Monday, 23 March 2020

Sales of combustible tobacco are falling in Canada -- and in all sorts of other countries too.

During last week's investor day, British American Tobacco made public many of its estimates of legal and illegal tobacco sales around the world. Combined with official reports from countries which monitor sales (like Canada and France), and with estimates from BAT's competitors, these help give us a picture of what is happening to the global tobacco market.

Simply put, the sale of cigarettes and cigarette substitutes (like roll-your-own) continues to decline. It declines in countries (like Canada, England and the United States) where e-cigarettes and other nicotine substitutes are avaialble. It declines in countries (like Australia and Uruguay) where they are banned. In Japan, where heat-not-burn cigarettes (HNB) have played a uniquely strong role in the decline of cigarette smoking and where vaping products are banned, the sale of HNB products is also on the downturn.

For public health, this is a cheery prospect, although the rate of decline is not yet big enough to break out the champagne. For shareholders, however, the prospect of persistently decreasing sales creates concerns for the long-term value of their investments. Not surprising, then, that BAT couched its news about increasingly steep falls in tobacco use with a promise to go after  "new generations" and "new consumers" for other nicotine products.

This post compiles data from BAT and other sources on tobacco sales in 2019.

Cigarette sales in Canada are down by 7.5% in the past year.

Cigarette companies (including GRE) are required to provide Health Canada with monthly wholesale data, including the number sold for each brand and the average monthly price in each province. In February, this data was shared: cigarette sales fell from 25.8 billion sticks in 2018 to 23.9 billion in 2019. This was a sharper decline than in previous years.

The unexpected size of the decrease had been signalled earlier in September by Imperial Tobacco, which told an ontario court that "The tobacco industry in Canada appears to be experiencing a higher than historic downward trend in the volume of cigarettes sold.”  In February, Philip Morris International also reported on the decline (which it measured at 7.7%), attributing it "to the impact of cumulative price increases, as well as the growing prevalence of e-vapor products.”


The decline in legal shipments was greater in some parts of Canada than in others -- 3 times as much in Ontario as in Quebec. The difference in provinces may suggest the extent to which different factors - like increased contraband, lower smoking or more substitutions with vaping products -  are playing a role. Interprovincial comparison will be made easier once data on smoking prevalence for 2019 is made available with the release of the 2019 Canadian Community Health Survey and more information comes on line from the 2019 Canadian Tobacco and Nicotine Survey.



Cigarette sales are down by similar amounts in many other comparable countries

For several decades, national tobacco use has been viewed through the lense of a global epidemic, with differing market patterns as the epidemic takes hold and then as populations recover. Canada is among many countries which are considered to be in the "recovering" stage of this epidemic, as are Australia, France, the United Kingdom, the United States and others. Comparisons with such countries is useful to assess whether this year's progress is much better than expected, or whether it is in line with the normal trajectory.

It would appear that other developed countries are experiencing steady and sizeable reductions in sales. Canada's experience last year of a 7.5% reduction is about twice the global rate of decline -- but not much different than that experience in Japan or Australia. As mentioned above, these countries have taken very different approaches with respect to tobacco control generally and the regulation of alternative nicotine products.


Data is messy and country-comparisons are difficult

The chart above is not useful for drawing conclusions about why cigarettes sales in any one country are falling faster or slower than in another. There are too many obvious issues that could be influencing the difference to link the difference to a particular policy decision or economic event. Illicit sales could be increasing or decreasing, the smoking populations could be at different ages (North American Baby Boomers are now reaching their mid-70s, when deaths from smoking are expected). Prices could be causing smokers to cut down, or alternative products could be substituting for some or all of a nicotine-users tobacco consumption.

Illicit sales are said to account for some -- but only a little -- of the global decrease in consumption.

BAT helpfully presented its estimates of the volume of illegal sales over the same period, and the way in which these would have influenced legal consumption. The company estimates that the illicit market has grown from 10% of total sales in 2017 to 13% last year. If illicit sales are considered, then global consumption fell by 2.1% last year.



Lots more historic data!

Much of the heavy lifting has already been done in comparing historic cigarette consumption trends. Stephen Hoffman and colleagues at the Toronto-based global strategy lab compiled estimates for 40+ years, ending in 2015, and have made the dataset available for use.

The institute for Health metrics and Evaluation has also turned its head to this problem -- it's data has been made conveniently visualizable at Ourworldindata.org 

The problem, always, is keeping these large and carefully constructed data sets up to date. Business intelligence, like that offered from Health Canada's reports and by British American Tobacco and Philip Morris International to their investors is a useful stopgap.


Data sources:


Wednesday, 18 March 2020

BAT reboots and rebrands for "a better tomorrow".

In a series of presentations to investors today, British American Tobacco laid out its "new purpose" and unveiled its new look.  Last year it was "transforming tobacco" and "accelerating delivery". This year the catch phrase --- trademarked of course -- is "a better tomorrow.
The new corporate purpose laid out by BAT's management was "to reduce the health impact of our business through offering a greater choice of enjoyable and less risky products for our consumers." Their target is to develop a customer base of 50 million people for these products over the next decade.

BAT reported today that they estimate that there are currently 68 million consumers using non-combustible products, of whom 11 million (16%) use BAT products. By their estimates, non-combustible consumers are less than 6% of the total nicotine market. (They do not include China or India in their estimates).

Recapturing consumer moments

A key goal for BAT is to regain the ground they have lost  - "to recapture consumer moments" - through the sale of electronic cigarettes, heat not burn and oral nicotine.  As they present it, these products can be used by smokers who are no longer able to use tobacco at work, in transit or with other people. Vaping products are helping them regain such moments - and they expect that future product offerings will help them get "more moments and more consumers".




Not fewer smokers, but more vapers
To further emphasize that their strategy is based on recruiting consumers for non-combustible cigarettes and not based on reducing smokers, BAT provides forecasts of its revenues for both categories. There was no emphasis in these reports on converting existing smokers, but there was on "stimulating the senses of new adult consumers" (emphasis added).



