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Big Tobacco Gets Into Retail Storefronts

British American Tobacco and Philip Morris International have both opened stores to educate consumers on how to vape.

http://www.nacsonline.com/Media/Daily/Pages/ND1202162.aspx

Big tobacco firms are getting into the retail business more directly than in past years. British American Tobacco (BAT) has opened a store in Milan to sell Vype, its e-cig product, while Philip Morris International has stores in England, Italy, Japan and Switzerland to promote its heat-not-burn product iQOS, the Wall Street Journal reports.

For BAT, the strategy to having an actual store extends beyond selling electronic cigarettes. The firm wants to use the location as another way to promote new products, such as Pebble, a Vype-branded vaping device that debuted yesterday. “If we’re going to massify the market—inject life into it—we have to come up with these innovative, groundbreaking products,” said Kingsley Wheaton, who heads BAT’s next-generation products.

This increased emphasis on connecting with customers on the ground comes as sales of cigarettes continue to soften. Philip Morris even said this week that the company could stop selling traditional cigarettes one day and is focusing on developing tobacco alternatives.

BAT CEO Nicandro Durante has a long-term view in mind when it comes to e-cigs and other vaping devices, which have experienced slow growth. Wheaton predicted that next-generation products will reach $18.7 billion within five years, but he doesn’t see cigarettes disappearing altogether.

BAT Bets on Vaping as Tobacco Makers Do Battle With New Devices

http://www.swissinfo.ch/eng/bat-bets-on-vaping-as-tobacco-makers-do-battle-with-new-devices/42723034

Trailing Philip Morris International Inc. in the contest to move smoking alternatives beyond e-cigarettes is just fine with British American Tobacco Plc.

According to Kingsley Wheaton, head of BAT’s next-generation products, longer-established electronic products hold more promise than the heat-not-burn technology pioneered by its main rival. The high acceptance of Philip Morris’s iQOS tobacco device in its debut market of Japan won’t be easy to replicate elsewhere, he said in an interview Thursday.

“Are we behind Philip Morris on the tobacco-heating journey? The answer is yes,” Wheaton said. “But we have a different take. Vapor is going to be a bigger category worldwide.”

More than 1 million smokers have switched to Philip Morris’s iQOS since it first went on sale in 2014. Demand has proven strongest so far in Japan, where Philip Morris has had a two-year headstart on BAT. While analysts at Exane BNP Paribas and Wells Fargo say the Marlboro maker has invented the most promising smoking substitute, BAT contends that heat-not-burn will only become dominant in a few countries, and that Japan alone may represent as much as half of the potential demand.

“Japanese consumers are very tech-savvy and vapor is banned,” Wheaton said. “The consumer is highly socially considerate and really worried about their hygiene impact on others. When you put all that together, you create a real melting pot of reasons why tobacco heating will work in Japan.”

Companies Divided

Tobacco companies are divided on where the future of their $770 billion industry lies. Philip Morris Chief Executive Officer Andre Calantzopoulos has said his company may one day stop making traditional cigarettes as the market for alternative products takes hold. His non-combustible iQOS devices have taken a 5 percent share of the Japanese market.

While BAT plans to compete against its rival with a heat-not-burn product called Glo, Wheaton said the bulk of his company’s efforts will remain in the vapor market.

In the second half of next year, BAT will start selling a new product called Vype Raptor. The device gets nicotine into the bloodstream faster and more closely mimics the sensation of smoking because the vapor particles are larger, according to BAT.

The company is also opening a store in a fashionable neighborhood of Milan as well as pop-up shops in London to sell Vype-branded vapor products. And it will introduce a 17.99-pound ($23) brightly-colored plastic device called Pebble that delivers nicotine infused with flavors such as wild berry and smooth vanilla.

BAT aims to sell vapor products in more than 15 markets by the end of next year, according to next-generation marketing director Frederico Monteiro. It currently has a presence in 10 and plans to be in 30 to 40 markets by 2020.

BAT launches e-cigarette as alternative to tobacco

http://thestandard.com.ph/business/221917/bat-launches-e-cigarette-as-alternative-to-tobacco.html

The British American Tobacco said will launch an “alternative to tobacco” product in the Philippines, the first country in Asia-Pacific to take advantage of the growing vape market.

