How the Smoking Crackdown Helped Big Tobacco: Insider Tells All
It’s been a decade since the writer first met the lawyer – a chance encounter at a Toronto bar that abruptly informed him of how little he knew about the legal consumer product that could kill him .
So Joshua Knelman, author and smoker, returned to the lawyer, who had just completed a 12-year stint in the tobacco industry, and started the dozens of conversations that culminated in Firebrand: A Tobacco Lawyer’s Journey.. One of the most remarkable books of the year, it brilliantly unravels what Knelman calls “the tobacco paradox” – how the tobacco trade thrives as much, if not more, than it ever did – and its many ironies.
Consider the ubiquitous no-smoking signs around the world, a symbol of how far we’ve come in our awareness of the risks of tobacco. They condemn the practice while simultaneously providing free publicity for an industry prohibited from promoting itself. There is a subconscious message as powerful as the conscious message: smoking is allowed. somewhere. Just move a few feet and switch on.
The lawyer and his first employer remain anonymous thanks to Firebrand, a literary tactic adopted to keep the focus on his Pilgrim’s Progress through the industry. But speaking through the smoke billowing around Knelman’s backyard — in another irony, of the three people present, only the former tobacco lawyer doesn’t smoke — Max Krangle is happy to expand on his old work.
A dual Canadian-British citizen, aged 26 and practicing law in London when he was hired, Krangle was sent everywhere from Kazakhstan to Switzerland by his new bosses. He spent pampered days at Formula 1 races and long hours near Belfast watching the (now closed) production lines of one of the UK’s last cigarette factories.
He was being paid well – $500,000 a year when he quit – to make sure his company’s corner of the world’s most scrutinized industry stays on the right side of the law. “There were no quiet days,” Krangle recalls, in the legal department of any cigarette company at the start of the 21st century, when tobacco regulations evolved at an uneven pace around the world. “There was always something going on, always something I had to fix.”
He spent a lot of time in Spanish resorts where the local economy worked on catering to tourists from northern Europe. In Spain, Krangle’s company, still able to use marketing and advertising tactics banned in the UK — buy four boxes and get a free bottle of vodka! – was engaged in fierce competition to retain British visitors to the brand. (The locals were less interested, probably already loyal to Spanish cigarettes.)
UK-level tax increases had yet to be imposed in Spain, and British cigarettes were a third of the price charged in Britain, the same tax gap that is currently sending smokers in Toronto – facing price $150 a carton for popular brands at local convenience stores – on day trips to First Nations reserves, where similar cigarettes cost $51 a carton. Facing no customs limits on tobacco for personal use, the British frequently returned with dozens of boxes. Some, taking advantage of cheap plane tickets, went to Spain and returned the same day, just for the cigarettes.
The inevitability of border crossings – and outright smuggling – when tax regimes vary so much is only a small part of the tobacco paradox, eclipsed by the elephant in the room. How, after nearly six decades of sustained onslaught by doctors and governments, has the tobacco industry managed not only to keep the deadliest consumer product ever made on store shelves, to sell alongside chewing gum and chocolate bars, but also to remain so profitable?
The answer is the essence of the paradox. As tobacco companies themselves have come to recognize after years of frantic adaptation to changing laws and mores, Krangle argues, the restrictions imposed by world governments have showered them with blessings.
“I don’t know of any other industry in the world that can accept manufacturer price increases once a year, sometimes twice a year, and get away with blaming a third party,” Krangle says. That is to say the governments and their taxes? “Yes. That’s exactly what’s happened, in Canada and many other countries. You’ve gone from a dollar a pack to $18 a pack in 40 years, mostly through tax increases, but each time the tax increases, the manufacturer gets a few more pennies” by taking advantage of the tax increase.
Added to the benefits of the state-provided reputation free ride, Knelman adds, are the significant cost savings achieved by the industry over the past few decades. “Most companies with popular products have to spend a certain amount each year to advertise to customers,” he says, “but cigarette manufacturers, even though they may charge more and more, are not not allowed to spend on advertising.”
