TI Digest

UNITED KINGDOM

Imperial Brands to Shed its Premium Cigar Business

BRISTOL—Imperial Brands will sell its worldwide premium cigar business as part of its divestment program, the company announced at the end of April.

“The program supports Imperial’s ongoing simplification agenda and will release capital to pay down debt and, where appropriate, invest in its growth agenda,” a statement said.

Premium cigars have performed well for Imperial over a number of years with good revenue and profit growth, the statement noted. “However, it is a unique luxury business with a different consumer base and route to market relative to Imperial’s other businesses. The sale of the business provides an opportunity to realize shareholder value.” Potential buyers were not identified in the announcement. Imperial said its divestment program was launched in May of 2018 and is expected to generate proceeds of up to £2 billion no later than May 2020. Imperial has so far realized £280 million from the sale of a portfolio of other tobacco products in the USA and of 9.99 per cent of Logista, which distributes products and services in Southern Europe

Significant progress has been made with a number of other divestment opportunities, with the priority of maximizing shareholder returns. Recognizing that tobacco valuations have come under some pressure in the last 12 months, assets will be sold only if they will realize appropriate value.

AUSTRALIA

Tax Office Searches for Illicit Tobacco Plantings

SIDNEY—The Australian Tax Office (ATO) has called on members of the public to help identify illicit crops, according to media reports. Crops are approaching maturity, and the ATO is stepping up enforcement efforts.

‘‘The tobacco-growing season typically runs from November to May and it is often grown in rural areas in central Victoria,’’ assistant commissioner Peter Vujanic said

New techniques will be introduced to combats illegal tobacco plantings, he added.

CANADA

Judgment Stayed on Quebec Action vs. Tobacco Companies

QUEBEC—Legal proceedings against three major tobacco companies were suspended as an Ontario court has upheld an order that postponed action by Quebec smokers.

The Quebec class action suit had won a judgment for the three companies— JTI-Macdonald Corp.; Rothmans, Benson & Hedges and Imperial Tobacco Canada—several years ago but the $15 billion+ judgment was stayed recently after the companies filed for creditor protection.

CUBA

How many cigars are made in Cuba?

HAVANA—Cuba is producing 260 million “hand-rolled” cigars per year, said officials of Tabacuba in a report from La Prenza, Cuba’s state news agency.

Justo Luis Fuentes and Miguel Vladimir Rodriguez, president and first vice-president of Tabacuba, were quoted as saying the country exported 93.9 million handmade cigars.

The rest are produced for national consumption, meaning 166.1 million cigars for an island of just under 11.5 million people and presumably some of the 4.8 million tourists the country welcomed in 2018.

In 2016 the Cuban government’s Office of National Statistics said the country exported 91.4 million handmade cigars. It has not yet released figures for 2017 or 2018.

It’s unclear whether the terms premium, handmade and hand-rolled are being used interchangeably. Cuba produces a range of handmade cigars, from the traditional premium offerings such as Cohiba, Montecristo and Partagás.

Most Cubans would be hard pressed to afford these brands. They would more likely consume cigars available only locally and generally referred to as peso sticks.

Habanos S.A., is the company responsible for sales and marketing of Cuban cigars worldwide, a number which would seem to include cigars produced both in Cuba and in other countries.

Prensa Latina also said that the country makes 150 million machine-made cigars and exports 91 percent of them, about 136.5 million. The report also announced that

The Brazilian company Souza Cruz, a subsidiary of British American Tobacco, has made an investment of $116 million in a new joint venture for machine-made cigars and cigarettes.

MALAYSIA

How Much Contraband is too Much for Market to Bear?

KUALA LUMPUR—It is not acceptable that illegal cigarettes account for 60 percent of the Malaysian market, contends Erik Stoel, managing director for BAT Malaysia.

“These players do not and will not comply to any form of excise and tobacco control regulation,” he said. “This remains a big concern for the business and deserves immediate and higher attention by the Government.”

Laws exist that could advance the situation. “Better legislation has been put into place in the form of stricter penalties which now needs to be capitalized on.”

