Opinion: A Midyear Update on Vapor Products

At the midway point, 2017 is quickly shaping up to be a year of both change and opportunity in the vapor category, peppered with a dash of regulatory uncertainty.

Recent channel data shows unit volume for the vapor category up 10% year over year, with total dollar-sales growth up 16% year over year for the year ending May 28, 2017, according to Management Science

Associates, Pittsburgh. Digging a bit deeper, the data reveals that the category has seen kits and refills supplant disposables as the largest and highest-velocity segment of the category. This means adult consumers continue to seek out value for their dollars by increasingly opting for the economy of refills with a reusable device, rather than choosing the convenience of disposables. At the same time, sales of standalone e-liquid have continued to decline.

In the context of a store’s total sales of tobacco products and tobacco alternatives, vapor products offer higher margins, frequent flexible promotions from suppliers, and the opportunity to draw in new consumers and earn their loyalty based on their preferences.

Regulation a Flashpoint

Since the swearing in of Donald Trump as president, we have seen the nomination and confirmation of Tom Price as the new Health and Human Services secretary and Scott Gottlieb as the new director of the U.S. Food and Drug Administration (FDA). We have also seen a three-month delay of all upcoming deadlines of the deeming rule, the regulation that brought e-cigarettes, cigars, pipe tobacco and hookah under the FDA’s jurisdiction. Despite the deadline delay, there has been no change to the underlying requirements of the rule, including costly premarket tobacco product applications (PMTAs) to seek FDA approval for products to remain on the market.

There’s no doubt the decisions and posture of the new administration over the coming months will weigh heavily on the future of these newly regulated products and the thousands of businesses that make up the industry.

At the state level, dozens of bills have been introduced covering all manner of regulation and restriction, including excise taxes, flavor restrictions, indoor-place-of-use restrictions, couponing prohibitions, retailer and manufacturing licensing, and age-of-sale restrictions.

We see no change in this trend or in the important role retailers have in being a part of debates in their states and communities to ensure regulation is sensible and affordable.

Be Ready for Compliance

For the compliance-minded, being ready for the requirements and changes that are expected continues to drive decision making today. The FDA is increasing its enforcement efforts and, barring a sweeping change to the requirements of the deeming rule, we are just outside of one year from vapor product manufacturers and suppliers having to submit PMTAs to the FDA so the products can lawfully remain on store shelves. Mandatory health warnings on packaging, for example, go into effect in August 2018.

For those in the retail and wholesale trade, readiness means:

  • Knowing the FDA is increasing its enforcement efforts, likely even more so after key deadlines. This includes November 2018, when some products could be ordered to be removed from the marketplace.
  • Being diligent in vetting suppliers and their intention to provide FDA-compliant products and collateral (including mandatory health warnings on packaging and consumer-facing POS material, for example).

Being thorough and candid with suppliers is a good way for retailers to protect themselves, and responsible partners know this.

At the same time, erring on the side of overestimation when it comes to how regulation may affect business is a great way to ensure retailers are asking the right questions and are prepared for whatever may come.

Writing in this space earlier this year, we said compliance would be key as a truly regulated vapor-product industry unfolds. That fact rings true today: Compliance-minded retailers and suppliers have an upper hand and are able to capitalize on category growth when it comes to readiness for FDA deadlines, the flexibility to adapt to unique needs at the individual state level, and maintaining a reputation with consumers for high-quality product offerings that are not only compliant, but also strive to meet their expectations.

Kevin Roberts is director of regulatory affairs and communications for Logic Technology Development LLC. Reach him at [email protected].