Monday 25 November 2019

Big tobacco funds and controls the new Vaping Industry Trade Association (VITA)

[NB: On December 4th, VITA issued a statement objecting to and correcting some of the information provided in this blog. The original blog appears below, but is now annotated with reference to their objections and corrections.]

Last week the first webinar was held between the Vaping Industry Trade Association (VITA) and its membership. Unexpectedly, one of the participants made the slides and other information available to us. With this confirmation that this organization is funded by and operating in the interests of tobacco companies, governments should ensure that their relationships with this entity meet Canada's international treaty obligations.

Tobacco companies are the "founding directors" of  VITA

The Vaping Industry Trade Association (VITA) was established in the summer of 2019 to replace the Electronic Cigarette Trade Association (ECTA). It was incorporated on September 19th. Whether the choice of the acronym VITA - the latin word for life - was made with a sense of irony or denial is not known at this point.

All but one of the "founding directors" of the new organization are identified as the PR-directors of 3  "tobacco-affiliated" e-cigarette producers active in Canada: Imperial Tobacco Canada (VYPE), JTI-Macdonald (Logic) and JUUL. "Tobacco-affiliated" is the term used by VITA. There is a 4th tobacco company which sells e-cigarettes in Canada (Imperial Brands, Blu), but it is not a member of the Canadian cigarette oligopoly and we are informed that it is excluded from becoming a member of VITA.
(VITA says that 2 other founding directors are on the board as chairman and treasurer and that Imperial Brands is not banned from joining the organization)

Tobacco interests provide 100% of VITA's funding.

It was confirmed to us that these "tobacco-affiliated" organizations have provided a 3-year funding commitment to the organization. Other members do not have to pay dues during this period.
(VITA says that "tobacco-affiliated" organizations pay 50% of the $600,000 annual contribution by founding directors, and that other members pay when joining.)

Tobacco companies control key activities of VITA

Of the 5 operating committees of VITA, three are chaired by "tobacco-affiliated" employees:
  • The Technical Committee is chaired by the director of scientific and regulatory affairs at Imperial Tobacco, Richard Voisine.
  • The Communications Committee is chaired by Imperial Tobacco's Manager of Government Relations and Regulatory Affairs, Amee Barber
  • The Government Relations Committee is chaired by JUUL's Director of Federal Affairs (and former MP and Ontario Minister of Energy), Glenn Thibeault.
The committees that are chaired by vape shop owners are the governance committee and the programs committee. 

VITA has engaged well-connected public and government relations consultants

In addition to Glenn Thibault, VITA has engaged other former politicos to influence opinion and regulation. Among those presenting at the webinar were:

* Gordon Taylor Lee of National Public Relations supports the Commications Committee. From 2004 to 2012, he had senior positions in Health Canada and the Public Health Agency, including in the office of the Minister of Health. 
* Terrence Oakey at One Persuasion. Prior to working as a lobbyist, he advised on health policy for Stephen Harper. 

VITA's planned advertising campaign is aimed at discrediting public health voices.

Charcoal Marketing has been hired to roll out a social media campaign, focusing first on British Columbia and then in other provinces where the industry feels vulnerable to increased regulation (British Columbia, Quebec, Ontario, Alberta and Nova Scotia). 

The key messages for this campaign combine promotion of the product class as "safer" and also re-deploy familiar tobacco industry campaign themes. 1) virtue-signalling of intent to protect children and 2) discrediting of public health concerns. (The traditional third arm of argument is to predict dire unintended consequences of regulations). 

(Vita says this is not their campaign's goal).

VITA has hired a controversial physician to plead its case.

On November 19, VITA announced that they had hired Dr. Mark Tyndall. The press release says that he was hired to advise and help interpret new evidence. But VITA members were told last week that his job is also to promote vaping to the medical community.

On the same day that his appointment was announced, Dr. Tyndall tweeted in support of the rights of vapers. His twitter profile does not yet acknowledge that he is a paid influencer.

