[By Taco Tuinstra, 2Firsts]While next-generation products (NGPs) have been gaining significant momentum in recent years, traditional tobacco offerings continue to account for the vast majority of nicotine products on the market. Statista projects global sales of tobacco products, including e-cigarettes, to generate over $988 billion in revenue this year. Combustible cigarettes will account for more than 88 percent of that figure, according to the statistics portal.
Even as smoking prevalence—the share of smokers in a given population—is falling in nearly every market, population growth will ensure continued demand for tobacco cigarettes in years to come.
If that seems disheartening from a tobacco harm reduction perspective, it is important to remember that the income generated by sales of combustibles is enabling tobacco companies to make the significant investments required to develop products that are not only less risky but will also be accepted by smokers as alternatives. So, in a way, cigarettes are helping fund their replacements.
The considerable volume of legacy tobacco sales also means continued opportunity for manufacturers that sell only NGPs. Assuming that such manufacturers target only existing nicotine users, traditional tobacco users represent their addressable market.
Realizing that what happens in the tobacco sector will remain relevant to the NGP business for the foreseeable future, 2Firsts compiled a selection of tobacco headlines from 2024 and ventured some predictions for 2025.
The list is a subjective selection and far from complete, but it nonetheless provides a flavor of the challenges and opportunities for the traditional tobacco business and, by extension, the challenges and opportunities for the NGP sector.
Here are our picks, month by month:
January
In January, Canada started rolling out 14 new pictorial health warnings on cigarette packs.
Canada pioneered graphic health labels in 2001 and has frequently updated its image library to prevent the pictures from losing their shock value.
The new labels feature smoking-related illnesses such as tongue, stomach and neck cancer. Another set of 14 photo warnings is expected to appear on cigarette packages in two years.
In 2023, the government also required cigarette manufacturers to print health warnings on individual cigarette sticks. Cigarettes now include messages such as “poison in every puff,” in English and French.
Canada aims to slash smoking rates from about 10 percent to less than 5 percent by 2035.
February
The 10th session of the Conference of the Parties to the World Health Organization Framework Convention on Tobacco Control concluded in early February with decisions adopted to connect human rights and the environment to tobacco control and a renewed commitment toward the so-called endgame.
According to the WHO, some 200,000 hectares of land are cleared every year for tobacco cultivation, accounting for up to 20 percent of the annual increase in greenhouse gases. In addition, an estimated 4.5 trillion cigarette butts are thrown away annually worldwide, representing 1.69 billion pounds of toxic trash containing plastics.
COP10 also adopted the Panama Declaration, which draws attention to the “fundamental and irreconcilable conflict” between the interests of the tobacco industry and the interests of public health.
March
In March, BAT opened a state-of-the-art innovation center at its global research & development headquarters in Southampton, United Kingdom.
The £30 million facility strengthens and deepens BAT’s R&D capabilities, providing nine specially designed technical spaces to aid the development of BAT’s portfolio of reduced risk products.
These spaces are dedicated to research for modern oral nicotine pouches, for liquids and flavors for vapor products, for heated products, and for wellbeing and stimulation beyond nicotine. The investment will also support work on packaging, engineering, innovation development and system integration.
Earlier, the company opened innovation centers in Trieste (Italy) and in Shenzhen (China).
April
In early April, news broke that KT&G Corp. had appointed Kyung-man Bang as its president, CEO and representative director.
Despite opposition from some shareholders, Bang was elected with overwhelming support during KT&G’s annual meeting.
Since joining KT&G’s predecessor, Korea Tobacco and Ginseng, in 1998, Kyung-man Bang has held various management positions, including managing director of brand management, executive managing director of global headquarters, executive managing director of strategy and planning headquarters, and chief business officer.
Bang succeeds Baek Bok-in, whose performance had been criticized by certain shareholders.
May
In May, Philip Morris International opened a $30 million cigarette factory in Ukraine’s Lviv region, creating 250 jobs.
According to PMI, the factory will have five production lines and an annual production capacity of 10 billion cigarettes, enough to meet the domestic demand.
PMI has no plans to export from the facility, which currently employs about 100 people from the company’s Kharkiv factory, which was mothballed in the wake of Russia’s 2022 invasion.
PMI has invested about $750 million in Ukraine since entering the market in 1994.
Before opening the Lviv facility, PMI supplied to Ukraine from eight factories outside the country.
June
In June, Zimbabwe’s former ambassador to China, Christopher Mutsvangwa, announced that Chinese investor plans to build a multi-billion-dollar nicotine-extraction factory in Karoi or another prominent tobacco growing district.
The facility will reportedly extract nicotine from tobacco stalks, leaves and flowers for the cigarette alternatives, such as e-cigarettes.
Once established the factory is expected to also process tobacco from neighboring countries including Malawi, Mozambique and Zambia.
The investments in nicotine extraction will boost Zimbabwe’s attempts to extract more value from its tobacco industry, as detailed in the government’s Tobacco Value Chain Transformation Plan.
July
In July, Philip Morris International announced the construction of a $600 million factory in Aurora, Colorado, USA, to help meet U.S. consumers’ ferocious appetite for the company’s Zyn nicotine pouches. The factory is poised to begin operations by the end of 2025 with regular production starting in 2026.
