GFN News
Tobacco harm reduction market influence - past, present and future - Keynote #3 | #GFN24
GFN 2024 Keynote #3 given by Vivien Azer, hosted by David Sweanor, response from Jonathan Fell
Vivien is a nicotine market specialist, and until recently, the Managing Director & Senior Analyst, Global Beverages, Tobacco and Cannabis, at TD Cowen, in New York City. In her keynote she will address a number of themes, among them:
- What factors prompted and drove initial investment in this field?
- What is the state of the current market?
- Who are the major investors/stakeholders?
- What might be the impact of regulation – and possible prohibition – on future investment and the - development of the next generation of safer nicotine products?
- Are there lessons to be learnt from other emerging markets, for example the market for medicinal and recreational cannabis?
- Duration:
- 1h 25m
- Broadcast on:
- 02 Jul 2024
- Audio Format:
- mp3
And this morning, we have what, you know, I was, with my history in this issue, considered to be one of the most important topics to look at. And, you know, as background, after having spent over 40 years in this field and getting involved as a lawyer in the early '80s, saying, "So you're fighting the cigarette companies, how much do you know about those companies?" You know, as a lawyer, if you were going into litigation, you'd get to understand who it is you're going to be fighting in court. And I found there were these incredibly naive views of who the cigarette companies were, what was going on in the tobacco industry, what was the motivation, and how on earth do you debate, litigate, regulate, understand what's going on in the market if you don't actually try to learn about it? And there's an awful lot of information available. So the public companies, they're publishing results for the shareholders, they're submitting things to groups like the Securities and Exchange Commission in the United States. There's detailed information. It's far more reliable than most of what we see published in scientific journals. Nobody's ever gone to jail or gone into bankruptcy because they fake data in a scientific paper. You don't fake data that you're sending to the SEC. So we have the privilege today to hear from two people who have followed this industry as financial analysts, between them they have a half of a century experience doing this. And to do their work, you really need to be very objective, look at everything that's going on to try to figure out where is this market going. That's what makes them successful as financial analysts, being right. And we're going to start with Vivian and Jonathan, you can see their write-ups in your program. Vivian's going to give an overview of where she sees the market having come from, where it is now, where it's headed. It's suddenly become a very dynamic market, and we'll have Jonathan giving a response to her. Now, before we start, I have to do the Safe Harbor statement, if anybody's ever dealt with analysts, companies. So this will apply to both of them. It doesn't apply to me. You can take any financial advice you want from me if you're foolish enough to listen. Vivian has over ten years experienced this tobacco analyst, it's actually much more than that working as analysts. Any information provided is not intended as investment or financial advice. She makes no representations or warranties in connection with the information provided within, nor the accuracy or applicability thereof. Lastly, she does not give, offer, or render any financial, legal, or other advice. In short, what that means is that if after listening to her, you decide to do a leveraged bio to Philip Morris, and it doesn't go well for you, you can't sue her. Vivian, over to you. Thank you, David, and good morning, everybody. My sincere thanks to Jess and the entire team for the opportunity to be with you today. My name is Vivian Azer. I'm a former sell-side analyst, and as David said, with over a decade's worth of experience covering the global tobacco market. What I'd propose to do today is to cover three topics, nicotine yesterday, today, and tomorrow. A big piece of my research franchise over time has been analyzing the shift in consumer preferences, and I think that nicotine is a very important shift that we're seeing right now. So, to put it in context, we're going to talk about where the tobacco market came from. I'm going to be using both U.S. and global analogies to do that, where we are today, and what I see for the future as it relates to innovation in the marketplace. So, where were we? When we think about the over 100-year history of tobacco formally, as we know it today, in the United States, it was fairly limited from an innovation standpoint. The user trends were fairly predictable. The companies could manage their volume declines pretty reliably. So, when I think about the first big shift in tobacco innovation over the last 100 years, it occurred in 1952. And that was with the introduction of filtered cigarettes, and that was with Kent. And what you'll see on the left-hand side of the chart is with the introduction of filtered cigarettes, it really promoted a massive change in terms of the innovation posture that you saw from the major tobacco companies. And that really reflected a shift in consumer preference. And what you'll see with just 15 years of filtered cigarettes being in the marketplace, they accounted for close to 75% of U.S. cigarette volumes. So, a very dramatic change over a very short period of time. Of course, that was influenced by some external factors, like consumer digest, and reader digest, excuse me, and consumer reports coming out with articles in the 1950s, starting to question the health impacts of cigarettes, as well as the certain general's report in the United States subsequently. Why is this shift important from a research analyst's standpoint is because it changed the competitive landscape really dramatically. Prior to the introduction of filtered cigarettes, we had a very consolidated marketplace where three key brands made up a majority of the market share. But what you'll see is that with the introduction of filters, both Lucky Strike and Chesterfield exceeded quite a lot of share, and in fact, in just three short years, the top three brands exceeded nine share points because of the dislocation from new brands that entered with a filtered option for consumers. The next round of innovation that looked to initially be disrupted was e-cigarettes in the United States early days in the early 2000s and 10s. The chart that I'm showing you is a market landscape that was offered by Loralard, which was a public company back at the time, and this is 2012 data. The reason that Loralard included this in their investor days because they had acquired the blue brand, which at the time had a 40% share of the very small e-cigarette market, which was only 0.5% of the U.S. marketplace 12 years ago. Nonetheless, it was an incredibly fragmented marketplace because of the barriers to entry being quite low. The reason that e-cigarettes showed so much appeal early days is because there was a high degree of awareness out of the gate with Enjoy having introduced the king variant first, and then a lot of other competitors entering the marketplace. When Loralard was evaluating their acquisition of blue, you can see that consumer awareness of e-cigarettes, and this is the bottom bar on the chart, was 94%. The problem with the first round of e-cigarette innovation in the United States was despite the fact that there was quite a lot of awareness and a fair amount of trial. Consumer retention in the category was very, very low. It only 5%. What that tells me is while consumers were interested in the innovation, the innovation was not delivering on the nicotine promise. We like to say when I think about nicotine consumers that they're perfectly irrational consumers, right? So this is all combustible cigarette smokers. So the bar is set in terms of the expectation for nicotine delivery. And if e-cigarettes weren't meeting that expectation, the consumers were willing to try the product, but they weren't willing to stay in the product category. If we look outside of the United States, as e-cigarettes were starting to gain momentum in the U.S., Philip Morrison International, of course, was starting to launch iCoS in the Heat Not Burn category, having introduced the product in Japan and Italy in 2014. What's interesting, I think, about looking at these trends is really comparing and contrasting four years later for Japan and Italy. You'll see that within four years time in Japan, from a national share standpoint, iCoS was already a 15 share. Now that's not 15% of Heat Not Burn. That's 15% of Heat Not Burn plus combustible cigarettes, and they were essentially controlling that market. But if you look at Italy in contrast, only a 3.3% share, after four years of commercialization. And so what we see here is that the shift in consumer preferences towards novel nicotine products is not necessarily in the straight line, and it can