March 28, 2018 | Equity Research
`
`Tobacco
`
`Our Evening With blu
`Takeaways From Imperial Brands’ E-Cig Event
`
`e Move Over JUUL? We attended Imperial Tobacco’s (IMB) next gen
`product showcase event this evening (3/28) and had the opportunity to
`try their newest e-vapor offering, myblu, which comes in a sleek,
`compact pod-format which is very similar to that of JUUL (see Exhibit
`1). myblu was
`launched in
`the U.S.
`late last month and early
`customer/retailer
`feedback,
`according
`to
`IMB,
`has
`been “very
`encouraging.” Importantly, IMB will be rolling out nicotine salt e-liquid
`technology for their myblu platform in July. As such, we came away
`with our interest definitely piqued as myblu appears to be positioned as
`a real contender for JUUL with a sleek, aerodynamic design and wide
`range of attractive flavors (11 myblu flavors vs 8 JUUL flavors). While
`we are optimistic,
`it’s difficult to gauge at this early stage whether
`myblu will have what it takes to reverse softening retail share trends
`for the overall blu franchise (see Exhibit 6). However, IMB clearly has
`big ambitions (spending $300M this year) to further convert smokers
`with the myblu experience. Given the scalability of their approach, IMB
`believes it can transform their e-vapor gross margins with a significant
`step up from 35% to 70%in the next couple of years. Further, IMB is
`adopting a more omnichannel approach and believes they will get
`operating leverage with e-vapor and ultimately generate a 40-45%
`operating margin, similar to combustible cigs. Bottom line - We
`remain bullish _on the overall e-cig/vapor/heat-not-burn categories as
`technology/user experience continues to improve and the tobacco
`industry pivots
`increasingly towards
`reduced-risk product
`(RRP)
`development (especially in light of the FDA’s comprehensive nicotine
`plan). We continue to believe there is plenty of room for multiple
`players to succeed over the long-term and believe the winners will
`ultimately have a balanced portfolio of RRPs that appeal
`to a wide
`range of adult tobacco/nicotine consumers.
`
`e JUUL’s Rapid Ascent Begs for Competition -— Recent Nielsen 4-wk
`trends confirm JUUL’s growing dominance of
`the e-cig measured
`channel with JUUL’s retail dollar share shooting up to 49.6%in the 4-
`wk period ended 2/24/18 vs 13.6% as of 2/25/17. Over the same
`period, blu’s 4-wk dollar share declined to 7.9% vs 15.4%in the yr ago
`period. A huge part of
`JUUL’s cachet appears to be its pleasing
`aesthetics, ease of use & nicotine salt e-liquid technology. JUUL devices
`have the long,
`lean,
`lightweight build of a portable charger (i.e., it’s
`discrete), as well as ease of use (i.e., easy to charge) and adventurous
`flavors like “Cool Cucumber” or “Créme Brulee”. By comparison, myblu
`is similar in looks/style/flavor excitement, but half the nicotine content
`(each JUUL pod is 5%nicotine by weight which equates to 1 pack of
`combust. cigs or 200 puffs vs myblu at 2.4% at highest titration).
`
`e Imperial Has Optionality — IMB is focusing on e-vapor technology but
`it does also see opportunities in heat-not-burn tobacco. The company
`appears
`to
`have
`aé_
`nice
`pipeline
`of
`future
`reduced
`risk
`product/technology offerings and is approaching the market with a
`Bonnie Herzog
`
`portfolio strategy. bat4AnIMB’s myblu is in 4 markets currently and has cue Apaluetl 24
`
`
`
`
`
`converted 0.5M consumers.
`IMB expects
`to be
`in
`10 markets
`eeenee caneean
`
`(converting 1.5M consumers)
`in 2018 and more than 20 markets
`owes Patty Kanada CFA
`(converting 8M consumers) by 2020.
`’
`
`
`Associate Amalyst/ 212-214-5029
`
`welisfargo.com
` patty kanada@
`
`important disclosures and
`Please see page 13 for rating definitions,
`required analyst certifications. All estimates/forecasts are as of 03/28/18
`unless otherwise stated. 03/28/18 23:02:26 ET
`
`Wells Fargo Securities, LLC does and seeks to do business with companies covered
`in its research reports. As a result,
`investors should be aware that the firm may
`have a conflict of
`interest
`that could affect
`the objectivity of the repart and
`investors should consider this repart as only a single factor
`in making their
`
`investment decision.
`
`Together we'll go far
`
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`

