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Future of Tobacco Industry Depends on Innovation, Not Cigarettes

When people consider innovation, the tobacco industry isn't likely the first thing that comes to mind. However, the market is undergoing big changes, driven largely by health concerns, higher tax rates and the availability of new options for smokers to get their nicotine fix. While premium e-cigarettes have been around for years, more advanced smoking devices are making their way to market that address issues faced by tobacco companies and consumers alike.

According to a study released by Euromonitor, the total number of tobacco users worldwide will remain at one billion by 2050, but in terms of overall equivalent tobacco volume, the worldwide tobacco products market is predicted to contract by approx. 7 percent from 2015 to 2050 due to a 9 percent decline in cigarette sales volume. Offsetting the decline will be record volume increases in premium categories including specialty niche nicotine delivery products according to the study, in part because of the perception that they are less dangerous than cigarettes.

Taxes on cigarettes will play a large role in this movement. New York, for example, has the highest cigarette tax in the U.S. at $4.35 per pack, which can bring the total cost per pack to $12. Low income smokers in New York are particularly affected, often spending 25 percent of their household income on cigarettes. Furthermore, high taxes on cigarettes and tobacco labeled as "roll your own" are prompting a switch to loose tobacco (labeled for pipe use) products. Loose (pipe) tobacco is taxed at significantly lower rates than the other forms of tobacco due largely to a 2009 increase in the federal tobacco excise tax.

Many innovative solutions are becoming available to address these changes in the tobacco market. The Pax Vaporizer (pictured above) is one such offering, being distributed with the help of Japan Tobacco International, owner of Benson & Hedges. The device, offered by Vape World, takes a modern approach to smoking, resembling an iPod with an anodized aluminum exterior. By using actual loose-leaf tobacco heated and turned into a vapor, the harmful ingredients in smoke are removed, while the nicotine and flavor of cigarettes and other tobacco products remain. The device is part of the larger movement away from the iconography and language of cigarettes normally targeted at smokers and addresses the demand for healthier options.

Other activity is driving the market changes as well. Philip Morris International, the biggest listed tobacco company worldwide, is working on a next-generation version of e-cigarettes, although details have not been disclosed. Kind Consumer, which has received investment from the likes of venture capitalist Jon Moulton, former Tesco boss Sir Terry Leahy, and former Prudential head Sir Peter Davis, is developing a non-electronic cigarette-shaped aerosol device that uses a breath-operated valve to deliver a burst of nicotine and will be sold like cigarettes in a pack. Another company called CN Creative is developing a type of inhaler called Nicadex, although further details have yet to be revealed.

The innovation taking place and the involvement of big industry names makes clear the extent of the movement towards safer and more cost-effective smoking alternatives, and it's likely that style and an authentic smoking experience will play a key role in this shift given the improvement on standard nicotine delivery options.

Published: Thursday, October 25, 2012

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