To finding new products for new consumers, BAT plans to leverage big data (it has a data base of 7 million consumers), to expand e-commerce and social media. Product design and innovation are emphasized.  People don't like the new hybrid heat-not-burn and vapour product (Glo Sens) so they are rolling out a new concept (Glo Hyper), which allows uysers to customize their taste experience of heat-not-burn products.

Important details are shared:

BAT reveals that younger people like ePOD, while older people prefer ePen, that they use artificial intelligence to develop food pairing, that upscaling (premiumisation) is a way to add imagery to products and that their chain of 750 "inspiration stores" are exceeding expectations.

They give numbers to the changing vaping marketplace. Open systems and vape shops are out, and closed systems and convenience stores or e-commerce are in.

BAT signals that it is consolidating its vape portfolio: abandoning 10 of its vape products to concentrate on 2 (ePod and ePen 3), shifting to the Vuse brand name, reducing flavours from over 1000 (!) to a mere 170. These changes are driven by digital technologies - big data, artificial intelligence, direct marketing, "leveraging social media listening", etc.

And for Canada?
Only modest information is given about the Canadian market. Citing point of sale scanner data, BAT says that JUUL and Vype have roughly equal schare of devices, and that about two-thirds of the pods sold are JUUL, compared to slightly over one quarter which are Vype.



Cigarette sales are down in many countries 
The presentations also offered a lot of data on trends in cigarette sales. Details on those trends, and comparisons with Canadian sales data, will be shared later this week.

Links to BAT presentations* 
  1. Building a better tomorrow
  2. A better tomorrow driving shareholder returns
  3. From our purpose to consumers, brands and capabilities.
  4. Step changing new categories
  5. Combustibles underpin sustainable value growth
  6. Digital to unlock business value
  7. Closing remarks
*you will need to identify yourself as a shareholder to access)

Tuesday, 17 March 2020

St. Patrick's Day and Imperial Tobacco's marketing tactics.

Vype ad - March 2020
It's St. Patrick's Day today -- and so this week Imperial Tobacco Canada has dressed its Vype promotions in green.

"Feeling lucky?" it asks visitors to its web-site before inviting them to "Go gold."

Only a month ago -- on Valentine's day -- the ads were similarly dressed for the day. Looking for romance? "Find an e-pod you'll love".

Lifestyle advertising and feeling lucky or finding love

One might have hoped that the existing federal law would have discouraged this company from using these feast days to promote nicotine products.

Vype ad - February 2020
After all, the Tobacco and Vaping Products Act (TVPA) bans ads which evoke "a way of life such as one that includes glamour, recreation, excitement, vitality, risk or daring." 

Advertisements which link products to deeply-embedded cultural events do both. By linking these products with these much celebrated feast days, they imbue nicotine with the deeply embedded values of the day -  like Irishness, luck or romance.
Such associations function as lifestyle promotions.

The general impression of no harm and misleading advertising 

The TVPA, like other consumer protection laws, prohibits ads which "are likely to create an erroneous impression about, the characteristics, health effects or health hazards of the vaping product or its emissions."

With their theme of feast-day celebrations and their sub-message of elegance and romance, these messages are like those which were condemned by the Quebec courts as giving the general impression that the product is not harmful to health and therefore being misleading advertising. (See para 518-541 of Justice Riordan's 2015 ruling.

Vype ad - June 2018
A change of style, but not of impact

Over the past year, Imperial Tobacco has modified the style of its direct advertising, but it has not changed its power or purpose. The Father's day ad from 2018, for example, shows more conventional symbols of lifestyle imagery, but it did not necessarily communicate lifestyle values more effectively.

Federal proposals on promotions won't affect these age-gated ads

In December 2019, Health Canada proposed to strengthen the TVPA with regulations to restrict permitted advertising. These important adjustments to the law would require ads like the St. Patricks' Day and Valentine's Day ads to carry warnings, but would not otherwise impose new restrictions on the styles of ads that are allowed. Unlike tobacco advertising, which is restricted to 'informational' messaging, vaping manufacturers will continue to be able to use non-product attributes in their ads.

Imperial Tobacco responds to concerns about flavours by adding more.

Many health organizations have called for restrictions on the use of flavours in vaping products. In January, Canada's chief medical officers of health called on the federal government to "Ban all flavoured vaping products and then provide regulatory exemptions or market authorizations for a minimum set of flavours to support smokers who choose to use vaping to end or reduce their use of nicotine-containing products."

Imperial Tobacco has responded to concerns about flavours not by reducing the number of flavour they offer, but by increasing them. Since the MOH call for restrictions, the company has introduced 4 additional flavours - Infused Cucumber and Blood Orange (January) and Passionfruit Fields and Lychee Orchard (March).




How low will prices go?

The Vype ePOD was introduced a year ago with a starter kit price tag of $44.95. Today Imperial Tobacco is selling it for $9.99. (The other major competitors, JUUL and Logic Compact, are also selling their products at less than half the January 2019 price.)

To date, Canadian tobacco control laws have focussed less on the pricing component of the marketing mix, using taxes instead as a way of establishing a minimum price.

The 20% tax on devices that is now in place in B.C. and that is planned by Nova Scotia and Alberta would raise prices somewhat, but would not prevent the companies from using lost-leaders or price promotions to attract new users.

Evocative ads. New flavours. Lower prices.  In the face of concerns about vaping, Imperial Tobacco is ramping up its marketing efforts.

Thursday, 5 March 2020

First government survey since e-cigarettes were legalized suggests it is kids, not adult smokers, who have been most affected.

Today Statistics Canada released the not-too-long awaited results of the one-time Canadian Tobacco and Nicotine Survey. This survey was conducted of Canadians over 15 years of age in November and December  of 2019.

It came after a long drought. Monitoring of e-cigarette use became a casualty of the restructuring of Health Canada's national drug use surveillance, last conducted in 2017. Both cannabis and e-cigarettes were legalized in the same year, but only cannabis received intensified surveillance. No federal agency was asking Canadians about their e-cigarette use for 23 months - including the first 17 months after the products began appearing in convenience stores.

Some of the survey results were posted at 8:30 this morning in Statistics Canada's The Daily. Information on the prevalence of use, the perceptions of harm and the reasons for using these products were made public. Not yet available are detailed tables, or information on how the use of these products is related to cigarette smoking behaviour.

