Tobacco Companies’ Best Friends

Anti-tobacco activists portray themselves as enemies of “Big Tobacco,” so they naturally characterize the current panic about vaping among American teens as a new campaign by the industry.  This is fundamentally wrong, according to David Sweanor, a veteran anti-smoking advocate and chair of the advisory board for the Center for Health Law, Policy and Ethics at the University of Ottawa.  In the following guest blog, Sweanor suggests that the war against vaping is cigarette manufacturers’ best hope for a lucrative future.

The presence of the tobacco industry plays a huge role in discussions on tobacco harm reduction and disruptive technology, but I have long found that those who think they are that industry’s greatest enemies are often among its biggest enablers. Yet understanding the fundamentals in play should not be so hard.

We can start with what the financial markets appear to think of the state of these companies, which is seen in the 5-year stock price charts at left. In early 2017, the combined value of the FT500 tobacco companies (PMI, BAT/Reynolds, Altria, Japan Tobacco, Imperial and ITC) surpassed US$700 billion. That was a continuation of a longstanding skyward march of these companies as they benefitted from their ‘nicotine maintenance monopoly’ and raised prices in a cartel-like fashion.

Recently the combined value was down to US$372 billion. In looking at their stock charts we can see clearly when disruption started to bite.

This makes sense when we consider that those valuations are the present value of future anticipated earnings. So long as the companies can, as in the US, make cigarettes for 28 cents a pack and sell them, pre-taxes etc., for over $2.00, and keep raising their prices aggressively, and price elasticity is low, it is a licence to print money. Regulatory barriers thwarting competition keep them secure.

But just as OPEC’s cartel invited alternative sources of energy and taxi cartels created an opportunity for Uber, the nicotine market has long been at risk of disruption, of true competition breaking out. The global cigarette market, at well over $US800 billion annually, huge profit margins, high tax burdens putting them at a price disadvantage, and unhappy customers, creates a tempting target. Regulations, public misinformation, actions by self-styled anti-tobacco groups, and technological challenges protect the cartel. But that protection is no longer assured and buying shares in Big Tobacco today starts to look a bit like buying into New York City taxi medallions just as Uber was getting launched.

The idea that cigarette companies welcome this disruption flies in the face of their stock prices. Yet many in the tobacco control field seem convinced that whatever happens with new technology Big Tobacco will win because, well, they have long dominated the market. Leaving aside that the market apparently disagrees, this is worth thinking about. Disruption has hit a great many businesses over a very long time. Would anyone care to list all the market-dominating companies that did well from such disruption? They typically get blown away, and for very good reasons. They are large, bureaucratic and risk-averse, and have much to lose if they make mistakes. They also typically lack the expertise in the emerging technologies and are held back by those in the company who are committed to the status quo. Meanwhile, lots of start-ups can compete for the emerging market with little to lose but huge upside if they are ultimate winners.

Horse breeders did not come to dominate the tractor business, nor horseless carriages. IBM missed out on software, Microsoft on social media, the Yellow Pages on internet search, NYC taxi medallion owners were not the backers of Uber. Then there were makers of rotary dial phones, beat by the likes of Motorola, in turn beaten by the likes of Nokia, which was trounced by BlackBerry, which in turn lost out to Samsung and Apple.  The list of big, established, market-dominating companies ‘doing a Kodak’ is very, very long.

Also, if Big Tobacco really wanted to facilitate a rapid transition to low risk products they would act very differently. They are, after all, in possession of the best market intelligence. They know what happens when vape products compete directly with cigarettes. They know how many smokers would seriously try to switch if adequately informed about relative risks, and they know how things like risk-proportionate regulation and taxation is likely to impact the markets. But they stay pretty quiet.

I think it is helpful to think of Big Tobacco and alternative nicotine the way we would think of the House of Saud and alternatives to fossil fuels. Big Tobacco must prepare as best they can for a market they think is fundamentally changing. They must sound like they are very supportive, for public relation and legal liability reasons. But the slower the transition, the longer they can reap the rewards of their exceedingly lucrative cartel.

Substituting market intelligence for the current ‘if they seem to want to do it, we will oppose it’ thinking, and the application of some strategy could lead to some quite extraordinary breakthroughs.

Exploiting Outlier Lung Disease Cases Does a Disservice to Public Health

In her excellent August 28 USA Today article on the recent emergence of vaping-related lung illnesses, Jayne O’Donnell noted that “Some state health department and news reports suggest many of the cases of lung problems involve tetrahydrocannabinol, known as THC, the chemical in marijuana that causes psychological effects.”

I fully agree with Boston University’s Dr. Michael Siegel, who said, “The Centers for Disease Control and Prevention is being ‘unnecessarily vague’ about describing the injuries as simply vaping-related when many people might have been injured by vaping THC oil.”  As he and New York University public health professor Ray Niaura pointed out, millions of Americans have vaped nicotine e-liquids over the last ten years, yet no lung problems were reported until recently.  The sudden appearance of these cases and links to THC strongly suggest that contaminated street liquids are at fault, not legitimate retailers’ e-cigarettes or vape products.

Despite this, as noted by Jacob Sullum, the CDC Office on Smoking and Health’s Dr. Brian King focused his public remarks primarily on a purported general link between e-cigarettes and vapor products with lung disease:

“So there’s a variety of harmful ingredients identified, including things like ultrafine particulates, heavy metals like lead and cancer causing chemicals. And flavoring used in e-cigarettes to give it a buttery flavor.  Diacetyl and it’s been related to severe respiratory illness.  That being said we haven’t specifically linked any of those specific ingredients to the current cases but we know that e-cigarette aerosol is not harmless…But the bottom line is there’s a variety of things in e-cigarette aerosol that could have implications for lung health.  A review recently identified a number of adverse health effects associated with e-cigarette use.”  

Dr. Siegel excoriated federal officials for this approach:

“In a disease outbreak such as this one, responsible public warnings need to be as specific as possible about the risk. In an outbreak of E. coli caused by a contaminated batch of lettuce, we don't tell the public that the disease is associated with eating, or even that it is associated with eating lettuce. People need much more specific guidance if they are to take appropriate action to avoid or reduce the risk of further spread of the outbreak.

“Here, we need to start telling the public the truth. However much physicians or anti-nicotine groups may not like it, the truth is that the outbreak we are seeing is not due to the risks of using standard vaping products. It appears much more likely that the outbreak is mostly, if not completely attributable to illicit products--especially THC extracts--that are being sold by unlicensed sellers on the black market. Unless people are provided with this specific information, they will not take action to avoid the products that could put them at risk.”

The potential downside of this scaremongering is even worse.  How many thousands of former smokers who currently vape will conclude that the risks aren’t worth it, and return to smoking?  How many millions of smokers will never consider this vastly safer smoke-free option?

CDC’s hypocrisy was demonstrated in the August 23 statement of Director Dr. Robert R. Redfield:

“We are saddened to hear of the first death related to the outbreak of severe lung disease in those who use e-cigarette or ‘vaping’ devices…This tragic death in Illinois reinforces the serious risks associated with e-cigarette products. Vaping exposes users to many different substances for which we have little information about related harms – including flavorings, nicotine, cannabinoids, and solvents.”

The lung disease fatality was tragic, but Dr. Redfield exploited it by implicating all e-cigarettes and vapes.  Where is CDC’s sorrow for the 1,300+ smokers who die every day from cancers, circulatory diseases and emphysema?

September 5, Reported by the Washington Post: "State & federal health officials investigating mysterious lung illnesses... have found the same chemical in samples of marijuana products used by people sickened in different parts of the country. The chemical is an oil derived from vitamin E."