Manufacturing costs, Krangle says, have also gone down due to government regulations.
“Manufacturers can no longer use flavorings or premium gold foil paper inside packaging or product descriptors like ‘light’, ‘mild’ or ‘ultra’. This means less costs associated with producing and packaging distinct varieties Twenty years ago there were probably 10 du Maurier or Player’s SKUs (Stock Keeping Units) Now there are far fewer .
SKUs (unique alphanumeric labels assigned to each variety of a product) have been instrumental in keeping as many of a manufacturer’s products “different” as possible in direct contact with the consumer at the point of sale. But it’s no longer legal. No one can advertise or even see a product at the point of sale – good news for health-conscious regulators, bad news for existing cigarette manufacturers and terrible news for anyone trying to break into the business. .
“That’s the best part of it all,” summarizes Krangle, “the world’s largest trading partner not only raises your prices for you and takes the heat, but it also secures your market share. So you have no competition. There are no new market entrants, no one is coming.
That’s why even losing two-thirds of its customers over two generations hasn’t dented the profits of the industry in the developed world. If he has, in fact, lost so much business, even in the face of health warnings and alternative nicotine delivery systems (vaping). Knelman and Krangle are somewhat wary of official Canadian numbers. According to the latest Statistics Canada data, collected between December 8, 2020 and January 16, 2021, 10% of Canadian adults smoke daily. The self-reported nature of this information is part of their skepticism, given survey respondents’ well-known aversion to admitting disapproved behavior.
More relevant, however, is what has happened in the world since the investigation. Human behavior is as much about opportunity as it is about inclination, and pandemic lockdowns have sent tens of thousands of smokers around the world from smoke-free offices to their own (presumably) smoky homes. An April Lancet meta-analysis — 31 studies examining smoking habits in lockdown among 269,164 participants in 24 countries — found mixed news for health advocates and tobacco company shareholders. The proportion of people who smoke continued to decline for generations during the pandemic, but among smokers, 27% smoked more, 21% smoked less, and half reported no change. And tobacco company stocks have risen during the COVID era, as they historically do during tough times, if only because stressed smokers tend to smoke more.
During his tobacco days, Krangle found real and fierce competition among industry players in so-called emerging markets like Kazakhstan, but he also learned that these markets are not the profit centers of industry.
“Of course, there are less tobacco regulations, but the margins are $1.50 to $2 per thousand ‘sticks’ sold because a pack is only 30, 40 cents.” Compare that to Canada, “where the industry probably earns $150 per thousand sticks” and sells over $20 billion a year. “In older, more heavily regulated markets where they’ve lost tons of customers but adapted their business models to work with the regulations rather than against them, tobacco companies are earning a lot more. And that’s great for them.
But the paradox of tobacco, this guarantee of stability and profit, has reached a critical point, perhaps more so in Canada than elsewhere. Lawsuits against major Canadian tobacco distributors have dragged on in the courts for decades. In 2015, the Superior Court of Quebec condemned the companies and ordered them to pay $15.6 billion in moral and punitive damages, a judgment upheld in 2019 after appeal. At that point, the judgment was suspended, as the interested parties determine what to do next.
And it’s not easy.
“It could end in bankruptcy,” says Krangle, “and these companies are going the dodo way. But consider the situation. The government is responsible for the price of the product and takes 80% of the profits. equal stakeholder. It looks like a crown corporation taking over everything, with the tobacco companies being scapegoats paid to keep quiet. So what really happened in Quebec? The government went complaint. How many other civil cases do you know that have remained like this after the call? And he was suspended because the government basically knows, crazy as it sounds, that he shot himself in the foot. Get out of this industry and you have to find another way to pump billions into the treasury every year.
And, added the smokers in the court, to face three million nicotine deprived of legal age.