Analysis of the current status of tobacco and new tobacco market development in North America

At this year's The Product Expo (TPE), held in Las Vegas, USA, from January 30 to February 2, Brad Seipel, executive vice president of MARC Research, said that new tobacco products have been on the market for more than a decade and that the tobacco industry is continuing to drive product innovation.

In an industry report, Goldman Sachs analyst Herzog noted that tobacco retailers are finding that customers are making fewer trips to the store due to consumers turning to alternative products such as nicotine pouches. Generally, these products are more durable than combustible cigarettes.

The illegal tobacco trade is growing rapidly in the United States, and illegal disposable e-cigarette products are a growing concern for tobacco manufacturers and retailers. The U.S. Food and Drug Administration (FDA) is increasing its crackdown on flavored e-cigarettes and non-compliant products.

Herzog said the vast majority of retailers believe the situation is worsening and that the problem of illicit trade in urban areas and in areas where the ban on flavored e-cigarettes is strictly enforced is significant.

"Many retailers emphasize that illicit disposable e-cigarette products are affecting cigarette sales. The Ochia Group estimates that the increase in sales of illicit tobacco products has led to a decline in its cigarette sales of between 1.5% and 2.5% over the past 12 months. Retailers believe that this will not change without increased enforcement. Retailers are generally pessimistic that this will change, given the ubiquity of illegal products, the difficulty of tracking and enforcing them, and the relatively light penalties that reduce regulatory deterrence." The FDA fines for violations, but the current level of penalties does not address the root of the problem, Herzog said. Some retailers make high profits from selling illegal products, which offsets their declining cigarette sales.

Regulatory Measures Need Improvement

At the Tobacco Products Legal Symposium held in Las Vegas on January 29-30, Brian King, head of the FDA's Center for Tobacco Products (CTP), said that they had inspected several retailers selling illegal products and issued warning letters and imposed fines.

Tim Phillips of market research firm Tamarind Intelligence, speaking at TPE, said scientific enforcement is important. While the FDA's Pre-Market Application (PMTA) process for tobacco products is time-consuming, it doesn't seem to be working as well as it should because the FDA does little to stop products that skip the regulatory process from reaching the market.

Phillips said, "The raids that the FDA is currently conducting only scratch the surface of the growing illicit market. There are many products on the retail market that have not gone through the review process. the FDA is stepping up its enforcement activities, but the reality is that the market is not well regulated. The same situation exists to some extent in the UK and throughout Europe."

The upcoming menthol ban in the U.S. could also lead to an increase in the illicit tobacco trade.The FDA has submitted proposals to the White House to ban the use of menthol in cigarettes and other tobacco products and to ban the use of non-tobacco flavors in cigars. The White House is currently reviewing these proposals. Before implementing new product standards, the White House must examine their potential economic impact.

In his survey, Herzog found that some retailers are fed up with the menthol ban, the steps taken by the FDA, and the slow progress of the PMTA review. "The FDA's decision to impose a menthol ban could lead some retailers to sell illegal products that are more profitable and more affordable to consumers." Herzog said.

"The future of the market remains promising." Seipel said there is a lot of room for growth in the heated cigarette market, and that awareness and usage of these products in the North American market has yet to increase. He believes that as long as there are still consumers who use combustible cigarettes, there is room for new tobacco products to grow, as many consumers of new tobacco products are converting from users of combustible cigarettes.