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February 24th, 2017:

HK customs seizes 900,000 suspected illicit cigarettes

HONG Kong Customs on Friday said they have seized about 900,000 suspected illicit cigarettes with an estimated market value of 2.4 million Hong Kong dollars (about US$0.3 million ) and a duty potential of about 1.7 million Hong Kong dollars.

During an anti-illicit cigarette operation on Thursday, customs officers intercepted a truck in Kwai Chung. After inspection, customs officers found about 900,000 sticks of suspected illicit cigarettes in 108 carton boxes on board the truck. A 40-year-old man was arrested and the truck was detained. Investigation is ongoing.

Hong Kong customs said, smuggling is a serious offense. Under Hong Kong’s Import and Export Ordinance, any person found guilty of importing or exporting unmanifested cargo is liable to a maximum fine of two million Hong Kong dollars and imprisonment for seven years.

They added that under the Dutiable Commodities Ordinance, anyone involved in dealing with, possession of, selling or buying illicit cigarettes commits an offense. The maximum penalty upon conviction is a fine of one million Hong Kong dollars and imprisonment for two years.

Tobacco Giants Push New ‘Alternative Products’

The heat is on for tobacco and cigarette industry leaders to expand their products outside traditional markets in order to meet the evolving demands of a more health-conscious world. As governments push forward anti-smoking campaigns and a growing number of people in the U.S. and even in developing markets quit smoking, many big players have decided to get creative in order to survive.

Working ‘Across the Harm Spectrum’

Cigarette maker British American Tobacco (BTI) plans to quadruple the number of markets in which it offers products such as e-cigarettes and vaping products. The London-based company plans to expand its e-cigarette and vaping offerings from 12 markets to 48 by 2018. After acquiring Reynolds American in a deal worth $49 billion, BAT says the company won’t have the cash to do anything M&A-wise in the upcoming one to three years. Kingsley Wheaton, managing director of BAT’s next-generation products group, says the company is committed to “creating products across the harm spectrum” in order to reduce the public health burden of smoking. Earlier this week, BAT posted stronger-than-expected earnings for full-year 2016, following a previously announced Q4 beat.

Touting ‘No Burn’ Tobacco Products

Philip Morris International Inc. (PM) recently upped its full-year 2017 guidance as it focuses on new IQOS products—heat sticks that “warm” tobacco instead of burning it. The New York City-based international tobacco and cigarette company hopes to leverage pending FDA approval for its “reduced-risk” tobacco products in order to beat out the competition. Philip Morris has touted significant traction in the Japanese market, where its IQOS product now account for over 5% of the market. (See also: Philip Morris Ups FY17 Guidance.)

Earlier this month, the world’s third-largest tobacco company, Japan Tobacco Inc. (JAPAF), raised its dividend despite lowering annual profit forecasts. The company said its new dividend of 140 yen ($1.24) this year, up about 8%, is set to underline a “very strong feeling” on its Ploom Tech tobacco-based e-cigarettes. The product launch, which has been delayed due to supply issues, is set to begin in Tokyo this June, rolling out in other cities in the first half of 2018.

iQOS: A Product Of Innovation Or Necessity For Philip Morris?

Philip Morris aims to garner 10-15% of its sales from its Reduced-Risk Products (RRPs) portfolio within a decade. It is betting on one such product, iQOS, and feels it will become more popular than e-cigarettes sold by other companies.

Philip Morrris expects its RRPs to approach breakeven Operating Companies Income (OCI) in 2017, and to start contributing positively by 2018. It is targeting 30-50 billion units in incremental volume through RRPs, which would add an additional OCI of $0.7 billion to $1.2 billion by 2020, with an increasing confidence of reaching the upper end of the target range.

Conversion rates of iQOS purchasers who have fully or predominantly moved to the product have grown over time, and stood at approximately 70% at the end of 2016. As of year-end 2016, the company estimates that approximately 1.4 million adult consumers have quit cigarettes and converted to iQOS.

Philip Morris International (NYSE:PM) uses the term Reduced-Risk Products (RRPs) to refer to products with the “potential to reduce individual risk and population harm, in comparison to smoking cigarettes.” The company has a number of products in various stages of development and commercialization, with numerous scientific studies being carried out to determine whether the claims for reduced risks can be substantiated. The firm’s aim is to garner 10-15% of its sales from its RRPs portfolio within a decade.

The company is betting on one such product, iQOS, a black pen-shaped device that heats sticks containing tobacco, and feels it will become more popular than e-cigarettes sold by other companies. Philip Morris has collaborated with Altria (NYSE:MO) for developing its RRP portfolio, which includes joint research, development, and a technology sharing agreement, wherein the e-vapor products developed would be commercialized in the US by Altria and in markets outside the US by PM. The company is also leveraging the popularity of the Marlboro brand by deploying Marlboro heatsticks in iQOS

Vaping Is Less Terrible For You Than Cigarettes (Still Not Great For You, So Don’t Start)

Over time, people who smoke e-cigarettes seem to pile up fewer toxins in their bodies than people who smoke traditional cancer sticks.

Vaping devotees, you have been vindicated: In the first long-term study comparing e-cigarettes with regular old cigarettes, researchers found that e-cigs aren’t quite as bad for you as the tobacco they replace. In fact, transitioning to vaping may end up being a good way to help people quit smoking altogether.

The study, funded by Cancer Research U.K., found that people who switched from tobacco to e-cigarettes for at least six months “had much lower levels of toxic and cancer-causing substances in their body than people who continued to use conventional cigarettes.” The conclusion: e-cigarettes are less toxic than tobacco.

The study followed 181 participants over a six-month period. The participants were split into five groups: “combustible” cigarettes users, e-cigarette users, users of nicotine replacement therapy (NRT) like patches or gum, and people who smoke combustible cigarettes while also using either e-cigarettes or other NRT products.

Most studies up until now, as noted in the report, have examined the toxins in the actual vapor of the e-cigarette and compared that to the toxins in tobacco. But because the actual absorption levels of substances from e-cigarettes are not known, this may not be an accurate way to determine actual toxicity. Also, different vaping devices may deliver differing amounts of chemicals to the body.

This study instead examined the levels of toxins and carcinogens in the body over time, and found that they are lower in users of e-cigs than in regular smokers, and comparable to those found in people using other NRTs.

This is a big deal. While taking up vaping from scratch is still a bad idea, regular smokers who switch to e-cigarettes could do themselves considerably less harm than if they keep smoking tobacco. Ideally, e-cigarettes would be, like nicotine patches, used as an aid to eventually wean yourself off nicotine altogether, but even if you switch permanently to vaping, you’ll be healthier.

Vaping is still a young phenomenon—e-cigarettes were only patented in 2003—and the research is still scant. Even this study only looks at 181 individuals, and is funded by an organization that has a vested interest in reducing cancer. But really, it seems that pretty much anything is better for you than smoking. Apart from sitting down, that is.

Who Still Smokes? Designing the Tobacco Endgame

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