a current view of the global and u.s. tobacco industries• minnesota in 2013 defined e-cigarettes...

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%.


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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%.


4January 16, 2018


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



• For the 4-year period (2012-2016), the global cigarette market, excluding China, has declined by 9.7%.


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


China Cigarette Production & Consumption

2,000

2,200

2,400

2,600

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016



• For the 4-year period (2012-2016), China’s cigarette market has declined by 6.0%.



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6


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


World Prod. excl. China World Cons. Excl. China China Prod. China Cons.


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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


A 3% or 4% decline in global consumption over the next 4 years could lead to a global market below 5 trillion pieces.


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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)


4,291

4,118

3,951

4,652

5,025


World: 1 cigarette contains 0.78 grams of leaf

China: 1 cigarette contains 0.85 grams of leaf


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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%.


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%.


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


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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%.


12January 16, 2018

200

250

300

350

400

450

500

550

600

650

700

1979 1983 1987 1991 1995 1999 2003 2007 2011 2015


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


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13January 16, 2018

200

250

300

350

400

450

500

550

600

650

700

1979 1983 1987 1991 1995 1999 2003 2007 2011 2015



MSA (November 1998)

SCHIP(April 2009)





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14January 16, 2018

200

250

300

350

400

450

500

550

600

650

700

1979 1983 1987 1991 1995 1999 2003 2007 2011 2015


SCHIP(April 2009)




FET Doubled (1983)



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15January 16, 2018

200

250

300

350

400

450

500

550

600

650

700

1979 1983 1987 1991 1995 1999 2003 2007 2011 2015





FET Doubled (1983)


MSA (November 1998)



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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





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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



228

210

250


A 3.75% decline forecasted ahead leads us to a 223 billion piece market in 2020.


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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%.


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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


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• For the 10-year period (2008-2017), the U.S. little cigar market has declined by 92.7%.


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


The U.S. Little Cigar Market

SCHIP


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• For the 10-year period (2008-2017), the U.S. RYO market has declined by 72.8%.


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


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• For the 10-year period (2007-2016), the U.S. pipe tobacco market has risen by 8.3%.


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


The U.S. Pipe Tobacco Market

SCHIP


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• For the 10-year period (2008-2017), the U.S. chewing tobacco market has declined by 31.3%.


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



The U.S. Chewing Tobacco Market


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• For the 10-year period (2008-2017), the U.S. moist snuff market has risen by 28.9%.


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



The U.S. Moist Snuff Market


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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


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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


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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]


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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


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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


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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.


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a current view of the global and u.s. tobacco industries• minnesota in 2013 defined e-cigarettes...

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