The race to replace cigarettes is heating up

American smokers trying to quit smoking have a choice between vapes, nicotine sachets, and the recently introduced hot tobacco sticks. Cigarette companies have a lot of riding on which side they turn.

Today, vaping is the preferred choice for smoking in the US Reynolds American owner

British American Tobacco

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Hopefully it will stay that way, arguing on a recent earnings call that Americans will not buy hot tobacco products in large numbers. BAT is applying to the US Food and Drug Administration for permission to launch its Glow Heated Tobacco Sticks, but officials say it is mainly to leverage with foreign regulators, as they are concerned about local demand. I am excited.

The maker of Lucky Strike cigarettes has reasons to talk about vaping. Its Vuse brand has overtaken Juul as America’s top e-cigarette, and Hot Tobacco is a Huge Business for the opponent of the bat

Philip Morris International,

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which sells Marlboro cigarettes outside the US PMI, will soon have a US distribution network to launch its pioneering IQOS heated tobacco devices, assuming it completes the proposed $16 billion acquisition Nicotine-pouch expert Swedish Match K.

Some smoke-free products may dominate different markets depending on consumer tastes and local laws. IQOS has been a huge success in Japan, where consumers have a record of openness to new innovations. It may also have helped PMI that e-cigarettes containing nicotine have been banned. The situation is reversed in the US: According to BAT, vaping accounts for 7% of the overall nicotine market, compared to 1% for modern oral nicotine sachets like Zyn and less than 1% for hot tobacco.

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E-cigarettes have been available in the US for nearly a decade, which may partly explain their lead. IQOS was only released in 2019, so the hot tobacco category is less familiar to US consumers. Covid-19 and an intellectual property dispute with BAT have also slowed the rollout of the brand.

But timing cannot be everything. Nicotine levels are higher in US flammable cigarettes and it is technically easier to replicate hits with nicotine salts in e-cigarettes than in heated tobacco – although the levels in IQOS are closer to levels in conventional smoking.

Vaping also gets favorable tax treatment in the U.S. federal excise, which is the same on cigarettes, while there is none on e-cigarettes. A smoker who would typically pay around $8 for a pack of Marlboro cigarettes would pay the same to switch to an IQOS heated tobacco stick, but only $6 for Vuse Alto, BAT’s e-cigarette brand , data from

UBS

shows.

The IQOS Heated Tobacco device has been a huge success in Japan.


photo:

Fabrice Cofrini / Agency France-Press / Getty Images

However, that gap may not last long if Washington decides to reduce nicotine taxes to offset the impact of declining cigarette sales on its revenue. And IQOS benefits in another respect: The PMI brand is one of the few non-combustible products the FDA is allowed to tell smokers to use it to reduce exposure to harmful chemicals. To date, no vaping brand has been assigned this modified-risk classification.

The US e-cigarette market is undergoing a radical change. All vaping brands have had to submit applications to regulators to remain on sale. If flavored e-cigarettes, such as menthol, are not approved, it may be harder to encourage some smokers to switch, limiting the growth of the vaping category.

E-cigarettes top America’s pile today, but until the rules and taxes are fixed, there’s a lot more to play for big tobacco.

write to Carol Ryan et [email protected]

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