a current view of the global and u.s. tobacco industries• minnesota in 2013 defined e-cigarettes...
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www.tma.org
A Current View of the Global and U.S. Tobacco Industries
48TH TOBACCO WORKERS CONFERENCEMYRTLE BEACH, SOUTH CAROLINA
JANUARY 16, 2018
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• For the 10-year period (2006-2016), the global cigarette market has declined by 3.7%.
• The compound annual rate of decline for the 2006-2016 period is -0.37%.
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES 2January 16, 2018
Source: TMA’s World Cigarette Guide
Global Cigarette Production & Consumption
5,400
5,500
5,600
5,700
5,800
5,900
6,000
6,100
6,200
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Cigarette Production & Consumption (Bn. Pc.)
Production Consumption
• For the 4-year period (2012-2016), the global cigarette market has declined by 8.0%.
• The compound annual rate of decline for the 2012-2016 period is -2.07%.
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Illicit (or “black market’) cigarette sales account for about 10.5% of the global cigarette market.
3
340.39
510.15
659.49
593.18621.99
689.07 688.96 669.39630.43
599.41
200
300
400
500
600
700
800
1993 1997 2000 2003 2005 2007 2009 2011 2013 2015
Illicit Cigarette Sales (Billions of Pieces)
Source: TMA Estimate
Global Smuggling Estimate
January 16, 2018 A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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• For the 10-year period (2006-2016), the global cigarette market, excluding China, has declined by 14.9%.
• The compound annual rate of decline for the 2006-2016 period is -1.60%.
4January 16, 2018
Source: TMA’s World Cigarette Guide
Global [minus China] Cigarette Production & Consumption
3,000
3,200
3,400
3,600
3,800
4,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Cigarette Production & Consumption (Bn. Pc.)
Production Consumption
• For the 4-year period (2012-2016), the global cigarette market, excluding China, has declined by 9.7%.
• The compound annual rate of decline for the 2012-2016 period is -2.53%.
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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• For the 10-year period (2006-2016), China’s cigarette market has grown by 17.1%.
• The compound annual rate of growth for the 2006-2016 period is +1.59%.
5
Source: TMA’s World Cigarette Guide
China Cigarette Production & Consumption
2,000
2,200
2,400
2,600
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Cigarette Production & Consumption (Bn. Pc.)
Production Consumption
• For the 4-year period (2012-2016), China’s cigarette market has declined by 6.0%.
• The compound annual rate of decline for the 2012-2016 period is -1.44%.
January 16, 2018 A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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Source: TMA’s World Cigarette Guide
Global Cigarette Production & Consumption
2,000
2,500
3,000
3,500
4,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Cigarette Production & Consumption (Bn. Pc.)
World Prod. excl. China World Cons. Excl. China China Prod. China Cons.
January 16, 2018 A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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Global Cigarette Consumption Forecast
7January 16, 2018
5,894
5,516
4,600
4,800
5,000
5,200
5,400
5,600
5,800
6,000
2013 2014 2015 2016 2017e 2018e 2019e 2020e
Cigarette Consumption (Billions of Pieces)
Forecast 1 (-2%) Forecast 2 (-3%) Forecast 3 (-4%)
5,088
4,883
4,685
Source: TMA Estimate
A 3% or 4% decline in global consumption over the next 4 years could lead to a global market below 5 trillion pieces.
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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Leaf Requirements Forecast
8
3,800
4,000
4,200
4,400
4,600
4,800
5,000
5,200
2013 2014 2015 2016 2017e 2018e 2019e 2020e
Leaf Requirements (Millions of Metric Tons)
Forecast 1 (-2%) Forecast 2 (-3%) Forecast 3 (-4%)
4,291
4,118
3,951
4,652
5,025
Source: TMA Estimate
World: 1 cigarette contains 0.78 grams of leaf
China: 1 cigarette contains 0.85 grams of leaf
January 16, 2018 A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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U.S. Cigarette Price Increases
9January 16, 2018
On January 1, 2008, the manufacturer’s price for a 20-piece pack of premium cigarettes was $2.91 including FET.