(VITA says Dr. Tyndall "has been brought on as theharm reduction advisor, and health related spokesperson to VITA, as referenced in this publicly available pressrelease. Dr. Tyndall will advise VITA on how to promote vaping as a harm reduction strategy for people who smoke cigarettes and help with the interpretation and application of emerging scientific evidence on vaping ..."_

VITA and the Framework Convention on Tobacco Control

How should governments, the media and the public manage their relationships with this new  industry group? Guidelines for interaction with tobacco interests are provided by the Framework Convention on Tobacco Control. As a party to the Framework Convention on Tobacco Control, Canada (including provincial governments) are committed "to protect these [public health] policies from commercial and other vested interests of the tobacco industry."

Among the guidance given to government in implementing these guidelines are the following:
(1) Raise awareness about the addictive and harmful nature of tobacco products and about tobacco industry interference with Parties’ tobacco control policies. 
(2) Establish measures to limit interactions with the tobacco industry and ensure the transparency of those interactions that occur. 
(3) Reject partnerships and non-binding or non-enforceable agreements with the tobacco industry. 
(4) Avoid conflicts of interest for government officials and employees. 
(5) Require that information provided by the tobacco industry be transparent and accurate.  

Thursday 21 November 2019

Health Canada consumer research on vapers' attitudes to flavours

Last February, 2,027 Canadian vapers sat down at a computer and answered a questionnaire prepared by Environics Research on behalf of Health Canada. Six months later, the report summarizing their answers has been available at the Library of Canada. (Link: POR 083-18 Vapers Panel Survey to Measure Attitudes and Behaviours Regarding Vaping Products).

The results provide some data for discussions about vapers' use of flavours and what impact restrictions on flavours might have. The text below is reprinted verbatim from the Environics report. Excel tables are also available for people who wish to dig deeper into the findings - or into the other attitudes that were reviewed.

And there is more to come! Federal government reports on consumer research identify that a follow on study (POR 141-18) was commissioned, although it has not yet been released.


Environics Research
POR 083-18

Flavours are important to vapers
The feature regular vapers like most about their device is their ease of use, although flavours, device colours and the ability to do tricks is of relatively greater importance to youth vapers.

Flavour preferences of young people differ from those of older vapers
The preferred flavour choice for regular vapers is fruit (30%), followed by tobacco flavour (15%), mint/menthol (13%) and candy/confectionary (9%). Preference for fruit flavour is particularly pronounced among youth vapers (45%) and young adult vapers (39%), while preference for tobacco flavour skews to vapers aged 25 and older.

[P]reference for fruit flavours is relatively higher among never smokers (42%), while preference for tobacco flavour is relatively higher among current and former smokers (19% and 15%, respectively, versus 3% of never smokers).

Younger vapers switch flavours more often
The majority (59%) of regular vapers say they tend to stick to a single flavour of vape liquid, compared to four in ten (39%) who use multiple flavours throughout the day or week. Regular vapers in Quebec in particular show a preference for using a single flavour (66%).

Tendency to switch between multiple flavours varies by age. Close to half (48%) of youth vapers use multiple flavours throughout the day or week, whereas only one-third (36%) of vapers aged 25 years or older do so.

One-quarter of vapers relate flavour choice to quitting
Those who have used different flavoured vaping liquids were asked about their main reasons for switching flavours. The most common reason is to experiment with the flavours (53%). Others say it depends on their mood (35%) or on price (25%). Some also say flavour switching helps them gradually quit or reduce smoking cigarettes (24%). This reason is more commonly given by adult vapers (27%) and by current (31%) and former (22%) smokers. Otherwise, reasons given for flavour switching do not vary significantly by age.

Flavours are the main reason cited by never-smokers for vaping.
Reasons for vaping depend on smoking history, with dual users and former smokers most commonly using it for smoking cessation. Never smokers - of whom most (70%) are youth or young adult vapers - choose to vape because they like the flavours/smells, as a social activity, or for emotional reasons (e.g, it's fun, reduces boredom).

• Among dual users, adult vapers are more likely than others to cite the desire to reduce the number of cigarettes (53%), while young adult and adult vapers are both more likely to cite the desire to quit outright (46% each). Youth and young adults who are dual users are relatively more likely to say they vape because of the flavours/smell (41% and 39%), for fun (23% and 19%), to reduce boredom (25% and 17%), or when they are in certain social settings (22% and 20%).

