Turning Point Brands (TPB), a provider of “other tobacco products” and adult consumer alternatives, has acquired tobacco assets and distribution rights from Durfort Holdings and Blunt Wrap USA for $46 million.
Durfort is the long-time supplier of TPB’s make-your-own cigar wrap products. The transaction combines Durfort’s and Blunt Wrap USA’s intellectual property and manufacturing know-how with TPB’s Zig-Zag MYO cigar wraps brand and national distribution.
“We are pleased to enter into this transaction with our business partner,” said Larry Wexler, TPB president and CEO. “In addition to the immediately accretive financial benefits, the transaction secures long-term control of our Zig-Zag MYO cigar wrap products and provides us access to a deep portfolio of tobacco products with significant immediate and future strategic value. This solidifies our current market position and provides a base for accelerated expansion with novel and leading-edge products.”
Through this transaction, TPB acquires co-ownership in the intellectual property rights of all Durfort’s and Blunt Wrap’s homogenized tobacco leaf cigar wraps and cones. The acquisition eliminates current royalty-related expenses on HTL cigar wraps and cones, providing for expanded margins. TPB will also enter into an exclusive master distribution agreement to market and sell the original Blunt Wrap cigar wraps brand in the USA. The master distribution agreement is expected to be effective in the next 120 days, adding complementary access to difficult-to-reach alternative channels.
“This partnership between Durfort and Turning Point Brands has been highly successful in introducing innovative products to the other tobacco products space,” said Danny Sinclair, founder of Durfort and Blunt Wrap USA. “Durfort looks forward to continuing to work with TPB in bringing exciting new alternative products to adult consumers and in expanding distribution of the Blunt Wrap brand through TPB’s nationwide distribution network.”
Lawmakers want to end the tax advantage enjoyed by roll-your-own products.
By George Gay
Earlier this year, the Australian Associated Press reported that, as part of the Australian budget presented in May, the taxation on RYO tobacco—and some other tobacco products—was to be raised over four years to the same level as that on cigarettes. The purpose of this measure, it was said, was to create a “level playing field,” whatever that might mean in this context. So I guess we were expected to believe it was merely incidental that the tax hike was estimated to rake in additional revenue of a$360 million ($277 million) annually.
The idea that the tax on RYO tobacco should be increased to equal that on cigarettes has been around for a while, but it seems to be gaining traction. I cannot help feeling that it is being driven by that rather unpleasant human trait in which most of us at some stage become concerned that someone, somewhere, but not us, is getting away with something. But it is often put forward as a way of improving the health of smokers by pricing RYO tobacco smokers out of the market and not providing a refuge for cigarette smokers when they get priced out of their market. I think, however, that you would have to be terribly trusting to believe that this was the case.
There is, to my mind, a lot of nonsense spoken about the health risks of various tobacco products, especially in the case of the relative risks posed by RYO tobacco and cigarettes. In an extract from a story in the IrishDaily Mail published at the end of May, Martina Blake of the Irish Health Service Executive (HSE) was quoted as saying that people incorrectly believed the consumption of RYO tobacco was safer than was the consumption of manufactured cigarettes but that “nothing could be further from the truth.” “Nothing could be further from the truth” is an ambiguous phrase, but I take it to mean that Blake believes that the consumption of RYO tobacco is riskier than is the consumption of cigarettes, or, at least, just as risky.
I wonder if she has any evidence to support such a claim. My gut feeling is that she does not. The truth of the matter must be that whereas it is known that the consumption of combustible tobacco products in general carries certain risks, we really have no idea what are the relative risks of smoking, including inhaling, various types of tobacco products—if indeed the risk does differ to a level that could be measured.
What is known, however, is that RYO tobacco tends to be smoked by the most financially impoverished people. The Daily Mail story reported on a study titled Roll Your Own Cigarettes in Ireland: Key Patterns and Trends, which was published by the HSE on May 31. The study found that of the 19.5 percent of respondents who smoked in 2014, 24.6 percent reported smoking RYO tobacco, a figure that was said to have risen from 3.5 percent in 2003. At 31.8 percent, male smokers were more likely to smoke RYO tobacco than were women, at 16.3 percent, while the highest prevalence of RYO smoking was among smokers aged below 25, at 44.9 percent. But the significant numbers, in my view, were those that compared the prevalence of RYO smoking among the unemployed, 39.5 percent, with that among those in “other employment categories,” 21.8 percent.