September 2007 $2.91 (+5¢) 39¢ FET December 2012 $4.33 (+6¢) 100.33¢ FETMay 2008 $3.00 (+9¢) 39¢ FET June 2013 $4.39 (+6¢) 100.33¢ FETDecember 2008 $3.05 (+5¢) 39¢ FET December 2013 $4.46 (+7¢) 100.33¢ FETFebruary 2009 $3.14 (+5¢) 39¢ FET May 2014 $4.52 (+6¢) 100.33¢ FETMarch 2009 $3.85 (+71¢) 100.33¢ FET November 2014 $4.59 (+7¢) 100.33¢ FETOctober 2009 $3.91 (+6¢) 100.33¢ FET May 2015 $4.66 (+7¢) 100.33¢ FETMay 2010 $3.99 (+8¢) 100.33¢ FET November 2015 $4.73 (+7¢) 100.33¢ FETDecember 2010 $4.07 (+8¢) 100.33¢ FET May 2016 $4.80 (+7¢) 100.33¢ FETJuly 2011 $4.16 (+9¢) 100.33¢ FET November 2016 $4.88 (+8¢) 100.33¢ FETDecember 2011 $4.21 (+5¢) 100.33¢ FET March 2017 $4.96 (+8¢) 100.33¢ FETJune 2012 $4.27 (+6¢) 100.33¢ FET September 2017 $5.06 (+10¢) 100.33¢ FET
Over the past 10 years, the manufacturer’s price for a 20-piece pack of premium cigarettes has risen by 73.9%.
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
On January 1, 2018, the manufacturer’s price for a 20-piece pack of premium cigarettes was $5.06 including FET.
Over the same 10-year period, the CPI has risen by 22.2%.
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U.S. Cigarette Excise Tax Increases
10January 16, 2018
# of States Avg. Tax Inc. Wgt. Tax # of States Avg. Tax Inc. Wgt. Tax2002 21 43.00¢ 61.15¢ 2010 6 87.58¢ 145.36¢2003 17 34.94¢ 72.85¢ 2011 4 33.50¢ 147.48¢2004 7 39.07¢ 78.02¢ 2012 2 52.00¢ 149.87¢2005 12 60.38¢ 92.22¢ 2013 2 130.00¢ 152.50¢2006 5 24.50¢ 94.54¢ 2014 1 13.00¢ 152.60¢2007 10 62.50¢ 107.25¢ 2015 7 45.42¢ 156.00¢2008 8 73.75¢ 119.74¢ 2016 4 96.75¢ 167.03¢2009 15 52.23¢ 132.52¢ 2017e 3 48.33¢ 170.00¢
Over the past 10 years, the average weighted cigarette excise tax has risen by 58.5%.
Over the past 15 years, the average weighted cigarette excise tax has risen by 178.0%.
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
NOTE: The Oklahoma cigarette excise tax approval in May 2017 was ruled unconstitutional.
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Vapor Product Excise Tax Increases
11January 16, 2018
1
14
27
3235
0
1
2
3
4
0
5
10
15
20
25
30
35
40
2013 2014 2015 2016 2017
Vapor Product Excise Tax IncreasesIntroductions & Enactments
Bills Introduced # of States # of States Approved
• Minnesota in 2013 defined e-cigarettes as “tobacco products” and therefore became subject to the State’s OTP excise tax
• North Carolina approved a Vapor Product SET in 2014
• DC, Kansas and Louisiana approved Vapor Product SET’s in 2015
• California, Pennsylvania, andWest Virginia approved Vapor Product SET’s in 2016
• Delaware approved a Vapor Product SET in 2017
Source: TMA’s Issues Monitor
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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The Shrinking U.S. Cigarette Market
• For the 35-year period (1981-2016), the U.S. cigarette market has declined by 59.8%.
• The compound annual rate of decline for the 1981-2016 period is -2.57%.
12January 16, 2018
200
250
300
350
400
450
500
550
600
650
700
1979 1983 1987 1991 1995 1999 2003 2007 2011 2015
Cigarette Consumption (Billions of Pieces)
Peak: 1981 – 641 bn. pieces
FET Doubled (1983)
Marlboro Friday (April 1993)
MSA (November 1998)
SCHIP(April 2009)
Estimated: 2017 – 250 bn. pieces
Source: TMA’s Tobacco USA
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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• For the 10-year period (1980-1990), the U.S. cigarette market has declined by 16.9%.