BAT head of government regulatory affairs Robert Eugenio told reporters in a media roundtable the Philippines would become the first country in the Asia and Pacific region to avail of Vype E-pen, BAT’s e-cigarette brand, following successful launches in Europe and South America.

“It’s just a combination of business consideration, regulatory environment. It’s a combination of many factors,” Eugenio said.

Eugenio said there were no laws in the country regulating the market of e-cigarettes or vape industry.

BAT said Vype would be available in selected convenience stores in the country.

Vype E-pen is a vapor device with easy-to-change e-liquid caps with two power settings, delivering rich vapor at the click of a button.

The design also offers one-step charging micro USB cable, a battery life indicator and auto shutdown when the device is used for 10 minutes.

Eugenio said despite offering new product, BAT would not completely shift to e-cigarette products and leave their tobacco-combustion market.

“We, of course, are still focused on trying to grow our shares in combustible business. This is an additional part of our business but i wouldn’t call that a shift. We have seen that there is a growing market for e-cigarettes here. From a commercial stand point, we are hopeful that we will be able to drive our share of that emerging market,” Eugenio said.

BAT is the maker of Pall Mall and Lucky Strike cigarettes.

British American Tobacco to test e-cigarette in Japan

http://www.dailymail.co.uk/wires/reuters/article-3915432/British-American-Tobacco-test-e-cigarette-Japan.html

British American Tobacco PLC (BAT) plans to test a new tobacco-based cigarette alternative in Japan next month, it said on Tuesday, taking aim at Philip Morris International Inc’s popular iQOS and Japan Tobacco Inc’s Ploom Tech.

BAT said it plans to launch its new product, called “glo”, on Dec. 12 in the northeastern city of Sendai. It will then use learning from that launch to expand the product nationwide.

Glo electronically heats tobacco enough to create an inhalable vapour. That vapour, according to BAT, has about 90 percent less toxicant than smoke. The temperature of glo and the Kent Neostiks that go with it, is about 240 degrees Celsius, whereas combustion in traditional cigarettes takes place at over 800 degrees.

BAT has invested more than $1 billion over the past five years in the development, scale up and launch of cigarette alternatives.

It sells Vype e-cigarettes, which use nicotine liquid, in several European markets and is testing iFuse, a liquid-based e-cigarette that also uses tobacco, in Romania.

BAT has also developed a nicotine inhaler called Voke that can be licensed as a medical product in Britain, but it is not yet on the market.

The glo device will cost 8,000 yen ($76.61) with packs of twenty Kent Neostiks, which come in three flavours, costing 420 yen ($4.02).

BAT is also in the process of buying U.S. peer Reynolds American Inc in a $47 billion takeover that would create the world’s biggest listed tobacco company.

SMOKELESS WAR

All big tobacco companies are investing in tobacco alternatives, as the cigarette market in most Western countries declines with more people giving up the habit. Some analysts think tobacco-based vapour products will be more successful at attracting cigarette smokers since they use tobacco and might therefore be more satisfying for smokers who cannot quit.

Philip Morris chose Japan as a test market for its “heat not burn” product due in part to regulations around nicotine liquid. Its iQOS, introduced nationwide in Japan in April, has turned out so popular that supplies are short.

“At this moment, we are seeing far greater demand than our expectations and iQOS devices sell out as soon as they hit stores,” said a Philip Morris Japan spokeswoman.

Japan Tobacco has also said production of its Ploom Tech has not caught up with demand. It has suspended taking orders on its online store and is limiting supply to stores in the city of Fukuoka, where it is test sold.

Blu unveils new vaping range to comply with EU tobacco product legislation

E-smoking brand Blu has unveiled its next-generation range ahead of the deadline for retailers to sell off stocks that don’t comply with strict EU legislation.

From 27 May 2017, it will be unlawful to sell vaping products that contravene EU Tobacco Products Directive II (EUTPD II), which focus on quality and safety, and include the requirement for a product warning stating, “This product contains nicotine, which is a highly addictive substance.”

The new EUTPD II-compliant line-up from Blu will roll out on 1 November with improved technology ‘to provide a better experience for consumers’. It includes a PRO e-cig kit, with a Clearomiser mouthpiece, and a selection of e-liquids.

