While traditionally excluded by ESG investors, tobacco companies have made great strides over the last few years with the introduction of a wide range of reduced risk products (RRPs).
In this episode we sat down with Andrea Sefler, PhD, Director of Research at Broyhill Asset Management, to discuss the topic. Andrea’s PhD in Organic Chemistry and 15 years of pharma experience comes in handy as she walks us through the risk spectrum, starting with heat-not-burn products, then vapor products, and finally, the various forms of oral nicotine, like tobacco-free nicotine pouches. We cover everything, from absorption and metabolism, to device form-factor considerations.
We then discuss the difference between expressing views as a consumer versus as an investor, how purchasing stock from another shareholder does not really help or hurt a company directly, and why the tobacco industry players are best positioned to reduce tobacco harm.
💡 Name: Andrea Sefler, Ph.D.
💡 What she does: She's the director of Research at Broyhill Asset Management.
💡 Company: Broyhill Asset Management
💡 Noteworthy: Andrea has a Ph.D. in organic chemistry and is an experienced investor in the space.
💡 Where to find Andrea: LinkedIn
⚡ The tobacco industry is constantly innovating. Heated tobacco products are a major innovation on the market. Andrea explains, "There's not really much they can do anymore to innovate around a cigarette, or manufacturing a cigarette, or distributing a cigarette, or whatever to offset that decline, so all they can do is increase the price, but these HTUs now and heated tobacco products, that is an innovation, and you've broken that pack model unit and direct price comparisons to competitors. So now the business model is almost a subscription-based business."
⚡ The absorption of nicotine differs from product to product. One of the most significant differences between heated tobacco, vapes, and cigarettes is how they're absorbed. Andrea explains, "I like the logic behind this conversational arc that you've set up here. So what we're doing is moving down the risk spectrum of the nicotine products that are currently on the market. So you've got combustible cigarettes and tobacco, and then you've got heated tobacco, then you've got vaping, and now we're down at oral nicotine. So what is different now is what we're talking about is what's called buckle absorption of nicotine. So absorbing nicotine through your mouth or gum membranes as opposed to through your lungs. That's very different. And to understand why I've got to throw out a couple of concepts around blood circulation and metabolism."
⚡ Safety improvements are always a good thing. It's crucial to develop and bring safer features for tobacco users constantly. Andrea says, "Like you, I do believe that most of the time, those best positioned to make meaningful changes in an industry are those that are actively participating in it with products, marketing, distribution, and, more importantly, customers that they're looking to, and have the incentive to, best serve in the long run. I don't think avoidance of a thing — that's not the same as fixing it. The bottom line is that people enjoy the effects of nicotine. Some people like to smoke and have been doing so for millennia, so unless we're willing to try another run at a prohibition experiment, I think it's in some ways very irresponsible not to develop and offer safer means for people to consume nicotine that choose to do so."