Malaysia: Tobacco Firms Tread Softly On Alternative Products In The Absence Of Clear Laws
February 27, 2019: AS the government imposes more restrictive regulations on cigarette use in the country, more people are turning to reduced-risk products (RRPs) such as electronic cigarettes or e-cigarettes and heat-not-burn (HNB) devices as an alternative to conventional cigarettes.
Last year, Philip Morris (Malaysia) Sdn Bhd (PMM) became the first of the three big tobacco companies to introduce an RRP here with its HNB device called IQOS. Already some analysts tout it as a game-changer for the local cigarette market, as well as providing PMM a first-mover advantage.
Erik Stoel, managing director of British American Tobacco (Malaysia) Bhd (BAT Malaysia), whose key brands include Dunhill, Rothmans and Pall Mall, says the RRP is a category that the company is considering entering, but he gives no timeline.
“We do have competitive tobacco-heating products in other major markets like Japan and South Korea,” he tells The Edge. British American Tobacco PLC had introduced its Glo heated-tobacco device in the two countries.
“As part of the BAT Group, BAT Malaysia welcomes the introduction of RRPs in the Malaysian market in line with our global ambition of ‘Transforming Tobacco’. As part of this ambition, the company has an unrivalled range of innovative products across the potentially reduced-risk categories, including tobacco heating products,” says Stoel.
However, because these alternative tobacco products are so new, they are relatively unregulated.
It is for this reason that JT International Bhd (JTI Malaysia), whose brands are Mevius, Winston and LD, is hesitant to roll out its RRPs as it says it is still not clear what regulations governing these new products will be.
Managing director Cormac O’Rourke says that while parent Japan Tobacco International markets and sells RRPs in many countries all over the world, including HNB tobacco products and e-cigarettes, it has yet to bring any such products to the market here as regulations governing these new products remain “restrictive”.
“We favour a balanced approach to regulations. While we respect the right of adult consumers who wish to continue smoking conventional cigarettes, we do believe that RRPs have a place as an alternative for those who choose to quit,” he tells The Edge.
“In order for adult consumers to have access to a wide range of RRPs, there needs to be a review and overhaul of the current regulations in force following consultations with the industry.”
O’Rourke points out that tobacco is currently regulated under the Control of Tobacco Product Regulations 2004 (CTPR), while nicotine not derived from tobacco is regulated under the Poisons Act 1952. Both are under the authority of the Ministry of Health (MoH).
“In the case of HNB tobacco products, the CTPR needs to be reviewed by the ministry as there is currently no provision for how these products are to be regulated. This has brought about confusion and indeed an inconsistent application of the current CTPR, where it appears the law is not implemented in a consistent manner,” he explains.
The CTPR currently defines cigarette as “… any product which consists wholly or partly of cut, shredded or manufactured tobacco, or of any tobacco derivative or substitute, rolled up in a single or more wrapper of paper, and which is capable of being immediately used for smoking”.
According to O’Rourke, this definition includes all forms of tobacco products rolled up in paper that can be immediately used.
Meanwhile, smoking in the CTPR is defined as “… inhaling and expelling the smoke or vapour of any tobacco product and includes the holding of or control over any ignited, heated or vaporised tobacco product”.
O’Rourke says e-cigarettes, products containing nicotine liquid (conventional vaping products) are separately categorised and regulated under the Poisons Act 1952, different to those regulations pertaining to tobacco products.
“The requirements imposed on nicotine under the Poisons Act 1952 in Malaysia are very restrictive. This is very much at odds with countries like the UK where the health authority, namely Public Health England, has reported that e-cigarettes are 95% less harmful than cigarettes and help smoking cessation efforts.
“Clearly, there is a policy imbalance in view of the strict regulatory requirements on nicotine liquid products even though these products are deemed to have reduced risks compared with conventional tobacco products and HNB products as defined under the current CTPR,” he adds.
O’Rourke says numerous attempts by JTI Malaysia to seek clarification from MoH on the latter’s position on the matter have proved futile.
“We await their response and greater clarity on the regulatory framework before bringing any HNB-type product to market,” he adds.
Better late than sorry
A concern for the two major tobacco players is that they may lose out on any potential gains if they wait too long to enter the cigarette alternatives fray.
BAT Malaysia’s Stoel is, however, unfazed by this.
“Our view is that being first in the market is not necessarily the most important — what matters most is to offer consumers innovative and high-quality RRPs that suit their preference,” he says.
“While tobacco heating devices are untaxed, the tobacco rod to be used with the device is. Having said that, the tobacco market in Malaysia is still dominated by illegal cigarettes sold at cheap prices.
“As such, tackling the illegal cigarettes trade remains a key challenge to be addressed and would require diversity in approach, such as enforcement by all parties with rigour as well as considering demand-based measures to complement enforcement efforts,” says Stoel.
While RRPs are novel products for the Malaysian market, Stoel says BAT Malaysia is “realistic that cigarettes will continue to form the core of our business for now and in the near future”.
According to the Consumer Track by Kantar Research Agency/Illicit Cigarettes Study, the illegal volume share stood at 63% of total consumption in Malaysia in the third quarter of last year.
As far back as December 2016, the ministries of domestic trade, cooperatives and consumerism, and science, technology and innovation, as well as MoH were already reported to be planning to regulate the use of e-cigarettes and vaping products but nothing materialised. More recently, in November last year, Deputy Health Minister Dr Lee Boon Chye said that his ministry was in the process of drawing up legislation to manage the use of e-cigarettes or vapes.
JTI Malaysia is still willing to wait for the legislation to be drawn up.
JTI Malaysia’s O’Rourke says the company reviews its portfolio of brands on an ongoing basis to cater for existing adult consumers’ changing preferences.
“We will continue to do so while also consulting with the MoH and the Ministry of Finance on how RRPs can be offered for sale here in Malaysia within a regulatory framework and guideline that provides for same.”
With IQOS typically taking at least two quarters from its roll-out on Nov 8 last year to gain traction, Affin Hwang Investment Bank Bhd analyst Lester Siew believes BAT Malaysia — being the only listed company among the three big tobacco players — still has time to make up for PMM’s first-mover advantage, and is equipped to respond with its own array of competing products within the cigarette alternatives segment.
“While the prevalence of e-cigarette users remains relatively low in Malaysia (3.2% of the adult population in 2016 compared with 21% for smokers), the emergence of new, trendy products could facilitate further disruption in the market,” he says in a Jan 15 report.
BAT Malaysia’s share price has risen 23% over the past year. It closed at RM36.30 last Thursday, giving the company a market capitalisation of RM10.37 billion.