The brand has also launched a guide to EUTPD II to help retailers understand the changes being put in place.

The vaping market was booming, with a retail sales value of £168m and showing an 18% increase on sales last year, according to Jennifer Roberts, vice-president of customer marketing at Blu (UK). “But it’s going to see a lot of change over the next six to nine months as the next stage of legislation comes into effect,” she added.

Retailers should begin to promote non-compliant stock to sell through, said Roberts. “By beginning the changeover to compliant stock as soon as possible, retailers will give a positive message to shoppers and show they understand the category and are a credible vaping stockist.”

Federal e-cig lawsuits officially transferred to North Carolina from California

http://www.journalnow.com/business/business_news/local/federal-e-cig-lawsuits-officially-transferred-to-north-carolina-from/article_8403acdc-7f50-5e7d-a330-5279aebaeb54.html

A series of patent-infringement lawsuits addressing electronic cigarette technology has made the transition from federal court in California to the Middle District of North Carolina.

The transfer was completed Wednesday.

A federal judge in the Central Circuit of California agreed Aug. 8 to R.J. Reynolds Vapor Co.’s request for the transfer, which cited legal precedents when there are limited, if no, operations of the plaintiff and defendant in the current court.

Reynolds Vapor manufactures Vuse, the top-selling U.S. e-cig product with a 37.3 percent market share, at its Tobaccoville plant.

Reynolds accuses Fontem of filing lawsuits in the circuit court as an inconvenience to defendants.

Fontem Ventures BV and Fontem Holdings BV, owned by Imperial Brands PLC of England, had filed at least three lawsuits against Reynolds Vapor. The lawsuits were filed April 4, May 3 and June 22.

Reynolds said all of its witnesses and resources are in the Middle District, as well as some of Fontem in Charlotte and Imperial’s U.S. operations in Greensboro.

“In the interests of justice and for the convenience of the parties and the witnesses, this case should be transferred to North Carolina,” Reynolds’ attorneys said.

Reynolds said it also would be more convenient for the NuMark LLC cases to be transferred to the Middle District since it is much closer to NuMark, based in Richmond.

NuMark, the e-cig subsidiary of Altria Group Inc., filed its response Wednesday to the latest Fontem lawsuit filed against it.

The Fontem companies are suing for what they call unlawful use of seven patented technologies. They focus their claims on patents for rechargeable e-cigs, cartridge refill packs, batteries and disposable e-cigs. Fontem said it obtained patents on its technology in February 2013.

Reynolds claims it has developed internal e-cig technology.

Fontem accuses Reynolds of patent infringement in its Vuse solo rechargeable digital vapor cigarettes and its Connect power units.

For example, Fontem repeats the legal accusation it made against Lorillard that Reynolds Vapor is in infringement with its cartridge technology, in particular when it says it does not allow another e-cig product to be used with Vuse products.

Fontem is suing for an undisclosed amount of damages because of “irreparable harm” done to the companies, including lost market share and lost profits on infringing sales.

Fontem also has filed lawsuits against the other major U.S. e-cig companies: ITG Brands LLC, which makes blu eCigs; NJoy Inc., Ballantyne Brands LLC of Charlotte, maker of the Mistic brand; and Vapor Corp.

Altogether, the Fontem companies have been a party in 89 complaints just in the Central Circuit court, including 15 that are open. The filings began March 5, 2014, with undisclosed settlements reached in some lawsuits.

The debate on regulation of e-cigarettes in China

China manufactures 80% of the world’s e-cigarettes.1

The domestic Chinese e-cigarette market has expanded since 2014, with a 33% increase in sales in 2015 alone.2 The 2014 China Global Youth Tobacco Survey, which studied 155 117 students aged 13–15 years, showed that 45·0% of them had heard about—and 1·2% had used—e-cigarettes.3 Some members of the global public health community are calling for regulation of e-cigarettes, but, owing to inconclusive evidence on their impact,4 no simple and unified guidelines exist to assist countries in such regulation. In China, a regulatory framework has been debated between the public health community and government agencies since 2005. We aim to analyse the development of a regulatory system for e-cigarettes and the interests and strategies of policy makers in China, and hope that this Comment might assist other countries undergoing similar debates on the regulation of e-cigarettes.