Survey methodologists might cringe at comparing today's results with those done with a previous survey instrument, but such concerns may need to take a back seat as we try to grapple with what we are facing not quite 2 years after the nicotine market was so radically changed.

The law may have been intended to help adult smokers, but it is kids who have been mostly affected.

Among surveyed Canadians under 25 years of age, the proportion who have used e-cigarettes in the past month has grown almost 3-fold, from 6% to 15%.  Yet among adult Canadians (over 25+). the change is so modest that further analysis may be required to establish whether it is statistically significant.

Graph prepared by Physicians for a Smoke-Free Canada

Half of Canadian vapers are young people. 

The limited information on today's release (which did not provide population estimates) requires other population estimates to be used to establish how many of Canada's vapers are youthful. Such ball-park estimates show that roughly half of those who have vaped in the past month are under 25, with a quarter under 19 years of age. About 4 in 10 daily vapers are under 25 - more than double their share of the overall population.

These numbers are staggering: more than quarter of a million underaged children are using e-cigarettes recently - and almost 100,000 on a daily basis.

Graph prepared by Physicians for a Smoke-Free Canada

It's not harm reduction but drug effect and marketing that is driving youth use

Statistics Canada made available today the results of the questions on why people tried vaping. Just over one-third of all vapers identified reducing smoking as the main reason they vaped. The drug effects (enjoyment, reduce stress) and curiosity were most often cited by young people.

Chart prepared by Statistics Canada

What we still don't know

The Canadian Tobacco and Nicotine Survey also asked Canadians detailed questions about their smoking behaviour, about their cannabis and alcohol use and about their quitting attempts. Sadly, none of these important factors were referred to in today's release. 

Important too is to understand when vaping is related to nicotine or cannabis use. Today it was reported that about 9 in 10 young people used nicotine when vaping, but other studies suggest that children who self-report e-cigarette use are often confused or fail to recognize when they are consuming nicotine. 

Hopefully more than could fit into today's 800 word government summary will soon be made available.

Wednesday, 4 March 2020

Keeping track!

A lot is happening quickly in the field of tobacco and vaping regulation. This blog is to share attempts to visualize and keep track of developments.

In the past month alone, three Canadian provinces  and one territory (Nova Scotia, Alberta, Ontario and Nunavut) have announced new measures. This week Prince Edward Island became the first Canadian jurisdiction to increase the legal age for tobacco or vaping products to 21 years.

As illustrated below, while there remain major gaps to fill, provincial and federal regulators are plugging away at the problem.


Download: Snapshot of Canadian vaping regs.

There is a lot of action outside of Canada as well. 

Last week alone, one more large country banned e-cigarette imports (Turkey) and three others announced new regulatory measuers (New Zealand, Romania and the Philippines). In the United States, Congress passed legislation to ban e-cigarete flavours, and 39 states announced an investigation into JUUL's adherence to consumer protection laws. Oh, and JUUL announced it was withdrawing from Indonesia.

That's a lot to keep track of. More than 150 events are logged on our tracking sheet -- and the number keeps growing.

Download: Vaping Regulations Timeline

Let us know if we missed something!

Monday, 24 February 2020

Getting rid of the e-cigarette additives which make it easier for kids to get hooked

One of the key accusations against JUUL made in the lawsuits that were discussed here last week  is how that manufacturer used nicotine salts to increase the amount of nicotine absorbed from its e-cigarettes.

This blog and our recent fact sheet provide reasons to regulate the use of nicotine salts in e-cigarettes/vaping products.

Nicotine salts are recognized as a public health threat

As the lawyers for the state of New York put it: "nicotine salts, produce an easier-to-inhale aerosol that is not only more palatable than the smoke produced from a combustible cigarette, but also causes less throat irritation. Thus, a consumer ingests more nicotine from a JUUL pod with less discomfort than one would experience when smoking a combustible cigarette."

It's not only lawyers who are concerned when companies alter the nicotine molecule to make it easier to inhale. Last fall, the former head of the U.S. Food and Drug Administration, David Kessler, identified nicotine salts as one reason that e-cigarettes should not be permitted on the market in the USA. Researchers have identified this manufacturing technique as the start of a "nicotine arms race" that puts a generation of youth at risk by making e-cigarettes more palatable and  "vastly more addictive for never-smokers".

Last month the Council of Chief Medical Officers of Health identified controls on nicotine salts among measures that the federal government should consider.

Why nicotine salts are easier to inhale than freebase nicotine

Nicotine, as extracted from tobacco or created synthetically, is a base (pH greater than 7). In this form, it is sometimes called freebase nicotine. Freebase nicotine - like that found in the smoke of cigars  or pipes -  is harsh to the taste and hard to inhale.

Exposing freebase nicotine to an acid converts the nicotine to a salted form. (Chemically speaking, a salt is a substance that is produced by the reaction of an acid with a base.) The nicotine molecule picks up a hydrogen proton, making it similar to the protonated nicotine found in cigarette smoke. This form has lower pH and produces a smoother sensation when being inhaled. It is less bitter and more palatable.

E-cigarette companies treat nicotine with an organic acid to produce nicotine salts. JUUL uses benzoic acid; Vype uses lactic acid. Other brands use levulinic acid, or a combination of organic acids.

E-cigarettes that are not treated with organic acids to create nicotine salts would have a pH of about 7.5-8.0. Like cigars, they would be harsh to the taste and hard to inhale.

Slide courtesty of Dr. Arit Harvanko, UCSF
"It's about a billion lives" - January 31, 2020

No denying the purpose of nicotine salts is to facilitate inhalation and absorption

E-cigarette manufacturers have been open about the way that nicotine salts make it easier to inhale and absorb nicotine. In their patent application, JUUL's inventors identified that this formulation "facilitates adminsitration of nicotine to an organism (e.g., lung)". 

JTI-Macdonald informs Canadian customers that the nicotine salts in its Logic Compact uses "may make it easier to inhale the level of nicotine contained in the product than would be possible without it."

Regulating additives that increase addictiveness, attractiveness and palatability.

