FDA announced it intends to ban menthol cigarettes and all flavored cigars.

February 28, 2023

Youth Protection Guidelines Updated

The U.K. Vaping Industry Association has updated its guide to retailers on preventing underage sales.

UKVIA Director General John Dunne said tackling the sale of vaping products to minors was “one of the most fundamental challenges facing the industry.”

The UKVIA is making its “Preventing Underage Sales Guide” freely available via its website.

The 20-page guide has been developed in partnership with the association’s Primary Authority Partners, Buckinghamshire and Surrey and Trading Standards.

Dunne said: “The entire UKVIA membership is united behind the message that we must do all in our power to stop underage sales.

“This is one battle that we simply have to win, but we need the support of government, regulators and enforcement authorities in order to do so.

“Our underage sales guide will give retailers all the information they need so that they don’t inadvertently sell to someone under 18.

“Policymakers, politicians and consumers must have confidence that the vaping industry is a responsible sector, and this will be undermined if businesses do not implement and uphold robust age verification processes.

“The guide gives clear advice on how to implement a ‘Challenge 25’ policy and why it is important that anyone who appears to be younger than 25 should be asked to provide ID.”

February 28, 2023

Industry Unimpressed by CTP ‘Reset’

Vaping industry representatives are unimpressed by the U.S. Food and Drug Administration’s plan, announced Feb. 24, to address the shortcomings in the operations of its Center for Tobacco Products (CTP) identified by independent evaluators working through the Reagan-Udall Foundation.

“While the devil is in the details, nothing in today’s announcement hinted at any material shift in FDA’s perpetual attack on every nicotine-containing product,” Tony Abboud of the Vapor Technology Association told AP News.

The CTP has come under fire from various sides, with health advocates urging the agency to more aggressively police regular cigarettes and flavored e-cigarettes, and tobacco companies complaining that the FDA is unwilling to approve new products, including e-cigarettes, which might help adults quit smoking.

To address such criticisms, FDA Commissioner Robert Califf in July 2022 ordered an independent investigation into the CTP’s operations.

On Dec. 19, 2022, the Reagan-Udall panel issued a blistering report. Evaluators described the FDA as “reactive and overwhelmed,” with a demoralized workforce that struggles to oversee both traditional tobacco products and a freewheeling e-cigarette market.

In response, the FDA pledged a reset to the agency’s tobacco program. The CTP director promised to develop a five-year plan by the end of 2023 outlining priorities, including efforts to clean up a sprawling market of largely unauthorized electronic cigarettes. The agency also said it would provide more transparency to companies about its decisions, following the rejection of more than 1 million applications from e-cigarette makers seeking to market their products as alternatives for adult smokers.

Nothing in today’s announcement hinted at any material shift in FDA’s perpetual attack on every nicotine-containing product.

Tony Abboud, executive director, Vapor Technology Association

Vaping industry representatives expressed disappointment with the FDA announcement, which they said would continue to result in denials for most vaping products.

“After the scorching findings from the Reagan-Udall report, the FDA should be issuing a mea culpa to the American public for the calamity created by the agency’s insistence on crushing the nicotine vaping market,” the American Vapor Manufacturers Association wrote in a statement.

“But instead of taking responsibility, the agency is proposing yet more task forces, more bureaucrats and even a so-called ‘five-year plan,’ which is government shorthand for punt, retreat, and see you later. It’s not good enough, not by a long shot, and the millions of Americans relying on vaping products to stay off cigarettes have once again been bast to the wind by the FDA’s chronic negligence and indifference.”

Americans for Tax Reform described the CTP’s response as “inadequate,” saying it fails to address the critical issues highlighted by the Reagan-Udall Foundation. “Since [CTP] Director King and FDA are clearly unwilling to step in and fix the problems plaguing the Center for Tobacco Products, this falls upon Congress, and specifically the new Republican House Majority, to use oversight powers to reestablish trust in FDA and improve public health,” the group wrote in a statement.

While welcoming the CTP’s new commitment to transparency, the Premium Cigar Association (PCA) expressed concern that the CTP continues to view industry engagement as an afterthought rather than a means to better understand how its approach can be better designed in the developmental phase of regulations, guidance or strategic planning.