`

`Tobacco
`
`
`
`e Comparing the Offerings, It Is Clear that myblu Has JUUL in its Sights — Now It’s All Up to the
`Consumer. By way of background, blu e-cig was acquired by Imperial Tobacco as part of Lorillard’s
`acquisition by Reynolds American in June 2015. Pod-based devices are the fastest growing segment of
`the e-vapor category in the U.S. and myblu represents IMB’s first foray into that segment. The flavor
`assortment for myblu pods (11 total) represents the most expansive flavor range yet from blu (vs 8
`JUUL). The pods also comein 3 nicotine strengths: 2.4%, 1.2% and a nicotine free option (vs 5.0%
`JUUL). Additionally, the device boasts of a “click and go” usability, larger battery and a fast 20-min USB
`recharge for
`long-lasting use (vs we have heard it can take 45-60min to fully recharge JUUL).
`Interestingly, the myblu device comes with a lifetime warranty (vs 1-year on JUUL). myblu Starter Kits
`retail for $19.99 (with an intro $1 trial price) and include the device, 1 liquid pod, USB charger, and a
`lifetime-limited warranty upon registering the device. myblu pods retail at $8.99 for a 2-pack and their
`new intense range pods (nicotine salt e-liquid technology) will retail at $9.99 for a 2-pack. JUUL starter
`kits retail for $49.99 and include a rechargeable device, USB charger, 4 JUULpods and a 1-yr limited
`device warranty. JUULpods retail at $15.99 for a 4-pack.
`
`x
`
`“An Evening with blu”
`
`Exhibit 1. Imperial Brands’ new myblu E-Cig Product vs JUUL
`
`ss omybluStarterKit —™ i sUULStatekKi =
`edseto rsCs
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`-- Optimum sensation and vapor delivery in a compact design
`-- 1-click liquidpods let you switch flavors in seconds
`-- Recharges in 20 minutes for faster vaping
`
`-- Simple: Easy to use. No buttons or switches. Just insert the pod
`to get started.
`-- Clean: Freedom from ash and odor. No mess. No fuss.
`-- Satisfying: Designed with smokers in mind,
`from form to
`technology
`to flavor.
`Note: b/u was acquired by Imperial Tobacco as part of Lorillard’s acquisition by Reynolds American in June 2015. myblu
`pods come in the following 11 flavors: Classic Tobacco, Carolina Bold, Gold Leaf, Magnificent Menthol, Polar Mint, Cherry
`Crush, Vivid Vanilla, Blueberry, Blue Ice, Mango Apricot, and Green Apple. JUUL pods come in the following 8 flavors:
`Mango, Cool Mint, Virginia Tobacco, Cool Cucumber, Classic Menthol, Fruit Medley, Creme Brulee, and Classic Tobacco.
`Source:
`Imperial Brands plc and JUUL Labs
`
`2 | Weils Fargo Securities, LLC
`
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`

`

`dur Evening With blu
`
`Equity Research
`
`Exhibit 2. Other blu E-Cig Offerings
`
`_blu PLUS+™ Rechargeable Kit
`__
`|ntroductory U.S. Price: $42.99. «C7
`
`bluPro™Kit
`
`
`
`
`
`
`
`-- Get up to 45 minutes of use before needing a recharge!
`-- Rechargeable pack to charge your batteries
`-- Room for two batteries and three refill tanks
`
`-- Most advanced blu vaping experience
`-- Larger battery that lasts all day
`-- Easyrefilling with blu flavor e-liquids
`
`__bluPLUS+™ Xpress Kit = = =| = ~~... €lassic Tobacco Disposable—
`
`
`
`
`
`Magnificent Menthol & Vivid Vanilla
`
`-- Convenience of a disposable with high perform of PLUS+™
`-- IMB Fontem’s mostfamiliar feel
`-- Smooth vapor delivery with maximum sensation
`
`-- Combines convenience with great vapor delivery
`-- Smooth taste and a variety offlavors
`-- No charging needed andwill last all day
`-- Additional flavors: Carolina Bold, Cherry Crush, Polar Mint,
`
`Note: b/u was acquired by Imperial Tobacco as part of Lorillard’s acquisition by Reynolds American in June 2015.
`Source:
`Imperial Brands ple.
`
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`oy
`Wells Fargo Securities, LL | 3
`
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`

`

`Tobacco
`
`
`
`Key Takeaways from Recent Nielsen Trends
`
`Exhibit 3. Estimated Size of the Overall U.S. E-Cig/Vapor Market
`
`E-cig category dollar sales were $156.6MM this period implying about ~$1,433MM annual retail sales
`in Nielsen-tracked channels (vs $860 last year). Considering we believe Nielsen underestimates the
`channel by an estimated 20-25%, we expect the category will grow around 25% to $5.5B in 2018 given
`strengthening e-cig/vapor innovation ahead of the eventual commercialization of superior technology
`(read: iQOS). We expect consumers to eventually shift from e-cig/vapor to next generation reduced-risk
`products (RRPs), such as heat-not-burn platforms led by iQOS.
`
` 2018E
`
`E-Cig/Vapor Market
`
`
`Size — 99.9B
`
` E-Cigarettes $2.0B:
`Vapors/Tanks/Mods & Personal)
`
`Vaporizers
`
`
`
`
`
`C-Store, Food, |
`Online and }
` Drug and Mass__
`
`
`
`Other Retail |
`ei
`
`
`Retail Channels |
`Channels
`Online
`ook
`
`
`
`
`'
`and Other
`ood, Drug |
`
`
`
`9900M
`51.18
`Retail
`and Mass
`
`
`
`Channels||
`oe
`Retail
`
`
` Channels
`
`Source: Nielsen C-Store Database, Wells Fargo Securities, LLC estimates
`*Other Non-Tracked channels include tobacco-only outlets and other e-cig retail locations.
`
`Exhibit 4. Vapor Market Breakdown by Sub-Segment - Per Nielsen E-Cig Cat. Data
`
`Latest 4-Wk Sales Mix
`Total retail sales $156.6MM
`
`
`
`Latest 52-WkSales Mix
`Total retail sales $1,433.2MM
`
`
`
`Source: Nielsen Total US xAOC Including Convenience Database and Wells Fargo Securities, LLC
`
`4 | Wells Fargo Securities, LLC
`
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`

