2017 Upbeat for Tobacco So Far, But Threats Linger

CHICAGO -- With the U.S. Food & Drug Administration (FDA) seemingly more open to an evolving tobacco category, a midyear review of 2017 reveals a high degree of promise. Yet, this beleaguered category will likely never see a blemish-free time period.

On the positive side, a pro-business president, a new commissioner for the FDA with a supportive history of electronic cigarettes, and advances in alternative nicotine-delivery devices bode well for the industry.

At the same time, menthol restrictions, tax increases and the potential of low-nicotine mandates continue to threaten an already declining category.

Here are a few of the major tobacco headlines of 2017 so far …

In what appears to be the most revealing look thus far into how the FDA will handle tobacco issues under the Trump administration, Dr. Scott Gottlieb, the newly appointed commissioner of the FDA, issued an extended document on July 28 focused on breaking nicotine addiction as a central strategy.

The agency said it intends to issue an Advance Notice of Proposed Rulemaking (ANPRM) to seek input on the potential benefits and possible adverse effects of lowering nicotine in cigarettes.

In addition, Gottlieb said alternatives to combustible cigarettes, such as electronic cigarettes, are in need of further public discussion and research, extending deadlines for manufacturers to submit their new-product applications to several years down the road.

In light of the FDA’s new direction on tobacco, many in the retail industry are wondering what the ramifications of a low-nicotine focus will have at the store level. After reviewing the FDA’s statements released July 28, Bonnie Herzog, managing director of consumer equity research for Wells Fargo Securities LLC, New York, provided several insights, which ranged from the likelihood of the FDA meeting its goals to what it may mean for new-product innovation.

The menthol ban will take effect in April 2018Although California may be known for earthquakes, San Francisco could rock the c-store channel to its core with its board of supervisors banning the sale of menthol cigarettes—a move that could slash the tobacco category in the city as much as 35% when the law goes into effect next year, according to one state estimate.

The menthol ban will take effect in April 2018.

The measure’s passing came soon after Ted Egan, chief economist for San Francisco’s controller’s office, issued a report detailing the ban’s potential economic effects. In the report dated June 13, Egan said the ban—which affects all tobacco flavors, including menthol—could cost the city $50.5 million in annual sales, with an average smoker consuming 212 packs annually at a cost of $8.50 per pack.

Though the Minneapolis City Council eventually voted to approve a proposed ordinance restricting the sale of menthol-flavored tobacco products to over-21 locations such as tobacco shops and liquor stores, convenience-store retailers voiced their opinions during an emotional public hearing this past summer. The events leading up to the vote were a firsthand illustration of retailers taking action against restrictive legislation.

A larger-than-expected drop in cigarette-tax revenue appears to be the initial result of California’s $2-a-pack increase that took effect April 1, according to a nonpartisan study.

Instead of the expected 20% to 30% falloff in tax revenue, the Legislative Analyst’s Office said the actual drop was 64%, as researchers compared taxes assessed in May 2016 to May 2017.

With its $47 billion purchase of the remaining shares of Reynolds American Inc. closing July 25, British American Tobacco became the largest global tobacco manufacturer in terms of sales and access to the lucrative U.S. market.

New tobacco permitting rules put in place late last year by the Philadelphia Department of Public Health may have led 7-Eleven to drop plans for 35 new franchised convenience stores in the city, according to the Philadelphia Inquirer and Daily News. Intended to reduce the number of tobacco sellers in low-income neighborhoods, the regulation limits the number of new permits to one retailer per 1,000 residents, taking into account daytime commuters.

With Philip Morris International (PMI) taking steps toward federal approval of the company’s heat-not-burn product called iQOS, the FDA recently published several of PMI’s filed documents, revealing a wide range of details, including a description of the product itself, advertising plans and studies to prove various health claims as compared to traditional, combustible cigarettes.

According to the documents, the overall aim of the product is to “significantly reduce the levels of harmful and potentially harmful constituents generated in the aerosol [of combustible cigarettes] whilst retaining an acceptable sensory experience for the user.”