• Among former smokers, the number one reason for vaping among all age groups is to help them quit smoking.

•Among never smokers, the top reason for vaping among all age groups is the flavour/smell. Youth and young adults are more apt to give multiple reasons, including the excitement of vaping (48% and 42%), doing tricks (39% and 27%), and because their friends and family vape (35% and 23%).

Those who have used vaping to quit think flavours are important
Both former smokers and dual users currently trying to or planning to quit believe it is at least somewhat important to have a range of vaping flavours available to them.

Sunday 17 November 2019

How cheap will vaping products get before we see price as part of the youth vaping problem?

Vaping Product
Retail signs
Montreal & Ottawa
Nov 5-9, 2019
A price war is underway among the four main manufacturers of the pod-style vaping products that are sold in convenience stores. Over the fall, each of the companies which sell these JUUL-type products has reduced its retail and/or on-line prices.

The cost of a tellingly-labelled "starter kit" for JUUL imitators (Logic and Vype) is now less than $10. The JUUL starter kits are more expensive (as low as $30), but are half the price they were this summer. It is now cheaper to vape all day than than to buy a specialty coffee.

With this latest round of price cuts, convenience store prices for vaping prodpucts have fallen by 45% to 75% over the past year.
  • British American Tobacco's Vype ePod was launched in January to compete with JUUL at a price of $40.00. This week it is being sold in mainstream convenience outlets, like Circle K/Couche-Tard for $10.00, tax included. (The online-price without tax is $8.99). 
  • JUUL was launched in Canada last summer with a starter kit priced at $64.99. This week it is for sale at $29.99 in Couche-Tard (a somewhat higher price of $39.99 is listed on JUUL's  web-store).
  • Logic Compact was launched by Japan Tobacco's Canadian subsidiary this winter at a lower price than its competitors - $19.99. It is now for sale in stores at $10.99. (Logic does not sell products through its web-site).
The price of the nicotine pods used in these devices has also fallen. A package of 2 Vype e-pod cartridges was selling in Montreal this week for $6 (half the original listed price), and 2 Logic cartridges could be bought for $5. (One pod is loosely understood to be the equivalent of a package of 20 cigarettes).

Lower prices can be expected to result in more young people vaping

Decades of research have shown that low tobacco prices lead to higher rates of children and young adults smoking (and higher tobacco prices reduce it!). It stands to reason that the well-established economic principle of higher-prices-reduce-use would apply to e-cigarettes.

Price discounts are now the tobacco industry's major marketing tool.

Pricing is a key component of all marketing strategies, and has become increasingly so with tobacco. The U.S. Federal Trade Commission is unique among governments in demanding and make public the aggregate promotional budgets of the tobacco industry. Earlier this year it reported that 85% of the advertising budget of U.S. companies ($7.3 of $8.6 billion) was spent on price discounts. As traditional advertising has been banned or fallen out of favour, the companies are focusing their efforts on the sticker price.

Tobacco companies with deep pockets are well-positioned to engage in a long-term price war, and there are reasons that their shareholders will be happy to endure the short-term losses that could result:
* low prices allow them to expand their long-term (addicted) customer base, on which they can make future profits.
* low prices allow them to undercut vaping businesses that sell through vape shops, and may drive these these small-business competitors out of the market.

This year tobacco companies can afford to spend even more on promotions

Last March, Canada's 3 large tobacco companies sought protection under Canada's insolvency laws (the Companies' Creditors Arrangement Act), including the manufacturers of Vype and Logic. As a result, the profits that they would normally send back to their multinational owners has been frozen with the expectation that this will be handed over to the provinces and others who are suing them. The court did not, however, freeze their promotional budget for tobacco or vaping products. Deep spending in Canada on vaping promotions (even if it exhausts their Canadian cigarette revenues) will not affect the overall profitability of their multinational owners -- and it may enhance their long term profits.

Regulatory experience with affordable addiction

1)  Tax officials can use excise and sales taxes to ensure a minimum price. 