`

`
`
`Exhibit 5. E-Cig All Channel Data Summary (52-wk Cat. Retail $ Sales $1,433.2MM)
`okUa Coa SoAaue
`Dollar Share
`Retail $ Sales
`Unit Sales A y/y
`Avg. Unit Price A y/y
`Dollar Sales A yly
`
`
`Last 52 wks Period Ended 02/24/18|Period Ended 02/24/18Period Ended 02/24/18 Period Ended 02/24/18 Period Ended 02/24/18
`
`
`12-Wk
`52-Wk
`12-Wk
`52-Wk
`4-Wk
`12-Wk
`_52-Wk
`4-Wk__12-Wk
`52-Wk|
`_4-Wk__12-Wk__52-Wk
`(SMM)
`4-Wk
`
`JUUL LABS ING
`
`643.0%
`
`683.1%
`
`649.9%
`
`-4.0%
`
`1.0%
`
`613.0%
`
`686.6%
`
`49.6%
`
`47.8%
`
`31.1% 28.7%
`
`BRITISH AMERICAN TOBACCO PLC
`
`ALTRIA GROUPING
`
`IMPERIAL TOBACCO(prev. FONTEM)
`
`LOGIC (ow ned by Japan Tobacco)
`
`-1.3%
`
`-3.2%
`
`23.0%
`
`26.3%
`
`3.4%
`
`5.3%
`
`20.4%
`
`20.4%
`
`21.3%
`
`17.9%
`
`-2.1%
`
`-2.2%
`
`18.9%
`
`16.6%
`
`49.3%
`
`48.9%
`
`1.2%
`
`3.0%
`
`22.8%
`
`24.4%
`
`-29.6%
`
`-28.5%
`
`-13.5%
`
`-11.1%
`
`-8.3%
`
`-11.2%
`
`59.2%
`
`60.1%
`
`21.4%
`
`21.8%
`
`11.1%
`
`11.4%
`
`8.3%
`
`5.1%
`
`9.0%
`
`5.3%
`
`1.8%
`
`1.7%
`
`27.3% 27.7%
`
`16.9% 17.8%
`
`9.9% 10.6%
`
`7.6%
`
`3.3%
`
`7.8%
`
`33%
`
`0.8% 1.3%
`
`NJOY, INC.
`
`CB DISTRIBUTORS ING
`
`73.7%
`
`80.2%
`
`-30.1%
`
`-30.9%
`
`-0.1%
`
`0.7%
`
`-30.2%
`
`-30.38%
`
`0.7%
`
`0.7%
`
`1.0%
`
`11%
`
`BALLANTYNE BRANDS LLG
`
`-27.0%
`
`-28.4%
`
`-25.2%
`
`6.6%
`
`11.6%
`
`-22.2%
`
`-20.0%
`
`ALL OTHERS
`
`380.8%
`
`382.0%
`
`236.6%
`
`-1.3%
`
`-8.3%
`
`-20.4%
`
`-23.5% -25.1%
`
`Source: Nielsen Total US xAOC Including Convenience Database and Wells Fargo Securities, LLC
`
`0.8%
`
`1.3%
`
`0.7%
`
`2.2%
`
`0.7%
`
`2.3%
`
`Exhibit 6. All Channel E-Cigarette Dollar Share Trends
`
`With regard to e-cig Dollar Share performance, we note that Nielsen data does not capture the impact of
`couponing on sales performance, as it technically happens after the point of transaction (i.e., first scanned
`price). While we are not clear how much this skews our ability to gauge organic brand-level performance,
`we believe the discrepancy could be rather significant given the magnitude of couponing we understand is
`occurring presently in the category. For example, we have heardin the past of significant “coupon
`drops” driving sales of MarkTen XL and similar tactics employed by Logic and VUSE. As such, we
`caution against placing too much emphasis on Nielsen’s reported 4-week data and instead focus on
`longer-term, directional
`trends. *We note that NJOY emerged from Chapter 11 bankruptcy in
`February 2017 after filing for protection on 9/15/16.
`
`Note: We asked Nielsen recently to start breaking out performance for JUUL since we were aware of the
`brand’s impressive growth trajectory.
`
`_$ Share in E-Cigs- Reynolds VUSE
`
`W BAT's (VUSE) S Share in E-Cigs
`
`60
`
`50
`
`40
`
`30
`
`20
`
`10
`
`E-Cig 4-wk Share Perlormance Overall |
`
`(%)
`
`4-wkretail share performance
`wee BAT
`
`ce iO)
`
` concen JL UL
`
`watizese FONtEM
`(Blu)
`comligewes LOC
`
`seis NIJOY
`
`Source: Nielsen Total US xAOC/Convenience Database & Wells Fargo Securities, LLC
`
`
`
`
`
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`
`Fargo Securities
`
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`
`