differ pretty dramatically country by country. However, if you fast forward to today, and this is the 10-year anniversary of iCoS commercialization, you can see that in a number of markets, iCoS is now over 20%, and well over 30% in the Japanese market. If I showed you 2024 data, you would see that. So that leads us to today. Today for the public companies that I've historically focused on professionally, you can see that there's a very wide range of outcomes in terms of the company's revenue exposure to reduce risk products, RRPs. Philip Morris International, given their over 70% share of the Heat Not Burn market, is now generating close to 40% of revenues from non-combustible cigarettes. BAT in the number two position is at 17%, and they are making pretty good strides. And then you've got Altria, that's MO. These are all the tickers for the public companies. IMB would be Imperial Brands, and JT, of course, being the Japan tobacco, really trailing. The reason that PMI has such a notable first mover advantage really does reflect the multi-year investments were over the last decade. The company has invested over $12 billion in these novel nicotine products. So what does that mean for today? It means that Heat Not Burn is the biggest reduced risk product category globally. However, combustible cigarettes still account for 89% of the total nicotine market, and this is going to exclude the US and China. But the outlook is for the disruption from novel nicotine products to accelerate, such that combustible cigarettes by 2030 are expected to only account for 70 to 75% of the global nicotine marketplace. The reason that that kind of change is going to accelerate is because the companies are incentivizing consumers to move away from higher-risk combustible cigarettes. This pricing architecture that PMI has offered, I think, is a very good example of that, where you can see on the right-hand side, HTUs, heated tobacco units, are priced just at a slight premium to medium-priced cigarettes, and priced at a discount to premium cigarettes and incentivizes consumers to move out of their premium cigarettes into a reduced risk platform. And you can see for nicotine pouches, the pricing is actually even below that. And if I look at the global competitive landscape, you'll see that while PMI's price points for HTUs is still at a premium to medium cigarettes, if you look at the HNB or the Heat Not Burn Pricing landscape competitively, this is the premium offering. But British American tobacco is introduced into the marketplace, what imperial brands have introduced to the marketplace as well as Japan Tobacco are all priced at a discount to the Ico covariance of both heats, teria, and centia. This has allowed consumers to really remain in the category. I heard this a lot yesterday in the afternoon presentation, which I thought was so interesting. So many people in the audience acknowledge that nicotine is a sticky category. We can certainly see that in the United States, where Heat Not Burn is not yet commercially available, where over the last five years, the category has actually gained 1 million consumers, from 51 million to 52 million. But if you look at the composition of the stacked bar chart, you'll note that that's not because cigarette consumers are growing, it's because consumers are moving into reduced risk products, namely vapor in the United States. If you look at the evolution of the number of adult vapors in the US, and so this is going to be 21 plus average of 30-day data, and this is from Altria, you can see that as the category was evolving, there have been peaks and troughs. But what we've seen recently is a very big jump in an acceleration in terms of the number of consumers that are using vapor in the US. For PMI, the reason that consumers are switching is well-evident in this chart. You'll recall that the retention rates for e-cigarettes in the US back in 2011-2012, only 5%. For PMIs, Heat Not Burn offerings, it's over 70%. And that's why this kind of innovation can be disruptive, where e-cigarettes, 10, 12, 15 years ago, could not be. So what do we think about for the future? As we think about the outlook for category growth, the public tobacco companies, and this is specifically Philip Morris International Data, continue to believe that the combustible cigarette marketplace will be in structural volume decline. They're speaking to the international landscape, but I'll offer some commentary on the US as well. Currently, US cigarette volumes are declining about 8 to 9% quarter, that's year over year, but consistently quarter over quarter. If we went back two years ago, when we started to see these outsized declines, the tobacco companies posited that it was really just a tough comparison from COVID. In the United States, the US government certainly offered a lot of stimulus during the pandemic, and that did allow for incremental discretionary spending, and that certainly applied to the US cigarette market, where volumes were flat. Prior to that, we were annualizing it about a 4% to 6% rate of decline. As we fast forward past the pandemic, given the disruption from the e-cigarette market, those declines have accelerated, and they've persisted, despite what we would call easy comparisons in financial terms. So PMI has a similar view of that, where they're looking for a 3% annual decline. Just to put that in context, historically, global cigarette volumes would fall about one to 3%, so a less bad rate of decline relative to what we'd already been seeing in the United States pre-disruption. And the reason that they have a more bearish view on combustion is because of the growth outlook for all of these novel nicotine products. You'll notice on the far right-hand side, for instance, nicotine pouches are expected to grow between 30% and 35% on a compound annual basis. That's volumetric. That is, of course, off of a low base, because that is the smallest of the three RRP categories. Heat/Not Burn is going to be next at a 15% to 20% kegger. It's interesting to note, when Philip Morris established their medium-term outlook at their analyst day in Switzerland last September, their 2026 target actually trails their outlook for the category. They're looking to grow at about a 14% compound annual growth rate. What that reflects is PMI's acknowledgment that there are competitors entering the marketplace that will dislocate some of their share. And when I challenge their management team and the analyst day forum about why they would underperform the marketplace and are they comfortable with modest market share losses, their answer was a resounding yes. They welcome the competition from BAT and Imperial and JT because with a portfolio of offerings to offer the consumer from a category perspective, their view is they'll be able to drive more consumers away from combustible cigarettes, which is ultimately the ambition of many of these companies to drive to a smoke-free world. Then of course, we've got closed e-vapor, the tobacco companies, the publicly traded ones generally are focused on closed systems, both disposable as well as reusable, but some of them experimented a little bit with open systems and found that the economics can be very, very challenging, so they've moved away from that. So as we think about kind of what the mix could look like, certainly it suggests the combustible cigarettes will continue to be a shared donor, heat not burn will continue to be the largest segment within reduced risk products, but will continue to see diversification across the total global nicotine landscape. Why is this important, well, if you strip out China, the major public companies account for a vast majority of the total nicotine marketplace. So they are in a position to drive change in consumer behavior because they're the ones already talking to the core combustible cigarette smoker and controlling close to two-thirds of that market, PMI being the market share leader with over a 28% share, BAT in a very close second. So what are these public companies trying to do? Ultimately, they're trying to deliver good returns for their shareholders, which will drive the stock price up, generate cash, cash funds dividends, dividends are very important to tobacco investors. And the ambition that PMI has laid out is that it is not just good for consumers and it's not just good for public health, it is also very good for shareholders that they are migrating their portfolio away from combustible cigarettes. I know this is quite a complicated chart, but I thought it was informative if you just kind of read it from left to right and focus on that product contribution line. That generally speaks to the relative profitability versus a combustible cigarette. And so what you'll see here, for instance, that already international ICOs has a 30 contribution versus a cigarette at a 20%, so 50% better. So as PMI already is generating close to 40% of their revenues from non-combustible products, it improves their profit margin. That's what allows them to do this continuing reinvestment around the technology and ultimately