For many years, regulators have recognized the need to address the use of additives in tobacco products which increase the attractiveness and addictiveness of the products. Before e-cigarettes were a regulatory concern, governments which signed the global tobacco treaty (the Framework Convention on Tobacco Control) recommended that they should all “regulate, by prohibiting or restricting, ingredients that may be used to increase palatability in tobacco products.” In 2005, they identified the need to develop regulations to reduce the attractiveness and addictiveness of products, without yet agreeing on a way to do so.

The European Union set out to fill this void and appointed a panel of experts to report on the “Addictiveness and Attractiveness of Tobacco Additives.” Their 2010 report predated e-cigarettes, but concluded that “additives that facilitate deeper inhalation… may enhance the addictiveness of nicotine indirectly,” and that additives that increased attractiveness could result in “decreasing the harshness of the smoke, and inducing a pleasant experience of smoking.”.

When the European Union Directive on tobacco was revised in 2014 to include e-cigarettes, it required all EU governments to ban cigarette additives "that facilitate inhalation or nicotine uptake.”  Some governments have also banned such additives in e-cigarettes: France, for example, prohibits manufacturers of e-cigarettes using  “des additifs qui facilitent l’inhalation ou l’absorption de nicotine," and Iceland similarly bans e-cigarette "substances that facilitate the inhalation or uptake of nicotine." Such measures are also in place in Hungary

These laws, however, do not seem to have prevented the sale of nicotine salts. Salted nicotine liquids are sold through BAT's web-sites in France and Hungary.

Regulating e-cigarette additives in Canada

Canada takes a different approach towards additives than does the European Union. Where as the EU bans additives on the basis of their impact, Canada bans them on the basis of their chemical properties. 


Prohibited E-cigarette ingredients
Canadian Tobacco and Vaping Products Act
Currently, nine categories of ingredients are prohibited in Canadian e-cigarettes. These are: amino acids, Caffeine, colouring agents, essential fatty acids, glucuonolactone, probiotics, taurine, vitamins and mineral nutrients. 

Nicotine salts were introduced in Canada a few months after this law was passed. Before August 2018 (when JUUL began marketing in Canada) the other pod-based systems were selling freebase nicotine products with nicotine levels no greater than 18 mg/ml. 

Soon after, the other manufacturers of pod-systems followed suit. Imperial Tobacco changed its marketing plans and introduced a re-designed pod-system with nicotine salts in January 2019. Within weeks, each of the four large tobacco multinationals had JUUL or copy-cat products on the market. Sales of Imperial Brands Myblu were expanded across Canada in January and Japan Tobacco's Logic was introduced in February 2019.

In a matter of months, manufacturers changed the Canadian market place in ways which almost certainly have contributed to the increase in youth nicotine use.

A simple fix may be available to roll the clock back: By amending the list of prohibited ingredients to ban all acids, and not just amino acids, manufacturers would no longer be able to sell vaping liquids made with nicotine salts.

Thursday, 20 February 2020

Misinformation? Absolutely. That's why we complained to the Competition Bureau

For the past several weeks, Imperial Tobacco has been ramping up its "Facts not Fear" campaign.

Their clear message -- as shown in a display in a local Ottawa shopping mall -- is that vaping products are not as harmful as health scientists are claiming.

Well, we've been down this road before. In the 1950s through 2000s, the same companies refused to acknowledge that cigarettes caused harm.

The century may have changed. The product may look different, but the marketing goal has not fundamentally altered for 50 years:  "Doubt is our product."

Despite its familiarity, there are some surprising things about this campaign -- such as the apparent absence of a government response.

1) Tobacco company PR-campaigns to impede public knowledge of harms were recently denounced by Canadian courts. Oddly, consumer protection agencies are not involved.
In their rulings in favour of injured Quebec smokers, the Quebec Superior Court and the Quebec Court of Appeal ruled that campaigns aimed reducing concerns about the health effects from product use was a form of misleading advertising.

Consumer protection laws exist in each Canadian province -- and also at the federal level. The Quebec rulings not only make it obvious that they should step in to protect the public from such misrepresentation, but also make it easy for them to do so. The relevant case-law has already been assembled and is ready to present to other courts.

Yet none of them have made public any concerns with Imperial Tobacco's claim, although CBC news and others have reported that Health Canada and the Quebec health ministry were "investigating".  (This week we sent a reminder to the federal Commissioner that action was needed).

2) Imperial Tobacco is currently in insolvency protection, with strict limits on what it can spend its money on. Oddly, the provinces have not used their influence to stop tobacco companies from advertising.
Following the Quebec rulings cited above, each of the 3 large tobacco companies sought protection under the federal Companies' Creditors Arrangement Act (CCAA). This bought them some peace, as it suspended all of the provincial lawsuits they were fighting. But it also put them under strict conditions about how they could conduct their business during this period, with the provinces (as creditors) having significant say over the terms of their protective court order.

Yet none of the provinces has voiced objections about the firms being able to continue to advertise during this involvency period. There are a number of reasons why they might have been expected to object to the companies' being allowed to continue run promotional and political advertising campaigns during the insolvency period:
  • It was in large measure the promotional practices of the companies which were at the heart of the Quebec rulings which triggered the CCAA process.
  • There is no evidence that the companies have adjusted their marketing practices to reflect the rulings of the Quebec courts.
  • Consumers are currently prohibited from asking other courts for injunctive relief under consumer protection laws, and thus have little protection from any deceptive marketing practices of the applicants.
  • Restrictions on promotional expenditures will increase the revenue available to creditors in these proceedings. 
On Thursday the immunity given to Imperial Tobacco by the CCAA "stay of proceedings" was extended until September 30th, 2020. 

Monday, 17 February 2020

Using consumer protection laws to strengthen tobacco control

Last week two more U.S. states filed lawsuits against JUUL, alleging that the company has mislead consumers and asking their courts to do what their legislatures cannot -- force the company to suspend certain deceptive marketing activities. This week, Canadian governments will be facing the tobacco industry in insolvency court as a result of their lawsuits alleging similarly misleading behaviour.

This blog provides an update on these two sets of events.