The Daily Mail piece quoted David Evans, a senior research officer at the Department of Public Health, as saying that higher tobacco taxes and prices had been proved to be the single most effective measure to reduce overall tobacco use. “However, the effectiveness of this measure will not be fully achieved if roll-your-own tobacco remains significantly cheaper than manufactured cigarettes,” he said.
Of course, what Evans said could be put another way: Higher tobacco taxes and prices have been proved to be the single most effective measure for reducing the use of duty-paid tobacco. If you arrange things so that RYO tobacco is priced at the same level as are cigarettes, it will simply mean that more people shift directly from duty-paid cigarettes to black-market products, without taking the intermediate step of going to RYO tobacco. What Evans proposes is an excellent way of making financially poor people even poorer while handing more revenue to governments to spend on things that will please those more likely to vote.
Holding their own
While tax differentials remain in place, sales of RYO tobacco are going to react as in the past to the state of the economy in general and, in particular, to the financial situation of those who smoke. And, in recent times, with the financially poor having been impoverished further by the actions of incompetent bankers, sales of RYO tobacco have been holding up well in the markets where it is a significant product, especially when set against sales of cigarettes in those same markets. In 2016, the top 15 markets according to Euromonitor figures obtained by Essentra were Germany (36.19 billion stick equivalents), Belgium (12.87 billion), France (12.82 billion), the Netherlands (10.58 billion), the U.K. (9.87 billion), Hungary (9.53 billion), Spain (9.25 billion), Italy (7.98 billion), Greece (3.6 billion), Poland (3.5 billion), Argentina (3.04 billion), Australia (3.04 billion), the U.S. (2.97 billion), the Czech Republic (2.8 billion) and Israel (1.06 billion).
But the RYO market is a mixed picture, according to Essentra, which supplies filters for cigarettes and RYO tobacco cigarettes. Essentra said Euromonitor figures indicated that, in 2011, worldwide RYO tobacco consumption stood at 139.32 billion stick equivalents and was expected in 2019 to reach 140.24 billion, roughly the same. But the 2011 figure was an increase of 4.9 percent on that of 2010, while the 2019 figure is expected to be down 0.7 percent on that of 2018.
Increased taxation on cigarettes could help maintain sales of RYO tobacco, though this might be offset partially by the launch of more “value” brands of cigarettes. And sales of both cigarettes and RYO tobacco will likely be negatively affected by bans on smoking in public and, to a lesser extent, even private places, such as apartment blocks.
But RYO tobacco sales could be given a nudge by the introduction of more sophisticated materials. There has been a lot of innovation in the papers sector, and filters offer another opportunity. Some RYO tobacco markets, such as India and Thailand, are still largely filter-less. And while in other markets RYO filters are mainly made of acetate, more complex filters are being introduced. Essentra, for instance, said it had supplied cavity, carbon and paper filters, the last of these being more degradable than acetate ones.
Aiming high
Some of this is encouraging, but the danger posed to the RYO tobacco sector by the closing of the tax gap between that levied on cigarettes and that levied on RYO tobacco cannot be overstated. There are people who smoke RYO tobacco for reasons of lifestyle, but they are far outnumbered by those who do so because it is cheaper.
Having said that, there is at least one glimmer of hope should RYO tobacco find itself taxed out of its normal business. On June 13, Imperial Brands posted on its website a note announcing the appointment of Simon Langelier as an independent nonexecutive director of the company.
In announcing the appointment, Imperial said that Langelier had significant international experience within the tobacco industry. “He held a number of senior commercial positions during a 30-year career with Philip Morris International, including in Latin America, Asia, Eastern Europe, [the] Middle East and Africa,” it said. “In addition, he was president of their next-generation products and adjacent businesses. Simon is chairman of PharmaCielo Ltd., a Canadian-based supplier of medicinal-grade cannabis oil extracts and related products.” In welcoming Langelier, Imperial’s chairman, Mark Williamson, said his extensive international experience in tobacco and “wider consumer adjacencies” would be a great asset to the board.