fund the 12 plus billion dollars of investments that they've made in reduced risk products over the next decade. Further to that ambition, of course, was the multi-billion dollar acquisition of Swedish match. And you can see that the relative economics for Zinn in the US are even more attractive than ICOs internationally. And then on the far right column, what you're going to see is their expectation for the US ICOs launch. Now, there was a lot of back and forth legally between BAT and PMI that has resulted in fits and starts in terms of the commercialization of ICOs in the US. But it's important to note that PMI was the first global tobacco company to not only get an authorization to launch the product in the United States, they also got a modified risk tobacco product designation. That means that the US Food and Drug Administration has allowed PMI to communicate to consumers that the ICOs offering is less risky than a cigarette, not risk free, but less risky. And that's important in terms of driving that change in consumer perception around reduced risk products. So PMI's ambition that they have established for 2030 is for two-thirds of their revenues to come from non-combustible cigarettes. As a reminder, it's about 40% today. And they need to do that with a combination of both heat, not burn as well as Zinn, and they have a smaller focus on the e-vapor category where they're taking a more targeted approach. So it was not to distract the organization given their significant market share leadership in the heat and not burn category. For British American tobacco, they had established a three-pronged priority where they really were equally focused on heat and not burn, modern oral, as well as in e-vapor. That's resulted in them having to accelerate some of their investments. They reduced their medium-term earnings outlook in order to fund more reinvestment, particularly in GLOW, where now we have the GLOW X2 hyper as the more recent offering into the marketplace. And so their goals are a little bit further out, right? So PMI, two-thirds by 2030. For BAT, it's 50% by 2035. They've got some investments to make to catch up and drive that makeshift, but they're very committed to it. And as I mentioned, their portfolio priorities are a little bit more balanced than you would see from PMI. For Altria, the US market share leader in the combustible cigarette segment, their innovation track record has a little bit more lumpy given the investment in Juul and then the subsequent divestment of Juul. But they do have an ambition to double their smoke-free revenues to $5 billion by 2028. And that's all going to come from innovative smoke-free products. They have the Helix acquisition that they did, so they do have a novel nicotine pouch offering in the United States called ON. They also have the acquisition of Enjoy, which they closed a little over a year ago for close to $2 billion. And they want that to be EPS, a Creta of earnings per share, a Creta by 2026. And then they do have the partnership with Japan Tobacco, as well, in the heat and not burn category. And so that's the portfolio of products that PMI, excuse me, that Altria will be focusing on. And lastly, with Japan Tobacco, certainly Japan Tobacco had a front-row seat to the disruption that we saw in the heat and not burn category with the introduction of icos in Japan in late 2014. They've had to take a pretty aggressive posture to pivoting their innovation focus in heat not burn, where they had established a portfolio 10 years ago that was more focused on lower nicotine offerings, which ultimately did not resonate with the consumer. So they've gone to higher heat, heat not burn, higher nicotine delivery offerings, and they would like to be break even by 2028. And lastly, Imperial. Imperial underwent a leadership transition a couple of years ago, brought in a new CEO who is known to be a very successful agent of change that resulted in a pretty meaningful shift in the company's competitive positioning in the RP landscape. They had chased PMI and VAT and JT into the Japanese market. They pulled out of that. Polls then went in to select European markets where they had good market share, they had route to market capabilities, and they felt like they had the right to compete, not necessarily when just compete. And I think the resetting of those aspirations is quite a positive for the industry, in particular given that Imperial is taking a value-priced approach which should engage more price sensitive consumers and draw them into the category. I mentioned that the companies believe that they're doing good for consumers, they're doing good for public health, and they're going to do well for their shareholders by taking this approach, and this is just a graphic representation of some of the scientific data that PMI has published about the reduction of harmful constituents that H&B's offer relative to combustible cigarettes, and this is another graphic representation of those different harmful constituents. Similarly, Altria has shown data that would suggest that modern oral also is a significant improvement in terms of risk exposure for consumers. So this is a lot of change for the global tobacco companies, and what it really reflects is an understanding that consumers really are wanting to shift to reduce risk products, but it's also an acknowledgment that they were operating in an industry that was in structural volume decline. Those structural volume declines ultimately also informed the expansion into the cannabis category that I'll talk about in a second, but as we think about what the outlook is to come, it's always going to be, certainly from an investor standpoint, regulation and taxation as the biggest considerations. In the US, I would highlight three watchouts. Number one, the menthol band on cigarettes, though it doesn't look like anything's going to happen in 2024, which is an election year. The modern oral category is coming under increased scrutiny given the growth that the category is seeing, and that is being driven by ZIN, which has over a 70% share and grew its volumes 80% just last quarter, year over year. And then lastly, the real disruptive policy change that ultimately could disrupt the US industry is the very low nicotine cap that was introduced under the Trump administration actually in 2017 by Scott Gottlieb, and that aspiration is to reduce the permissible amount of nicotine-incombustible cigarettes in the United States by 95% to get it below the addiction threshold and move people away from combustion entirely. On the international side, obviously the flavor bands as part of EU TPD-2 are topical. There are a number of large markets that do not allow for RFPs, as I'm sure you guys have heard over the course of the last two days, and then of tax harmonization between heat.burn and RFPs, and as I promised, diversification through cannabis, and this is where I'm going to wrap up, you can see that four out of the big five public companies have made some kind of investment, these vary in terms of size and scope across the page. The most notable one from a financial standpoint would be Altria. They did make close to a $2 billion investment in a Canadian license producer, Cronos, back in December 2018, for PMI, BAT, and Imperial, it seems to be more IP-focused where they're looking for synergies, namely across vapor, but tobacco and cannabis are both combustible materials that can offer different effects to consumers. This is going to take a lot more time. The regulatory evolution of cannabis happens and fits and starts, and generally in the eight years that I've been covering the cannabis market, things tend to happen a lot more slowly than certainly the investment community would have expected. So in the meantime, it continues to be incredibly focused on RFPs, which really are changing the financial profiles of the big five global tobacco companies. I'll leave it at that. That's fantastic. I think we're all aware of the people who claim that use of nicotine can lower IQ and kids, which of course is nonsense, but understanding the nicotine market has probably increased in the IQ of everybody in the room. This is a sort of information that's just so valuable when we're talking about consumer products, we're talking about consumer choices, we're talking about what's happening in innovation, it's a market. It's a market globally that's worth somewhere around a trillion US dollars a year, the overall nicotine market. So we're going to see lots of innovation. So thank you, Vivian, for that, and I'll now ask for John to give his response to what Vivian has said, and then we'll move to discussion and open for questions. And thank you, Vivian. That was a brilliant overview of how the industry is being disrupted, transforming, and having transformation thrust upon it. And as you said, it's happening at different speeds for different companies, and it's happening at different speeds in different countries too, and the various reasons for that, including regulatory ones, but we've had quite a few sessions on