After much anticipation, the FDA has released deeming regulations that will change how the vapor industry does business from now on.

By Anne Baye Ericksen, Contributing Editor

In 2014, the U.S. Food and Drug Administration (FDA) released its draft of proposed regulations of various tobacco products that previously were not covered by the Family Smoking Prevention and Tobacco Control Act of 2009.

For nearly two years, manufacturers, distributors, and convenience store owners and operators waited to learn what the final deeming language would entail and how it would affect the non-combustible tobacco sector that had grown into a billion-dollar industry.

Finally on May 5—more than a year later than initially anticipated—the FDA issued its final deeming ruling, which takes effect in August of this year. Under the rule, vaping products, e-cigarettes, premium cigars, pipe tobacco and hookah tobacco all will be regulated the same as combustible tobacco cigarettes and smokeless tobacco.

RULES TO LIVE BY
In other words, these other tobacco products are now subject to the directives spelled out in the Tobacco Control Act and must receive FDA approval in order to be sold legally in the U.S. In addition to submitting various scientific and manufacturing data for review, the deeming also mandates products carry health warnings clearly displayed on packaging as well as prohibiting sales to individuals under the age of 18.

Perhaps the most impactful element of the regulations for the vaping sector is the predicate date. Under the FDA deeming, any product introduced into the market after Feb. 15, 2007, established in the Tobacco Control Act, must submit an application to the agency to be considered qualified for sales as a tobacco-delivery device.

However, the vast majority of mods/tanks and e-liquids hit the U.S. market after 2007, which means an overwhelming portion of the inventory on store shelves today will have to undergo the premarket tobacco application (PMTA) process.

“The FDA stated that if a product is intended or expected to be used with nicotine, then it’s a tobacco product. The FDA decided that e-liquids—even those with zero milligrams [of nicotine]—are being used like tobacco because people could go home and mix them with nicotine e-liquids,” said Gregory Conley, president of the American Vaping Association.

COUNTING THE COST
Many in the industry argue the PMTA creates an excessive burden. Estimates state one application can take anywhere from 1,500 hours to 5,000 hours to complete. The FDA projects the cost at approximately $330,000 per application, but other analysts place the fees between $2 million and $10 million per application.

Because the projected cost is so steep, opponents insist many of current non-combustible tobacco manufacturers, including vape shops that produce their own boutique e-liquids, will be forced out of business.

“To the surprise of no one, the FDA insisted on keeping the February 2007 date and single-handedly is responsible for shutting down thousands of small businesses, and that kills the jobs of tens of thousands,” said Conley, referring to what the ruling might mean for the U.S. vaping industry.

Not surprisingly, some vape manufacturers are bringing litigation against the FDA. Nicopure Labs LLC filed a lawsuit in the federal district court of Washington, D.C., just days after the FDA announcement. The e-liquid producer claims the FDA rulemaking actions violated the Administrative Procedure Act.

“The final deeming regs are broadly as we anticipated and would be burdensome for small manufacturers to comply with while increasing the barriers to entry and entrenching Big Tobacco even further,” said Bonnie Herzog, senior analyst for Wells Fargo Securities. “As such, we anticipate litigation from several manufacturers, which could unfortunately prolong the uncertainty plaguing the entire industry.”

Even before the FDA released the regulations, industry groups and lawmakers were trying to change the predicate date. Just a few weeks prior to the deeming announcement, the U.S. House Appropriations Committee passed an amendment to the 2016-17 U.S. House Agriculture Appropriations bill that would change the predicate date to 21 months after the deeming effective date. In essence, this would grandfather in most of the vaping products in the market now.

“We have a very good shot at getting the predicate date changed at some point in the future. I believe that once more members of Congress have learned this is not a regulation, but rather this is a prohibition for all but a few, there will be more of a willingness on the part of Democrats to negotiate,” said Conley. “We’re talking with members of the Congressional Black Caucus and younger Democrats [to try to gain their support].

UNEXPECTED RESPITE
Although the FDA ruling officially takes effect this summer, the agency incorporated a staggered schedule for the application period. Manufacturers have two years to submit PMTAs, then the FDA will allow one year for evaluation. In the meantime, the vape products can still appear in c-stores.

“We expect sales to continue, but are anticipating a slight decline in the future as a result of the FDA ruling,” said Jon Fleck, merchandising manager for Cenex Zip Trip stores, which is owned by CHS Inc. and based in Inver Grove Heights, Minn.

Industry analysis shows that a majority of vaping sales take place online or in vape shops. Wells Fargo Securities forecasts this segment will earn nearly $2 billion this year. C-stores, food, drug stores and mass retail channels $500 million in vaping sales.

That balance, however, could shift as a result of the regulations. Because a percentage of online retailers and vape shops create their own e-liquids and systems, they must meet the PMTA requirement for each product. Conversely, convenience stores can cater their vaping inventory toward the more established manufacturers that have a better chance of meeting the PMTA responsibilities.

“E-cigarettes and vaping products have and will continue to attract c-store customers,” Fleck said. “And once the new regulations go into effect, we would expect the number of specialty stores selling these products to decrease, creating an opportunity for c-stores to serve as regular, go-to locations for these types of products.”

In the meantime, manufacturers, distributors, and convenience store owners and operators begin the wait to see how the litigation and legislative responses will affect vaping’s future.