The appointment created interest, at least partly because it seemed to chime with the change of name that Imperial went through in February last year—from Imperial Tobacco to Imperial Brands. In a piece for the Motley Fool, Dan Caplinger said Imperial’s move could signal the beginning of a “budding relationship between the tobacco and marijuana industries,” though he went on to give a number of reasons why this might not happen, for the time being at least. One reason was that there was a conflict in the U.S. because marijuana is illegal at the federal level but legal in certain states, which presents a huge impediment to the big players such as Altria and Reynolds American getting into the business.
Nevertheless, Caplinger said that marijuana had become increasingly popular, as many states across the U.S. had legalized the drug for medical and/or recreational purposes, and more were considering doing so. Some investors had sought to cash in on the trend, but until now they had had only a limited number of investment choices available to them. Many had wondered whether Big Tobacco might eventually choose to get in on the legal marijuana business, “offering their shareholders an easier way to profit from the drug.”
Leaving aside the medical marijuana question, it seems to make sense for Imperial at least to prepare to enter the recreational marijuana market wherever it is legal, partly because Europe might start to follow the North American trend toward a more liberal approach to the drug. In Europe, as I understand it, marijuana users, unlike those in the U.S., tend to mix marijuana with RYO tobacco. In fact, in a July 2015 piece on the Marijuana Games website titled “How Europe Is Getting It Wrong on Cannabis” (goo.gl/8kaScQ), Russ Hudson cited a report on the 2014 Global Drug Survey in which the authors, having sampled 38,000 marijuana users, concluded that while 7 percent of American marijuana users added tobacco to their marijuana, more than 80 percent of marijuana users from other countries did so as a matter of practice.
The point here is that Imperial has a strong position on the international RYO tobacco and papers market, and it’s not difficult to imagine how tobacco and marijuana could be marketed—and even packaged—together.
And things could move quickly. Poland’s lower house of parliament in June voted to make medicinal marijuana legal under certain circumstances, according to a Rappler story. A total of 440 lawmakers voted in favor—with just two against and one abstention—of legislation to allow prescription-only, cannabis-based medicine to be made at pharmacies using imported ingredients. The law still needs to be approved by the senate and the Polish president before it comes into force, but Poland has taken a tentative step toward following the Czech Republic, Finland, the Netherlands, Portugal, Spain, 23 U.S. states and Uruguay.
The Polish legislation excludes the recreational use of cannabis, but according to the Rappler story, an opinion survey conducted in January found that 78 percent of Poles believe access to marijuana should be legal. Even if it was the case that this 78 percent of the population was in favor only of legalizing the use of medicinal marijuana, it is not a huge hop to recreational use, as the U.S. has demonstrated.
There are obstacles, however. According to a story in the London (Canada) Daily Mail, Ian Hamilton of Canada’s University of York has urged teenagers wanting to avoid long-term health risks to stop combining cannabis with tobacco. He noted that if it were accepted that millions of people would carry on using cannabis, then they should be encouraged to use cannabis in ways that avoided tobacco and minimized harm to their health. The story went on to quote researchers as saying that “cannabis has no solid links to cancer and only minimal ones pointing to an increased risk of heart disease.” I’m not too sure what is being said here. Is Hamilton saying that cannabis should be used, if at all, in chocolate brownies or by vaping cannabis oil? If so, what the researchers seem to be saying sounds plausible. But if Hamilton and the researchers are saying that all consumers need to do is cut out the tobacco, then I would be rather skeptical.
Inhaling the products of combustion from any burning plant material just doesn’t seem to be a great idea from the point of view of lung health, though of course it would be necessary to look at how marijuana is smoked, how often and, no doubt, a lot of other issues. In addition, the story did concede that cannabis use could increase the risk of psychosis by damaging the brain.
The story also mentioned that cannabis could be considered a gateway drug, with a recent study suggesting that users were 26 times more likely than nonusers to turn to “harder substances” by the time they turn 21. I don’t have any evidence about such matters, but I wonder whether this gateway effect has more to do with the fact that where marijuana use is illegal, users must mix with criminals who sell it and other illicit drugs. That does leave the possibility that if the use of marijuana were made legal, it would not have this gateway effect.