regulation. So perhaps it's more interesting now to focus on corporate behaviours. Are they a good or a bad thing? What drives them? Are there parallels with other industries? Now the classic answer from the tobacco control movement is very much that corporate behaviours are bad, almost whatever they do. Just this week, WHO Europe published a report, arguing that four products, tobacco, alcohol, processed food, fossil fuels, are responsible for 2.7 million deaths in Europe every year. And in their conclusion, they stated that the primary interest of all major corporations is profit, and hence, regardless of the product they sell, their interests do not align with either public health or the broader public interest. That's a pretty strong position. Effectively, if you make a profit, you can never be acting in the public interest, really. It puts me in mind of the story about the Soviet official who visits the US and is given a tour of an American grocery store, and astounded by the variety of an abundance of goods available, he asks his American guide, "Well, who's responsible for planning the supply of all these products?" The WHO positions are really pretty similar to that of tobacco-free portfolios, which is a campaigning organisation which has had some success, particularly in Europe and Australia, in persuading financial institutions to sell their tobacco company stock on the grounds that investor engagement with the tobacco industry is futile because of the only acceptable outcome for them to just cease selling their primary product cigarettes. Here's an odd thing, though, Vivian showed us that the five major publicly-listed tobacco companies are getting between 4% and 39% of their revenues from non-combustible products. Most of us would like to see that higher, but what if we looked at the next tier of often state-owned tobacco companies around the world, we'd see that they're actually quite a long way off those kind of revenue-share numbers, you know, a long way back, and the various reasons they often have not had to face those pressures to change. Why are the larger companies doing what they're doing? Well, we know it's not for some completely altruistic reason, they're not doing it just because it's the right thing to do. Nor is it really about maximizing profits or financial returns in the short term. The numbers that Vivian showed for PMI are fascinating because they have managed to make non-combustible products a more profitable category for them, but generally, if these companies are selling products that are alternative cigarettes, it involves making lower margins to start with, it actually depresses margins and returns, and a lot of these companies can actually boost their profits substantially in the short term by diverting their amount of money they spend on R&D and reduced harm, product launches and marketing into buying their own shares back. Really this is about survival, in fact. Again, as Vivian said, you know, if you're in a declining industry with a finite number of years to run before it disappears, combustible cigarettes, you want to get into something else so that your company has a future, and investors realize that they will pay a lot more for a business that's, say, making a billionaire profit with an almost indefinite future than they would for a company making two billionaire profits, say, but which won't exist in 10 years' time. So the answer as to why big companies are doing this is because if they don't, they'll eventually go out of business. They have to react to what consumers want, and it turns out that many consumers are very keen on having better choices than combustible cigarettes. And if the tobacco companies aren't selling these products, then disruptive new and smaller companies will instead, and that's something that's very clear when you look at the history of how the vaping industry has developed. And without wanting to focus on this too much, regulation, of course, does play a part in that, making cigarettes relatively less attractive for consumers relative to other nicotine-containing products. The regulation can only do so much because if consumers don't like the choice that you're forcing them to make, as we know, a large proportion of them will ignore the rules and find ways to access the products that they want. Another thing to bear in mind is that because these companies aren't purely altruistic, they're not trying to maximize nicotine consumers' uptake of reduced harm products. They're trying to maximize usually uptake of their reduced harm products. So we sometimes see companies supporting regulatory efforts, which actually might slow industry transformation. Not because they don't want the industry to transform, but because they want to be the ones to capture the profit from it. Governments can help deal with that if they create sensible regulatory schemes, ones that set rules that boost consumer safety and consumer confidence, but which don't set technical or cost barriers, which are so high that smaller new entrants are excluded from the market and competition is stifled. Transformation of the tobacco industry has the potential to bring tremendous public health benefits, and yet we see that it's often viewed with suspicion by the public health tobacco control communities, maybe because it's market-driven and not a top-down health initiative of the sort that they might be more used to supporting. Not invented here, it's in Rome, you might call it, but perhaps if you substitute market-driven for consumer-driven to make the point that this is about educated, empowered individuals making the choices that best suit them, it becomes a more palatable concept. And I'll just finish with the thought that we're so focused on tobacco and nicotine that maybe we have a tendency to think that what's going on with reduced-harm products is somehow unique, but the reality is that industries get disrupted and change all the time. Look at what technology has done to the retail and finance sectors, not to mention consumer electronics. The world moves on, there's progress. We want change in progress in things like the car, all the energy sectors, and shouldn't we actually want and support change in the tobacco sector too? Thank you. Thanks very much, John. And again, just trying to understand the dynamics that are in play here, you know, there's many of us here because we're wanting to see a changed world, a changed market from a public health standpoint, from a consumer standpoint, and understanding what's going on and what can go on is just so important for that. So I'd like to take advantage of my position in sharing this by asking a few questions and then open it up to the rest of you to see how better we can understand the dynamics that are in place now, but even more important, where are we headed, where might we head? Because it's pretty easy to figure out, you know, the history of how things have come about and, you know, where we are now. The nature of the work of financial analysts, investors, is trying to figure out where things are going. And that's still the same work that we're doing in terms of public health and regulation, but in public health and regulation, we can shape where things are going to be going. And that becomes very, very interesting to see what we can do. So I'd start with a question for both of you, and your understandings of the markets, of the companies, of the various players, of the various potential players, you know, we look around the world and we see very, very different paces of change in different countries. So Japan, you know, 50 percent of the cigarette markets gone in seven years. Iceland's virtually eliminated smoking in anybody under the age of, I think, 50 now with a combination of alternatives. Norway got rid of half their cigarette market in a decade with the introduction of snooze borrowing it from their arch enemies next door. And even in the United States, the Altary reported earlier this year that non-combustion products have gone from 20 percent to 40 percent of the total nicotine market in just five years. And all of these places, there have been barriers to progress. It isn't like somebody has said, we'll get it all together and we'll try to move this as rapidly as we possibly can. It's just sort of, it's happened despite various barriers. What would speed it up? You know, if you were to think of advice of a country said, you really know this market, we'd really like to see as rapid a transition as possible, away from combustion-based nicotine delivery, what do you think we should do in order to leave even countries like Japan or Iceland in our dust? What would you say? Yep, I'm happy to start with that, thank you. I would say responsible regulation and responsible taxation. So what I mean by that is continuing to age-gate the product to ensure that you're not engaging new nicotine consumers, but you're really converting established combustible cigarette smokers and moving them down the risk continuum to lower risk products and continuing to incentivize consumers in terms of the