States representing more than one-third of U.S. citizens have filed suits against JUUL

At least nine state-level governments have filed suits against JUUL: Arizona, California, Illinois, Massachussets, Minnesota, New York, North Carolina, Pennsylvania and Washington DC.

The state attorneys general which have filed these suits are using their powers and responsibilities under state-level consumer protection laws, other laws designed to address wrongful behaviour by organizations (i.e. Racketeer Influenced and Corrupt Organizations Act), or state level restrictions on tobacco sales.

Their lawsuits claim that JUUL broke these laws in multiple ways. These include the design of their products, the targetting of young people in advertising, the misrepresentation of the risks of their products including by understating the amount of nicotine, the failure to meet the special duty of their publicly stated corporate objectives, the sale of defective products, their negligence behaviour and by other means.

In addition to asking the courts to order JUUL to pay fines, the states are also asking for court orders to stop certain marketing practices. The specific requests vary by lawsuit, but include a request for a ban on the sale of JUUL devices, a maximum level of nicotine of 20 mg/ml, a ban on free distribution of products and the use of social media. Some lawsuits are asking that JUUL to be required to contribute to the costs of cleaning up the problems it has caused by contributing to cessation programming.

In short, courts in these states are being asked to do what state legislators are unable to do under the U.S. legal system -- curb the marketing of vaping devices. Faced with a problem that their federal government is not addressing, state governments are seeking alternative ways to protect the health of their young citizens by reaching out to another branch of government for help.

In filing the suits, these law officials have provided excellent and readable summaries of JUUL's practices over recent years. The Pennsylvania claim, for example, provides a concise but comprehensive review of concerns with those products, as well as a compilation of key documents.

Why single out JUUL?

While the sales of products by other companies was relatively stable over most of the decade, it was the accelerated marketing of JUUL after 2017 that is associated with the growth in the market and also the growth in youth use, as shown in a figure from the Pennsylvania claim.



Through its innovative design, its ability to deliver higher and faster doses of nicotine and its youth-oriented marketing, JUUL is considered by many to have precipitated the youth vaping crisis in the USA. Other companies are now copying JUUL in what has been described as a "nicotine arms race",  but JUUL is being singled out for corrective action.

In the U.S. the singling out of JUUL is more obvious than it might be in Canada, where the behaviour of JUUL-imitators (like VYPE, STLTH, LOGIC, BLU) are seemingly no less problematic.

Meanwhile, in Canada

There are historic examples of Canadian governments and citizens using consumer protection laws to challenge tobacco industry marketing practices.

Tobacco:

Following a forceful complaint by the Non-Smokers' Rights Association in 2003, the federal Competition Bureau took enforcement action against the three major cigarette manufacturers. This resulted in an agreement in 2006 that those companies would stop using the terms light and mild, and an agreement was reached the following year with smaller companies operating in Canada. In 2011, Health Canada put regulations into place under the federal Tobacco Act to prohibit the use of the terms light and mild.

A class action (Knight vs. Imperial Tobacco Ltd) was filed in B.C. courts in 2003, asking the court to consider that Imperial Tobacco had not met its duties under B.C.'s Business Practices and Consumer Protection Act, and seeking compensation for smokers who had been misled into thinking that light cigarettes were less harmful. Thaw lawsuit also asked the court for a permanent injunction against the use of these terms.

The Quebec tobacco class actions (LĂ©tourneau and Blais/CQTS) claimed that tobacco companies had not met their obligations under that province's Consumer Protection Act, and both the Quebec Superior Court and the Quebec Court of Appeal agreed. These rulings gave considerable guidance about what standard of behaviour is required from manufacturers of such products, some of which are pasted below. They ordered the companies to pay billions of dollars in compensation, but did not order them to change any current practices. (They were not asked to).

Vaping:

One class action has been filed against JUUL in  British Columbia, claiming that the company made false representations about the safety of their products and failed to warn about the risks of their products in ways that went against that province's Business Practices and Consumer Protection Act. In addition to asking for compensation for injuries, the class action is also asking the courts to require that JUUL change its marketing practices. (Other class actions may be in the works).

Class action against JUUL filed in B.C.

The Companies' Creditors Arrangement Act and its impact on vaping lawsuits

Currently, governments and consumers are able to file lawsuits against JUUL and BLU and minor brands of devices like STLTH and MYLE, but are not permitted to ask courts to block misleading marketing practices by prominent vaping marketers VYPE and LOGIC.

That's because the major tobacco companies that manufacture those brands have, since March of last year, been under insolvency protection using the federal Companies' Creditors Arrangement Act (CCAA). The court has ordered a "stay of proceedings" meaning that " no proceeding or enforcement process in any court or tribunal ... shall be commenced, continued or take place."  As long as this order is in place, the companies have a time-out on any further lawsuits against them.  (A background note on these proceedings can be found here).

The tobacco companies requested this protection to buy time to negotiate a settlement with the provincial governments that are suing them to recover the costs of treating tobacco-related diseases. These provincial claims are, like the Quebec class actions, largely based on the companies wrongful behaviour in failing to warn and misleading consumers about the harmfulness of their products. 

This Thursday (February 20th), the companies are seeking another 6 month extension on their protection from any legal actions against them. Each of the provinces, as well as representatives of injured smokers and other creditors, will have an opportunity to suggest to the court ways that the "stay of proceedings" could be reworded to ensure that governments have clear authority to use the courts to protect the public from the types of wrongful behaviour which put the companies into insolvency. They could also object to the companies' ability to spend hundreds of millions to promote their products (including on ads which oppose government regulation) during the CCAA proceedings.

So far, none of them have indicated they will do so.

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Guidance from Quebec Courts on tobacco manufacturers' duties to warn and on misleading tobacco advertising

From Justice Riordan's ruling:

Misleading and non-misleading ads

[534]         A good example of a "neutral" ad is Exhibit 40480.  It simply shows the packages of the three sub-brands of Macdonald Select cigarettes, with a short message aimed at "those who select their pleasures with care".  There are other ads of this sort and none of them constitute violations of section 219 CPA.  They, however, are the exception. 

