2021 – A Year in Review

Looking back over the year that was, a few key trends and developments spring to mind that can be summarised in the following headlines:

• Security solution providers continue to invest in digital security printing.

• Liberia, Bahrain, Qatar, Pakistan introduce tax stamps for first time.

• New tax stamp tenders call for extensive systems on multiple products.

• Cannabis legalisation and supply chain control – not easy!

• Cannabis can learn from tobacco and alcohol – and vice versa.

• Illicit tobacco goes local as a result of pandemic.

• Smartphones that ‘see’ and authenticate holograms, just like the human eye.

If we start from the top, a key trend this year related to the continued interest and investment in digital security printing technologies by established companies in the high-security domain.

2021 saw OpSec Security investing in Europe’s first HP Indigo 6K Secure Digital Press, with single-pass productivity and secure variable data options. OpSec advised that the press, in conjunction with its OVD technologies, would plays a central role in the company’s tax stamp and brand protection solutions.

Another development came from De La Rue, which has created a novel inkjet system for secure digital print, called JetSecure™. This open architecture, single pass press uses commercial printheads with innovative modifications to produce security features in layered combinations that are beyond the capability of commercial digital printers.

The company advised it would be offering this technology to the entire label and packaging supply chain, by either making the JetSecure press available to customers who would do their own printing, or by carrying out the printing itself for customers who required finished labels.

These developments offer a clear sign that providers in the security industry are increasingly adopting digital printing techniques to produce ‘mid’ level secure documents such as tax stamps and brand protection labels.

Tax stamp first timers

2021 also saw some countries introducing tax stamps for the first time, including Pakistan and Liberia, as well as two countries in the Middle East: Bahrain and Qatar. And a third Middle Eastern country that currently doesn’t use tax stamps, Oman, issued a tender in March for physical markers (stamps) and digital markers (printed codes) on imported and domestically manufactured tobacco products.

Far-reaching tenders

Increasingly, tax stamp tenders are calling for comprehensive systems that stretch far beyond tobacco and alcohol, and that cover physical tax stamps, direct tax marks, secure track and trace and production line monitoring. And 2021 was no exception.

In particular, Georgia issued a tender for physical tax stamps for tobacco products and spirits, as well as direct tax marks for beer, mineral water and soft drinks (given that its existing contract, with SICPA, was due to end in 2021).

Under the tender, each stamp/mark would carry a unique, encrypted 2D barcode, recorded in a central traceability system, and providers were asked to develop a smartphone app for scanning the code.

Furthermore, the tender called for a real-time production line monitoring system with the ability to halt production if defects were detected.

Field inspectors would be equipped with 100 electronic devices, with GPS functionality, for authenticating physical and digital elements of the stamps/marks and for tracing product-related information via the unique code.

Finally, bidders were asked to demonstrate the concept of how a so-called command and control centre for the programme would be structured.

A second tender example came from Malawi, for a tax stamp, monitoring and authentication solution for tobacco, spirits, wine, beer, maheu (non-alcoholic drink made from fermented maize), soft drinks, energy drinks, bottled water and sugar. Like Georgia, the tender called for near real-time production line monitoring, provision of a smartphone app and installation of a data management system.

The perilous path to cannabis legalisation

We also heard that although cannabis has been heralded as one of the fastest growing industries on the planet, the path to cannabis legalisation in the United States has been fraught with potential regulatory loopholes and enforcement weaknesses, all of which could help to fuel illicit trade.

To demonstrate, Sven Bergmann, a regular contributor to this newsletter, referred to a loophole in the California Department of Cannabis Control’s (DCC) seed-to-sale track and trace system which was allowing so called ‘burner distributors’ to go about their illicit business undetected.

The modus operandi of these illicit actors consisted of first obtaining a state distributor licence to buy cannabis from fully compliant growers (which they were able to obtain very easily). Then, instead of selling the product to licensed dispensaries, they diverted it to illicit sellers in California and beyond. Whenever the threat of enforcement loomed, they promptly shut down the operation and vanished.