There have been dramatic changes in the way that e-cigarettes are marketed in China since they first emerged in 2005. Back then, e-cigarette companies promoted their products as a cigarette-like but healthier alternative to tobacco, as a tool to help quit smoking, and as gifts,5 which attracted attention from tobacco control advocates and government agencies.

However, with little evidence on the health effects of e-cigarettes, and little international experience in their regulation, government agencies were initially hesitant to take over regulatory responsibility. The ensuing debate centred on whether to categorise e-cigarettes as tobacco, medicinal, general, or harmful products—each coming under different agencies with different regulatory mechanisms.

Over a decade later, this issue is still unresolved.

The China Food and Drug Administration expressed its position in 2006 that “Electronic Nicotine Delivery Systems (ENDS) should not be managed as medical equipment.”6 The State Tobacco Monopoly Administration (STMA) refused to classify e-cigarettes as tobacco products but rather as potentially harmful chemical products, recommending regulation under State Administration of Work Safety.

Nonetheless, the e-cigarette industry was challenged by the media and public health advocates for its marketing ploys. The industry then changed its strategy to promote e-cigarettes as fashionable, innovative, leisure consumer goods, and built a fan base, both online and offline. Many e-cigarette centres, clubs, and bars were established in major cities to help disseminate and portray the culture of vaping, and to increase sales of e-cigarettes.

As the e-cigarette industry developed, the Chinese tobacco monopoly decided to include e-cigarette development in its own strategy. It established a task force led by the STMA’s leaders to coordinate issues related to all new tobacco products. Its local branches, an affiliated research centre, and two e-cigarette companies agreed to cooperate in development of e-cigarettes co-branded with the key existing cigarette brands.7

The trajectory of e-cigarette regulatory development has also been affected by the changing policy context in China. First, many tobacco control measures have been implemented, such as increases in tobacco tax, revision of advertising laws, non-smoking directives to government officials, and a national smoke-free law under process.

Second, as China’s economy has begun to slow down since 2009, a core strategy of the Chinese administration to stimulate economic vitality is through deregulation of industries. The government also encourages industries to form associations for improved self-regulation. With more than 1000 brands, 6000 products, and over 1800 companies in the industry, leading e-cigarette companies echoed this central policy by establishing the first National Association of Electronic Cigarettes in 2015.8

The Ministry of Industry and Information Technology (MIIT)—the supervising ministry for STMA—seems to support the self-regulation of the e-cigarette industry. By encouraging small and medium e-cigarette companies to form into associations, MIIT might be able to manage the industry more easily.

However, MIIT suggested that the STMA should seriously consider and push forward the regulation of e-cigarettes and other tobacco products.9 At the time of writing, the central government has yet to make a decision on how to regulate e-cigarettes.

Whether e-cigarettes end up being regulated by the STMA or through self-regulation by the e-cigarette industry, we call upon the central government to include e-cigarettes in all future tobacco surveys, and establish a regulatory system as soon as possible to at least ban sales to children, prevent e-cigarette marketing towards youth and non-smokers, and require disclosure of ingredients and labelling—as a first step until the science is clear.

Xiaoxin Xu, *Xinsong Wang, Xiulan Zhang, Yanli Liu, Huan He, Judith Mackay

School of Social Development and Public Policy, Beijing Normal University, Beijing 100875, China (XX, XW, XZ, YL); School of Public Administration, Southwestern University of Finance and Economics, Chengdu, Sichuan, China (HH); and Vital Strategies, Kowloon, Hong Kong Special Administrative Region, China (JM)

xinsong@bnu.edu.cn
We declare no competing interests.