`

`Tobacco
`
`Equity Research
`
`Exhibit 6 (cont). All Channel E-Cigarette Dollar Share Trends
`
`$ShareinE-Cigs-Bluu ts § Share in E-Cigs — Logic’
`@ blu E-Cigs $ Share in E-Cigs
`
`© Logic $ Share in E-Cigs
`
`‘$ShareinE-Cigs-MO 9. . | $Sharein E-Cigs-NJOY |
`
`SMARKTEN
`
`®MARKTEN XL ®MARKTEN XLBOLD
`
`&& GREEN SMOKE
`
`@ NJOY S Sharein E-Cigs
`
`(%)
`
`Ha,
`
`J
`
`Declared bankruptcy
`Sept 2016
`
`Emerged..from
`bankruptcy Feb 2017
`
`18.0
`16.0
`14.0
`12.0
`10.0
`8.0
`6.0
`4.0
`2.0
`
`
`
`Note: blu was acquired by Imperial Tobacco as part of Lorillard’s acquisition by Reynolds American in June 2015. Logic
`was acquired by Japan Tobacco in July 2015. Source: Nielsen Total US xAOC/Convenience Database & Wells Fargo
`Securities, LLC
`
`Exhibit 7. All Channel E-Cigarette Category Pricing, Volume & Sales Trends
`
`E-Cig Category (4-wk performance)
`sits
`____
`
`WBBM Pricing ——Sales Growth
`
`208 Volume
`
`OR@8 Pricing
`
`=@—Sales Growth
`
` He i MILT Hi ly MT SII UTld WL WH WW LTH Wd k WWW, PO
`BAT VUSE (4-wk performance) WE Volume
`50% 0% eee
`
`200% 3
`
`150% +
`
`100% -4
`
`50% e
`
`200%
`
`~ 150%
`
`100%
`
`0%
`
`2013
`
`2014
`
`2015
`
`2016
`
`2017
`
`Source: Nielsen Total US xAOC/Convenience Database & Wells Fargo Securities, LLC
`
`6 | Wels Fargo Securities, LLC
`
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`

`

`me
`Sag
`ch blu
`
`
`
`Exhibit 7 (cont). All Channel E-Cigarette Category Pricing, Volume & Sales Trends
`
`_Blu* (4-wk performance)
`
`(Oe Volume ROB Pricing Sales Growth
`
`Wee Volume Ba Pricing
`
`s==—=Sales Growth
`
`
`
`30%
`20%
`~ 10%
`0%
`
`30% +
`20% ~
`10% +
`0% -
`
`-10%
`
`
`
`-10%
`
`/
`
`EN tronsrre
`ce
`
`ry .
`
`-20%
`+ -20%
`-30%
`L -30%
`-40% *|
`-40%
`50% 4
`L -50%
`
`0% jblDalalLebar [eleTolelilebdabdsTTolsebelt bchLesleeI
`
`2017
`2016
`/
`2017
`2016
`2015
`|
`__ Altria MarkTen & Green Smoke(4-wk performance) | ==. NJOY(4-wkperformance) |
`
`
`
`
`
`
`
`228 Volume EEE Pricing =e=Sales Growth (G8 Volume—ERE Pricing <—-Sales Growth
`
`300%
`250% *
`200%
`150%
`
`100%
`50% «
`
`50%
`-100% +
`
`
`
`
`1
`
`:
`
`/
`y
`1s lehalals|salslolwlo slehaaotlsalslololoa|«
`2016
`2017
`
`* 300%
`- 250%
`- 200%
`- 150%
`
`100%
`50%
`
`-
`
`s0%
`.
`» -100%
`
`600%
`500%
`400%
`300%
`
`200%
`
`0% prepeinie’ oT oarertNeer
`100%
`00% UTADA CTLHe AU CUTSBU ETAT TY WT YEE UY1 TT
`2013
`018
`2015
`4
`2016
`|
`2017
`
`Note(*): blu was acquired by Imperial Tobacco as part of Lorillard’s acquisition by Reynolds American in June 2015.
`Logic was acquired by Japan Tobacco in July 2015. Source: Nielsen Total US xAOC/Convenience Database & Wells Fargo
`Securities, LLC
`
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`