• The compound annual rate of decline for the 1980-1990 period is -1.83%.
13January 16, 2018
200
250
300
350
400
450
500
550
600
650
700
1979 1983 1987 1991 1995 1999 2003 2007 2011 2015
Cigarette Consumption (Billions of Pieces)
Marlboro Friday (April 1993)
MSA (November 1998)
SCHIP(April 2009)
Estimated: 2017 – 250 bn. pieces
Source: TMA’s Tobacco USA
The Shrinking U.S. Cigarette Market
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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• For the 10-year period (1990-2000), the U.S. cigarette market has declined by 17.9%.
• The compound annual rate of decline for the 1990-2000 period is -1.95%.
14January 16, 2018
200
250
300
350
400
450
500
550
600
650
700
1979 1983 1987 1991 1995 1999 2003 2007 2011 2015
Cigarette Consumption (Billions of Pieces)
SCHIP(April 2009)
Estimated: 2017 – 250 bn. pieces
Source: TMA’s Tobacco USA
Peak: 1981 – 641 bn. pieces
FET Doubled (1983)
The Shrinking U.S. Cigarette Market
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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• For the 10-year period (2000-2010), the U.S. cigarette market has declined by 29.5%.
• The compound annual rate of decline for the 2000-2010 period is -3.43%.
15January 16, 2018
200
250
300
350
400
450
500
550
600
650
700
1979 1983 1987 1991 1995 1999 2003 2007 2011 2015
Cigarette Consumption (Billions of Pieces)
Estimated: 2017 – 250 bn. pieces
Source: TMA’s Tobacco USA
Peak: 1981 – 641 bn. pieces
FET Doubled (1983)
Marlboro Friday (April 1993)
MSA (November 1998)
The Shrinking U.S. Cigarette Market
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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• For the 10-year period (2007-2017), the U.S. cigarette market has declined by 31.3%.
• The compound annual rate of decline for the 2007-2017 period is -3.69%.
16January 16, 2018
364
345
316304
293 289
273263 268
258250
200
220
240
260
280
300
320
340
360
380
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e
Cigarette Consumption (Billions of Pieces)
Source: TMA’s Tobacco USA
The Shrinking U.S. Cigarette Market
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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U.S. Cigarette Consumption Forecast
17January 16, 2018
273
258
201200
210
220
230
240
250
260
270
280
2013 2014 2015 2016 2017e 2018e 2019e 2020e
Cigarette Consumption (Billions of Pieces)
Forecast 1 (-3%) Forecast 2 (-5%) Forecast 3 (-7%)
228
210
250
Source: TMA Estimate
A 3.75% decline forecasted ahead leads us to a 223 billion piece market in 2020.
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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U.S. Cigarette Smoking Prevalence Rates
18January 16, 2018
41.937.4
37.033.2
29.9
25.3 24.6 23.120.9 19.3
15.1
0
10
20
30
40
50
1965 1970 1974 1980 1985 1990 1995 2000 2005 2010 2015
Adult Cigarette Smoking Prevalence Rate
Source: U.S. Division of Health Interview Services
Over a 50-year time span, the U.S. adult cigarette smoking
prevalence rate has fallen from 41.9% to
15.1%.
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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The U.S. Large Cigar Market
• For the 10-year period (2008-2017), the U.S. large cigar market has risen by 126.1%.
• The compound annual rate of growth for the 2008-2017 period is 9.49%.
19January 16, 2018
5.66
9.75
12.74 13.33 13.5612.41
13.0711.71 11.55
12.80
0
2
4
6
8
10
12
14
16
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e
Figures are in billions of pieces
Production Sales Source: TMA’s Tobacco USA
SCHIP
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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• For the 10-year period (2008-2017), the U.S. little cigar market has declined by 92.7%.
• The compound annual rate of decline for the 2007-16 period is -25.2%.
20January 16, 2018
5.47
2.15
0.98 0.80 0.75 0.61 0.54 0.55 0.50 0.40
0
1
2
3
4
5
6
7
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e
Figures are in billions of pieces
Production Sales Source: TMA’s Tobacco USA
The U.S. Little Cigar Market
SCHIP
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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• For the 10-year period (2008-2017), the U.S. RYO market has declined by 72.8%.