Taxes are one of the most highly recommended public health strategies to reduce youth use of harmful substances like alcohol and tobacco. Evidence shows that taxes are very effective at protecting young people (and others!) from tobacco use. In Canada, the federal government currently imposes a tax of $2.44 on each package of 20 cigarettes, and provincial government taxes on the same package range from $2.98 to $5.90.

Many jurisdictions are moving to implement vaping taxes, and 2 Canadian provinces are also taking this important step. This week British Columbia announced that as of the new year, the provincial sales tax on these goods would increase from 7% to 20%. This was one component of a larger set of reforms to address what health minister Adrian Dix described as an "addictions trap for our youth". Three weeks ago the Alberta government promised that would impose a tax on vaping products next year, but has not yet set the amount or the style of tax.

Taxes can reduce affordability - but only if they are set at a high enough level. 

Even with B.C.'s new tax, vaping will still be twice as cheap as smoking cigarettes. A JUUL nicotine cartridge that is priced at $5.25 before tax will cost $6.56 after tax (up from $5.88 today). The after-tax cost of a $10 starter kit will increase from $11.20 to $12.50. (In B.C., the cheapest advertised price for a package of 20 cigarettes is around $12.)

As a World Bank report recently pointed out, there are additional ways to address affordability through taxes. Available structures include taxing the devices, imposing a tax per ml of nicotine fluid, or per mg of nicotine, or per pod. Sales taxes alone encourage price competition because reducing the price also reduces the tax, whereas using excise taxes to set level of tax per unit helps ensure a minimum price.

This is illustrated by comparing the current situation (A) with the impact that B.C.'s upcoming sales tax increase will have (B) and also with the impact that would result if each pod of nicotine were taxed at 75% the rate of the current taxes on a pack of 20 cigarettes (C)

2) Health regulators can use price regulation to reduce experimentation. 

Canadian governments have used other regulatory means to prevent manufacturers from using price to increase the consumption of harmful products"
* minimum unit pricing of alcohol is a measure adopted by many Canadian provinces (including Ontario).
* minimum package size is a measure used in tobacco control to prevent companies from selling "kiddy packs" of fewer than 20 cigarettes.
* Quebec has combined minimum pricing with minimum package sizes to implement a de facto minimum price for little cigars of $10.00.

Other countries have managed prices in ways that prevents price wars among manufacturers or retailers for tobacco products.  In France, Brazil and Japan, for example, retailers can only charge the price for cigarette brands that are on a government-approved list. (Although France does not impose a price list for e-cigarettes, Japan and Brazil ban these products altogether).

Federal regulatory changes which facilitate tobacco and nicotine price wars can be undone.

Tobacco companies have established distribution structures which give them greater control over retail pricing. A decade ago, tobacco products were distributed through wholesalers, and each retailer paid the same price. But after changes to the federal Competition Act in 2009, manufacturers were given the right to use "discriminatory pricing" to give special discounts to selected retailers. The contracts under which retailers gain this advantage commit them to using lower mark-ups, and passing the saving on to consumers.

The result is that in some stores cigarettes (and vaping products )are much cheaper than in others, even in the same neighbourhood. 

The challenging road ahead

With deep pockets, a well-established route to market, decades of experience and a loyal (addicted) consumer base to maintain revenues, tobacco companies can afford to use vaping products as a lost leader for nicotine use.

Amazon and Uber have shown how sacrificing profits can be used to expand a market footprint and to both create and dominate a new market category. There is no reason to think that "Big Nicotine" would not do the same.

Monday 11 November 2019

ICYMI: How e-cigarettes can break your heart

Last week yet another published study raised concerns about health impact of e-cigarettes.

Much of the attention this fall has been on injuries to the lung, especially the Ee-cigarette or vaping product associated lung injury (EVALI) that has been experienced by thousands of American vapers and a much smaller number in Canada. Less reported have been papers exploring risks to other parts of the body, or which look at longer-term health effects.

One helpful study considered past studies on animals and humans to explore the various ways in which long-term cardiovascular damage might arise from using e-cigarettes. The paper Cardiovascular risk of electronic cigarettes: a review of preclinical and clinical studies was commissioned from 6 researchers associated with the Ohio State University. It was written last spring, and published last week in the journal Cardiovascular Research.