`

`Tobacco
`
`
`
`Exhibit 8. E-Cig Refills - All Channel Data Summary (52-wk Category Retail $ Sales
`$1,041.7MM)
`
`
`
`
`
`
`
`
`
`
`E-CiG FEFILL- All Channel Scanner Date Summary
`S|Retail$Sales DollarShare|_UnitShare|Last 52 wks EQUnitSalesAy/y Avg. EQPriceAyly DollarSalesAyly
`
`Period Ended 02/24/18 Period Ended 02/24/18|Period Ended 02/24/18Period Ended 02/24/18 Period Ended 02/24/18
`
`
`4-Wk
`12-Wk__52-Wk
`4-Wk
`12-Wk__52-Wk
`4-Wk
` 12-Wk__52-Wk|_4-Wk_12-Wk_=52-Wk|_4-Wk_12-Wk_52-Wk
`($MM)
`
`674.6% 692.4% 655.0%
`674.6%
`692.4% 655.0%
`
`3.9%
`3.9%
`
`4.1%
`4.7%
`
`BRITISH AMERICAN TOBACCO PLC
`
`“1.5%
`-1.5%
`
`4.0%
`-4.0%
`
`e
`5
`
`22.6% 22.1%
`22.6% 22.1%
`
`:
`.
`
`F
`.
`
`6.0%
`755.8% —-45.5%
`705.0% 729.0% 724.8%
`
`20.7%
`20.7%
`
` ATB%
`17.3%
`
`15.8%
`5
`
`E
`;
`
`|
`.
`
`18.6%
`18.6%
`
`39.5%
`39.5%
`
`
`
`
`
`ALTRIA GROUP INC 21.0%—17.4%: 31.2% 36.0% : : 58.7% 49.6% E 23.2%
`
`
`
`
`
`MARKTEN XL
`14.0%
`15.1%
`z
`22.0%
`18.5%
`.
`39.1%
`36.4%
`.
`-
`19.8%
`MARKTEN XL BOLD
`169.4%
`238.0%
`15.9%
`11.8%
`.
`212.2% 277.4%
`.
`:
`2.6%
`MARKTEN
`++
`++
`34.1% 29.8%
`.
`++
`++
`.
`5
`0.6%
`GREEN SMOKE
`-64.4%
` -52.5%
`23.9%
`15.1%
`-
`-55.8% -45.5%
`.!
`“
`0.2%
`
`
`
`
`
`
`
`
`JAPAN TOBACCOINC. “83.7%|+33.2%44.2% ALT 5 5 “43% “1.3% : 5 9.2%
`
`
`
`
`LOGIG
`44.2%
`47.7%
`.
`“33.7% -33.2%
`.
`-4.3%
`-1.3%
`.
`.
`9.2%
`
`IMPERIAL TOBACCO GROUP PLC
`BLU ECKGS
`
`71.8%
`5.1%
`
`“1.7%
`-5.9%
`
`A
`
`0.2%
`0.2%
`
`0.7%
`0.7%
`
`.
`
`1.6%
`-4.9%
`
`Bi
`“11%
`5.2% -1.
`
`:
`
`-
`
`41%
`3.7%
`
`1.9%
`’
`:
`BZ.7% -28.9%
`‘
`2.0%
`2.8%
`-B1.0%
`“29.7%
`CB DISTRIBUTORS INC.
`
`
`
`21ST CENTURY SMOKE “13.9%—-14.2% 3.7% 3.9% .! -10.7% -10.8% -5. 4 1.2%
`
`
`
`
`
`VAPIN PLUS
`-50.9%
` -51.9%
`F
`-10.1% -10.1%
`.
`-55.9% -56.7%
`-
`5
`0.7%
`
`
`
`
`BALLANIYNEBRANDSLLC “28.7%—-25.4%| “31.3% -32.6% . 3.8% 10.5% E i : : 11%
`
`
`
`
`
`
`
`
`
`
`HAUS -34.3% —-35.1% . 5.0% 8.9% . -31.0% -29.2% 5 - 0.7%
`
`
`
`
`
`
`
`
`
`MSTIC -30.3% —-33.6% ; -2.8% 6.5% : -32.2% -29.0% - ; 0.4%
`
`
`
`
`
`
`
`
`ALL OTHER MANUFACTURERS 7.2%—+10.2% +24.8%—+30.1%. 19.0% -22.3% i . 2.2%
`
`
`
`
`
`
`Source: Nielsen Total US xAOC Including Convenience Database and Wells Fargo Securities, LLC
`
`
`
`
`
`Exhibit 9. E-Cig Disposables - All Channel Data Summary (52-wk Category Retail $
`Sales $150.2M)
`
`
`E-CiG DISPOSAGLE- All Channel Scanner Data Summary
`
`Retail $ Sales |—*UnitShareEQ Unit Sales Ay/y Avg. EQ Price A y/y Dollar Sales A y/y DollarShare
`
`
`
`
`
`
`
`
`
`Last 52 wks Period Ended 02/24/18|Period Ended 02/24/18Period Ended 02/24/18 Period Ended 02/24/18 Period Ended 02/24/18
`M)
`4-Wk
`12
`4-Wk
` 12-Wk —52-Wk
`4-Wk
`Wk
`52.
`-Wk
`12-Wk
`52.
`4-Wk
`12-Wk
`52.
`
`
`
`IMPERIAL TOBACCO GROUP PLC
`BLU ECKGS
`
`6.1%
`6.1%
`
`13.9%)
`B.0%
`8.0% 13.9%]
`
`-0.5%
`-0.5%
`
`NJOY, INC.
`NJOY
`
`81.5%
`81.5%
`
`100.9% 13.9%!
`100.9%
`
`-4.3%
`-4.3%
`
`i.
`.
`
`.
`.
`
`5.6%
`5.6%
`
`31%
`73.7%
`
`:
`.
`
`:
`.
`
`101% 71.2%
`70.1% 71.2%
`
`20.4% 18.9%
`20.4% 18.9%
`
`
`
`
`
`
`
`JAPAN TOBACCO INC. 96.7%—-95.6%: | : 10.2% . -96.7% . 0.4% 0.5%
`
`
`
`
`
`-96.7%—-95.6% . -0.2% . -96.7% . 0.4% 0.5%
`
`
`
`
`
`
`
`“6.4%
`-6.4%
`
`1.8%
`1.8%
`
`2.0%
`2.0%
`
`:
`5
`
`“45%
`-4.5%
`
`27.8%
`,
`20.4%
`40.0% 41.2%
`f
`Source: Nielsen Total US xAOC Including Convenience Database and Wells Fargo Securities, LLC
`
`zi
`.
`
`,
`
`TAS
`7.4%
`
`18%
`7.8%
`
`1.7%
`
`1.6%
`
`8 | Wels Fargo Securities, LLC
`
`JLI Ex. 2032, Page 8 of 15
`JL’'S CONFIDENTIAL BUSINESS INFORMATION SUBJECT TO PROTECTIVE ORDER
`JLI-NJOY-ITC1368-02013578
`
`JLI Ex. 2032, Page 8 of 15
`
`

