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May 17th, 2016:

Four jailed over £16m tobacco tax fraud

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Tobacco plain packaging bites as Parkside announces redundancies

Parkside Flexibles Europe is set to make redundancies following the closure of a major tobacco packaging customer in May.

With the implementation of plain packaging legislation in the UK to be phased in from 20 May, and the general decline of tobacco sales in Europe, Parkside is reducing its staff levels at its headquarters in Normanton, West Yorkshire.

The firm’s managing director Nick Smith confirmed the impact of the market changes and customer closures has prompted the decision.

“It is with deep regret that we have commenced the consultation process with the Parkside workforce today and we are proposing a number of roles will be made redundant as a result of the reduction in tobacco related work.”

He said the company has been working hard over the past two years to reshape its business in response to this predicted market situation and diversify into a broad range of higher growth speciality packaging markets.

“We have invested in our APEX innovation strategy to meet brand and retailer needs and despite securing a number of new significant contracts, as well as volumes with alternative tobacco brands, the impact is simply too large for us to continue at current staff levels. Our Asian business remains solid and with this move we will place Parkside on a more secure footing for growth in the UK packaging market going forward.”

Parkside specialises in printing, lamination, laser, thermal and sustainable solutions for the food, drink and tobacco sectors.

Anti-E-Cig Dems Took Hundreds Of Thousands From Big Pharma

Pro industry publication makes certain points – it seems prima facie money talks within the Great Satan to preserve market share

Seven Senate Democrats who signed a letter applauding the Food and Drug Administration’s (FDA) crackdown on e-cigarettes took hundreds of thousands of dollars from the pharmaceutical industry.

They wrote to the FDA May 11 congratulating the agency on its almost 500-page rule book regulating e-cigarettes, cigars, and pipe tobacco.

“We commend the Food and Drug Administration (FDA) for finalizing the deeming rule that extends FDA regulatory authority to include all tobacco products, including e-cigarettes, cigars, and pipe tobacco, to protect the public’s health—and especially the health of the youngest Americans—from the harmful effects of tobacco,” the senators wrote.

Industry experts and independent vape shop owners fear the regulations will destroy the market, wreck innovation and ban almost all vapor products.

The rule that most concerns the e-cigarette industry is the so-called “predicate date” of Feb. 17, 2007. All vapor products that came on the market after this date, which is almost all of them, will have to go through the notoriously onerous and expensive Pre-Market Tobacco Application process (PMTA).

PMTAs can cost millions of dollars per product and around 1,700 hours of paperwork. Industry experts and the FDA’s own analysis from 2014 estimate 99 percent of products on the market won’t even be put through this process and will be taken off the market within two years.

One sector that might benefit disproportionately from this outcome is pharmaceuticals. Companies such as Pfizer and Teva Pharmaceutical Industries make smoking cessation products like nicotine gum and patches, which directly compete with e-cigarettes to get smokers off tobacco.

CVS Health, which sells nicotine replacement therapies but refuses to carry e-cigarettes could also benefit the removal of competition. The company’s twitter account once compared e-cigarettes to the light cigarettes marketed by the tobacco industry.

Seven Democrats who signed the congratulatory letter to the FDA have raked in substantial sums from these organizations’ PACs, lobbyists and employees.

Sen. Richard Blumenthal
Pfizer: $12,300, 2009-2012
$24,300, 2009-2014
$28,500, 2011-2016
Total: $65,100

Sen. Dianne Feinstein
Pfizer: $12,000, 2005-2010
$33,250, 2007-2012
$38,250, 2009-2014
$35,750, 2011-2016
Total: $119,250

Sen. Kirsten Gillibrand
Pfizer: $45,298, 2009-2010
$76,048, 2009-2012
$72,800, 2009-2014
$44,500, 2011-2016
Total: $238,646

Sen. Patrick Leahy
Teva Pharmaceutical Industries: $12,500, 2005-2010
$14,500, 2007-2012
$18,450, 2009-2014
$15,750, 2011-2016
Pfizer: $15,000
Total: $76,200

Sen. Jack Reed
CVS Health: $55,250, 2007-2012
$43,250, 2009-2014
$39,200, 2011-2016
Total: $137,700
Sen. Tom Udall
Pfizer: $16,000, 2009-2014
Total: $16,000

Sen. Sheldon Whitehouse
CVS Health: $20,500, 2005 -2010
$27,050, 2007-2012
$33,050, 2009-2014
$28,050, 2011-2016
Pfizer: $10,000, 2011-2016
Total: $118,650

All the data listed above was collected from

Ethiopia: Smoke Screen – Companies Secretively Scramble for Tobacco Monopoly

By Dawit Endeshaw and Solina Alemayehus

Philip Morris, British American, Japan International and Sheba will all put forward bids this week.

International tobacco firms are gearing up for some hefty competition, as the auction of 40pc of the National Tobacco Enterprise’s (NTE) shares is scheduled for May 19, 2016.

Three of the largest international players in the 500 billion pound tobacco industry – a group that controls roughly a third of the global market share – have their legal teams in Addis, to ready their bids.

Ethiopia, as a gateway to East Africa, represents a growing, youthful population, with increasing disposable income, is an attractive proposition,” explained a local industry veteran. This is not lost on the competitors.