The authors (Nicholas D Buchanan, Jacob A Grimmer, Vineeta Tanwar, Neill Schwieterman, Peter J Mohler and Loren E Wold) note that there is a significant knowledge void to fill, as the the long-term effects of vaping on the cardiovascular system were "essentially unstudied".

To address that gap, they considered the state of knowledge about the individual constituents found in the emissions from vaping products, such as  (a) nicotine, (b) particulate matter and metals, and (c) carbonyl compounds (produced by the solvents used to hold the nicotine) and flavourings. While there are many designs of e-cigarettes, virtually all result in users inhaling these subtances.

The authors located several dozen studies made of the effects of these substances on animals and tissues (preclinical studies) and also on humans (clinical studies). They considered what the results of these studies implied for the cardiovascular health of an individual who was exposed to these substances through vaping for an extended period.

Potential adverse cardiovascular effects induced by various constituents of e-cigarette aerosol.

Each of these components of e-cigarette vapour has been demonstrated to pose a risk to the cardiovascular system:  a) nicotine can increase blood pressure and heart rate, or cause inflammation or stiffness in the arteries; b) fine particles find their way into the blood stream and directly affect the cardiovascular system, c) flavouring ingredients, even if they are considered safe to eat, can cause harm when they are inhaled, by triggering inflammation or other reactions.

This review identified many mechanisms by which e-cigarette use could increase cardiovascular risk, individually and in combination with each other. "As a result, great caution and hesitation should remain concerning e-cigarette use until its health risk profile is better established."

Mechanisms of e-cigarette induced cardiovascular dysfunction.

After completing this review, the researchers conclude that, with respect to cardiovascular disease, the risks from e-cigarettes cannot be said to be less than they are from smoking cigarettes until more research can show this to be the case. "While the current but still limited literature suggests that e-cigarette use may lead to fewer negative cardiovascular effects than conventional cigarettes, our review supports that there is not sufficient data to conclusively make these resolutions."

They urge that e-cigarettes be subject to the kind of pre-market scientific reviews that are required of other drugs. With this kind of "clinical trial data determining the general safety profile of e-cigarettes, regulatory guidelines defining their proper use and public perception can be better formulated."

Enough evidence of harm to implement protective measures

Already several comprehensive scientific reviews have been conducted about the health effects of vaping on behaviour of major health authorities like the World Health Organization (2015), Public Health England (2015, 2018), the National Academies of Science, Engineering and Medicine (2018),  Public Health Ontario (2018) and others. These reviews have provided regulators and practitioners with inconsistent and sometimes conflicting advice on the regulatory approach that should be taken with respect to e-cigarettes.

The contributions of recent papers, like the one cited above, increasingly call for regulators and practitioners to insist on more evidence before acting as if e-cigarettes were less harmful. Last month, for example, a study lead by Jeffrey Gotts looking into the question "What are the respiratory effects of e-cigarettes?" This team also cautioned that it is not possible at this time to "determine whether the respiratory health effects of e-cigarette are less than those of combustible tobacco products."

These recent papers and other key research findings are summarized in our new fact sheet, The Health Effects of Vaping.

Tuesday 5 November 2019

Yet another novel nicotine product on the Canadian horizon: tobacco-less oral tobacco

"An exciting new space"

That's how BAT's category director Vincent Duhem described Oral Tobacco products to investors earlier this spring.

Unlike vaping products, he pointed out, Oral tobacco had assets that other next generation products did not. Unlike vaping products, no device was required and it can be used in places where vaping is not allowed (he showed a picture of an airplane). Even more - it offered additional "sensorial stimulations" and could be successfully marketed to women too. (Slide 8)

The "Modern Oral" product Mr. Duhem was promoting was designed to span the gap bewteen between tobacco products and pharmaceutical grade nicotine products. BAT has developed three branded products cover that space: EPOK (white tobacco), LYFT (no tobacco)  and VELO (no tobacco). (Slide 11)

Everything Old is New Again

Oral tobacco is older than cigarettes, and is still a common form of nicotine use in some parts of the world - including the United States, Scandinavian countries and much of the Indian subcontinent.