The PCA also questioned the CTP’s desire to increase its workforce and raise more funds through user fees. “Until the systemic failures are addressed, growing an agency that already spans over 1100 employees will only complicate and compound its problems,” the PCA wrote in a statement. “Rather, CTP should embrace Congressional oversight, as does every other Federal Agency, to ensure that its ongoing efforts remain in-line with its statutory mission and public demands.

February 27, 2023

ITC shares Surge on Adani Worries

Shares in tobacco manufacturer ITC have increased more than 75 percent as investors seek stability in the Indian stock market, which has been churning with concerns about corporate governance following Hindenburg Research’s allegations against the Adani Group.

“ITC’s stable cash flow and dividends have won hearts of investors in this volatile environment amid Adani’s troubles and inflation,” Sameer Kalra, founder of Target Investing in Mumbai, told Bloomberg. “The company is also expected to unlock value of its noncigarette businesses.”

ITC not only offers attractive dividend yields and returns on equity, but it also ranks top in a Bloomberg Economics analysis of governance, liquidity and leverage at Indian conglomerates.

ITC has gotten a further boost from stronger-than-expected third-quarter earnings. In early February, ITC reported a profit of INR50.31 billion ($614.52 billion) in the October–December quarter, up from INR40.56 billion in the comparable 2021 period. The company attributed the increase to strong cigarette sales and steady demand for its packaged foods.

February 27, 2023

General Cigar Appeals Cohiba Ruling

Scandinavian Tobacco Group’s (STG) General Cigar Co. has appealed the Trademark Trial and Appeal Board’s (TTAB) December 2022 cancelation of the Cohiba trademark registration in the United States.

“By initiating this lawsuit to appeal the TTAB decision and to obtain a declaration of its rights, General Cigar expects the court will ultimately rule it has exclusive U.S. rights to the Cohiba marks,” Regis Broersma, president of STG’s North America and Rest of the World division was quoted as saying by Cigar Journal.

STG and Empresa Cubana del Tabaco (Cubatabaco) have fought over the U.S. rights to the Cohiba trademark since 1997. The TTAB sided in favor of the Cuban cigar conglomerate in its claim on the name, saying that General Cigar Co.’s registrations on the Cohiba trademark are to be canceled due to a violation of an international agreement that dates back to 1929.

However, General Cigar believes the TTAB decision is improperly based on the re-litigation of a claim that was decided in General Cigar’s favor by a U.S. Court of Appeals for the 2nd Circuit more than a decade ago.

In February 2005, the 2nd Circuit Court of Appeals in New York ruled unanimously in favor of General Cigar.

While there are more trademark conflicts between Cuban and American cigar companies, Cohiba is a unique case due to both its prominence on the global stage and its creation by the state-run tobacco company after the Cuban Revolution, whereas other brands with Cuban roots that General Cigar Co. owns, such as Partagas, Hoyo de Monterrey and La Gloria Cubana, were assumed by the Cuban government in 1959.

While the lawsuit moves forward, General Cigar said it will continue to manufacture, market, sell and enforce its Cohiba trademarks.

February 27, 2023

Texas Court to Hear Exploding Battery Case

The Supreme Court of Texas has agreed to hear a lawsuit by a vaper burnt by an exploding battery to determine if Texas courts have jurisdiction over LG Chem America, a subsidiary of South Korea-based LG Chem, which made the battery, reports Law360.

In 2016, Texas resident Tommy Morgan bought an 18650 lithium-ion battery manufactured by LG Chem. He claims it unexpectedly exploded and caught on fire, leading to him suffering permanent and severe injuries, according to his lawsuit filed in 2019 in Brazoria County District Court.

The companies are facing other lawsuits by Texas residents with similar claims concerning batteries exploding. But intermediate appeals courts have come to different conclusions on whether LG Chem has enough contacts in the state to face claims.

LG Chem America and LG Chem have argued that Texas courts lack jurisdiction because the companies don’t sell individual batteries in Texas nor directly to Texas customers. LG has consistently stated in litigation throughout the country that this battery was never intended to be used in e-cigarettes or vaping devices.