The NTE has been having countless meetings and receiving visits from representatives of Philip Morris International Inc (PMI), British American Tobacco (BAT) and Japan Tobacco International (JTI). The Enterprise imports and packages BAT’s Rothmans and PMI’s Marlboro for the Ethiopian market.

These, as well as some locals, have been requesting information. Guna Trading Plc, one of the companies under the Endowment Fund for the Rehabilitation of Tigray (EFFORT), has also knocked on the Enterprise’s door.

British American is a multinational company that sold 158 billion cigarettes last quarter, with its revenue growing at an average annual rate of 5.4pc. Almost 30pc of this comes from Eastern Europe, the Middle East and Africa, through its affiliates in Kenya, Nigeria and South Africa.

In addition to acquiring local legal firm Kumilachew Dagnew Law Office, the company has sent its legal teams from Nairobi, West Africa and the UK. It has also acquired the services of international law firm, Addleshaw Goddard LLP, and investment consultants, Ernst & Young.

Phillip Morris owns seven of the world’s 15 top selling brands. Its quarterly sales of 209.8 billion cigarettes represented a 2.4pc decrease from the previous quarter. However, with three affiliates on the continent, in Senegal, Mali and South Africa, its African market share is showing an annual growth rate of 0.3pc.

In what some have deemed a lobbying gesture, the company recently donated half a million dollars to the Ethiopian Red Cross Society’s drought response.

The third multinational bidder, JTI, known globally for brands Winston, Camel, and Benson & Hedges, is the Japanese version of the NTE. Its total shipment volume grew by 7.1pc to 94.4 billion cigarettes in the last quarter. The company has seven affiliates in Africa, including Sudan, South Africa and Nigeria.

As interest in tobacco wanes elsewhere – in the US alone the proportion of adults who smoke has dropped from 43pc to 18pc in 50 years – Africa has become the new frontier.

“Shares in the NTE would be a way to cement their presence in the region,” the veteran commented. “And, for PMI, a way to create one.”

But the fields are not all green.

Government made a point of restricting any bidder from having majority shares. Sheba Investment Group, the only other shareholder so far, will only bid for half of the shares on offer, since it already owns 29.05pc of the Enterprise.

The government’s decision to sell only 40pc of the share is puzzling, seeing that health and environmental concerns could have been addressed by existing regulatory measures. If business is what they were after, they could have simply continued with their current holdings, the veteran opined.

Established with paid up capital of 50,000 Maria Theresa dollars during the imperial regime in 1935, the Enterprise was originally named the “Imperial Ethiopian Tobacco Monopoly”. It became a share company in 1999, following the EPRDF-led government’s expressed intention to privatise public owned enterprises.

Over the past five years, the annual turnover of the Enterprise has increased – on average by 190 million Br a year. It offers five brands – Nyala, Gissila, Elleni, Delight and Nyala Premium. Last year, the Enterprise registered 1.76 billion Br in sales, while collecting 394 million Br of profit. It now produces nine billion units of these cigarettes a year – a 50pc increase from four years ago.

BAT is known for five global brands, and had a stock price of 120.57 dollars as of May 13, 2016. PMI, with 15 international brands, is trading at 100.86 dollars per stock, While JT is going for 4,511.00 Japanese Yen on May 13, 2016.

Someone close to the process described the secrecy surrounding the bid as a smoky environment, where bidders were keen to keep a low profile. The giants, however, were too big to hide and there is some speculation about what may happen under the table.

But the bidders have major concerns.

The most obvious one is the limitation on the number of shares any single entity can own. The 40pc cap makes the potential owners of the NTE wary of the representation they will have on the board, which affects their decision-making abilities and the amount of power they will have over the Enterprise.

They are obliged to continue with the existing cigarette brands, and decisions like capital increase can only be made via consensus.

“The government did not want to be outvoted, it wanted to retain veto power,” one representative said. “But I doubt that it considered that it has also given the other members the power to veto any decision the government will try to make.”

The bidders are moving forward with the hope that there will eventually be the opportunity to transfer shares.

A source from the NTE has expressed concern that these companies may risk the fate of the 5,000 permanent and temporary staff.

The veteran disagrees.

“Since most are bidding in the hope of a future where more shares will come up for sale,” he opined. “They will most probably try to keep in the government’s good graces until then.”

Accessing growers of tobacco could prove challenging due to cultural differences, Getu Alemayehu, the public relations head at the NTE shared his concerns. The Enterprise already imports more than 50pc.

Another concern is the monopoly. The law on tobacco and the tender dictate a continuation of the monopoly for at least ten years, with no established upper limit.

“They shouldn’t worry about that,” the veteran added, “a decade is enough time to cement their market presence.”

Criticism was also directed at the NTE for being unprepared. Staff held back or did not have the necessary documentation, participants claimed, while others even gave away papers they were not supposed to.

Another concern is with the process. After the competition, the winning company is required to pay all the money up front. The parties will sign the agreements, then go to the Ministry of Trade and the Competition Authority. Both refer to the investment law, which clearly states that investment in tobacco is not for foreign investors. There is no guarantee that they will accept the merger.

The real challenge will come later, one lawyer predicted. From his observation, neither the Ministry of Trade nor the Public Enterprises legal team is fit to handle a merger of this size and complexity.

“I expect the worst during negotiations with them,” he said.