The challenge for BAT and other companies wanting to rehabilitate this traditional practice is to convince people to put a small bag in their mouth several times a day and hold it there for half an hour. For many, this will seem an odd way to spend their time.

The companies' strategy to accomplish this seems to have focused on reducing the "yuck" factor, and making a mouth full of 'stuff' look less gross and less dangerous. They seem to have approached the task of whitewashing oral tobacco quite literally: both the product and packaging have been purified in white.
* In EPOK, the tobacco was bleached white, and then flavoured and adjusted to be less unpleasant tasting. (One of the patents involved can be found here).
* In LYFT, the nicotine was embedded in bleached fibers from pine trees, as well as other flavouring agents and stabilizers. (The process is described here)

Another major step to making this product palatable to new users is to make it, well, palatable. With LYFT, the sharp tingle of nicotine in the mouth is masked with no fewer than 9 fruity and minty taste and strength options. Is this the alcopop of nicotine? (Slide 20)

Forget ugly-brown, taxed tobacco. Instead, try some pure-white, tax-free nicotine-infused pine.

Taking nicotine out of the tobacco and then putting it into a different plant fiber may seem like a peculiar manufacturign process, but getting consumers to re-think oral tobacco is only one of the advantages to tobacco companies.
  • Nicotine pouches circumvent the EU ban on oral tobacco (see later)
  • Nicotine pouches aren't taxed like tobacco is. No excise tax revenue going to the treasury leaves more pricing room for manufacturers' profits. Mr. Durhem told investors that BAT made 3.1 times the profit on LYFT compared with factory made cigarettes. (Slide 16)
  • Nicotine pouches don't face the same advertising restrictions. 
BAT may not be able to give its cigarettes away for free, but it can offer free samples LYFT nicotine pouches.

"Welcome to a new world of stimulation," beckons the LYFT web-site. "Anytime. Anywhere. Are you in? Click here for a free sample."

Subsequent packs, of course, are not free. The price of a can with 24 pouches is £7.99 - cheaper than the over £10 price tag on a package of UK cigarettes.

Other tobacco companies are also eager to fill that space.

Similar products made by other tobacco companies are already on the market:

Catching regualtors off-guard.

Exposing cracks in Canada's tobacco regulatory system:
The "exciting new space" that these new nicotine products are designed to fill is not one that has yet been addressed in Canada or in many other countries. The federal Tobacco and Vaping Products Act regulates tobacco products and nicotine products which "produces emissions in the form of an aerosol." Tobacco-free nicotine pouches are not embraced by this law, and would not be subject to any of its provisions.

The other federal Canadian law which would apply is the Food and Drugs Act. Last year, the rules for non-prescription nicotine were 'clarified', and it now appears that these new tobacco company products would be exempt from prescription drug controls as long as they contain 4mg or less of nicotine. The newly clarified exemption applies to "in a form to be administered into the oral cavity by means of a non-active device (one that operates on energy generated by the human body or by gravity) that delivers 4 milligrams or less of nicotine per dose for buccal absorption."

Its not clear how long before such products may be offered for sale in Canada. As of November 1, 2019, neither LYFT nor VELO were registered in Canada as trademarks for nicotine products, although Zyn was registered  in Canada last February and ON! was registered in August.

Benefitting from the cracks in EU tobacco regulation:
The marketing of these novel oral product in the U.K., Austria, Germany and other parts of the EU shows similar cracks in their tobacco and nicotine control systems. The EU tobacco directive bans oral tobacco, and requires warning labels on all tobacco products. (Sweden is the singular exception to this ban, and Norway and Switzerland are not members of the EU). Nicotine pouches are now sold by tobacco companies in EU countries without package health warnings.

Seeking approval in US tobacco laws:
The U.S. Food and Drug Administration has determined that oral nicotine can is deemed to be a tobacco product, and has asserted its authority over the marketing. Its rules include the ability of the companies to ask for permission to market these as less harmful products.

Last month General Snus became the first tobacco product allowed by the FDA to make reduced risk claims. Altria is asking for the same right for its Copenhagen brand of snuff. Last week, in a presentation to investors, it illustrated how it intends to use this authority.