economics of the products to continue to move down the risk continuum as well. So the tax harmonization is a big one. We've seen that in the Japanese marketplace, where the Japanese government is highly reliant on tobacco taxes as heat-not-burn products became a more and more substantial proportion of the total stick market, cigarettes, plus HTUs. They've had to pursue some tax harmonization, but the price gaps do generally remain in place so that there continues to be an incentive for consumers to transition over. Yeah, well, I certainly agree with that, and the other point is, I think what would really help is just better information for consumers about what these products are, and the truth is about nicotine. One of the things which I think hampers consumers making that shift to products which are less dangerous for them is the baggage of the tobacco industries passed, and one of the things that the tobacco control community was extremely effective in doing was demonizing the tobacco companies. Basically, they behave pretty badly in the past, but that has created a barrier to progress when it comes to consumers believing in governments and the population in the world generally, believing that people are doing the right thing when they're trying to sell vaping or pouches or tobacco heating. There's a lot of suspicion about that, and as we've heard, a massive amount of misinformation, and telling people the truth would be very helpful. Following up on that, we do have some laws that have been passed various countries by people who claim they're fighting big tobacco, saying things like, "It is illegal to tell people about the difference in risk between different products," or putting huge regulatory barriers in the way of the alternative, such as the FDA and the states. How effective do you think this is as a strategy to beat up on tobacco companies and cigarette companies? That's an easy question. Well, it's not effective for the simple reason that, you know, if you put barriers in the way of selling safer products, you are protecting the cash flows of the legacy combustible cigarette business. I kind of find it pretty extraordinary that people don't see that more, evidently and obviously. It's bizarre. They turn out to be protecting the industry their hate. I guess I would just offer, you know, that what we see in the United States, I appreciate what the point you're getting at, David. But, you know, if I think beyond nicotine to the cannabis industry, which is far less regulated from a federal standpoint, but even CBD, which does come under FDA purview, some of that regulation does seem to be necessary, because the FDA has had to take enforcement action for instance against CBD product companies that are making wild claims about the multitude of diseases, you know, that this one cannabinoid can influence, and it's not true, it's not science-based. So, I do think that consumers to a certain extent do benefit from some of those regulations, because it keeps the bad actors in check, and I think that's the balance that we have to strike. Right. And a tougher question, because it's just looking to the future, and that problem, you know, it's hard to make predictions particularly about the future. When we look at innovation in other areas, people who have been involved in innovation in software, electronics, et cetera, will often say things like, you know, what keeps them up at night is wondering who's currently in their garage coming up with something that's going to make all their products redundant. And we've seen this very rapid pace of change, and we've seen companies emerge in this area and suddenly go to these huge valuations, and it seems the market is saying, yes, you know, there's real potential here, you know, the valuations of some of the start-ups from China or what happened with Jule. Where is the -- if there was going to be a disruptive player, what would be your guess? Is it someone in Sanjan, is it a company that, you know, we haven't heard of yet, or one that most people haven't heard of yet, you know, I'm approached by people who say, we've got, you know, a better heat-not-burn product, we're planning to take market share from PMI, where we're getting our act together, we've got better vaping products, we're seeing incredible innovation on pouches. If you were to look into that future and pretend it's 10 years from now, and we're saying, what really disrupted this market, are there -- the things you'd look at, things that we should be aware of or watching for? I can start, yes, certainly, I'm sure there are companies that we've not heard of that are working on some, you know, potentially powerful novel nicotine delivery systems. I would actually just remind everyone in the room that it is actually pretty hard to deliver nicotine in a consistent and effective way to consumers. There's a reason that PMI had to spend $12 billion on innovation, principally, around PICO's, there's also a real reason that they're very credible, very well-funded, large key competitors, B.A.T., J.T., Imperial, and Altria are so far behind on keep-not-burn. It's not so easy, and these are companies that have very long histories of delivering nicotine in combustible format. So yes, Juul certainly knocked it out of the park in terms of delivering to the consumers what they were looking for, and I've got one in my pocket, love it, but it is hard. Yeah, and I would -- I think the important point to make about innovation is that actually coming up with the product concept and the design, all that, is only half the battle. You know, the really big challenge after that is actually getting it into the hands of consumers, to market distribution, sales, marketing. And that's something that in this category, clearly, the big tobacco companies dominate, and it's why you can't exclude them from the debate. I mean, it's wishful thinking if you think that someone else is going to just turn up and be able to get their products to market effectively all over the world. The people who are best placed to do that, and the people who are already strongly involved in the nicotine and tobacco space are either tobacco companies or cigarette companies. And that's why I think that governments are, again, sort of stupid to imagine that this product is going to solve itself without the tobacco companies being involved. They have to be part of the solution in the end. I would just add to that, you know, there was a very real need for the tobacco companies to evolve their own thinking in order to continue to drive growth in the RP segment. PMI's current CEO, Yasek Olcek, he served as CFO and then COO before he was CEO. And I recall sitting with him in 2018 when he was serving that COO role and asking him, you know, what is the biggest change that you've had to make in terms of your strategic vision executing on I-coast versus combustible cigarettes? And he said, Vivian, we have run this business for decades as a B to B business to business. We were never a business to consumer, B to C company, but that's exactly what we had to figure out how to do in order to commercialize I-coast successfully. Because I'm sure as you know in Warsaw and in many other countries around the world, they have their own retail storefronts and they have to talk to consumers one on one. That's why they've established call centers in every country and they proactively reach out to consumers that are new to the I-coast platform, remind them, put down your combustible cigarettes. The only way this works is if you're consistently using I-coast for the first two weeks and then the transition seems to be seamless and that's how they're able to get the 70 plus percent retention rates, but there was a real pivot that these companies had to make in order to understand how to effectively commercialize our piece as well. Yeah, and I think what you're saying about the role of the incumbent players and where this market's going is, you know, as you were saying, Jonathan, when we look at other sectors, you know, Tesla's clearly disrupting the automobile market, but the major automobile companies are moving in a big way toward electric vehicles as well and we probably won't get to where we want to be without their involvement. Another question, then I'll open it up for the floor, is illicit markets. Illicit markets are huge, they're growing, there's various efforts to control them, there's various people cheering for them, as Clive was saying, I think yesterday that it seemed some of the public health heroes are actually organized crime because they're getting products to people that governments otherwise wouldn't, in looking at how markets work and your experience on this, what should be the response to illicit markets if the goal is industry transformation? How would you deal with the nuances of something like this, is it enforcement, is it alternatives, is it, get them off the market, encourage them, legalize them, how would we best deal with the situation we see globally? Well in this space, to me illicit markets are the result of consumers working