Besides law enforcement actions, another key driver of the illegal cigarette trade is affordability. Therefore, said Stoel, regulators should develop a solution that will allow consumers to move away from illegal cigarettes.

A higher awareness of the issue of the illegal cigarette trade across the different sectors of the Government and the public is crucial.

“We believe strongly in the adage that knowledge is power and to that effect we made public the findings of the Illicit Cigarette Study 20 18 Report by Nielsen,” said Stoel. “If we can get more Malaysians to understand that the illegal cigarette trade has economic and social impact on the country, we are confident that in the long run, everyone would stand to gain.”

That could be in recovered taxable revenue that could be invested in the development of the country and its people or through increased job opportunities in the legal industry, he concluded.

UNITED STATES

White Owl Mini Cigarillos Launched by Swedish Match

RICHMOND, VA.—Swedish Match launched White Owl Mini Cigarillos in March.

“The Mini cigarillo segment has experienced double digit growth over the past five years, with most growth coming from mini pouches,” said Katherine Macomber, Senior Brand Manager, Cigars for Swedish Match. “The well-established White Owl brand was a natural fit for the segment. We anticipate

White Owl Mini’s competitive price point, high value and outstanding quality will continue growth in the segment while providing much needed innovation.”

White Owl Mini Cigarillos arrived in stores nationwide in early March. It features four flavors (see photo): Sweets, Silver, White Grape and Blue Raspberry. White Grape and Blue Raspberry are new flavors for the category.

Each resealable pouch contains three mini cigarillos, which are not as long and thinner than regular White Owl cigarillos.

IQOS on sale soon in the U.S.

RICHMOND, VA.—The Food and Drug Administration (FDA) has authorized sale of the IQOS heated tobacco system in the U.S., following review of Premarket Tobacco Product Applications submitted by Philip Morris International Inc. (PMI).

Under an exclusive licensing agreement with PMI, Philip Morris USA (PM USA) will commercialize IQOS in the U.S., beginning soon.

“PM USA will introduce IQOS in the U.S. for adult smokers in Atlanta, Georgia, to learn as much as possible, as quickly as possible, and intends to make the most of the company’s first-mover advantage in heated tobacco,” said Howard Willard, Chairman and chief executive officer of Altria. “IQOS has had terrific success internationally. We’re very excited to bring this platform to adult smokers in the U.S.”

PMI reports that currently more than seven million people around the world have fully switched to IQOS.

PM USA will test a range of marketing, sales and consumer engagement approaches to raise adult smokers’ awareness of IQOS and to facilitate guided trial of the product and provide post-purchase support.

There were many retail touchpoints in Atlanta, including an IQOS store at Lenox Square, numerous mobile retail units and HeatStick distribution in approximately 500 retail trade partner stores including Circle K, Murphy USA, QuikTrip, RaceTrac, Speedway and select additional retail partners.

“PM USA will act on market insights and expects to scale IQOS quickly and efficiently,” said Willard.

Raise Purchase Age for All Tobacco Sales to 21: Altria

RICHMOND, VA.—Altria has stated that it strongly supports raising the legal age of purchase for all tobacco products, including e-vapor, to 21, in support pf the effort in the U.S. introduce legislation to this effect.

“This is the most effective action to reverse rising underage e-vapor usage rates,” said Altria Group Chairman and CEO Howard Willard said. “Now is the time to move to 21.”

The number one way kids today get access to tobacco products is by obtaining them from legal age purchasers, Willard added.

“Approximately 80 percent of high school students in the U.S. turn 18 years old before graduation,” he said. “By raising the minimum age to 21, no high school student will be able to purchase tobacco products legally, adding another hurdle to help reduce social access.”

Perception of Altria-Juul Partnership Positive

RICHMOND, VA.—The honeymoon for newlyweds Juul and Altria apparently hasn’t ended yet.

“Altria continues to believe that its investment and the services Altria has agreed to provide Juul will promote competition and have long-term benefits for adult smokers,” the company said in a statement.

