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Msg  13163 of 13178  at  7/26/2021 6:38:08 PM  by


A few items

As mentioned in the PM earnings call, Germany recently passed a law which would significantly hike nicotine excise taxes, and significantly reduce the advantage that RRP's currently enjoy in that country. I've been trying to find specifics online, but it isn't entirely clear. The higher taxes appear to start to go into effect next July (July 2022). The hikes on a pack of cigarettes would be pretty modest - 0.1 Euros per pack starting July 2022, with an additional 0.1 Euros the following year, and then 0.15 Euros more in 2025 & 2026.  Nicotine vape liquid, however, would be treated much harsher, and the goal seems to be to raise the tax on it up near cigarettes. In July 2022, a 10ml bottle of vape liquid would have 1.60 Euros added in tax, and then rising by another 1.6 Euros further all the way up to 3.2 Euros in additional tax by 2026. There is also a separate tax bill that supposedly raises the tax on heat-not-burn up to near par with cigarettes, which probably means large tax increases similar to the vape liquid ones for HEETS starting next July.
Now, this is just Germany, and PM's success with IQOS there has actually been pretty slow. HEETS in Germany only currently have a 2.7% market share, while PM's cigarette business is still about 36% of the German market. So regardless of the tax, PM should continue to do well in Germany. This probably just means slower adoption of RRP's and more cigarettes being sold in Germany, similar to what is happening in the US. However, Germany has elections this fall, and changes to the tax policy could result after that occurs.
The other item in the news is that PM CEO Olczak made some waves by stating that PM plans to end selling Marlboro in the UK within 10 years. This actually is very smart marketing, as the UK is the major market in Europe where PM has a very low cigarette market share to begin with (under 10%). Meanwhile, HEETS already have a 5.2% market share in London, and HEETS have a 2.1% overall in the UK. As I've said before, growth of HEETS in the UK is a high priority for PM since nearly all the customers they can attract will be switching from competitors cigarettes. And if the UK continues to accelerate the switching by implementing favorable tax policy and smoking bans, all the better for PM.
I think Altria needs to watch this carefully. They are fine for now, and basically have rights to IQOS through 2029. However, if the growth of IQOS in the US remains slow over the next 8 years, PM could then end the agreement with MO and market HEETS in the US like they are in the UK. I think MO is smart enough to see that, but they remain in a tough spot by owning such a large market share of highly profitable cigarettes in the US which will be lost as RRP's take over. Various tax laws in the US could slow down RRP's as well, just as they apparently will in Germany. But MO obviously needs a longer term strategy, and not owning the IQOS brands is a problem for them. The obvious longer term solution for MO would be to eventually merge or sell itself to PM. However, I think the more time passes, I think MO's relative value to PM lessens as well.

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