Exploring the New World

Perfectly timed ? albeit unintentionally ? on the heels of the late-April Food and Drug Administration (FDA) regulatory blueprint proposal for electronic cigarettes, the inaugural Vapor World Expo was packed with information and products aimed at helping the vapor industry adjust to a new playing field ? one that is clearly still unfolding.

The ?first-of-its-kind? business-to-business conference and exposition, which took place in early May at the Donald E. Stephens Convention Center in Rosemont, Ill., spotlighted the burgeoning e-vapor market phenomenon with more than 200 exhibitors and 1,200-plus attendees from product manufacturers, distributors, wholesalers and retailers.

After attending and presenting at the show, Bonnie Herzog, tobacco industry analyst and managing director for Wells Fargo Securities LLC, stated: ?We are even more excited about the vast potential of the e-vapor category.? Her latest estimates put vapor products (including e-cigarettes) at a $2.2-billion retail market in the United States.

The conference came right after the FDA proposed expanding its tobacco control to include e-cigarettes and the vapor market. On April 25, the agency put forth a 241-page document of proposed rules, which includes no sales to minors, no health claims in advertising, no free samples and the requirement for e-cigarette manufacturers to register with the FDA, provide the agency with a detailed accounting of their products? ingredients and disclose their manufacturing processes and scientific data. Manufacturers would also be subject to FDA inspection, according to the proposal.

During the first day of Vapor World Expo, an esteemed panel of industry experts discussed the FDA?s proposed regulations, offering their take on what is good about them, what is not so good, and what the industry should do to prepare.

Tom Kiklas of the Tobacco Vapor Electronic Cigarette Association said he was happy with the proposed rules because e-cigarettes are tobacco products and ?as an industry, we do need a regulatory path because the product itself is a regulated product.?

Also sharing a positive outlook was Linc Williams, co-founder of the American E-Liquid Manufacturing Standards Association, which has brought together e-liquid manufacturers who are already adhering to standards, long before regulations come out. He said he views the proposed regulations as a strong opportunity ?for this industry to put its big-boy pants on and become ?the power of us.??

Williams, though, does believe the deeming regulations as initially written are ?horrible, but having gone through this regulatory process in [other facets of] my career, I know that the proposed rule and the final rule are dramatically different.?

Cynthia Cabrera, executive director of the Smoke-Free Alternatives Trade Association (SFATA), is concerned that the deeming regulations as initially put forth are not appropriate for the e-cigarette/e-vapor market at all.

?The Tobacco Control Act was enacted to deal with health hazards of tobacco; it is not applicable to vape products,? she explained. ?So, it doesn?t matter whether we classify these products as tobacco or not tobacco, the framework isn?t applicable. It doesn?t work. It was made for combustible tobacco cigarettes.?

The panel drew attention to the most crucial forum the industry has for addressing all its concerns regarding the FDA?s proposed rules: the public comment period, which was originally set to expire on July 9, but has since been extended to Aug. 8.

It is the contention of Bill Bartkowski, president of VapAria Corp., an e-cigarette research and product development company, that the FDA will be ?flooded? with comments. ?They don?t know how to define the product [and] they don?t understand and appreciate the vast diversity of the products, the technology and the liquids,? he said to a packed Vapor World Expo crowd. ?They don?t know the difference between a rechargeable and a tank unit, and they need to be educated in this process.?

Tacking on to what Bartkowski said, SFATA?s Cabrera criticized the FDA for ?not understanding the diversity and complexity? of the category. She called the proposed regulations ?daunting and overwhelming? and referred to the obstacles that need to be overcome for 99 percent of current industry players to stay in business.

According to Cabrera, SFATA is one group that is putting energy and resources into looking at the different ways for how industry businesses can stay afloat. ?All is not lost. Our hope is that we will all work together to do [this],? she said.