When completed, Altria will have much greater control over the direction Juul takes, said The Motley Fool, a multimedia financial services company that provides financial advice for investors. “While that has worried some…it doesn’t change the fact that Juul should end up in a much better position to meet regulatory requirements because it will have Altria as a partner to help it meet the government’s expectations.”

Revel Lozenges Now Available from Website

WINSTON-SALEM, N.C.—R.J. Reynolds Vapor Company announced in March that it is expanding distribution of Revel, a dissolvable nicotine lozenge, to the brand’s website.

Revel is a continuation of Reynolds Vapor’s ongoing commitment to transforming tobacco by responsible innovation in the industry. It is made by extracting nicotine from tobacco leaves and infusing it into dissolvable lozenges. This process results in a product that can be enjoyed anytime, anywhere.

The brand is available via the website www.thatsrevel.com in hard and soft lozenge styles and in four flavors.

Reynolds Vapor has taken steps to prevent potential youth access of its Revel products.

Bailey’s Cigarettes Have Been Sold

KEYSVILLE, VA.—The small independent cigarette manufacturer S&M Brands Inc. ceased operations in March after

sale to a still-unidentified buyer, according to local reports. The company, which manufactured discount cigarette brands, had been in business 25 years. It was launched by tobacco growers Mac Bailey and his son Steven.

In recent years, its leading brands have been Tahoe, Riverside and especially Baileys. The market for S&M cigarettes has been primarily the southeastern United States. Mac Bailey told the local press that S&M needed a parent company that could market its products nationwide.

No sales price was initially revealed. Most of the company’s 87 employees have been laid off.

The buyer bought the company’s equipment but not the buildings. The Baileys are reportedly looking for other uses of the buildings.

The Baileys will retain—at least for the moment—their leaf dealer business Golden Leaf Tobacco Co. and Cornelius & Anthony, which produces premium cigars such as Lex12, Cornelius and Daddy Mac. They will also continue to raise tobacco.

JAPAN

Innovation Partnership Formed to Improve Vaping

GENEVA—JTI has partnered with Plug and Play, a global leader in technology incubators, to run Vapetech, a program aimed at bringing together innovators and data experts to develop technology that improves the experience and health benefits of vaping.

This global program operates from Silicon Valley and was launched with selected start-ups in March.

“We believe vaping has the potential to reduce the health risks from smoking,” said Saeed Amidi, Founder and CEO of Plug and Play. “Our goal is to identify the next generation of products and services. By connecting them with JTI and others, we will continue to push forward innovation in this industry.”

SWITZERLAND

Gas Emission Target Approved

GENEVA—JTI’s long-term greenhouse gas (GHG) emission reduction target has been approved as a Science Based Target (SBT) by the Science Based Target initiative (SBTi).

“We are proud that SBTi has approved our target,” said Chigusa Ogawa, JTI Senior Vice President for Sustainability Management. “As a group, we strive to foster a sustainable environment for our business and for future generations. Climate change remains a key environmental challenge for us, as it can have a direct impact on our value chain and the society at large.”

NAMES IN THE NEWS

J.B. Simko has been promoted to Vice President External Affairs for PMI and will relocate from New York to the Washington, D.C., office. Aaron Sherinian, Vice President Global Communications Transformation, will also relocate to the D.C. office. He had been stationed in Paris. “We are very pleased to have J.B. and Aaron representing PMI in Washington,” said Marc Firestone, President External Affairs and General Counsel. “We believe their presence in D.C.—where regulatory and policymakers meet—will send the positive message that we are working to make our vision of a smoke-free future a reality in the U.S. and abroad.”

Marco Hannappel has assumed the role of managing director of PM Italia. Most recently, he had served as vice president of Samsung Electronics Italy. Eugenio Sidoli continues as president of PM Italia.

Ray M. Paul Jr. has appointed to the Board of Directors of Hail & Cotton, Inc. Paul spent more than 30 years with Universal before retiring in 2012. Recently, Paul has served in a consulting role to Hail & Cotton.