something out for themselves and starting, I want to do this and governments regulators getting in the way and the best thing that governments are related to do is get out of the way, put sensible regulations in place, rather than trying to put barriers in the way of people making the right choices for themselves. And I guess I would offer, you know, certainly, I don't believe, I certainly as a nicotine consumer myself, I'm a former 20-year smoker in the last decade, I do use e-faper and heat not burn very happily and I'm quite happy that the industry has given me a pathway to stay in the nicotine category in a more responsible way and the way that I feel better about personally as a consumer and I don't want to live in a nanny state but some regulations certainly responsible as you said, John, it is going to be required to remind everybody what happened in the U.S. in 2019 with E-Valley, right, I mean if you think back to that vape use chart that I showed you, the reason that you saw that rapid decline in the number of e-cigarette users in the United States was because of this public health crisis that happened very, very quickly and the CDC and the FDA had no idea what the culprit was initially and if you looked at, you know, Johns Hopkins and the Cleveland Clinic were publishing all the data from the patients they were seeing and they knew it was some kind of vapor but the amount of overlap in terms of consumer use between cannabis vapor and nicotine vapor was very high in the population that was getting sick and unfortunately where we saw some mortalities as well, ultimately it was unregulated cannabis vapor, right, but it did create confusion, it does remind me certainly that you need regulation on the cannabis side too, so some kind of responsible regulation because, you know, these products aren't risk free. Yeah, I think that was a really interesting example, very informative, what happened with the scarce stories, trying to attribute EVALI to e-cigarettes and as Vivian says, that's when we saw this big decline in the use of e-cigarettes in the United States and I think it's really important to point out that's also when we saw an increase in cigarette sales, you know, cigarette sales have been falling so rapidly and suddenly there was a year where cigarette sales went up in the United States and it's that people substitute between products. So, let's open it up to questions, is anybody got something you want to throw at our esteemed speakers here? And I, because of the lighting, it's very hard for me to see people putting hands up here, so, okay, go ahead. I just really liked these, it's shining lights on here, that's why I moved the place. I feel I should be confessing something. I'm going to be back from Sweden, first I have a short comment to Vivian's excellent presentation, but going back to the history lesson and being a Swede, one thing was the cigarette filter dramatically increased the sales of cigarettes, but equally dramatic was the invention of the pouch to place snooze, which dramatically led from 40% smoking prevalence among Swedish men down to 5% today. Then I have a question to Jonathan, it pleased me to hear you say the expression not invented here. If you could develop a bit further on that, because I'm an inventor with a patent approval in Europe and the United States for a pouch that prevents burning sensation and gum irritation. Thank you. Not invented here, yeah. What I think about this is that, and we're going back to bit in history here, and I mentioned this before, the public health tobacco control community did a fantastic job of demonizing the tobacco industry and making the case that what they called the smoking epidemic was driven by industry behavior. And unfortunately, I think that they've been so successful in that that they sometimes forget, actually, it's not just about somebody selling a product, it's also about people buying a product, it's about consumers making choices about doing things they want to do. And I think the public health community has often missed a lot of stuff because they're so focused on corporate behavior, not focused enough on individual behavior. And so this battle against smoking-related diseases has tended to be seen as a battle against an industry. Putting the tobacco industry out of business has become the major goal for a lot of people, rather than actually addressing the issues of individual needs and individual desires. And so that's what I meant by the not invented here syndrome. I think public health in general, we're talking big generalizations here, is much happier with stuff that attacks corporations, attacks what they see as bad behavior by companies. And they're on less comfortable ground, conceding that actually these are individuals making choices about what they want to do. And that's unfortunate in lots of ways. I think, I mean, there's so much that we can learn from Sweden, but I think one of the really interesting insights into the sociology of the field is that the move to safer nicotine products, safer tobacco products in Sweden coincided pretty closely with the move to safer automobiles that came from Sweden at a time that Swedish match and Volvo were both controlled by the same state-owned holding company. And the world, you know, cheers for what Volvo did. You know, it's three-point seat belts that saved over a million lives and lauded for that. And Swedes take, you know, great pride in that. But when we get to something like snooze, which, you know, has massively greater impact on health, Swedes don't take credit for it. They play it down, many of them deny it, and in the world ignores it. But anyway, to move on to other questions, Clive. Not in a hot arena. Hi, Clive Bates. You know, the big tobacco companies, BAT, PMI, Imperial, they've all been going for like more than 100 years. Okay. What do you think they're going to look like in 15 years from now by 2040? What sort of state they're going to be in? Sure. Thanks for that, Clive. I mean, I think the ambitions that I laid out give you a pretty good indication, you know, of that. So for, as a reminder, for the rest of the group, and I know you know this well, BAT 50% by 2035. So that evolution will continue. It's interesting. We know that there's novel work happening within those tobacco companies, really, to further those ambitions. If you think about, you know, what Ultra is trying to do with SWIC as an example, right, taking a different approach, a capsule-based approach to heat not burn products as one example. You know, nicotine aerosols have been something that the big tobacco companies have been working on for quite some time. They put them a bit on the back burner, but that continues to be, I think, a viable mechanism. And you can see that, you know, in some of the IP partnerships that they've been doing, you know, aerosolizing nicotine continues to be our priority, but continuing to build out that portfolio of options for consumers and reducing those barriers to entry for consumers or those sticking points, if you will, around kind of nicotine satisfaction. I think we'll continue to drive it because, I mean, the ultra data for the U.S., I think, speaks very loudly to this. We're not seeing attrition in the number of consumers engaging in nicotine consumption in the U.S. at all. It's just that how consumers are consuming nicotine continues to evolve, and I think that evolution will, in fact, accelerate. Yeah, I think maybe it's helpful to think about this in terms of there being actually two routes that companies can go down, you know. One route that Vivian's outlined and which the companies have stated for themselves, that they are successful in transforming and they are successful in shifting a large portion of their revenues to non-combustible products. But there is another avenue which will be less good for the world and for public health, which is that if you don't give these companies space and the room to transform, then maybe they just retreat into their shell and put up the defensive barriers and focus on what they've always done. And I think this is also one of the dangers of the divestment movement when it comes to tobacco shares because when these companies are public and listed, you can question them, you can have an influence over what they want to, you know, over their strategy, and if they're not doing something that you, if they're not having a strategy you like, you can get the management fired. If these companies are private and owned by some shady billionaire somewhere, they can do what they like without ever being challenged and maybe somebody decides, forget all this vaping thing, let's just maximise the cash flow from cigarettes for as long as we can and make as much money as we can and then head off into the sunset. I don't think many people want to see that happen, but it is a potential danger if regulation and rules about what the companies can do goes in the wrong direction. Certainly, I would just add to that very good point about the divestments, John, because one of the things that the