Morgan told the Texas high court that the company deliberately shipped its products to Texas customers who were later injured, therefore Texas courts have jurisdiction.

February 27, 2023

Investors Press KT&G on Ginseng Spinoff

A group of activist funds has filed an injunction at the Deajeon District Court in South Korea demanding that KT&G address their demand to spin off its lucrative ginseng business, appoint certain outside directors and strengthen its shareholder return policy, reports The Korea Times.

Led by the Singaporean activist private equity fund Flashlight Capital, the group has repeatedly demanded that the ginseng business be spun off for to recover corporate value and share prices.

However, during an investor relations event last month, KT&G rebuffed the request. “The spinoff will have little to no benefit to the company’s corporate value and shareholders from a long-term perspective,” said KT&G Senior Executive Vice President Bang Kyung-man.

Bang expressed concern that KT&G would potentially lose “synergy” in the event of the ginseng unit’s separation.

During the meeting, KT&G also dismissed the funds’ demand to strengthen KT&G’s shareholder return policy. The cigarette and ginseng product manufacturer said the current policy “should hold for now.”

Flashlight Capital founder Lee Sang-hyun believes KT&G’s share price will bounce back to over KRW140,000, a level last seen in 2016, once the firm reorients its investment portfolio to better achieve environmental, social and governance goals.

KT&G’s share price hit a low of KRW87,100 on Feb. 17 but has recovered since.

February 27, 2023

Study: Filter Ban Only Way to Halt Pollution

Banning cigarette filters is the only way to stop tobacco product pollution, according to a new study published by the Dutch sustainability think tank CE Delft and reported by Dutch News.

Every year, Dutch smokers discard an estimated 200 million to 7.1 billion cigarette butts into the environment.

The current policy of limiting toxic waste by discouraging smoking is not working, according to CE Delft. The organization is also skeptical about the potential of butt deposit schemes. Consumer research has shown that just over one quarter of smokers said they would be willing to hold on to their butts until they had an opportunity to discard them at a collection point.

Dutch Junior Environment Minister Vivianne Heijnen wants to reduce the number of discarded filters, which contain plastics and chemicals, by 70 percent in 2026. The current measures, which include general awareness campaigns and a smoking ban on beaches, have resulted in only a 15 percent decrease, CE Delft found.

In 2022 alone, volunteers collected almost 90,000 cigarette butts during a two-week cleanup of the Dutch beaches, amid 4,400 kilos of waste left by beachgoers.

A ban on cigarette filters will become feasible in 2026 when the European Union will review its rules on single-use plastics, the report noted.

February 27, 2023

Mativ Holdings Reports Results

Mativ Holdings reported sales of $660.1 million in the fourth quarter of 2022, up 69 percent over those reported in the comparable 2021 quarter, reflecting 6 percent constant currency organic sales growth and the benefit of the merger between Neenah and Schweitzer-Mauduit International that created the holding. GAAP Income was $2.5 million and GAAP operating profit was $26.9 million, which all included significant expenses related to the Neenah merger integration.

For the full year 2022, sales increased 51 percent to $2.17 billion, reflecting 11 percent constant currency organic sales growth and the benefit of the merger. GAAP loss was $6.6 million and GAAP operating profit was $51.4 million, which all included significant expenses related to the Neenah merger closing and integration.

“2022 was a historic year for Mativ, bringing together two strong companies to leverage our combined technologies and products to drive value for all of our stakeholders,” said Mativ Holdings CEO Julie Schertell in a statement. “We closed out the year with strong year-over-year fourth-quarter growth for the combined company from continued positive price/cost performance, and we enter 2023 with clear momentum on integration and synergy execution.

“Despite macro uncertainties, our conviction in the opportunities ahead for Mativ is unwavering. We have significant controllable actions to enable strong performance as we enter 2023, specifically cost synergies, innovation and programs focused on commercial and operational excellence, as well as broader, longer term decisions and actions to capitalize on our increased scale.”

February 27, 2023