The race to replace cigarettes intensifies

American smokers trying to quit have the choice of vapes, nicotine pouches and, a more recent introduction, heated tobacco sticks. Cigarette manufacturers are very dependent on the direction in which they turn.

Today, vaping is the preferred alternative to smoking in the United States. Reynolds American Proprietor British American Tobacco BTI -1.41%

expects it to stay that way, arguing on a recent earnings call that Americans won’t buy heated tobacco products in large numbers. BAT is asking the U.S. Food and Drug Administration for permission to launch its Glo heated tobacco sticks, but executives say it’s mainly to gain leverage with foreign regulators rather than because they’re optimistic about local demand.

Cigarette maker Lucky Strike has reason to talk about vaping. Its Vuse brand has overtaken Juul as the best e-cigarette in America, and heated tobacco is a much bigger business for BAT rival Philip Morris International.,

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which sells Marlboro cigarettes outside the United States, PMI will soon have a US distribution network to deploy its pioneering IQOS heated tobacco devices, assuming it completes a proposed $16 billion acquisition of the sachet specialist. of Swedish Match nicotine.

Certain smokeless products may dominate different markets depending on consumer tastes and local laws. IQOS has been a big hit in Japan, where consumers have a record of openness to new innovations. It must also have helped PMI to ban e-cigarettes containing nicotine. The situation is reversed in the United States: vaping accounts for 7% of the overall nicotine market, according to BAT, compared to 1% for modern oral nicotine sachets like Zyn and less than 1% for heated tobacco.

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Electronic cigarettes have been available in the United States for about ten years, which may partly explain their advance. IQOS only came out in 2019, so the heated tobacco category is less familiar to American consumers. Covid-19 and an intellectual property dispute with BAT also slowed the rollout of the brand.

But timing may not be everything. Nicotine levels in American combustible cigarettes are high and it is technically easier to replicate the hit with nicotine salts in e-cigarettes than in heated tobacco, although levels in IQOS are close to those of traditional smokes .

Vaping also enjoys favorable tax treatment in the United States. Federal excise duties on heated tobacco are the same as on cigarettes, while there are none on e-cigarettes. A smoker who usually pays around $8 for a pack of Marlboro cigarettes will pay the same to switch to IQOS heated tobacco sticks, but only $6 for BAT’s brand of e-cigarettes, Vuse Alto, according to UBS data.

IQOS heated tobacco devices have been very successful in Japan.


Photo:

Fabrice COFFRINI/AGENCE FRANCE-PRESSE/Getty Images

However, this gap may not last if Washington decides to change nicotine taxes to offset the impact of lower cigarette sales on its revenue. And in another way, IQOS has an advantage: the PMI brand is one of the few non-combustible products to have been cleared by the FDA to tell smokers that its use reduces their exposure to harmful chemicals. So far, no vaping brand has achieved this modified risk rating.

The US e-cigarette market is undergoing a major overhaul. All vaping brands have had to submit applications to regulators to stay on sale. If flavored e-cigarettes, such as menthol, are not approved, it could be more difficult to encourage some smokers to switch, which would limit the growth of the vaping category.

E-cigarettes are leading the pack in the United States today, but until regulations and taxes take hold, there’s still a long way to go for big tobaccos.

Write to Carol Ryan at [email protected]

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