The question of mixing marijuana and tobacco is an interesting one. One debate going on in the U.S. has to do with the legalization of marijuana cafes, such as those in the Netherlands. This raises the question—as it has previously in the Netherlands—of whether, given that some marijuana smokers mix marijuana with tobacco, marijuana holds the key to allowing tobacco smoking back inside. I mean, how much marijuana do you have to mix with your tobacco for it to be a joint?
The U.S. Food and Drug Administration has warned retailers against misbranding RYO and MYO tobaccos as pipe tobacco. Pipe tobaccos are taxed at significantly lower rates than are cigarette and rolling tobaccos.
In recent warning letters to retailers, the FDA stated that while the products are promoted or labeled as pipe tobacco, “the overall presentation of these products strongly suggests that they are intended for use in a cigarette.” If these violations are not corrected, the retailers face sanctions that include monetary penalties, seizure of the product, no-tobacco-sale orders and criminal prosecution.
In 2009, Congress substantially increased the federal excise tax on cigarettes and RYO tobacco and equalized the tax rates on these products. However, pipe tobacco was taxed at a much lower rate. In response, some tobacco manufacturers changed the label but not the content of tobacco previously labeled RYO. From 2008 to 2011, sales of RYO tobacco fell by more than 76 percent, while sales of “pipe tobacco” increased by 573 percent, according to the Centers for Disease Control and Prevention. There is no evidence of any increase in actual pipe smoking.
The CDC last year found that the mislabeling of RYO tobacco as pipe tobacco cost federal and state governments $1.3 billion in revenue from April 2009 to August 2011.
Technical Development Corp. (TDC) of the Netherlands, a sister company of International Tobacco Machinery, has developed the Osiris, a new nonstop inline pouch-manufacturing machine.
Using advanced and reliable technology, the machine can produce perfectly shaped pouches without compromising flexibility, according to TDC.
The Osiris can produce pouches with a variety of specifications. Width and height settings can be easily adjusted. The Osiris can accommodate a range of optional, customer-specific modules for pricing labels, booklet stickers, zip applications or additional sealing.
The Osiris can be directly connected with the Isis pouch packer or integrated within an existing Isis line. If desired, pre-made pouches can be manually fed into the Isis. Without any conversion the Isis pouch packing line changes from mainstream to small batch production.
Double bobbin holders, an automatic bobbin splicer and an easy-to-use operator panel make Osiris a user-friendly pouch-making solution.
The Osiris strengthens TDC’s portfolio, which also includes the Ibis tobacco weigher, Isis pouch packer and Anubis bundle machine.
New printing technology simplifies primary, secondary packaging processes for Top Tobacco
By Paul Schildhouse
The roll-your-own cigarette and pipe tobacco industry is a small but growing segment of the tobacco industry. Sales have increased over the past five years, according to the U.S. Alcohol and Tobacco Tax and Trade Bureau. Since 1987, Top Tobacco, with headquarters in Lake Waccamaw, North Carolina, USA, has manufactured roll-your-own cigarette and pipe tobacco products for individuals who prefer to make their own cigarettes or smoke a pipe instead of purchasing machine-made products.
Because Top Tobacco offers a variety of products, package sizes and package types, the company uses variable data printing solutions that allow it to customize both primary and secondary packaging and avoid storing preprinted materials. Top Tobacco utilizes small-character continuous inkjet printers, laser printers and large-character marking systems from Videojet Technologies Inc.
Richard Hopkins, plant engineer for Top Tobacco, says the decision to use variable data printing systems has brought a huge advantage for Top Tobacco. Hopkins estimates the ability to print variable data on demand has increased uptime compared with previously used printing methods and has allowed Top Tobacco to purchase generic films, foils and shipping cases. Information required on each product is preprinted onto the packaging, but Top Tobacco no longer needs to store preprinted packages or cases for each product brand and size.