Sales of Zyn jumped 80 percent in the first quarter of 2024, leaving PMI struggling to keep up with demand. Retail stores had been experiencing shortages, with some even limiting the number of cans customers can buy each month.
Supply was further constrained after the company decided to halt online sales nationwide in June following a subpoena in the District of Columbia asking for information on the sale of flavored pouch products that are banned there.
August
In August, Indonesia banned the sale of individual cigarettes and raised the minimum purchase age to 21 from 18.
The rules are intended to reduce smoking prevalence and prevent young people from taking up the habit. With 70 million smokers in a population of 270 million, Indonesia has one of the world’s highest smoking rates. The country also struggles with a high level of underage smoking.
At the same time, the tobacco sector is important to Indonesia’s economy.
According to the Ministry of Industry, Indonesia’s cigarette industry employs 5.98 million people, including 4.28 million workers in the manufacturing and distribution sector, and 1.7 million in tobacco cultivation.
September
In September, Philip Morris International sold its Vectura unit to Molex Asia Holdings for a fraction of the price it shelled out for the company three years ago.
In 2021, PMI paid $1.2 billion for the U.K. maker of asthma inhalers as part of its efforts to diversify into the pharmaceutical business.
The deal attracted heavy criticism from anti-smoking campaigners who said the cigarette manufacturer should not benefit from a company that offers treatments of ailments caused or worsened by tobacco products.
In a statement, PMI described the fierce opposition to its diversification as 'unwarranted'.
October
In October, a court-appointed mediator proposed a deal to settle a long-running lawsuit against Canada’s leading cigarette manufacturers.
Under the agreement, the companies would pay CAD32.5 billion to settle charges relating to their business practices.
In 2015, a Quebec court award damages to some 100,000 smokers and ex-smokers who alleged the companies failed to warn consumers about the health risks of smoking, which they had known about since the 1950s.
The verdict was upheld in 2019, forcing the Canadian subsidiaries of PMI, BAT and Japan Tobacco International to seek bankruptcy protection.
The subsidiaries have been under a court-supervised mediation process negotiating a possible settlement since.
November
Sweden officially became “smoke-free” in November.
Health data released by Sweden’s public health agency shows that just 4.5 percent of the nation’s Swedish-born adults smoke—below the globally recognized benchmark of 5 percent for smoke-free status.
At 24 percent, average smoking rates in Europe are five times higher than Sweden’s.
According to tobacco harm reduction activists, the Swedes’ success is the result of their pioneering policy approach to safer alternatives to cigarettes.
Unlike many other European countries, Sweden permits the sale of snus, which offers a relatively low-risk method of consuming nicotine.
December
On Dec. 10, in the waning days of the Biden administration, the U.S. Food and Drug Administration submitted a proposed rule to the Office of Management and Budget that could significantly lower the amount of nicotine in tobacco products.
By forcing cigarette manufacturers to make their products less addictive, supporters hope the measure will encourage more smokers to quit.
As of 2021, about 28.3 million U.S. adults were considered current smokers, according to the Centers for Disease Control. Half of smokers say they’ve tried to quit in the past year, but fewer than one in 10 were successful.
It is unclear how vigorously the Trump administration will pursue the maximum nicotine level plan.
The proposed rule is open for comment until Sept. 15.
Looking Ahead
Despite the numerous pressures on the traditional tobacco business, combustible cigarettes will continue to claim the lion’s share of the nicotine market in the coming years. In many markets, population growth is likely to offset the impact of lower smoking rates—at least for some time. In the longer term, however, the share of cigarettes in the nicotine market is likely to come down, as smokers migrate to new nicotine products or quit their habit altogether.
The regulatory tightening that has constrained the sector for decades is likely to intensify, with further crackdowns on ingredients and marketing practices, for example, along with higher taxation. In addition, there are new treats. For example, the U.K. is contemplating a generational tobacco ban.
The combination of restrictions and high taxation could boost demand for duty-avoiding products, especially in regions with wide tax discrepancies.
In some countries, illicit trade already accounts for up to 50 percent of the overall tobacco market, according to the World Health Organization, depriving governments of much-needed tax revenue.
As we move into an uncertain future, activists have been urging the industry to look after the group that stands to suffer most from declining cigarette sales—tobacco growers.
While cigarette manufacturers will be able to absorb the impact from lower cigarette sales with higher prices and new products, many farmers, especially in developing nations, depend heavily on proceeds from the golden leaf.
E-cigarettes and tobacco-heating products won’t absorb the volumes once reserved for combustible cigarettes, so farmers will need help migrating to alternative or supplemental crops.
As it transitions to new products in the name of harm reduction, many believe the industry should take care to also minimize the harm to the most vulnerable members of its supply chain.
References
[1] Tobacco Products
[2] Butt out: New graphic images set to roll out on Canadian cigarette packs
[3] COP10 adopted historic decisions
[4] BAT opens £30m Innovation Centre for New Category products in Southampton
[5] KT&G appoints Kyung-man Bang as new CEO at the 37th Annual General Meeting of Shareholders
[6] PMI Opens Factory in Ukraine’s Lviv Region
[7] Investor Plans Nicotine Extraction in Zimbabwe
[9] Indonesia Bans Single Stick Sales
[10] Philip Morris to Take $220 Million Loss on Sale of Inhaled-Medicine Unit
