First Read Global Tobacco Noteworthy newsflow and views

Research evidence excerpt

First Read Global Tobacco Noteworthy newsflow and views

US efforts to clamp down on illicit vapes continue to step-up and widen: In

recent weeks this included: (i) "FDA Proposes Rule That Would Help Hold Foreign

Tobacco Product Manufacturers Accountable" (here); (ii) "Shopify to bar vapes as U.S.

authorities crack down on illegal industry" (here); and, (iii) "Fiserv, service station

operators including BP warn US stores on illegal vapes" (here). UBS View: We noted a

limited impact from US enforcement on grey-market vapes on our recent Asia Field Trip

(here), however, efforts seem to be broadening. We believe the FDA's guidance on

Enforcement Priorities, which should allow legitimate players to launch flavoured vapes

(c90% of vapes are flavoured, but historic regulation prevented legal players from

competing), currently provides the best opportunity to switch consumption away from

the illicit trade. We see BAT as best positioned to benefit, discussed here.

US introduces 12.5% tariff on Dominican Republic, impacting tobacco (here):

"The announcement by the administration of US President Donald Trump to impose a

12.5% tariff on Dominican exports [with effect on 24 July] to that country has created

uncertainty in the government and the exporting business sector". UBS View: Whilst

manufacturing costs are relatively low in tobacco (gross margin >80% post MSA costs),

it could have a slight negative impact on Imperial (that partly imports cigars) and Altria

(that is partly importing cigarettes), in our view.

UK 'Vape flavours and packaging attractive to children could be banned' (here):

"Health leaders have launched a UK-wide consultation that also proposes that vapes

should only come in three colours: white, black or grey. Flavours will also be restricted to