• The compound annual rate of decline for the 2008-2017 period is -13.46%.
21January 16, 2018
6.76
4.08
2.492.03
1.57 1.90 1.59 1.882.21
1.84
0
1
2
3
4
5
6
7
8
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e
Figures are in billions of pieces [converted]
Production Sales Source: TMA’s Tobacco USA1 cigarette = 0.0325 ounces of RYO
The U.S. Roll-Your-Own (RYO) Market
SCHIP
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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• For the 10-year period (2007-2016), the U.S. pipe tobacco market has risen by 8.3%.
• The compound annual rate of growth for the 2008-2017 period is 0.89%.
22January 16, 2018
7.348.47
12.2913.87
8.87 8.53 8.597.25
8.11 7.95
0
2
4
6
8
10
12
14
16
18
20
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e
Figures are in millions of pounds
Production Sales Source: TMA’s Tobacco USA
The U.S. Pipe Tobacco Market
SCHIP
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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• For the 10-year period (2008-2017), the U.S. chewing tobacco market has declined by 31.3%.
• The compound annual rate of decline for the 2008-2017 period is -4.09%.
23January 16, 2018
31.6
28.3
32.5
29.628.0
26.424.6
23.2 22.821.7
10
15
20
25
30
35
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e
Figures are in millions of pounds
Production Sales Source: TMA’s Tobacco USA
The U.S. Chewing Tobacco Market
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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• For the 10-year period (2008-2017), the U.S. moist snuff market has risen by 28.9%.
• The compound annual rate of growth for the 2008-2017 period is 2.86%.
24January 16, 2018
91.394.4 95.8
100.5
105.1109.9 108.9
114.0 116.5 117.7
70
80
90
100
110
120
130
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017e
Figures are in millions of pounds
Production Sales Source: TMA’s Tobacco USA
The U.S. Moist Snuff Market
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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NOTE: Vapor product manufacturers must submit
their PMTA’s to the FDA-CTP by August 8, 2022 in order to continue to sell their products
on the U.S. market.
25January 16, 2018
20 39 82195
800
1,700
2,500
3,300
4,1004,400 4,600
0
1,000
2,000
3,000
4,000
5,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018e
Figures are in US$
SalesSource: Wells Fargo/TMA Estimate
The U.S. Vapor Product Market
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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For the year, the total U.S. vapor market is estimated at $4.4 billion.
26January 16, 2018
Source: Wells Fargo Securities, LLC
The U.S. Vapor Product Market - 2017
Market Breakdown (Millions of US$)
E-Cigs: Retail -Stores E-Cigs: Retail -Online E-Cigs: Retail -OtherVTMs: Vape Shops VTMs: Retail - Stores VTMs: Retail - Online
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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• Over 10 years in R&D at Philip Morris International (US$ 2 billion invested)
• Launched in 2014• Test-marking began in Italy, Japan• Currently available in over 30 countries
27January 16, 2018
iQOS – A Heat-Not-Burn (HNB) Product
• The iQOS starter kit retails at $80 • A pack of 20 HeatSticks retails at $10
[UK retail prices recorded in summer 2017]
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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• 2016 iQOS sales – 7.4 billion sticks• 2017 iQOS sales – 20 billion sticks• 2018 estimated iQOS sales – 75 billion sticks• 2019 estimated iQOS sales – 125 billion sticks
28January 16, 2018
• PMI filed MRTP application with theFDA-CTP in December 2016
• PMI filed PMTA application with theFDA-CTP in March 2017
• FDA-CTP TPSAC meeting – Jan. 24-25, 2018
iQOS – A Heat-Not-Burn (HNB) Product
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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29January 16, 2018
The “Heat-Not-Burn” product categoryHow would it be taxed at the Federal level?
Cigarette
Smoking Tobacco
Smokeless Tobacco
Newly-created Vapor or HNB class
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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30January 16, 2018
The “Heat-Not-Burn” product categoryHow would it be taxed at the Federal level?
Based on its composition,the iQOS Heet Stick is basically a cigarette.
A CURRENT VIEW OF THE GLOBAL AND U.S. TOBACCO INDUSTRIES
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