1 Shan J. E-cigarette controls considered for safety. China Daily, Jan 7, 2015. http://www.chinadaily.com.cn/china/2015-01/07/content_19255939. htm (accessed May 31, 2016).
2 Beijing Hua Yan Zhong Shang Yanjiu Yuan. Analysis of e-cigarettes market status in China and trend forecasting, 2015–2020. Beijing: Beijing Hua Yan Zhong Shang Yanjiu Yuan, 2015 (in Chinese).
3 Global Youth Tobacco Survey. Fact sheet: China 2014. Chinese Center for Disease Control and Prevention, WHO, and Centers for Disease Control and Prevention. http://www.wpro.who.int/china/gyts_china_fs_en_20140528.pdf?ua=1 (accessed May 24, 2016).
4 Levy DT, Cummings KM, Villanti AC, et al. A framework for evaluating the public health impact of e-cigarettes and other vaporized nicotine products. Addiction 2016; published online April 25. DOI:10.1111/ add.13394.
5 Tobacco China Online. Healthy “cigarettes” appearing at Canton Fair, customers mostly from overseas. 2005. http://www.tobaccochina.com/zt/ruyan/meiti_07.html (in Chinese) (accessed May 24, 2016).
6 China State Food and Drug Administration. Notice on classifi cation of products including the system of re-leveling of leukocyte (2006, No 268, State Food and Drug Administration), Article 41. In: China State Food and Drug Administration, ed. Beijing: China State Food and Drug Administration, 2006.
7 Jiang Z, Gu M. Shanghai Lvxin and CNTC cooperate on e-cig, taking the high ground. 2014. http://fi nance.sina.com.cn/stock/s/20140417/141418831669.shtml (in Chinese) (accessed May 4, 2016).
8 Cecmol. National Association of Electronic Cigarettes established. 2015. http://www.aiweibang.com/yuedu/70936775.html (in Chinese) (accessed May 4, 2016).
9 Dongfang Yancao Wang. The speech by Miao Yu at the 2016 Tobacco Work Meeting (excerpt). 2016. http://www.eastobacco.com/pub/web/zxbk/dyzxzx/zxjdtpxw/201601/t20160115_392417.html (in Chinese) (accessed May 4, 2016).

Electronic Marlboro sucks smokers away from Japan Tobacco

http://english.astroawani.com/business-news/electronic-marlboro-sucks-smokers-away-japan-tobacco-113807

TOKYO: Marlboro maker Philip Morris International says its e-cigarette has rapidly captured close to 3 percent of Japanese tobacco sales, making inroads into a market Japan Tobacco (JT) relies on for 40 percent of its profit.

In what may be an early vindication of Philip Morris’s e-cigarette strategy, the iQOS accounted for 2.2 percent of Japan’s tobacco sales in the quarter ended June 30, a company spokesman said.

That share had climbed to 2.7 percent by the end of June after Philip Morris rolled out the 9,980 yen ($98.53) electronic smoker in late April accompanied by “HeatSticks”, which cost the same as regular cigarettes.

“The figures clearly show that iQOS is stealing a chunk of the rolled tobacco market,” said Masashi Mori, analyst at Credit Suisse Securities in Tokyo. Japan’s overall cigarette sales in June shrank 5.2 percent.

On Friday, JT said revenue from July cigarettes sales in Japan dipped by 3.4 percent to 53.4 billion yen.

Unlike conventional e-cigarettes that vaporise a nicotine infused liquid, iQOS produces a smokeless aerosol by heating tobacco leaf packed into stubby cigarettes inserted into the device.

So far it has tested the gadget in seven countries including cities in Switzerland and Italy. Japan, which has suppressed e-cigarette “vaping” by regulating nicotine liquids under pharmaceutical laws, is the only country where it is sold nationwide.

Demand for iQOS, which is made in Malaysia, has outstripped demand, leaving Philip Morris unable to make the most of its early entry into Japan. Some limited-edition IQOS models are selling online for as much as 80,000 yen.

“When Philip Morris can supply enough to meet demand then its push in to the market is very likely to accelerate,” UBS Securities Japan analyst Naomi Takagi said.

E-cigarettes assuage some smokers’ health concerns and ease social stigmas attached to tobacco. Tobacco firms are battling to take an early lead in the emerging market as overall cigarette sales shrink globally.

Sales of e-cigarettes, however, are booming, growing five times to $8 billion in 2014 from 2010, according to research company Euromonitor. The market in 2020 is likely to be 20 times the 2010 level, predicts Euromonitor. Global cigarette revenue is about $750 billion.