Bringing a global perspective to the panel, Arnaud Dumas de Rauly, who heads FIVAPE, the InterProfessional Vaping Federation, said regulation is ?going to bring legitimacy? to the industry, but he also acknowledged there will be a hard fight for adjustments similar to what he and his colleagues are experiencing with the Tobacco Product Directive in Europe.

?We?re offering our help to SFATA to help everyone answer this and these deeming regulations,? de Rauly said. ?Politicians have no clue how to categorize these products. Our biggest challenge here is to put out studies and come up with standards on the four main areas of concern: e-liquids, batteries, atomizers and testing protocols.?

TWO SIDES OF THE SAME COIN

On the second day of Vapor World Expo, Herzog of Wells Fargo Securities and Bryan Haynes, partner with Troutman Sanders law firm, delivered a double-header educational session that explored two sides of the industry ? Herzog from the financial realm and Haynes from the legal realm ? to paint an up-to-the-minute picture of the market.

Herzog referred to the vapor market as ?not your father?s e-cig,? indicating in a tongue-in-cheek way how fast the market of vapors, tanks and mods (VTMs) is growing and evolving. ?It is really taking off, much faster than [traditional stick-alike] e-cigs,? she noted.

Herzog expects there to be a lot of winners in the vapor arena, including convenience store retailers whom she observed to already be buying into the category at both the independent and chain levels. She cited Mistic Electronic Cigarettes bringing its Haus personal vaporizer into nearly 40,000 points of distribution in the convenience channel during the next few months.

?Though we continue to believe ?traditional? or ?cig-alike? e-cigs are here to stay, especially as the technology improves and evolves, we believe the rapid growth and staying power of VTMs serves as a wake-up call for traditional e-cig manufacturers. We believe VTMs are the wave of the future, which is both an opportunity and challenge for c-store retailers,? she remarked.

So then, what is the best way for retailers to merchandise the vapor category? Herzog reported that half of retailers believe in merchandising all e-cigarettes (including e-vapors) as a separate category, preferably near conventional cigarettes. Thirty percent are merchandising them with cigarettes, and 20 percent are going for a front-counter placement.

On the expo floor, Jordan Hirsh, a buyer for Cigar King, a tobacco shop in Skokie, Ill., confirmed that a segregated area near the front of the store is his choice of merchandising. ?This vape business is incredible. We think it?s going to take over; it?s unbelievable business,? he stated, adding that his vapor business (which now includes mods and juices) is up 700 percent from when he first started in the e-cigarette business less than two years ago.

Herzog concluded her analysis with a question to the audience: ?Is this the beginning of the end for combustible cigarettes??

From the legal perspective, Haynes told another packed audience that he doesn?t think the FDA?s proposal is ?as industry-friendly as reported in the media, but it?s also not necessarily as bad as what others are saying more recently.?

He said the industry should be glad, as he is, that the proposed regulations for e-cigarettes are finally out. For awhile now, the legal arena has speculated as to whether the FDA would metaphorically regulate the category with a scalpel or a sledge hammer.

?My take now is it will probably be more like a regular hammer, but it?s probably not going to hit you for another two or three years,? he said, while also cautioning attendees that the FDA probably has ?a sledge hammer ready in the garage.?

The sledge hammer he speaks of has partly to do with the fact that the way it stands now, the regulations would reportedly put at least 90 percent of current e-cigarette and vapor companies out of business. The cost and man hours to provide the FDA with the requested product and ingredient application information would be far out of the realm of all but the largest companies with the deepest pockets ? mainly, the Big Tobacco companies that are now growing players in the e-cigarette arena.

Haynes went through all the major points of the proposed regulations, including ?new tobacco? product requirements, modified risk provisions, testing requirements, warnings, tobacco products standards, flavors, remote sales, good manufacturing practices, and advertising and marketing restrictions.

Like other speakers, he stressed the critical importance of the public comment period. ?It could get better or worse after the comment period, so it?s critically important to get in there and tell the FDA what you think and how [the proposed regulations] will affect your business,? he urged.