public companies are really contending with is the shrinking pool of capital, right? You need incremental investment dollars to drive your share price higher and with increasing ESG scrutiny from very large asset managers, that pool of capital has continued to shrink. And so another way that the public companies are trying to address that is not just setting those financial targets in terms of the evolution of the business, but they're very clearly tying executive compensation both on a short and long-term basis to those goals. I just like to highlight that I think that is a real concern in what happened, because as I was introducing them and saying all the information we can learn about what's going on in this industry with these companies, and we can do that because they're publicly listed companies. They are being followed by analysts, they are making presentations of shareholders, they're releasing data, they're giving incredible information to securities regulators. Private companies could become just a black box that is much harder for us to have an idea of what's going on, what they're doing, how to direct them. Other questions? Can I give you an even more pessimistic scenario for them? Okay, then I'll try to top you. The cigarette market will be in terminal decline, because consumers are walking away from it. The competition will be very intense in the alternatives. The margins will be squeezed very hard, and much of the market will be illicit because of regulation that tries to prevent consumers getting what they want. They'll be squeezed on all sides, margins, competitors, and illicit. At the back? Sorry. Very interesting. Thank you. I'm Cecilia from Swiss Match. We have a pretty good track record of harm reduction. But obviously that's not giving us any positive aspects in engagement with stakeholders, regulatory stakeholders. I think we all are aware of the challenges we're facing. So my question to you is, what are you speaking to the stakeholders that thinks that we are full of bullshit? And if you are speaking to the policy makers, what do you tell them? And if you don't speak to them, why aren't you speaking to them? To explain what is happening? As a rule, I don't speak to policy makers. That's not my job. My job is to challenge public companies and try to identify the best way for investors to make money. I would say, well, it's a similar thing. It's unfortunate, but I don't think policy makers want to hear from us. I've said this to a few people already this week. People are so used to hearing the negative side about tobacco businesses that even if your job is to be neutral, to be dispassionate as it is for Vivian and I, actually in making that dispassionate case, many people think you're speaking up with the industry still because simply to not hear a one-sided, well, these companies are really evil and bad is challenging for a lot of people. They're just not used to hearing that story. And so we are often tired I think with the tobacco brush, even if the industry is really nothing to do with us. The bearers of bad news are something that somebody doesn't want to hear because they've decided all of this is based on our side against their side. I think I've had lots of personal experience with that having been invited to speak at Wall Street and other meetings that analysts are holding and being told by colleagues in tobacco control that you're going to speak with and they'll mention a name of one of the analysts and say, well, tell them I hate them because they're telling people that they should buy the shares in these companies. I say, well, you've got an oligopoly where they can increase prices. I mean, this is years ago. I mean, it's a slam dunk investment because people like you are preventing the measures that could make these poor investments. You're actually making cigarette companies a really great investment. So why are you upset that they're pointing that out? But it is exactly what you're saying that, you know, they take personal animosity that you would say that something could be a good investment in the sector. Thank you, Alex Wernick. Most of the discussion today, understandably, has been about what's happening in high-income countries. That's where most of us come from. That's where most of the data is. But as we know, most of the smoking going on along in the world is happening in low- and middle-income countries. Most of the deaths, an increasing number of deaths, proportion of deaths, is coming from low- and middle-income countries. And to a considerable extent, markets in those countries are dominated by state-owned enterprises. So my question to the panel is, to what extent, if at all, can people like us or others like minded around the world have an influence on those state-owned enterprises to try and encourage them to move as fast as possible from the high-risk products to much lower-risk products? It's a very difficult thing, I think. One of the projects I was involved in recently was looking at this thing called the Tobacco Transformation Index, which ranked the large companies around the world according to the pace they were changing. And the idea behind it was a good one, I think, that if you rank the companies according to how good a job they're doing, you in the end start to change norms. And I think while it's difficult to have a direct influence over state-owned companies and force them to change, if they eventually see that their big global peers are effective in making that shift to reduce risk products, you kind of shame them into wanting to emulate that. And I think that's potentially still in the long run a fruitful avenue for trying to drive change in this sector. It's just changing norms, and it's hard work. It takes a long time. It requires a lot of patience. But it is an avenue that could work. Yeah, I fully agree with that. Using high-income markets where there isn't more disposable income, where consumers can affect that change and then seeing positive health outcomes certainly would, I would think, positively influence lower-income geographies. I would also say the publicly traded tobacco companies are very focused. They appreciate Alex exactly what you've said. So, at Philip Morris's 2023 Investor Day, they did establish both medium and long-term targets for portfolio mix shift specifically for low- and middle-income geographies. That's why the company is testing the bonds system for Heat Not Burn. Those are specifically meant for lower-income markets. And I'd like to point out that there is amazing innovation that goes on in low- and middle-income countries that is often not seen by others. I remember when it was stated that there will never be effective telecommunications in much of what was then called the Third World because there simply wasn't enough copper to make the wires for the phone lines. And it was probably only a few years ago that a meeting in Washington where somebody, I think from the campaign for Tobacco Free Kids said, "Well, sure, these reduced-risk products might work in wealthy countries, but they're like mobile phones. Like people in wealthy countries can get them, but they'll never make any impact in places like Africa." And if anybody's been to Africa and knows what's happened with mobile communications in Africa, so don't count them out. I mean, there will probably be some major things happening. And I think one of the other interesting things, and I mean, I'm a lawyer, so we go on case studies. We use examples. But when you see great success in one area, you're very likely to get it elsewhere. And we saw that in doing anti-smoking work, you get a policy in one country and makes it easier in the next country pretty soon. It's a landslide effect. What happens is we get more countries when people can no longer just say, "Oh, that was Sweden, and they're different." But that was Norway, and they're different, and that was Iceland, and they're different. The Japan's different. New Zealand, of course, is different. And what's going on in the United States? Well, that's different, too. And, of course, what you see in Lithuania. And the list starts to get pretty long, and it's pretty hard to say that they're different. And at some point, somebody says, "How do we collectively use what we have for the regulatory changes that we would need to really speed this along?" And as any country does that, and others work to improve it, you can see, again, the takeoff of technology, and it tends to be exponential. It hits a certain level, and it really takes off, and in this case, there's going to be regulation that does that, and financial markets will respond to it. We still have time for more questions. Can I just add something to what you just said? I think it's a really important point that the African use of mobile phones and the impact that's had on payments shifting money around is fantastic. And it's something to bear in mind that the world has changed so much now, that it's not like people are in different siloed countries where they just do their own thing and aren't aware of what's going