[535]         As a general rule, the ads contain a theme and sub-message of elegance, adventure, independence, romance or sport.  As well, they use attractive, healthy-looking models and healthy-looking environments, as seen in the following exhibits ... [incl. 40479]

[536]         From the viewpoint of a "credulous and inexperienced" consumer, ads such as these would give the general impression that, at the very least, smoking is not harmful to health.  In this manner, the Companies failed to fulfil one of the obligations imposed by Title II of the CPA.


Left: Neutral and not misleading ad (Ex. 40480)
Right: Misleading ad (Ex 40479) 


Duty to warn

[227] Our review of the case law and doctrine applicable in Quebec leads us to the following conclusions as to the scope of a manufacturer's duty to warn in the context of article 1468 and following:

A. The duty to warn "serves to correct the knowledge imbalance between manufacturers and consumers by alerting consumers to any dangers and allowing them to make informed decisions concerning the safe use of the product;

B. A manufacturer knows or is presumed to know the risks and dangers created by its product, as well as any manufacturing defects from which it may suffer;

C. The manufacturer is presumed to know more about the risks of using its products than is the consumer; 


D. The consumer relies on the manufacturer for information about safety defects; 


E. It is not enough for a manufacturer to respect regulations governing information in the case of a dangerous product; 


F. The intensity of the duty to inform varies according to the circumstances, the nature of the product and the level of knowledge of the purchaser and the degree of danger in a product's use; the graver the danger the higher the duty to inform; 


G. Manufacturers of products to be ingested or consumed in the human body have a higher duty to inform; 


H. Where the ordinary use of a product brings a risk of danger, a general warning is not sufficient; the warning must be sufficiently detailed to give the consumer a full indication of each of the specific dangers arising from the use of the product; 


I. The manufacturer's knowledge that its product has caused bodily damage in other cases triggers the principle of precaution whereby it should warn of that possibility; 


J. The obligation to inform includes the duty not to give false information; in this area, both acts and omissions may amount to fault; and


K. The obligation to inform includes the duty to provide instructions as to how to use the product so as to avoid or minimize risk.


Thursday, 6 February 2020

Are concerns about vaping driving people back to cigarettes? Investors are told "no"

In recent months vaping companies have been warning that regulations aimed at reducing vaping will "drive people to cigarettes."

The recent "facts not fear" campaign run by Imperial Tobacco Canada, for example, predicts that regulations to protect young people from pro-vaping advertising will be "forcing consumers to go back to cigarettes."

Even some public health authorities - like Public Health England - expressed concerns that news reports about EVALI would turn nicotine users back to the cigarette market and that more would "die as a result".

Were these fears well founded?

More data is available to help answer that question. From the corporate reports on the U.S. market, it would appear that people are indeed buying fewer vaping products, but are not buying more cigarettes as a result. Cigarette volumes in other countries do not appear to have been affected.

Vaping sales are down.

Over the last weeks, two of the major stakeholders in vaping products have reported to shareholders that the vaping market has shrunk in the United States and also in other countries.

Last week, Altria told investment analysts that in the last three months of the year, overall sales of electronic nicotine products in the USA had fallen by 8%. Most of the decline in the U.S. market was experienced by JUUL, of which Altria is a one-third owner. (Altria does not sell cigarettes outside of the United States.)

Slide from Altria 2019 Earnings Conference Call

This week, Imperial Brands told investors that declining sales ("weaker than expected consumer demand for vapour") were causing it to predict a 10% drop in earnings. Imperial Brands sells BLU e-cigarettes across Europe and North America through its subsidiary Fontem Ventures.

These official statements to investors confirm estimates by commercial market analysts that vaping sales had dropped following warnings by the US Centers for Disease Control last fall.

Tobacco sales are not up. They too are down. 

Altria's other caution to investors last week was that in the USA tobacco sales were also declining at a faster rate than in previous years - a reduction of 5.5% over 2019, with the decline in the last three months similar to that in previous years.

Slide from Altria 2019 Earnings Conference Call

Imperial Brands also reported last fall that other categories of nicotine products (oral snus, e-cigarettes, cigars, etc) were responsible for about one-quarter of the fall in cigarette use (1.3% of 5.6% fall in cigarette sales). When asked whether restrictions on e-cigarette flavours were driving up cigarette sales, their US director said probably not. ("We still think that our assumption of an FMC market decline of between 5% and 6%, probably slightly closer to 6% than 5%, still remains correct.)

This week two more of the four large international tobacco companies updated investors on their sales over 2019 - including the fall period after concerns about vaping products were widely reported.

On February 6, Philip Morris International (which does not sell cigarettes in the United States) reported that the total cigarette market in the European Region "decreased by 0.6%" in the fourth quarter - a greater decrease than the annual fall of 0.4%.

A day earlier, Japan Tobacco International reported that industry-wide cigarette sales were down overall, and made particular reference to their decline in France, Germany and the United Kingdom. (Industry sales increased in the last half of the year in Japan, where vaping products are not permitted, but where heat-not-burn cigarettes have one-quarter of the market share.) JTI's 154 page report on 2019 earnings curiously made little reference to the sales of their Logic Compact vaping device, which is available for sale in 25 countries.

The last of the tobacco multinationals, British American Tobacco, will make its sales data public on February 27. The company has previously said that reductions in the vaping market were not affecting cigarette sales. Last November, when discussing its sales over the summer and early fall, analysts asked management if cigarette sales would be effected. BAT's Chief Financial Officer Tadeu Marroco was quoted as saying“we are not anticipating a significant fall back to cigarettes”.  

These corporate reports confirm the opinion of market analysts, like Bloomberg that "smokers haven't gone back to cigarettes."

Yes, but ....

The fact that cigarette sales are falling does not necessarily mean that vapers are not switching back to combustible forms of tobacco use. It could be that cigarette sales would have fallen faster in the fourth quarter had there not been additional regulatory controls and more discouragement of using vaping products.

Like a high school calculus problem, we must simultaneously consider several different rates of change. Some smokers are dying, some are quitting or cutting down, some young people are starting to smoke, some dual users are buying more cigarettes than before and some less, some are returning from vaping to cigarettes and some are switching from vaping to cigarettes, heat not burn or oral tobacco.