Philip Morris plans to widen sales of iQOS to 20 countries by the end of the year.
Former state tobacco monopoly Japan Tobacco, which has 60 percent of its domestic market, is struggling to counter the challenge with its own device. JT’s electronic cigarette stick, dubbed the Ploom TECH, creates a vapor from a liquid that is passed through granulated tobacco.

Yet the world’s No. 3 cigarette maker has so far been unable to match iQOS’s nationwide launch, with no clear indication yet when it will have sufficient production output to do so.

“It doubtful JT will manage a wider launch before the end of the year,” Takagi at UBS Securities said.

Doctors warn of big tobacco firms entering e-cigarette market

Royal College of Physicians report says companies may seek to rehabilitate ‘pariah industry’

http://www.theguardian.com/society/2016/apr/28/doctors-warn-big-tobacco-firms-e-cigarette-market-rcp-industry

The Department of Health says new controls on e-cigarettes to be introduced next month could make consumers turn to potentially dangerous black market products.

Its impact assessment (pdf) on EU rules to be enshrined in UK law also acknowledges that higher costs for e-cigarette manufactures could lead to price increases and reduction of choice for consumers, leading people to switch back to smoking, which public health experts regard as far more dangerous.

It recognises too that regulations might create new barriers for small- and medium-sized companies, a concern that comes as public health doctors warned of possible consequences from tobacco giants becoming more involved in making e-cigarettes.

The document says: “There is a risk that a black market will develop with potentially harmful e-cigarette products. due to consumers no longer having the same degree of choice in the legal market.”

The rules introduce for the first time minimum standards for the safety and quality of e-cigarettes and refill containers. Companies will have to give information on all their products to regulators. They are part of a broader package that also tightens rules on tobacco.

One e-cigarette company boss suggested the government was “grudgingly accepting” that the new controls could result in a “public health disaster”.

The government believes the health gain from stronger tobacco controls will bring a £13bn health gain across the UK over 10 years because there will be fewer smokers so the NHS will have to treat fewer people for diseases related to the habit.

But the changes could cost the UK e-cigarette industry £140m, it suggests. Much of the e-cigarette “hardware” is already produced in China and an increasing amount of e-liquid manufacture is said to be moving there too.

Ian Gregory, of campaign group Vapers for Britain, said: “In its assessment, the Department of Health has not been able to quantify any benefit from the massive regulation of e-cigarettes.”

The health department said: “By its nature an impact assessment is honest about risks, but these are far outweighed by the health benefits of the directive, which are worth more than £13bn to the UK.

“The best thing a smoker can do for their health is to quit smoking. We know that there are now over a million people who have completely replaced smoking with e-cigarettes and that the evidence indicates that they are significantly less harmful to health than smoking tobacco.

“We want to see a wide range of good quality e-cigarettes on the market including licensed products whose safety, quality and effectiveness are independently assured.”

The department says that, while there are measures in the directive that could both increase and decrease the illicit trade, overall the impact in this area is estimated to be zero. The evidence for increasing the illicit trade is also based on a report by the tobacco industry, and the report highlights this to be likely to be an overestimate.

The assessment of the new regulations, which result from the 2014 Tobacco Products Directive, came as doctors warned growing involvement of tobacco manufacturers in the e-cigarette market could jeopardise attempts by public health specialists to promote vaping as a safer alternative to smoking.

They expressed concerns that such companies might seek to rehabilitate what has become a “pariah industry” and therefore undermine tobacco control.

A report from the Royal College of Physicians (RCP) published on Thursday found e-cigarettes could play a valuable role in shifting smokers away from their “addictive and lethal” habit, a similar position to that taken last year by the English government’s Public Health England, which said e-cigarettes were about 95% less harmful than tobacco cigarettes.

Dame Sally Davies, the chief medical officer, said at the time however that e-cigarettes should only be used a means to help smokers quit.

The Nicotine Without Smoke report concluded that e-cigarettes were not a gateway to smoking, did not help normalise it and could act as a way out of the deadly habit. There are still nearly 9 million smokers in the UK, despite big falls in recent decades, while an estimated 2.6 million UK adults use e-cigarettes and as many as 1 million of those may have completely stopped smoking.

The RCP did not dismiss the possibility of harm from long-term use of e-cigarettes, but said it was likely to be substantially smaller than that from the carcinogens, carbon monoxide and other toxins that come with tobacco.

