Claiming that the world's tobacco-related industry has become an attractive investment target with the arrival of the 'new era of nicotine'
In recent years, the health hazards of tobacco have become widely known, and countries have come up with policies such as strengthening tobacco regulations and taxation, so some people may think that the tobacco industry will eventually disappear. not. However, Devin LaSarre, a writer and investor of the blog Invariant, which publishes business-related analysis, said that the world is entering a ``new era of nicotine,'' and the tobacco-related industry is an attractive investment target, far from disappearing. It claims to be
The New Era of Nicotine - by Devin LaSarre - Invariant
Mr. LaSarre said that $ 1 (about 130 yen) invested in tobacco companies in the early 20th century was worth more than $ 7 million at the time of writing the article, and has brought annual compounded returns of more than 14% for more than a century. I think it's a great investment. However, in recent years, the influence of ESG investment , which evaluates companies based on the environment, social, and governance, has increased, and major financial institutions have sold tobacco company shares. stock price is on a downward trend.
Not only consumers but also media and critics claim that ``the tobacco industry is doomed to disappear'' due to public awareness of health damage caused by tobacco and tightening government regulations, but Mr. LaSarre claims not to think so . To show that the tobacco industry has become a promising investment target, we analyze it from several perspectives.
Are cigarettes really a thing of the past?
Tobacco is cheap, profitable, relatively easy to manufacture, and has a solid market and loyal repeat customers. While these points indicate that tobacco is a near-perfect product, 'the lifetime
However, despite the tightening of regulations, the number of places where people can smoke has decreased, the number of people who quit smoking due to health concerns has increased, and the selling price has risen. Not yet,' LaSarre said. Below is a table showing percentages and real numbers (in millions) of tobacco sales from 2017 to 2020, where “Retail Volume” is the number of legal cigarettes sold, and “Retail and Illicit Volume” is It shows the number of cigarettes including illegal cigarettes. Looking at the numbers, in Japan, which ranked 29th, the number of cigarettes sold declined sharply by 12.1%, but in some countries the number of cigarettes sold is increasing, and it is legal worldwide. You can see that the number of cigarettes sold has decreased by 1.4%, which is not so rapid.
LaSarre points out that these figures are only for the period from 2017 to 2020 before the pandemic of the new coronavirus infection, and that the pandemic has also affected the number of cigarettes sold. Still, rising cigarette prices have nearly offset the decline in sales, and profitability continues to grow. He also argues that 'tobacco' is only a part of the tobacco-related industry, and that it is necessary to look at 'new generation nicotine products' in order to think about the industry as a whole.
A new generation of nicotine products
For a long time, nicotine was consumed by cigarettes, cigars, chewing tobacco, hookah (shisha), etc., but in the past 10 years, nicotine-supplying electronic cigarettes (ENDS), heat-not-burn cigarettes (HTP/HNB), nicotine pouches ( Various low-risk nicotine products have entered the market, such as TFNP/MONP).
E-cigarettes, also known as vaping, are electronically powered devices that heat a nicotine-containing liquid to create an aerosol and inhale the vapor. On the other hand, heat-not-burn cigarettes actually use tobacco leaves, but they are designed to generate steam by heating instead of burning, and '
Of course, as long as nicotine is used, these low-risk products come with health risks, but the scientific community and many governments agree that they are safer than combustible products such as cigarettes. increase. In a study that showed the relative risk assessment of tobacco and nicotine products, compared to 'Cigarettes', 'Pipe Tobacco', 'Shisha', etc., 'HTP ( It is reported that the risk of 'heat-not-burn cigarettes' and 'ENDS (electronic cigarettes)' is relatively low.
◆People like nicotine
Mr. LaSarre uses the word 're-nicotization' and argues that humans, after all, are made to prefer nicotine. The thought process for re-nicotinization is as follows.
1: Humans have historically sought to use substances to alter or enhance their thoughts and feelings.
2: Certain regulations and awareness of the harmful effects of smoking reduce people's smoking prevalence.
3: People will use nicotine if health concerns and social pressures are avoided and nicotine is easily accessible.
The table below shows the total retail sales and market share of nicotine-related products, including cigarettes and electronic cigarettes. Focusing on 'Retail Value % Change', both 2019-2020 and 2017-2020, total sales for all product categories except nicotine pouches in 2017-2020 is seen to increase. New nicotine products, including e-cigarettes and heat-not-burn cigarettes, are rapidly gaining market share, although the share of cigarettes and chewing tobacco is declining. In Japan, the share of heated cigarettes exceeds 30%, and it is said that it is a country with a high penetration rate of heated cigarettes worldwide.
This is a graph showing the sales growth rate of nicotine products from 2019 to 2020. You can see that the sales of 'Electronic cigarette (Vaping Products)', 'Heated Tobac...' and 'Tobacco Free...' are rapidly increasing. LaSarre argued that these new-generation nicotine products are in their infancy, and even discounting the small size of the market to begin with, these products have potential for future growth. He said there is potential for further growth, especially in regions outside of Europe and East Asia.
One might ask, 'However new nicotine products are promising, are they going to be overwhelmed by government regulation?' In response, Mr. Lassalle looked back on the history of tobacco control, and in 17th century Russia, punishments such as cutting smokers' nostrils and lips were added, and the Ottoman Empire, China, and Persia also cracked down on tobacco with severe punishment. He pointed out that there was movement. Nonetheless, he argues that it is impossible for modern democratic nations to eradicate tobacco because people who like tobacco have not died out until modern times.
In recent years, tobacco tax revenue has become an important source of revenue for the government, and there is a tendency to promote a shift to relatively low-risk nicotine products instead of completely banning tobacco. Moving to lower-risk nicotine products also has benefits for consumers in reducing adverse health effects, and it also benefits the existing tobacco industry by reducing CLV, or lifetime value from a single customer. It has the advantage of increasing
As an incentive for smokers to move to lower-risk products, governments are likely to impose lower tax rates than regular cigarettes, LaSarre said. New entry into the nicotine-related market is difficult from a safety standpoint, and as a result, existing tobacco-related companies will develop and sell nicotine products, potentially developing into a highly profitable business with low competitiveness. It is said that there is a sexuality.
From the above results, this is the graph that Mr. LaSarre models the total sales of nicotine products over the next 10 years. While blue cigarettes will grow very slowly, LaSarre predicts sales of e-cigarettes and heat-not-burn cigarettes will grow rapidly.
Of course, not all tobacco-related companies in the world take the same strategy, and Mr. LaSarre thinks that some companies will succeed on new waves and others will fail. Still, globally, nicotine is in the process of evolving rather than disappearing, LaSarre said, ``We are seeing tremendous change and all stakeholders will benefit. We are entering a new nicotine era.'
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