Advantages
Before installing continuous inkjet printers for primary packaging, Top Tobacco used a variety of printing methods for coding on polypropylene or foil pouches, including inked embossed rollers and hot-inked embossed rollers. The rollers required line operators to remove the typeset and change it for each new product on a production line. In addition, Top Tobacco had to devote warehouse space to storing preprinted corrugated cases in a variety of sizes to ship its products to retail outlets throughout the United States.
“Having generic packaging requires less management of preprinted packaging to ensure the right packages are used every time,” Hopkins says. “Plus, we now use considerably less floor space to store a few case sizes instead of dozens of cases with different sizes and different information.”
Requiring fewer preprinted cases and packaging has made it easier for Top Tobacco to forecast its packaging needs, so suppliers can be placed on a set schedule to regularly deliver more materials. This enables Top Tobacco to avoid unplanned orders for packaging materials.
Ensuring fresh product
Prior to distribution for retail sale, Top Tobacco packages cigarette and pipe tobacco into cans, polyethylene pouches or foil pouches, with product sizes ranging from 0.35 ounces to 1 pound. The cans and pouches are then packed into cardboard shipping cases, palletized and shipped to Top Tobacco’s distribution center in Glenview, Ill.
Cans and pouches containing Top Tobacco’s products are imprinted with production date codes using Videojet 43s inkjet printers and Videojet 3320 laser coders. With the Videojet printers, dates can be automatically changed and Top Tobacco can print production dates that include hours and minutes, which was not previously possible with the rollers.
The cartons used for shipping the cans and pouches of tobacco are coded by Videojet 2320 large-character printers. The cartons require printing on two adjacent sides, so one side of the box is printed first, and then the box is bump-turned to allow for printing on the adjacent side. The boxes are marked with product-specific alphanumeric codes and barcodes for tracking and production dates.
“The date codes printed on each pouch or can are referenced by our sales force to ensure customers are getting the freshest product available,” Hopkins says. “Warehouse personnel check the date codes regularly to make certain that product is properly rotated through the warehouse during distribution to keep fresh product moving out to retail outlets.”
The barcodes on the corrugated cases enable distributors to easily keep track of products entering and leaving the distribution center. Therefore, it is essential the codes are crisp and clear so barcode scanners can read the codes the first time without requiring multiple scans, which can hinder productivity.
Intuitive interfaces
All the Videojet printers are used continuously during Top Tobacco’s production hours. Each production line has its own set of printers, which are preloaded with variable data coding requirements for each product produced on that line. When a product changes on a line—which occurs approximately once per week—the operator needs only to select the job product code from the preloaded list.
“Changing products is very simple with the Videojet printers,” Hopkins says. “The operators require very little training or assistance because selecting a job is about as easy as selecting a song on a jukebox.”
In addition to the intuitive printer interface, Top Tobacco also appreciates the long periods between maintenance required by the Videojet printers. Hopkins notes that common maintenance tasks are easy to learn and perform as a result of the self-diagnostic features available on the printers. The printers display help screens to walk operators through routine maintenance, which reduces downtime that can shut down an entire production line.
“Whenever you can decrease the amount of time a technician must spend with a piece of equipment, you have gained an advantage,” Hopkins says. “Since these printers need less attention from our technicians, our operators are able to handle product changeovers and our maintenance personnel can concentrate on other tasks.”
Top Tobacco also consulted with Videojet when determining the appropriate printers to use on its production lines and to select the best inks for its substrates. For example, because the pouches can come in various colors, Top Tobacco uses both blue and black ink in the Videojet 43s printers. The blue ink shows up better on darker colors, and Videojet helped ensure the ink would be compatible with both the printer and the substrate.
“Videojet has always been available to us whenever we’ve had challenges with new packaging or needed to consult a field technician,” Hopkins says. “The technicians are well-trained, and our representatives really know their products and have demonstrated a real dedication to ensuring we are investing wisely in our printing technologies. We feel like Videojet is a true partner.”
By choosing variable data coding systems, Top Tobacco has been able to spend less time worrying about coding processes and packaging materials and more time focusing on its core service of producing and distributing fresh, quality tobacco products.
Paul Schildhouse is secondary packaging product manager at Videojet Technologies Inc.
