Because of taxes and bans How tobacco companies are realigning themselves

Status: June 8th, 2021 4:00 p.m.

The big tobacco companies still make billions in profits with cigarettes. But after decades of success, BAT, Altria & Co. are slowly turning around in the face of increasing bans and rising tobacco taxes. They are still running an extremely lucrative business. But the revenues and profits of the large tobacco companies are likely to come under further pressure in the coming years. New restrictions could reduce profits, higher taxes are supposed to increase government revenues in the Corona crisis and will further increase the prices for the “blue haze”. The first increase in tobacco taxes since 2015 is due in Germany. In the spring the governing parties CDU, CSU and SPD agreed on the framework conditions for tax increases . This should generate additional revenues of 11.3 billion by the end of 2025. A good half of this should be collected more through the classic tobacco tax, e-cigarettes should generate tax revenues of three billion euros and less harmful products in the industry should also contribute almost two billion euros. These include tobacco heaters that manufacturers had brought onto the market in recent years. The tax increases are to start gradually from 2022.

“Smoke-free Germany” called for

This is another turning point for tobacco companies after the sale of menthol cigarettes was banned in the EU in mid-2020. But the tax hike does not go far enough for health organizations. Significantly higher taxes are necessary to get people to stop smoking, according to a statement from the German Cancer Research Center (DKFZ). On the occasion of World No Tobacco Day on May 31, the non-smoking alliance and the German Society for Pneumology and Respiratory Medicine (DPG) called for a “smoke-free Germany” by 2040. There should still be a long way to go until then. Tobacco consumption fell by around 30 percent between 2011 and 2020. However, just under a quarter of adults in Germany still smokes.

Billions in income from cigarettes

The tobacco companies, for which Germany is an important but not a decisive market, have been changing direction for years, but Altria, Philip Morris International and British American Tobacco (BAT) continue to make good money with traditional cigarettes. BAT, for example, earned around £ 6.4 billion net last year, a large part of which was paid out to shareholders in the form of a dividend. And the current business forecast for the first half of the year, which was published today, does not read badly from the company’s point of view: The group expects growth of more than five percent for the current financial year. This also exceeds the previous forecasts. According to BAT, products of “new categories” such as e-cigarettes and tobacco vaporizers are more important. According to earlier information, the tobacco giant intends to win around 50 million customers for the vaporizer in the next ten years; the total customer base is currently 150 million. Big competitors Altria and Philip Morris are also well represented in the e-cigarette and tobacco vaporizer business. But without writing off the classic cigarette. Philip Morris Germany, for example, recently increased production at the Dresden plant. Due to temporarily closed borders in the pandemic, the demand for cigarettes from domestic production even increased. The company also saw higher demand for “fine-cut” tobacco. It is used for rolling cigarettes – smokers are increasingly looking for inexpensive alternatives to cigarettes from the pack.

Tobacco vaporizers and cannabis products

The coming years will show how quickly the tobacco companies can change course strategically. Some of the manufacturers want to offer new products without nicotine, but with caffeine. They also work on cannabis products. Further legalization of cannabis could open up new billion-dollar revenue streams for them. However, the pressure on the classic cigarette from the state is likely to accelerate and at the same time burden this process of change on the part of providers. This applies above all to the world’s most important sales market for tobacco multinationals, the USA: According to media reports, the new US government under Joe Biden wants to reduce the nicotine content of cigarettes to such an extent that they should no longer be addictive. In addition, menthol cigarettes could also face a ban in the USA.