`

`me
`Sag
`ch blu
`
`
`
`Exhibit 10. E-Cig Kits - All Channel Data Summary (52-wk Category Retail $ Sales
`$241.3M)
`
`Feeee
`Retail $ Sales Dollar Share|_-UnitShare|EQ Unit Sales A yy Avg. EQ Price A yly Dollar Sales A y/y
`
`
`
`
`Last 52 wks Period Ended 02/24/18|Period Ended 02/24/18Period Ended 02/24/18 Period Ended 02/24/18 Period Ended 02/24/18
`
`
`
`
`
`
`
`
`
`
`
`
`MM _52-Wk|=4-Wk_12-Wk__52-Wk4-Wk 12-Wk _52-Wk 4-Wk 4-Wk 12-Wk_ 4-Wk_ 12-Wk__52-Wk
`
`
`BRITISH AMERICAN TOBACCO PLC
`VUSE
`
`1.1%
`11%
`
`3.4%
`3.4%
`
`F
`
`85% 9.4%
`8.5%
`9.4%
`
`H
`!
`
`27% 13.0%
`9.7%
`13.0%
`
`29.5%
`29.5%
`
`6.4% 1.3%
`
`24.3%
`
`
`
`
`
`
`ALTRIA GROUP INC “210.8%—-12,0% 0.9%©=10.: 15.0% 13.1% ‘i 2.6%
`22.7%
`MARKTEN XL
`“11.1%
` -12.8% -10:
`16.4% 14.2%
`-1.
`3.4%
`-0.7%
`
`
`
`
`
`
`MARKTEN -77.4%—-84.9%“721% -83.2% -97. “19.1% -9.1% -15. 0.0%
`GREEN SMOKE
`-83.9%
`-77.8% -39.
`29.2% 28.4%
`B
`-79.3% -71.5%
`0.0%
`
`JAPAN TOBACCO INC.
`LOGIC
`
`554% —
`54.1%
`
`87.6%
`56.5%
`
`E
`-
`
`“106% 57% 6.
`9.9% -5.2%
`-5.
`
`39.0%
`38.7%
`
`48.6%
`48.4%
`
`B5%
`
`ALL OTHER MANUFACTURERS 275.0%—356.9%25.4% 9.1% 39. 14.6% 66% .
`
`
`
`
`
`
`Source: Nielsen Total US xAOC Including Convenience Database and Wells Fargo Securities, LLC
`
`Key Takeaways from Q4 “Tobacco Talk" Retailer Survey
`
`Smokeless Tobacco & Vapor/E-Cig/RRP O4 Trends
`
`Retailers Expect Smokeless Tobacco Industry Vol to Increase ~3.4%in 2018 in Line With
`Our +3.5%Est. - We Expect Q4 Volume Picked Up Following A Slow Recall Recovery Post
`USSTC’s Jan Recall
`
`Retailers Are Growing Increasingly Bullish on the E-Cig/Vapor Category (“Re-Birth”) as
`Product Quality Rises Led By JUUL, VUSE & Optimism About iQOSHitting Shelves in 2018
`
`Retailers Are Broadly Optimistic About RRPs With 75% Planning to Carry iQOSin Their
`Stores When Commercially Available & 33% Planning to Allocate Addt'l Shelf Space To It
`
`JUUL Outperforming as it Captures Millennial Consumer Interest With “Apple-like
`Approach”- Vuse Vibe Seen Cannibalizing VUSE Sales - MarkTen ShowsLimited Growth
`
`iQOS/RRP Opportunity Given FDA’s New Nicotine
`Retailers Are Most Excited About
`Strategy; Most Concerned About Margin Compression & FDA Delaying RRP Approvals
`
`Vapor/E-Cig Trends
`
`Retailers Are Growing Increasingly Bullish on the E-Cig/Vapor Category (“Re-Birth,”
`“Outstanding”) as Product Quality Rises Led By JUUL, VUSE & Optimism About iQOS
`Hitting Shelves in 2018
`
`JLI Ex. 2032, Page 9 of 15
`JLI’'S CONFIDENTIAL BUSINESS INFORMATION SUBJECT TO PROTECTIVE ORDER
`JLI-NJOY-ITC1368-02013579
`
`Wells Fargo Securities, LLC | 9
`
`JLI Ex. 2032, Page 9 of 15
`
`

