Tobacco Retailing Industry Reacts to Final Deeming Rule

NATIONAL REPORT — It may have taken two years for the Food and Drug Administration (FDA), but it only took hours for the tobacco and vaping industry to react to the agency's release of its final deeming rule, which extends its authority over a wider array of tobacco products.

The Smoke-Free Alternatives Trade Association (SFATA) said the electronic cigarette and vaping industry has a long history of supporting sensible, science-based regulations, including license requirements, as well as banning sales to minors and adopting child-resistant packaging. However, the final rule "pulls the rug out from the 9 million smokers who have switched to vaping, putting them in jeopardy of returning back to smoking, which kills 480,000 Americans each year and costs the [United States] more than $300 billion in annual health care expenses," the association said.

In addition, SFATA said the new regulations "create an enormously cost-prohibitive regulatory process for manufacturers to market their products to adult smokers and vapers. It also limits access to the 40 million adult smokers in the U.S. yet to make the switch to vaping, and cripples a multi-billion-dollar, job-creating industry, the majority of which are made of small businesses."

Citing a "growing body of scientific evidence confirming that vapor products are more than 95 percent less harmful than combustible cigarettes," SFATA said Congress needs to act to change the deeming rule's Feb. 15, 2007 grandfather date.

Industry insiders have been in favor of reasonable regulations; however, similar to SFATA, many companies have also been vocal about their opposition to the grandfather date and approval process since a proposed deeming rule was released in April 2014. 

"We agree with the common sense decision to establish a minimum purchase age for electronic cigarettes," said Jan Verleur, CEO and co-founder of VMR Products, maker of the V2 brand. "We do disagree, however, with the decision to subject electronic vaporizers to an unnecessarily onerous approval process identical to combustible cigarettes."

Verleur said the current scientific research does not support this all-or-nothing approach, which threatens to eliminate 99 percent of the electronic vaporizer industry. 

"Electronic cigarettes and vaporizers are not tobacco products. They are inherently technology products. And, similar to other technologies, innovation and a rapid upgrade cycle are critical to ensure ongoing consumer interest," Verleur explained. "Forcing traditional combustible cigarette regulations on top of the category will only stifle the development of innovative new products and prevent customer access to smoke-free alternatives."

Charlotte, N.C.-based KURE Corp., a growing retail brand in the vaping industry, pledged to work with the FDA as the industry moves forward with the regulatory process.

"KURE Corp. anticipated this outcome, and we have been building our business the right way in anticipation of these events. The FDA regulations, such as ID verification and childproof safety caps, have always been a standard business practice at KURE," said Martin A. Sumichrast, chairman of KURE Corp.'s board. "We are confident that our products will stand up to regulatory and legal scrutiny and have every intention of working with FDA, as well as the federal legislative and judicial branches, to maintain our products on the market in compliance with federal and state law. 

"We feel confident that we can meet the technical aspects of the regulations, including the good manufacturing requirements, to which we will be subject. We expect that most of our hardware and other products will fall outside the jurisdiction under which FDA regulates tobacco products," Sumichrast added.

As for those products not excluded from the FDA's jurisdiction, he said the company expects the agency to lay out a pathway toward implementation, which will give companies like KURE an opportunity to work on the steps needed to maintain compliance with the FDA's new rules. 

AN ANALYST'S TAKE

Vivien Azer, director and senior research analyst at Cowen and Co., acknowledges that the regulations included in the deeming rule present a hurdle for the electronic cigarette industry, especially small manufacturers. The large, publicly traded companies are better equipped to navigate the process and the user fees that will now be required, she noted. 

Specifically, user fees for manufacturers will range between approximately $800,000 and $1.2 million the first two years.

"We expect that for smaller manufacturers, these fees, coupled with the cost of product applications, will prove onerous, though there is the opportunity to 'bundle' product approval applications, which are expected to cost hundreds of thousands of dollars," Azer said.

In addition, given that these fees apply to all manufacturers, Azer said Cowen & Co. expects vape shops that currently mix their own e-liquid will over time only source from FDA-approved manufacturers.