MAKING TOBACCO RESPECTABLE?
iQOS, a device that heats custom-made cigarettes, might be legal to ‘smoke’ indoors, thanks to a regulatory loophole in SA’s laws
Can you use it indoors? Can you advertise it? Should you pay sin tax on it?
Apart from e-cigarettes, new “non-combustible” tobacco technologies are starting to appear in South Africa, creating pressure to redesign the tobacco control regime designed at a time when smoking just meant smoking.
Tobacco giant Philip Morris International (PMI) is quietly rolling out its flagship “heat-not-burn” system in South Africa. This entails a device called iQOS which heats special custom-made cigarettes called Heets.
At PMI’s Cape Town offices, a major regulatory question is embodied in an unassuming signboard: a custom-made take on the universally recognisable no-smoking sign. The traditional lit cigarette with a red line through it is accompanied by a picture of an iQOS – with no stripe through it.
To underscore the point, corporate affairs director Neetesh Ramjee uses his during an interview and there is a small “ashtray” on the table for depositing the used Heets. PMI believes Heets are legal indoors while smoking normal cigarettes is not.
This is thanks to a 1999 amendment to the definition of “smoking” in the Tobacco Products Control Act. This defined smoking as necessarily involving “ignition” – a distinction that originally had the effect of excluding relatively marginal tobacco products such as chewing tobacco, snuff and snus from the rules against indoor smoking.
iQOS hits the same regulatory sweet spot because heating is not the same as ignition, according to PMI.
“If somebody is walking in a shopping centre and they take snuff or snus or any of these other products there is nothing against that in the law. In the same way you can use iQOS indoors,” said Ramjee.
E-cigarettes fall outside the regulatory scheme for tobacco entirely because not only is there no ignition involved, but they also don’t use tobacco.
That allows e-cigarette companies such as Twisp to advertise on billboards, which PMI could not do for the iQOS.
PMI plays down the importance of the indoor loophole.
“Here in the building we have our own policy, so if you are alone in your office, you can use it. If you are in the common spaces you ask the people around you. It is not like you can use your iQOS everywhere,” said Marcelo Nico, managing director of PMI for southern Africa and Indian Ocean islands.
Dodging the definition of “smoking”, however, has another fundamental effect: far higher profit margins.
DOUBLE THE MONEY
Heets are being introduced in South Africa at R35 a pack of 20, roughly the same price as cigarettes.
Unlike cigarettes, there is no so-called sin tax of R14.30 per pack on them, which PMI rakes in for itself.
The special excise is designed so that the total tax burden on cigarettes should be 52% of the retail price of the most popular brand – Stuyvesant Red. That 52% comprises the sin tax and VAT.
This probably does not have any discernible impact on the bottom line yet – the market is still minuscule – but it probably does help fund PMI’s arduous roll-out of the iQOS through selected dealers and the support staff to help users adapt to it.
“There has never been an excise on the nasal stuff. Heets do not at this stage attract the excise tax either,” said Ramjee.
But regulations will come and PMI hopes it can get the government to make concessions on the basis of the product’s health claims.
“When we engage, we will say let us tax this at a lower rate to create an incentive to encourage people to switch. If taxes help curb demand, they can also help incentivise switching,” said Ramjee.
What PMI really wants is some kind of exemption from the near total ban on advertising tobacco products.
“The minister [of health] has said he wants to go to Parliament to amend the law to, among other things, bring e-cigarettes into the fold,” said Ramjee.
“We will put forward our position that if you can show through evidence and through science that something is less risky than a combustible product then you should be able to give people that information.”
PMI’s primary health claim is that the heated tobacco produces 90% to 95% less of the harmful constituents of tobacco smoke. Significantly, PMI also claims that it has almost no effect on indoor air quality.
Nico readily admits that tobacco company research will always be suspect and PMI has put its voluminous in-house research in the public domain, hoping credible third parties will concur that iQOS is, in fact, safer than cigarettes.
This scientific debate is only starting, but there have already been antiiQOS findings which the company has challenged.
“This is the constant refrain that we hear – that there is not enough evidence or that not enough time has elapsed, but there has been rigorous assessment and clinical trials,” said Ramjee.
“This is not for kids or for folks who have never smoked. This is not
harm free, it is just less risky than what you were doing before.”
Competitors such as British American Tobacco and Japan’s Tobacco International have also introduced new heat-notburn devices around the world, but the battle for the post-cigarette market is also about competing technologies.
PMI has four “platforms” at different stages of development and commercialisation. iQOS is platform one while platform two is being rolled out in Japan and Italy this year. It is closer to the original heat-not-burn cigarette, the Premier, produced by RJ Reynolds in the 1980s. These are disposable cigarettes that use a charcoal heat source instead of actually setting the tobacco alight.
Platform three will involve an entirely chemical reaction producing vapour out of nicotine salt, while platform four is an in-house designed e-cigarette that uses disposable fluid canisters instead of getting manually refilled by hand.
Is this the end of cigarettes?
PMI says it already has 3 million iQOS users around the world who switched completely from cigarettes to heat sticks.
Much of this customer base is in Japan where the iQOS was first unveiled in 2014.
“In Japan we launched two years ago. Ten percent of the Japanese market already stopped smoking and switched to iQOS,” said Nico. While this suggests a massive potential to displace regular smoking, the Japanese market is also unique in many ways.
It has unusually severe restrictions on e-cigarettes which include applying pharmaceutical regulations on the liquids they use, meaning there is less competition from this alternative.
“In Japan you do not have e-cigarettes and that makes a difference,” admits Nico.
“The Japanese are very tech savvy and conscious about bothering other people so they are a special case.”
Nico said he’d prefer not to divulge the total number of iQOS units sold in South Africa yet, but the device is only mainly available in the north of Johannesburg and in Cape Town.