Editorial: Deeming Regs Look Promising … For Now

Potentially good for retailers, less positive for smaller players, innovation

Melissa Vonder Haar, Freelance Writer

Melissa Vonder Haar

Melissa Vonder Haar

NEW YORK --Talk about a wakeup call. When my alarm went off this morning, I noticed a rapidly blinking "new message" alert on my phone. And it wasn't just one new message, but a flood of missed calls, emails, texts and tweets. A flood that, like many of you, I had long anticipated: the deluge of responses to the U.S. Food and Drug Administration's (FDA) proposed deeming regulations on electronic cigarettes.

At first, I was cautiously optimistic: As Wells Fargo analyst Bonnie Herzog put it, these regulations were "not as bad as feared" and a "positive for the industry."

But not everyone shared Herzog's optimism.

Dr. Michael Siegel, a professor of Community Health Sciences at the Boston University School of Public Health and avid supporter of electronic cigarettes, took to his blog to critique the regulations, calling them "a disaster" (albeit "not as much of a disaster as they could have been.")

From a retailing perspective, I believe the truth falls somewhere in between these two extremes.

On the surface, these proposed regulations offer a lot of plusses for retailers in the e-cigarette game. Seemingly the only aspect of the regulations that has a direct impact on retailers is something most convenience stores are already implementing: an 18-and-up age requirement.

Equally important was what was not included: a flavor ban, an advertising ban (allowing e-cig companies to educate a still-growing consumer base), and no restrictions on where or how these products are merchandised (giving category managers the freedom to place the products on the front counter or back bar).

Additionally, the mere presence of FDA oversight brings further legitimacy to the segment. And, as we see these rules go into effect, they will hopefully wipe out some of the less-responsible players. (They are out there; I was shown pictures of Hello Kitty-themed e-cigs.) All of this is good for responsible tobacco retailers.

But before you break out the champagne, remember that we are still very much in a "wait-and-see" mode when it comes to the future.

Most concerning about these proposed regulations is that the FDA seemingly applies the substantial equivalence (SE)/new product application requirements to e-cigarettes, raising legitimate questions about the sector’s ability to innovate. Any product not on the market as of 2007 (nearly every e-cig on c-store shelves) must either obtain a new-product approval or a substantial equivalence determination. The same goes for future products.

Yes, companies will have two years to submit these applications to the FDA, and yes, they will be allowed to keep said products on the market during the review process; however, given how backlogged both the SE-application and new-product-application lists already are, we could be in for a long wait before it's determined which products might be yanked.

This could prove disastrous for vaping and e-liquid companies, who will have to file a separate new-product application for each flavor, nicotine amount, bottle size and propylene glycol/vegetable glycol ratio. It's an expensive and time-consuming process that, unfortunately, many of the smaller-to-midsized players may not be able to afford.

So, welcome to the real world of Barriers to Entry.