However, the report’s authors were worried by the involvement of tobacco giants such as British American Tobacco (BAT), Imperial Tobacco, Altria and Philip Morris International, including their taking over previously independent manufacturers and importers.

The industry’s recent programme of investment and acquisition in e-cigarettes might be recognition that the products, available in the UK for less than a decade, could be a threat to their “core business of selling tobacco”, the 200-page report found.

Manufacturers might use e-cigarettes to help expand tobacco markets or make nicotine products attractive to non-smokers, says the report, which is also summarised by its contributors in the BMJ medical journal.

There is “little likelihood that the industry sees e-cigarettes as a route out of the tobacco business”, the report added. It said it was highly likely, however, that tobacco manufacturers would exploit e-cigarettes to try to undermine the World Health Organisation’s framework convention of tobacco control, which is, among other measures, designed to protect nations’ public health policies from commercial and other vested interests of the tobacco industry.

Tobacco companies have long sought to “redress the challenge of a toxic reputation” by seeking to establish partnerships or common ground with public health researchers and advocates, the report said.

“There is no firewall between a ‘good’ tobacco industry that is marketing harm-reduction products in the UK and a ‘bad’ one that promotes smoking, or undermines tobacco control activities in low-and middle-income countries.”

It called however for “proportionate” regulation that does not undermine the development of products such as e-cigarettes that provide alternative sources of nicotine to tobacco.

The report said it remained to be seen whether the new EU rules would help or hinder the use of e-cigarettes in the battle against smoking. Some measures should help raise standards, the authors say in their BMJ article, but limits on nicotine content might diminish e-cigarettes’ effectiveness as smoking substitutes while health warnings might discourage their use.

These requirements would not apply to products licensed as medicines, but there are fears that smaller manufacturers will be discouraged by the high costs and delays that the process involves.

“Achieving the right balance of regulation for e-cigarettes is not easy: too much regulation can stifle innovation and reduce choice for smokers, while too little leaves smokers exposed to products that are ineffective, unduly hazardous, or both.”

John Britton, professor of epidemiology at the Centre for Tobacco and Alcohol Studies, one of the authors, said the report “lays to rest almost all the concerns over these products, and concludes that with sensible regulation, electronic cigarettes have the potential to make a major contribution towards preventing the premature death, disease and social inequalities in health that smoking currently causes in the UK”.

Smokers should be reassured e-cigarettes could “help them quit all tobacco use for ever”.

The RCP president, Jane Dacre, also said she believed that “with careful management and proportionate regulation, harm reduction provides an opportunity to improve the lives of millions of people”. It is “an opportunity that, with care, we should take”, she said.

The Tobacco Manufacturers Association said tobacco and e-cigarettes would co-exist. “Consumers’ requirements are evolving and so is the e-cigarette market”, said Giles Roca, its director general.

“The fact that tobacco manufacturers are now involved in this industry is good news. Tobacco manufacturers possess considerable expertise, resources and capacity for research that allows them to contribute substantially to the scientific and regulatory debate and the overall development of the e-cigarette industry.”

BAT said: “Accusations that we are using e-cigarettes to enhance tobacco sales are entirely untrue … We are explicit in our vapour product marketing principles that sales of e-cigarettes – all of which feature non-tobacco brands – should not promote our cigarette products.

“Our involvement in this category offers an opportunity for a ‘win, win, win’: a win for society as the public health impact of smoking is lessened, a win for consumers as we commercialise a range of quality innovative products for them to choose from, and a win for our shareholders over the long term,” the company said.

Tobacco Makers Just Won a Major E-Cigarette Victory, but Does It Matter?

A House Committee has made it easier for e-cigarettes to win regulatory approval, but the ruling probably won’t boost demand for vapor products.

http://www.fool.com/investing/general/2016/04/28/tobacco-makers-just-won-a-major-e-cigarette-victor.aspx

A U.S. House of Representatives committee recently approved an amendment to an agricultural funding bill making it easier for e-cigarettes to win regulatory clearance than current proposals from the Food and Drug Administration would allow. The FDA previously proposed that all tobacco products introduced after Feb. 15, 2007, including e-cigs and vapor products, would need to adhere to new regulatory standards if they weren’t “substantially equivalent” to pre-existing tobacco products.