on in the rest of the world. And this will be a factor that drives change as well. Consumers aren't stupid. They work stuff out for themselves. And if they're in a country which has stupid regulations about nicotine products and they're not offered choices, they will find ways to get hold of that stuff, and people will find ways to get it to them. So once the genie's out of the bottle, you can't get it back in, and I think that's something that makes me optimistic about the future of tobacco harm reduction globally. There might be lots of stupid stuff going on. But eventually, consumers who are not stupid will work stuff out for themselves and find ways to arrive at a solution. Just to hammer that home, as various commentators have said, with the age of the Internet for getting information, social media for sharing it, you can't keep secrets. I mean, information gets out, consumers move, markets move far more rapidly than they ever have. And given the size of the nicotine market, the potential of the nicotine market, it's almost like this global game for entrepreneurs of who wants to be a billionaire. What's going to happen that disrupts it? We have a question over here. There is one actor, one stakeholder that we have not mentioned here, and it is Philanthropy and the network of NGOs around. And sometimes it seems that these groups have captured regulation. For example, this is one opinion, and I think it is sustained by facts. Nevertheless, the question is, how can regulators or regulating agencies that intervene in the projects, in the processes that we are discussing, how can they handle these groups, these private sector groups, these NGOs and Philanthropy, and how can they have the rights to participate, their stakeholders, but they should not capture the process? Well, I mean, Roberto, thanks. As we know, the influence of certain people over the way that global regulation develops, capturing the dollar ratio effectively, is a massive issue for this sector. And unfortunately, I don't see an easy solution to that. He will go away in the end, I'm sure, but it's going to be a painful process waiting for that to happen. I mean, I wonder sometimes if -- left to their own -- you know, it already shows left to its own devices. It's going to do itself harm just because it takes a ridiculous position. I think that report that came out this week in Europe is really interesting because it's basically communist, you know? It's saying that profit-seeking enterprises can never act in the public interest. And, you know, eventually, I think people will realise that's ridiculous. That's not the way our society works. It's not the way we want to be organised. And, you know, I don't think long-run the dollar rate shows doing any -- doing itself any favours in taking the positions it does. People will eventually realise that it's ripe for change, and change will be forced on it somehow. I think the line that facts, reality, has a way of eventually winning. And this isn't the first time you had a powerful U.S. billionaire pushing an abstinence-only agenda and a psycho exit substance. John D. Rockefeller on alcohol prohibition. And then he changed his mind. And that played a big role in ending alcohol prohibition. Look at the international narcotics protocols. And, you know, what's happened. You know, as society has moved on, as consumers simply ignored what the laws were in various places, my country is certainly being one of them. Eventually, we ended up with things like legalizing marijuana. Completely counter to these international treaties that governments had signed. And, you know, treaties like, you know, more powerful than the framework convention and tobacco control. And the general view of governments, once they got to the point of saying, we got to deal with this, is who cares about that treaty? You know, what are they going to do? Is WHO going to kick down our doors and beat us up? You know, is some sort of international drug protocol police going to come by and tell us we can't do this? You don't even look at how many states have legalized marijuana now. You know, I think it just happens. And there's a point at which you can't just ignore the fact that the public is ignoring the things that you're saying, or that people aren't pointing out how ridiculous it is, or that major authorities aren't losing credibility on a wide range of issues because of doing really stupid things on one. And that's certainly affecting WHO. How does WHO have credibility when they need it on other issues, when they've sacrificed their credibility on an issue like this? We do have time for a couple more questions. Yes. Thank you. My name is Guintoutes. I'm from Kazakhstan, not government, organization of harm reduction. We have medical stuff. And recently in Kazakhstan, bans waves, and same situation going to be in Uzbekistan, they were looking to ban not only waves, but all the rigorous products in Kyrgyzstan is looking the same way. It's all central Asia countries. And for me, yesterday was, I was in panel session with you David. It was very interesting about teenagers because it's made argument in politics, all of governments and WHO. Also, they're looking for what they suggested. It's also a point for our government, but it was an interesting point today. You can't stop the progress. The progress you can slow in our countries, you can only slow down, but not couldn't stop. And what I see is our regions. It will be growing up on legal products and criminalization of that market because if you have a bond, some will have a benefit from this. And what do you think? How long could it take in our regions to change the mind of our government and how it's possible to be faster, that protest? Yes, it's not an easy question to answer. How long will it take? Again, as you've said, people work this stuff out for themselves. And eventually, if illicit trade becomes a larger and larger part of the nicotine market, then the pressure is going to grow in governments to find a sensible way to deal with that. It usually takes far too long, but people get there in the end. And I've no doubt it'll happen even in central Asia at some point. People will work out that we have to regulate this sensibly. We can't just force people to go to the illicit market for their needs. I would just offer one small example from the U.S. menthol has had a target on their back since the Family Tobacco Control Act passed in 2009. And that piece of legislation mandated that the Food and Drug Administration pursue an evaluation of menthol cigarettes and they actually did it twice once with TIPSAC, which was a scientific advisory committee and then internally at the FDA. And throughout that process, there were public hearings. And what was so interesting to me, attending those public hearings in person, was that some of the biggest advocates against a menthol ban were actually the state highway patrol, the police. The police were going in testifying in front of the Food and Drug Administration, you know what? You probably shouldn't ban menthol. It's going to create a huge illicit problem that we're going to have to deal with. We've seen these changes in so many countries. They said that this is led by consumers. So many of the laws that we now laugh about, but we're serious at the times, the bans on homosexuality, the bans on women getting access to contraceptives, I mean, there were so many of these things that were just generally, I mean, the public starts to just ignore them. And at some point, you know, there's enough pressure that you end up getting a change. But again, going back to, you know, being a lawyer and looking at examples from elsewhere, it is very persuasive when you can make the case of what's happened elsewhere. So you say your country has done this approach, and cigarette sales haven't been going down. I'd like to show you a graph from New Zealand. Oh, and one from Japan. Oh, here's Iceland. Oh, the UK. And it's working. And I went through this earlier in my career where people didn't believe that price would have an impact on consumption of cigarettes. And it's just showing graph after graph. You know, here's what happened to price. Here's what happened to consumption. That you good, I learned good policy is contagious. You get good policy somewhere. It starts being adopted elsewhere. And it eventually gets to the places that are the late adopters. But it can end up happening very rapidly. And the consumers will be ahead of the regulators in the markets and in all of these places. And as said, it will be people like the law enforcement saying we have way better things to do than trying to go into local markets to find out if people are finding a product less hazardous in their cigarettes. You know, we have way better things to do than being on the highways looking for somebody trying to bring in methyl cigarettes. Yeah, we have maybe time for one more question. And then there's coffee. Coffee might be winning. Yes, it's a slam dunk for coffee. So thank you. Thank you very much. Thank you. [inaudible] [BLANK_AUDIO]