As the FDA processes similar applications for nicotine pouches, one might presume that similar authority will be given to these more recent products too.

A product for every consumer 

Tobacco industry marketing plans used to revolve around finding a brand image that they could match to every consumer group. Tough macho brands for people who wanted to be thought of as touch and macho (Export A), urban sophisticated brands for people who aspired to that lifestyle (du Maurier, Benson & Hedges), etc.

Recent investor presentations (like slide 6 on a presentation made by BAT last October) show the development of this integrated range of nicotine systems. Some (cigarettes) are for people who love the taste of smoking, others (Oral) for those who feel the social pressure to not smoke or (vaping) who don't like the smoking experience.

With the increased presence of these next generation products, the need is growing for next generation regulatory approaches.

Friday 1 November 2019

How much has vaping reduced cigarette sales? Not much, says Altria to its investors

Yesterday Altria made a regularly-scheduled presentation to investors, giving them an update on their business results for the first 9 months of their fiscal year.

Altria sells that country's most prominent cigarette brand (Marlboro), but there was very little interest in its report of the cigarette marketing.

Instead, investors' focus was on Altria reports on the value of the 'strategic investment' it made last December when it spent $12.8 to get a one-third stake in JUUL.Because JUUL is not a publicly traded company, this is as close to insider information on the vaping market that investors will get. (Altria reported that JUUL is now worth about $12 billion less than it was at the beginning of the year - losing one-third of its market value.)

Under the hood

Altria's main business is cigarettes, but it is looking to increase sales in new forms of Oral Tobacco (ON!), Heated Tobacco (IQOS) and to profit from investments in E-vaping (JUUL), wine, beer and cannabis.

In yesterday's slide presentation to investors (the web-cast script is not available at this time), Altria focused investors' attention on the shifting patterns of nicotine use.

Three slides from that presentation are worth a second look.

#1: Vaping among adults (21 years and over) is not growing fast.

With the push for age 21 rules, the industry's definition of adult smoker has changed. Altria's estimates of the number of vapers (including those who do and who do not also smoke cigarettes) shows that the number of adult vapers is not much different than it was 5 years ago, although the proportion of those who also smoke cigarettes is falling somewhat.

#2: Cigarette sales are dropping:
- for every 20 cigarettes smoked last year, this year there are only 19.

Volume sales of cigarettes in the United States are down more than 5% this year compared with last -- a greater dip than in any other of the past 5 years. That's the equivalent of 1 less cigarette in every package in 2019, compared with 1 less cigarette in every carton in 2015.

The reason? Altria says it is because smokers are substituting some cigarettes with e-cigarettes and because some smokers have completely switched to vaping. "We continue to believe that increased adult smoker movement to e-vapor and increased exclusive e-vapor category usage are the primary drivers of the accelerated decline."

But when Altria looks more closely at the 5% decline, vaping is only half of the  reason ....

#3: Vaping and other nicotine products have reduced cigarette sales:
- for every 48 cigarettes smoked last year, 1 has been replaced with an e-cigarette.

Altria "decomposes" the 5.5% decline in cigarette smoke and attributes the decline as follows:
  • 45% of the decline (2.5% of total cigarette volume) is a result of the ongoing drop in tobacco use, which it refers to as "secular decline".
  • 20% of the decline (1.1% of the total cigarette volume) is the result of cigarettes being too expensive
  • 38% of the decline (2.1% of the total cigarette volume) is attributed to "cross category movement"... i.e. smokers getting their nicotine from other products. 
It also reassures investors that at this time there is no reason to think that vaping will lead too many smokers to quit any time soon. "We reaffirm our 2019 U.S. cigarette industry volume decline estimate of 5% to 6% and maintain our compounded annual average U.S. cigarette industry volume decline estimate through 2023 of 4% to 6%."

Can we trust these numbers?

Credibility is an ongoing challenge for tobacco companies, and the health sector has good reason to avoid using industry data as the basis of any public health decisions. Nonetheless, this Altria presentation shows ways in which the factors that might influence the tobacco market can be disentangled.

Grist for the mill!