The UK government's world-first scheme to provide some smokers with a vape kit is a bold move that clearly has positive implications for vape sales and negative for tobacco, as well as potentially leading to other markets following suit, said analysts at Jefferies.
Under the new 'swap to stop' scheme, one in five of all smokers in England will be provided with a vape kit, including pregnant mothers, and there will be a consultation on mandatory cigarette pack inserts with messages and information to help people to quit smoking.
This will be accompanied by a crackdown on illicit vape sales as part of measures to stop children and non-smokers take up the habit. Specifically, £3mn of new funding will be provided to create a specialized ‘illicit vapes enforcement squad’ to enforce the rules on vaping and tackle illicit vapes and underage sales.
As well as the implications for both vape and combustible tobacco volumes, the analysts said this could mean the new UK Tobacco Control Plan is near and provide a template for other global markets.
"A major barrier to much more significant vape volumes in all markets today, and including the UK, is lack of awareness among smokers of the relative risk of vape compared to cigarettes," the Jefferies analysts said.
Close to 60% of smokers who did not currently vape, believed it was as bad for you or worse for you than smoking, for example, while only 42% believed that vape was less harmful than smoking.
"These perceptions impact volumes in a couple of ways. One, it means less trial. And two, even for users, it leads to much greater levels of dual usage with cigarettes," the analysts added.
"Against this backdrop, the UK govt plan could lead to a material increase in vape volumes, with the offset of this being a material decrease in combustible volumes."
The UK combustible tobacco market represents around 10% of Imperial Brands PLC (LSE:IMB) underlying profits via brands like Lambert & Butler, John Player and Golden Virginia; around 11% of those for Japan Tobacco via Benson & Hedges, Amber Leaf and Silk Cut, and less than 1% at both British American Tobacco PLC (LSE:BATS) and Philip Morris International Inc (NYSE:PM).
An announcement like this could mean the full plan could now be near, the analysts said, with the government press release saying a review “proposed a range of measures to help people stub out the addiction, which has informed the measures set out today.”
Other measures suggested by the review included calls for immediate tax increases of 30% and raising the legal age from 18 by one year every year.
"This move could also be potentially impactful for how future regulatory approaches to vape evolve on a global basis," the Jefferies team said, noting that there are no markets outside the UK and US which really actively support so-called reduced-risk products (RRPs) and/or have introduced measures to help smokers switch and educate them on the health benefits.
"If these measures result in a meaningful reduction in smoking numbers in the UK [...] it could lead to other markets following suit."