`

`Tobacco
`
`Equity Research
`
`
`
`
`
`16.8%
`
`12.1% fo
`
`4.1%
`
`6.7%
`
`Qi
`
`Q2
`
`Q3
`
`Q4
`
` ——-2018E
`
`2017E Outlook
`
`Outlook
`
`launching similar technology
`
`in near future.”
`
`a ___Broadly Speaking, HowDoYou Think the Entire E-Cig/Vapor Categoryis Performing? —_
`“Good”
`"Declining - Vuse is the only driver.”
`"Very well. Re-birth.”
`*Outstandingly well.”
`"Weill"
`"It is stable. RIRT continues to lead this category with VUSE although it remains a very small portion of the OTP Category. E-
`Liquids continue to fall.”
`"Old pen styles of e-cigs are steadily decreasing sales.”
`"Very
`poorly.”
`"Itis not. We reduce selling them in 211 stores down to 60 at this time.”
`"Slow for us. Still too much uncertainty in the market.”
`"Outstanding growth in this category. E-Cig growth driven by JUUL....sales are amazing!! Vapor continues to grow....open tank
`systems still king.”
`"Growing well - look to see RIRT & Altria compete with JUUL by
`"Flat to up slightly.”
`“Fair however, it appears that there are a number of new Blu items and JUUL is gaining traction."
`"Okay,
`If it wasn't for JUUL,
`the category would be down."
`*"Vuse is doing well. Blu is so-so and Mark Ten not so good.”
`"Leave these at Vape shops where there is time to explain and they know more about the productlines.”
`"See strength within the Closed system. See a weak come back in the open systerns in the State of Indiana. State law was
`recently changed to allow greater entry
`in this open system juices and devices."
`"Same."
`"JUUL driving the market in c-stores. Vuse following. Not much else going on, but some lift due to JUUL."
`“2-3 big players and hundreds of dwarfs.”
`“It's flat but with resurgent pockets. We carry a private Vape line that does well. VUSE and VIBE do a good business and so
`does Logic in our stores.”
`“Flat”
`small piece of the overall business.”
`“Responding well over the past several months. Still a very
`“A total non-factor.
`I think the manufacturers invested a great deal of funds in the category and are trying to force no-selling
`roducts into wholesalers to appease investors.”
`“2017 was a strong
`year for vaping end it looks like JUUL is poised to become number 1.”
`“Very weil”
`“Strong.”
`“Tt performed very well
`through new product.”
`“The category stabilized in 2017. With new lines of Vuse Ciro, MyBlue and iQOS I think the categoryis in store for a significant
`sales and share jump in 2018.”
`“Badly”
`“Above my best estimate.”
`“Not living up to the hype so far.”
`“Flat”
`“Fairly well. However, we are not seeing the large increase ] would have expected.”
`“Under performing thus far. Giving it additional space in 2018 to better position it for future growth and the opportunity to
`becorne the combustible of the future generations.”
`“Small sub-category but growing.”
`
`in 2017 on the back of Vuse.
`
`It will be difficult to have those results in 2018 unless there is a break
`
`10 | Wells Fargo Securities, LLC
`
`JLI Ex. 2032, Page 10 of 15
`JLI’'S CONFIDENTIAL BUSINESS INFORMATION SUBJECT TO PROTECTIVE ORDER
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`JLI Ex. 2032, Page 10 of 15
`
`

`

`Sur Evening With blu
`
`Source: Wells Fargo Securities, LLC
`
`Equity Research
`
`Retailers Are Broadly Optimistic About RRPs With 75% Planning to Carry iQOS in
`Their Stores When Commercially Available (We Think in the Next Few Months) &
`33%Planning to Allocate Additional Shelf Space To It
`Select Retailer Comments
`e
`“I believe this segment will eventually replace cigarettes completely in years to come.”
`
`e
`
`“PM needs to find a way of simplify the use of the products being developed so they can capture
`a broader baseoffolks...and not only the Tech savvyfolks.”
`e “It will take time to educate customers...”
`
`_ Retailer Outlook on Future ofReduced-Risk Products (RRPs)
`
`__
`
`Q12017 WQ2 2017
`
`Q3 2017
`
`Q4 2017
`
`75%
`Plan to Carry iQOS
`
`
`
`29% 30%
`
`
` 3% 3% 2%
`
`No Increase
`
` Yes, Increase
` No Plans to
`
`
`Unsure/Too Early |
`
`
`Optimistic & Plan to Carry iQOS
`& Incr/Decr Space to Altria
`
`Carry iQOS
`
`
`
`_____ Are you optimistic or pessimistic about the future of reduced-risk products (RRPs)? What do you think ofthe
`| opportunityforPM's iQOS heat-not-burn platformin theU.S. (Altriahas commercialization rightsintheU.S.pending
`FDABeproyele Has yor Altria sales repfalkee to you about iQOS yet? Willyou carry:iQ0S?if S50, will yeu give
`_Altriaincrementalspace?—__
`oo
`"Altria needs to really display a concrete roadmap on the product since sales say one thing but the product use needing a coach
`and the physical unit buy
`at a pop up mall shop makes it seem a little too much an obstacle at the moment.”
`"I believe this segment has a positive future. I also believe it will not require additional space and only take away from existing
`cigarette space. The space allocation will be determined by how Altria and their competitors develop and market products. Initial
`introduction of these products will
`likely be merchandised within Altria's existing space and same for other manufacturers.
`I
`believe this segment will eventually
`replace cigarettes completely
`in
`years to come.”
`"Altria gave us 1 foot racks to place our e@ cigs and other tobacco at the end of last year. I believe they will Place these on these
`racks.”
`"I believe there will be many benefits to the product. However, much will depend how Altria communicates these benefits to
`consumers and can show them how to use the device and product."
`"RRP's are a great addition to the category. 1QOS will gain trial and a base, however it is being way over sold by analysts and the
`hype by
`the media. Take it down a notch guys.”
`"These products don't sell well in areas our stores are located. They take up too much room, too much inventory money and don't
`move. Just like the MarkTen failed because it was horrible.”
`"We've seen strong demand for Altria's Green Smoke brand, somewhat less optimistic on their Mark Ten brand. Customers
`haven't seen to adapt well to the MarkTen or requested this product, despite wider distribution.”
`1005S
`“Unsure if we will carry; dependent upon price and ROI. Also dependent if they force this into their cigarette contracts.
`appears to be an expensive product.
`PM could be playing a very shrewd hand, by passing along such large and early cost
`increases in cigarettes during 2017 to narrow the gap between premium combustible cigarettes and IQ0S.”
`“This is an exciting development that I think has great upside potential. PM needs to find a way of simplify the use of the
`products being developed so they can capture a broader base of folks who are looking at alternatives to traditional products and
`not only
`the Tech savvy
`folks.”
`“It will take time to educate customers so it will have little impact at first.”
`“We have not had any specific conversations regarding this product. However, when and if we carry this Altria will need to work
`this into their existing space.”
`Source: Wells Fargo Securities, LLC
`
`JLI Ex. 2032, Page 11 of 15
`JLI'S CONFIDENTIAL BUSINESS INFORMATION SUBJECT TO PROTECTIVE ORDER
`JLI-NJOY-ITC1368-02013581
`
`Wells Fargo Securities, LLC | 11
`
`JLI Ex. 2032, Page 11 of 15
`
`

