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

CityPress - - Business - DE­WALD VAN RENS­BURG de­wald.vrens­burg@city­press.co.za

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.”

ARMS RACE

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.

PHOTO: ISTOCK

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