California’s track and trace system was supposed to thwart this kind of scheme by identifying diverted volume or by flagging suspicious transactions. However, due to the loophole in the system (which was detected by Metrc, the track and trace provider for California), these transactions were not being flagged, which meant an immediate upgrade or software fix was called for.

Cannabis can learn from tobacco and alcohol

Still on the subject of cannabis, another issue raised with regard to the cannabis seed-to-sale platforms currently used in the US was that, unlike programmes for tobacco and alcohol, these platforms weren’t providing physical marking security at the retail unit level. This ran the danger of creating significant compliance gaps, given that authorities were not able to visually differentiate legal from illicit products.

Cannabis administrators were therefore advised to consider adopting secure product marking programmes that tied in with existing track and trace systems.

A key message here is that cannabis supply chain control programmes can learn from tobacco and alcohol programmes, which have been in operation for years and which have therefore proved themselves.

At the same time, tobacco and alcohol could draw from the cannabis practice of implementing track and trace right at the start of the supply chain, when the plant is just a seedling, compared to tobacco and alcohol track and trace which is generally only activated on the finished product.

Which leads us to the final development in this review.

Illicit tobacco goes local

No review of 2021 would be complete without mention of the COVID-19 pandemic and the dramatic effect it has had on almost everything – including illicit trade.

Unfortunately, rather than reducing illicit trade, the pandemic simply morphed it into a new shape, advised Sven Bergmann. Blocked by border closures and hampered by lockdowns, illicit networks were able to adapt their ‘business models’ to fit this new reality.

As far as illicit tobacco in Europe was concerned, instead of smuggling and trafficking genuine cigarettes along arduous international routes and navigating through multiple closed or fortified borders, criminals simply relocated their illicit production facilities from outside the EU into the very heart of the EU.

The situation was similar in Australia. In 2020, as shipment and supply routes were disrupted and the country started sealing its borders, criminal organisations were able to capitalise on investments and nascent illicit production facilities already in place domestically, including increasing the size of their home-grown tobacco crops.

To combat this new production model, Sven advised that enforcement authorities needed to shift their focus to cutting off illicit production, using measures such as global track and trace of raw materials unique to cigarette production – namely, raw leaf tobacco, cellulose acetate (for filters) and cigarette paper.

So, will this be a new trend going forward for tobacco supply chain control – ie. extending track and trace systems to cover raw materials as well as the finished product?

Well, it’s certainly something that is underway in Ontario, Canada, where a Request for Information was issued earlier this year for a solution to manage and monitor the production and movement of raw leaf tobacco produced in or imported into the province. The solution aims to address a continuous increase in illicit tobacco manufacturing, wholesale and retail operations on First Nation reservations.

Smartphones that ‘see’ holograms’

Finally, a continuing trend this year relates to smartphones that are able to ‘see’ and authenticate holograms (frequently used on tax stamps). This capability is achieved through integrating the cameras found in smartphones with computer vision algorithms provided in an app. The result is a smartphone able to replicate the human vision system in differentiating a genuine hologram from a fake.

Several developments in this domain were announced throughout the year, including OpSec® SmartCheck from OpSec Security, a proprietary, smartphone-enabled solution using artificial intelligence to validate optically variable devices (OVDs).

The OpSec solution was designed to be used in addition to visual checks with the naked eye, and not instead of such checks. While overt authentication methods are important in enabling quick and easy product verification, organisations are increasingly looking to validate these visual checks with a deeper level of inspection, without the cost and complexity of covert methods such as taggants and infrared features, explained OpSec.

Some interesting developments, then, and a number of potentially significant new markets for tax stamps.

I would like to wish you all a happy, healthy and relaxing festive season in the company of your loved ones, ready to handle whatever 2022 throws your way in terms of opportunities and challenges.

All the very best

Nicola Sudan

Editor