The population-level impact, including overall cigarette consumption, will reflect these many shifting smoking patterns. The helpful illustration shown below of the messy paths of consumer use of nicotine was provided by British American Tobacco.

In this context, what is particularly relevant to the question of whether vapers would return to cigarettes if people became more concerned about the risks of vaping is whether the companies did better than they expected after this years' events, or whether they have changed their predictions of cigarette sales as a result.

They have not.




Wednesday, 29 January 2020

The "heterogeneity" of the vaping market and why it can hinder regulation-making

A key challenge for health regulators when facing emerging nicotine devices is the complexity and change in that market place.

Unlike cigarettes, which researchers and regulators have generally treated as identical products across geography and time, next generation products like e-cigarettes vary greatly in their design, contents  and marketing from place to another and from one month to the next.

These differences can hinder the ability to apply research evidence or regulatory evaluations from one jurisdiction when developing approaches for another.

"A continually changing and heterogenous group of products"

This "heterogeneity" of the e-cigarette market was identified by the U.S. Surgeon General in his recent report on Smoking Cessation as a key reason for not beng able to settle the question of whether e-cigarettes are effective smoking cessation aids.

"E-cigarettes, a continually changing and heterogeneous group of products, are used in a variety of ways. Consequently, it is difficult to make generalizations about efficacy for cessation based on clinical trials involving a particular e-cigarette, and there is presently inadequate evidence to conclude that e-cigarettes, in general, increase smoking cessation."

The influential 2018 report by the National Academies of Science, Engineering and Medicine similarly stressed the "highly variable" "product characteristics" that affected conclusions about the impact of e-cigarettes on health. 

A snapshot of the products marketed by tobacco companies in January 2020

Even products sold by individual companies under the same brand-name can vary greatly from one country to the next.

We gathered information from the country-level web-sites for e-cigarettes that are managed by the four largest multinational tobacco company systems: JUUL (Altria-Philip Morris International), VYPE (British American Tobacco), BLU (Imperial Brands) and LOGIC (Japan Tobacco). This is made relatively easy because each of these companies sell seemingly identical products on nearly-identical web-sites in a dozen or so countries.

Comparing the e-cigarettes that are offered for sale in different countries does not give very good information on what people are actually putting in their lungs, but it does give some insight into the products that companies think they can manufacture within the local regulations and also find a buyer for.

The differences among products may reflect regulatory conditions (i.e. differing maximum nicotine concentrations), but could also reflect differing consumer preferences (i.e. different types of flavours), differences in competitiveness of the marketplace (i.e. higher or lower prices). They could also reflect differences in the companies' market strategies - it is possible that the companies are testing different marketing approaches in different markets.

Without inferring meaning from these different country-level marketing practices, we can nonetheless observe them. During January 2020, data on the price, nicotine level and flavour offerings for each e-cigarette device was obtained and documented for each company web-site that was accessible. The results were tabulated in data sheets, which can be accessed through the links at the bottom of this post.

E-cigarettes are more affordable in Canada than in most other markets

BAT and Japan Tobacco sell their leading e-cigarette devices at lower prices in Canada than they do elsewhere. A starter kit for VYPE e-Pen3 and Logic Compact can be purchased this month for less than $10 in Canada, but the listed or suggested retail price in other countries is higher - twice as much in Europe and three times as much in New Zealand. The difference in affordability, shown by using purchasing power parity, can be even more pronounced.

For JUUL and myBLU, different global pricing practices were noted. In both those cases, the prices in the United States were least expensive, but were otherwise more stable across all markets.



Canadians are not offered the option of lower-nicotine strengths.

Although many countries impose maximum nicotine concentrations (the level in the European Union is 20 mg/ml), none impose minimum nicotine concentrations. Nonetheless, the availability of low nicotine liquids is much higher in some markets than in other. In many of the European countries, there are many flavour options for nicotine-free and lower-nicotine (9 mg/ml) cartridges, but in Canada consumers generally only have the option of 18 mg or above. Similarly, European consumers have more options for non-protonated nicotine (those which do not use salts) than they do for the more easy-to-inhale protonated (salted) versions, which are predominant in Canada, the United States and New Zealand.

JTI, for example, does not offer customers outside of the European Union with an option for its Logic Compact which is less than almost double the European maximum concentration. (34 mg vs 18 mg).





Some markets - and some companies - offer more flavour options than others

The role of flavours in inducing young people to take up vaping (or encourage smokers to switch to vaping) is currently a much discussed aspect of vaping regulation. The question of "how many flavours is enough?" seems to be get different answers in different markets.

In all markets, tobacco, mint and fruit flavours predominate, but the number of flavours offered varies considerably by company and country. JUUL, for example, sells only a handful of flavours in each country. (Ahead of regulatory requirements, it withdrew non-tobacco or menthol flavours from the U.S. market and has suggested it will do so in Canada as well.)

The Vype product, by contrast, is sold with many more flavour options for its cartridge-based systems (ePen 3 and ePod), especially in larger European markets like the United Kingdom and France.


The relationship of flavours to nicotine strength also varies. There are relatively more higher- nicotine level offerings for tobacco-flavoured Logic cartridges in Europe than there are for fruit flavours -- although in Canada, all the flavours are offered in much higher nicotine concentrations.


Small data is not enough. 

Scraping the data from web-sites may provide some insight into differences in the e-device market across countries, but is a cumbersome, limited and inadequate method to provide real anlaysis. It cannot substitute for methods to systematically track the products offered for sale and the use of these products.

Public market data systems have not been developed. To date only the (expensive and licence-restricted) commercial services provided by trade analysts like Euromonitor, Numerator and Nielsen are available to regulators and researchers. The federal Tobacco and Vaping Products Act gives the federal government the right to require companies to provide reports on sales and marketing activities, but these are not yet in place. (Such regulations have been required of tobacco manufacturers for almost 20 years). No government has yet required retailers to use "sales recording modules", such as those required for restaurants and food trucks in Quebec, although this is a method used by Nielsen to gather commercial data.

