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World No Tobacco Day: Do Big Tobacco companies evolve or die?


Tobacco has been a part of human culture for centuries: Elizabethan explorers brought it to Europe from the New World in the 16th century, but it was used in the Americas before then. In the First World War tobacco delivery became more efficient as cigarettes came into widespread use among the troops. By the 1920s nicotine-filled cigarettes were ubiquitous.

World No Tobacco Day is about educating the public about the dangers of smoking tobacco. There are still over a billion active smokers of cigarettes around the world, a large proportion of whom want to quit. This is a market that has been created by an addictive drug, namely nicotine. It continues to represent a major long term threat to human health.

According to the World Health Organisation, tobacco still kills more than 7m people each year – that’s more than COVID. In the UK outside the coronavirus pandemic in 2020 it remains the single biggest killer.

Can Big Tobacco companies evolve or die?

For Big Tobacco companies which grew up on the back of widespread nicotine use in the population, the challenge continues to be one of survival. While they remain large and profitable businesses, their core products are under attack by regulators as never before. The big question is whether they will evolve or die?

Setti Coscarella, CEO of TAAT Global Alternatives (CSE:TAAT / OTC:TOBAF), does not think outright prohibition of tobacco is going to be the answer, just as a prohibition of alcohol in the US in the 1920s did not work. But getting nicotine out of the equation might be the solution to making smoking less addictive.

“People can enjoy smoking but it does not have to be addictive,” he says. “It seems ironic to me that Big Tobacco is trying to get behind the zero tobacco initiative while still selling vaping products which contain nicotine.”

The quest for alternatives to tobacco

TAAT has launched a third path for smokers – Beyond Tobacco – which it now manufactures and distributes in the US. Beyond Tobacco contains CBD instead of nicotine, has no addictive qualities, yet smells and tastes like tobacco. Coscarella sees it as being a workable solution for many smokers who want to turn their backs on nicotine.

There seems to be a demand in the market for an alternative to tobacco, with many smokers finding that vaping is not the solution to help them give up. TAAT could be the best one yet.

“Beyond Tobacco meets the task requirements of habitual smokers, but with CBD instead of nicotine,” says Coscarella. “Enough consumers are going to find this enough of an appealing alternative to make Big Tobacco sit up and take notice.”

Currently the main response from Big Tobacco companies to the anti-smoking campaign has been to double down on vaping as a possible alternative. But the Big Tobacco industry needs more answers. The MSCI World Tobacco Index which tracks the performance of listed tobacco stocks hit a peak in 2016 which it has never been able to get back to. It registered a loss of 38.25% in 2018 versus a loss of 10.44% for the MSCI World. In 2020 it lost over 9% against a gain of over 14% for the World index. And that’s before you consider some fund managers and pension funds are running their ESG rulers over tobacco holdings.

Listen: Podcast with Joe Deighan, Founder and Director of Research, TAAT Lifestyle and Wellness

Tobacco stocks under pressure to come up with alternatives

Pressure is on the global tobacco industry to come up with alternatives to nicotine: according to the Global Tobacco Index, which tracks levels of government response to interference from the tobacco industry, much of the developed world is now actively involved in making life harder for tobacco manufacturers. There are exceptions of course, including major tobacco markets like China, Japan and Indonesia.

Just taking one example, British American Tobacco (LON:BATS) scraped a BBB rating from Fitch last week. Fitch said that US regulatory risk remains a threat to BAT.

“A ban [in the US] could accelerate the secular decline in cigarette volumes, but would face a long timeframe to implementation given the potential for litigation by the tobacco industry,” Fitch said. “[We] would also expect the industry to continue its focus on migrating consumers mainly to NGPs [next generation products] to mitigate the long term decline in traditional cigarettes, as was evident by the menthol bans in the EU and Turkey.”

BAT is in a slightly better position than, say, Imperial Brands (LON:IMB), which is deemed by Fitch to have weaker competitive positioning, more limited international diversification and a stronger focus on developed markets, where there will be more restrictions on tobacco and sooner. Fitch also notes that Imperial Brands has been paying less attention to NGPs.

Ultimately, there looks like there is no reason for the pressure on Big Tobacco to recede – it is, if anything, going to intensify, and analysts and investors are both going to be looking for imaginative solutions from management. It does not look as if doubling down on nicotine will be that answer.

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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