If such a product doesn’t exist, the new offering must undergo a review under the FDA’s premarket tobacco application (PMTA) process, which tobacco makers consider too strict. Vapor device makers also argue that only a single e-cigarette (which isn’t a market-leading brand) was available in the U.S. prior to the FDA’s cutoff date. Around 100,000 new e-cigarette and vapor products have since been introduced.

The House Appropriations Committee voted 31-19 in favor of “easing” that process, although it’s unclear if the PMTA cutoff date would be moved or eliminated. Nonetheless, Arnaud Dumas de Rauly, treasurer of the Vapor Technology Association, told Reuters that the ruling would give the industry “a big boost of momentum”. Let’s see what this positive development means for the country’s leading e-cig makers.

Reynolds American (NYSE:RAI) owns Vuse, the most popular brand of e-cigarettes in America. A Nielsen survey from January showed that Vuse controls 38.5% of the U.S. market by revenue. The brand is available at 110,000 retail outlets across the country and was one of the first e-cigs to sync with a mobile app to track usage and battery life. Reynolds nearly acquired second place Blu, which holds 20.7% of the market, through its acquisition of rival Lorillard.
However, Lorillard sold Blu to Imperial Tobacco to avoid antitrust issues.

Reynolds categorizes Vuse with its nicotine gum under its “all other” category, where sales fell 6.5% annually to $72 million last quarter. That decline wasn’t surprising, since Nielsen reported that for the period ending on January 23, e-cig dollar sales fell 17.7% annually as unit sales declined 3.3%. In a research note, Wells Fargo analyst Bonnie Herzog partially attributed that decline to “difficulty in capturing SKUs of the evolving vapor category and proliferation of vapors/tanks/mods (VTM) and refills, which tend to have lower retail prices.”

Easing regulations might prevent Reynolds’ sales of Vuse e-cigs from being suspended for new approvals, but the overall impact won’t move the needle much, since sales are declining and “all other” revenues only accounted for 2.5% of total sales last quarter.

Altria (NYSE:MO) is the top tobacco company in the U.S., but it ranks fourth in the e-cig market with a 7.6% revenue share from its MarkTen and Green Smoke brands. Altria launched MarkTen in 2014, a year after Reynolds launched Vuse nationwide. To catch up to Reynolds and other market leaders, Altria acquired premium e-cigarette maker Green Smoke for $110 million in cash and up to $20 million in incentive payments. Altria also introduced new e-cig flavors and doubled its e-cig battery life with the MarkTen XL.

Like Reynolds, e-cigs only account for a tiny part of Altria’s sales. Altria groups e-cigs together with snuff in its smokeless category, which posted 5.8% pre-tax sales growth last quarter. However, most of that growth was driven by sales of snuff rather than e-cigs, and the category accounted for less than 10% of Altria’s top line during the quarter.

But looking ahead, Altria might carve out a new niche market between e-cigs and traditional cigarettes with “heated tobacco products”. Last July, Altria signed a deal with its overseas counterpart, Philip Morris International (NYSE:PM), to sell its Marlboro HeatSticks domestically. HeatSticks don’t produce smoke, because they are heated with an electronic device rather than burned.

More relaxed regulations will make it easier for Altria to sell both e-cigs and HeatSticks, but investors shouldn’t expect sales of either product to move the needle for the company anytime soon.

The key takeaway

While the amendment is unlikely to deliver large sales boosts to Reynolds and Altria, it does save them the trouble of sending all their e-cigarette products back to the FDA for PMTA approval. The process could reportedly cost tobacco companies millions per product, and only a single product has passed the PMTA in the past six years. As a result, forcing nearly all e-cigs on the market through the PMTA approval track could kill the industry niche entirely, because it would be more costly to sell them than to halt production altogether.

But as I mentioned in a previous article, tobacco investors shouldn’t place too much faith in the long-term growth of the e-cig market. Public bans, exploding devices, and other future regulations could also throttle demand, which currently account for a tiny percentage of industry volume.

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Leo Sun owns shares of Philip Morris International. The Motley Fool has no position in any of the stocks mentioned.