The Business of Tobacco

For the second time since taking over as director of the Center for Tobacco Products (CTP) at the Food and Drug Administration (FDA), Mitch Zeller addressed NATO Show attendees at the 2015 event, held in Las Vegas in April.

According to Zeller, there are two key discussions taking place at the FDA. One discussion takes aim at keeping tobacco products out of the hands of minors — a top priority for all stakeholders — while the second conversation centers around looking at nicotine differently. As he noted, the majority of adult cigarette smokers started as minors and by the time they were adults, the addiction had taken hold. Nicotine creates and sustains the addiction, but does not cause death.

“It’s not the drug, it’s the delivery method,” Zeller said. “E-cigarettes have become the poster child for this debate, so it’s about time to look at nicotine differently. We need to recognize that there is a continuum of nicotine-containing products.”

On the subject of electronic cigarettes, tobacco retailers and manufacturers are still waiting for answers on when and in what form pending FDA regulation will take. In April 2014, the FDA released its proposed deeming regulation that would give it authority over electronic cigarettes, cigars, pipe tobacco and certain dissolvable products.

A final deeming rule could be revealed by the end of June, according to Zeller. But that will not mean the end of regulations. The deeming regulation is “a foundation jurisdictional step” and the industry should expect other regulations to follow.

Electronic cigarettes burst onto the scene several years ago, followed recently by more advanced products to form a new segment of the tobacco category: vapor. The past few months have seen growth in the vapor segment moderate, but convenience store retailers should not count it out.

Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities LLC, told NATO Show attendees that the vapor segment continues to grow, albeit moderately. She still sees vapor consumption surpassing combustible cigarette consumption in the next decade.

There are some curious trends that could affect the segment. For instance, combustible cigarette volume only declined by 3.2 percent in full-year 2014 and posted a 0.5-percent increase in the first quarter of this year, she pointed out. These numbers raise a question: Why are adult tobacco consumers still smoking cigarettes if vapor is growing?

Also, the public perception of the vapor segment is diminishing. According to Herzog, the number of people who believe vapor products and e-cigarettes are just as harmful as combustible cigarettes doubled in 2014 to 15 percent.

The 2015 NATO Show also shared data on the current tobacco retail landscape. Convenience stores account for 47 percent of tobacco retailers and 62 percent of volume.