NICOTINE STAYS, TOBACCO GOES

Source from:  By HAROLD BRUBAKER Philadelphia Inquire PHILADELPHIA 11/24/2006

Texas snuff made of tea leaves Soon after getting married in 1998, Bill Whalen and his wife made a wager on which of them could give up tobacco first. Whalen's wife, a casual smoker, quit in two weeks, but Whalen couldn't kick the Skoal habit he had picked up as a freshman on the University of Pennsylvania football team. "I was the guy who would dip a can a day," Whalen said. At breakfast one day, a solution came to him: Replace the tobacco leaf -- and its 28 carcinogens -- with an innocuous leaf and add the nicotine. That way dippers could keep on dipping, getting their nicotine fix, without the trouble of mouth sores and the worry about cancer. Of course, no government agency or scientific review board has concluded that the product is not carcinogenic -- and Whalen aims to keep the product free of the FDA's review. After five years of developing the product and generating less than $10 million in venture capital funding, Whalen, of King of Prussia, Pa., launched Blue Whale -- made of tea leaves laced with nicotine extracted from tobacco -- last month in Texas, the largest market for moist snuff. Retailers in Texas said Blue Whale has not been in stores long enough to judge how it's doing. About 2,000 stores carry it, said Mike Gerhard, senior vice president of TNT Marketing in Arlington, Texas, Blue Whale's sales broker. Whalen, who would not disclose privately held Blue Whale Worldwide's sales, put tremendous effort into positioning Blue Whale in a "gray area" between the jurisdiction of the federal Food and Drug Administration and regulations that would tax it as a tobacco product. He hopes to avoid the FDA by using a tobacco extract for nicotine instead of pharmaceutical-grade nicotine. FDA officials said they were aware of the product, but a spokesman handling it did not return calls for comment. Because it is made of tea leaves instead of tobacco, Whalen expects it to be exempt from taxes on snuff -- but Texas has an unexpected wrinkle in its law. Texas' Comptroller's Office said Blue Whale and other tobacco substitutes are subject to a 35 percent excise tax on snuff and chewing tobacco. Whalen is tackling the smokeless tobacco market just as Big Tobacco is zeroing in on it as a way to make up for falling cigarette sales. The long-term trend has been given new teeth by the spread of smoking bans. Philip Morris USA said in July that it was test-marketing Taboka Tobaccopaks -- spit-free tobacco pouches -- in Indianapolis to see if smokers can be enticed to switch. Reynolds American Inc. spent $3.5 billion in May for the nation's second-largest smokeless tobacco company. Lorillard Tobacco Co. is working with snuff maker Swedish Match on smokeless tobacco products. United States Smokeless Tobacco Co., which makes Copenhagen and Skoal, the two largest brands, each generating more than $1 billion annually at retail, is going after smokers with Revel tobacco packs, which are like little tea bags. "Smokeless tobacco is the only growing segment of the tobacco industry," said Mike Bazinet, a spokesman for U.S. Smokeless Tobacco Co. Sales of smokeless tobacco, mostly snuff that users place between their cheeks and gums, hit $3 billion last year in the United States, up 7 percent from the previous year, according to data-tracker ACNeilsen. The federal Centers for Disease Control and Prevention estimated that 2.3 percent of adults in the United States and 7 percent of high school students use smokeless tobacco. The U.S. cigarette market is worth $80 billion, and has been shrinking by 2 to 3 percent during the past five years, according to Reynolds American. Whalen, 33, is not the first with an alternative smokeless tobacco product, but his is the only one with nicotine, he and others in the industry said. Smokey Mountain, which is made of corn silk and red clover blossoms, was developed in 1985. Company president Dave Savoca said the brand has been growing every year, but that "it's very difficult for a small company to realize the potential." Other moist snuff alternatives include Smokey Mountain, Bacc-Off, Oregon Mint and Golden Eagle. Those companies use mint, tea and herbal blends. Whalen, whose father had a flower nursery in Drexel Hill, Pa., worked for a seed broker in King of Prussia, Henry F. Michell Co., for 11 years after graduating from the Wharton School in 1995. That experience gave him the background to start from scratch in developing Blue Whale. Whalen said he analyzed 380 plant species before settling on four good candidates, based on the texture of their dried leaves: collards, spinach, pansies and tea. Pansies were perfect, Whalen said, "but no self-respecting dipper is ever going to put pansies in his mouth." He couldn't overcome the flavor of collards, and the spinach leaf was right, "but you still spit green and the taste is unmistakable." He settled on a blend of teas that packs well, "so you don't have a lot of floaters," or bits that break free of the wad. A British biochemist, John Walters, developed the "secret sauce" that supplies the essence of tobacco for Blue Whale, Whalen said. That extract is also used in NicoGel, another product by Blue Whale Worldwide, which smokers can spread on their hands to get a shot of nicotine at times when they can't smoke. Whalen's marketing plans for Blue Whale include radio and television advertising, sponsorships of bull riders, and, possibly, an endorsement from the Oral Cancer Foundation, a nonprofit advocacy group for cancer victims. Brian Hill, the group's founder and executive director, said three-quarters of oral cancer cases come through tobacco, many of them through snuff. That makes Hill eager to learn exactly what's in Blue Whale. "If Bill Whalen has a really good product, we could get behind it," Hill said. Enditem