`

`Tobacco
`
`Equity Re
`
`
`JUUL Outperforming as it Captures Millennial Consumer Interest With “Apple-like
`Approach” - Vuse Vibe May Be Cannibalizing VUSE Sales - MarkTen Seeing Limited
`Growth
`
`Select Retailer Comments
`e
`“JUUL just keeps growing.”
`
`e
`
`“JUUL's growth appears to be due to growth with the 18 to 24 year old age group. This group has
`disposable income and finds the product an attractive alternative to combustible cigarettes.”
`
`e “..Jimited movement on Mark Ten.”
`
`e “Vuse growth slowed down and Vibe cannibalized much of Vuse sales. We do not carry JUUL but
`it was the first of its kind with an "Apple" like approach to the category catching fire with
`millennials.”
`
`e
`
`“Thinking about eliminating BLU”
`
`and do you expect that to continue? What other trends are you seeing in this category?
`
`_HowareMarkTen, VUSE and JUUL performing?WhatdoyouthinkaccountsforJUUL's strong recentoe
`“Good”
`"Vuse performs well; MarkTen still stagnant; Not carrying JUUL but considering.”
`product.”
`"Vuse well, Adding JUUL now. Some lower priced JUUL knock offs may
`do well. Or a “like” trandy
`"Customer interest in MarkTen has been little to none. VUSE remains competitive and JUUL growth end is at least outside of O1.”
`"JUUL is doing great."
`"We do not carry JUUL and Mark Ten was only recently reintroduced in WV I have seen some limited movement on Mark Ten
`while VUSE holds to top share spot by
`a long shot.”
`"
`"These brands are not growing in our stores. We did a Major cut back because of the slow sales we had I this category.
`"T think JUUL will be a fad and will end at some point. At this time still gaining traction if they can keep up with distribution
`demand.”
`
`"JUUL is doing great when we can getit, and it looks like their supply chain issues are easing.”
`"JUUL is driving a-cig category in our stores! Mark Ten showing small growth. Vuse/Vibe declining sales. Thinking about
`eliminating BLU.... maybe new BLU QUUL copycat item) my help them.”
`"Don't have JUUL in stores
`yet - rolling out in 2018. MarkTen & Vuse are stagnant.”
`"Progressing. It’s a better fit for most consumers.”
`"Mark Ten is flat however, seeing some growth in new flavors. Vuse is growing due to new Vibe and expansion of Ciro. JUUL’s
`growth appears to be due to growth with the 18 to 24 year old age group. This group has disposable income and finds the
`product an attractive alternative to combustible cigarettes.”
`"MarkTen was horrible VUSE not much better but RIR continues to push it. JUUL actually not bad but not in our stores. They seem
`very popular in stores that carry
`them butlimited in where located.”
`"JUUL continues to grow strong--based on increased availability of product. Mark Ten--sales ramain sluggish. Vuse--double sales
`of Mark Ten Logic--strong sales, outsells Mark Ten and Vuse CUE,
`--outsells all devices
`in closed system category.
`Njoy---great sales with limited distribution within our stores, planning on additional roll out. Green Smoke--Great sales with no
`support from Altria
`(concerned about this brand fading away, with the strong sales originally
`as a "test market”.’
`“JUUL strong Vuse flat Mark Ten down."
`JUUL.”
`“MarkTen not a player. VUSE & Blu doing well. Do not carry
`“We don't carry
`JUUL but VUSE is doing well with Mark Ten making some noise.”
`“The items are performing fine, still seeing steady growth. We are just now planning to add JUUL in some locations to measure
`guest interest. We are also considering Kian from CB Distributors. This is a new nicotine salts Pod system.”
`“We have not sold a unit in over two months of either.”
`“MarkTen and Vuse had solid growth while JUUL exploded with 600% growth. All others were flat to declining.
`growth to be more in line with Vuse in 2018.”
`“JUUL is the clear winner still.”
`“JUUL is trending better than the other two. Mainly driven by younger adults. Vuse Ciro is much better than Mark Ten and sales
`show it.”
`“Mark Ten is only doing OK not a big player. Vuse continues to have the majority of the market. We are just getting into JUUL.
`Will see if this is the new break through item for us.”
`“Mark Ten has been consistent performer this year right alongside Blue. Vuse growth slowed down and Vibe cannibalized much of
`Vuse sales. We do not carry JUUL but it was the first of its kind with an “Apple” like approach to the categ