Public health surveys, like the Canadian Community Health Survey, are designed to monitor cigarette smoking, but do little to enlighten regulators aboaut the impact of the new nicotine market on health.

It is becoming clearer, as the U.S. Surgeon General pointed out last week, that with "heterogeneity" and "continually changing" markets, we will be challenged in finding evidence we can rely on to support regulatory changes. Even the conclusions of major scientific reviews, like those of the National Academic of Science, Engineering and Medicine, can be called into question. That report considered only research published before August 2017: many of those studies would have been based on products on the market in 2016 or earlier.

January 2020 snapshots from vaping e-commerce websites of multinational tobacco interests.

Links to data cited in this post:

* Japan Tobacco Logic Vaping Devices - January 2020
* British American Tobacco Vype Vaping Devices - January 2020
* JUUL Vaping Devices - January 2020
* Imperial Brands Blu Vaping Devices - January 2020  

Wednesday, 22 January 2020

Weedless Wednesday 2020: The future of tobacco in Canada is on the table. Literally.

For more than 40 years, Canadian smokers have been encouraged to see "Weedless Wednesday" as an opportunity to make a quit attempt, as Canadian health systems use the week around it (National Non Smoking Week) to focus efforts on helping communities abandon tobacco use.

While in former decades this was a week of multiple announcements and media attention, more recently it has been observed without much policy or public attention, or even none at all.

On this Weedless Wednesday, Canadians are faced with two momentous tobacco control issues that merit public review. One of these - the youth vaping crisis - is on display in schoolyards, parents' basements, and hockey team locker rooms. The other - the resolution of government lawsuits against tobacco companies - is hidden behind the closed doors of Bay Street law firms.

Putting the future of tobacco in Canada on the table.

Ten months ago, the three large companies that dominate the Canadian tobacco market filed for insolvency protection, using their rights under the federal Companies' Creditors Arrangement Act (CCAA). These are highly profitable companies which are wholly-owned subsidiaries of other highly profitable companies. Their annual earnings in Canada are around $2 billion. In short, these are the last companies you might expect to see claiming court protection from their creditors.

It was a unanimous, detailed, forceful articulation of the companies' long-standing wrongdoing by the Quebec Court of Appeal last March that apparently triggered the companies to abandon their attempts to defend themselves in court against the lawsuits against them. The Quebec Courts had found them responsible to pay $13 billion in damages to 100,000 Quebecers whose serious lung illnesses could be traced to the companies' illegal behaviour, especially their failure to warn, their misleading advertising and their deceptive public relations strategies. These same corporate actions were the basis of the billions of dollars (reportedly over $500 billion) in compensation the provincial governments were seeking as repayment for treating the diseases caused by the companies' bad behaviour.

The courts granted the companies' request for protection under the CCAA, suspended all of the lawsuits they were facing, and appointed a retired judge (Warren Winkler) to try to negotiate a settlement between the companies and all of those who might have claims against them. These claimants include the Quebec class action suits (the only lawsuits to go to trial), all 10 provinces, aggrieved farmers -- as well as any other Canadian who has a claim. At the request of the companies, the process has been blanketed in secrecy.

The outcome of these negotiations - once approved by the court -- is expected to provide a "global settlement" to all claims against the companies. It will draw a line under past wrongdoings and allow the companies to face the future without the legal baggage of their past.

Who gets to set the future course?

How to resolve the tobacco lawsuits is one of the most important public policy issues of this decade. Yet governments are not applying the standards of transparency and public consultation that are expected and routinely applied to much less significant issues. Not one of the provincial governments has yet consulted on how these cases should be resolved, and all of them have agreed to the secretive process initiated by the industry.

A problem that money can't solve

The provincial damage claims vastly exceed the capacity of the companies to pay. The $300 billion claim of Ontario, for example, is equivalent to 150 years’ combined annual profit of the companies in Canada, or more than a decade of global profits from their multinational owners. (An exception to this are the claims of Quebec smokers, which the Qeubec court set at an amount so equivalent to the profits of the companies so that injured smokers, and not shareholders, would receive the short-term profits of tobacco sales in Canada. ) 

When it comes to the big provincial claims, there is no money in the tobacco company bank. Anticipating lawsuits for decades, tobacco companies have studiously kept their cupboards bare. Instead of banking their profits, they routinely pass them on as dividends to shareholders who are sheltered by corporate law from any liability or claim. 

In other words, any financial compensation will be the result of future tobacco sales. In order to repay Canadian governments and smokers for past wrongdoing, tobacco companies will have to sell cigarettes to future smokers (or smokers in other countries). Not only will this cause more disease and suffering, it will also drive up future health care costs. 

It is hard to see such a scenario as anything but a kind of litigation Ponzi scheme, where harm is passed down the chain in order to make good to initial victims. 

A problem with a meaningful solution

Governments can instead leverage the companies' debt to them by imposing requirements that they wind down their Canadian business and agree to an orderly withdrawal (phase-out) of tobacco products. Like asbestos and leaded gasoline, cigarettes are a consumer product that should be relegated to history.

Rather than money, the main goals of provincial lawsuits against tobacco companies should be:
1. Significant and permanent changes to the foundation of the companies and their business practices.
2. A mandatory and enforceable timetable for the rapid phase-out of combustible cigarettes, followed by a phase-out of non-licensed nicotine products

Last week, the man who led the first provincial lawsuit agreed. Former B.C. attorney general (and later federal Minister of Health) Ujjal Dosanjh told the TyeeI believe tobacco is not something that is healthy at all and if we can put it out of business we should ... I believe we should be leading the international effort to actually have it made illegal, have it banned across the world. What’s happening is that they were victimizing us and they still continue to victimize the poorer countries."

The Tyee reports that mediation talks are taking place "this month" - perhaps even this week. These discussions will set the stage for tobacco control efforts for decades. 

The insolvency orders which protect the companies will expire on March 12th 2020. On that date, a hearing will be held in Toronto regarding the future of the CCAA process. On that day it may become clear whether governments are using their negotiating power to keep people smoking for the following decades, or whether they are aiming to protect further generations from addiction, illness and death.

You can follow developments on the tobacco trials at: tobaccotrial.blogspot.ca