2019 Year-End Report: Surprises in the Tobacco Category

CHICAGO — The tobacco category had a tumultuous year in 2019, with everything from statewide flavor bans to presidential tweets rocking public sentiment and causing uncertainty at the store level.

The most recent development for category watchers was Massachusetts moving ahead with a general retail ban on menthol cigarettes—a significant pillar of the overall tobacco category. The move capped a series of regulatory developments that began to heat up in September with a joint press conference by several federal health organizations raising concerns about the overall safety of vaping products.

While the latter half of 2019 proved to be most pivotal, the entire year presented unique challenges. Here’s a recap of the significant events in 2019 …

Following a series of public statements and tweets, President Donald Trump called a meeting of vape manufacturers and health officials to the White House on Nov. 27, in which the president confirmed his support for raising the minimum age of purchase for e-cigarettes from 18 to 21.

Trump on Dec. 20 signed a federal spending bill that raises the federal minimum age to purchase tobacco products from 18 to 21 years. “It is now illegal for a retailer to sell any tobacco product—including cigarettes, cigars and e-cigarettes—to anyone under 21,” the U.S. Food and Drug Administration (FDA) said in a notice posted on its website.

The president appeared to back off from earlier support of more stringent restrictions on flavored products, however. Since that White House meeting, the FDA appears to be in limbo with regards to its next steps, with an agency spokesperson telling CSP Daily News that he had nothing further to report on the matter.

That entire round of public debate began Sept. 11, when U.S. Department of Health and Human Services (HHS) Secretary Alex Azar led a press conference announcing the group's concerns about deaths and illnesses possibly tied to vaping. The announcement also involved the U.S. Food and Drug Administration (FDA) and the U.S. Centers for Disease Control (CDC).

The concern stemmed from reports from multiple state health officials about reported deaths and illnesses. In November, the CDC reported the identification of vitamin E acetate as a common element present in patients with vape-related illnesses. The CDC said the finding was promising but that more work had to be done.

In November, Massachusetts Gov. Charlie Baker signed a bill into law making the state the first to ban the sale of menthol cigarettes, a significant segment of retailers’ in-store tobacco volume, along with other types of flavored tobacco.

In the days leading up to the passing of the law, local retailers staged protests in an attempt to sway lawmakers, saying such a ban would cause many of their businesses to close.

Public statements from the HHS in September began a spate of bans on flavored vaping products on the state level, and in the case of Massachusetts, a ban on all vaping products. By October, eight states—Massachusetts, Montana, Michigan, New York, Oregon, Rhode Island, Utah and Washington—had some form of executive or emergency health order to proceed with bans or restrictions on e-cigarettes.

Supporters of the vape industry filed lawsuits, resulting in several court injunctions suspending the enactment in several states.

Meanwhile, states moved on other tobacco fronts, ranging from increasing the minimum age to buy tobacco products to raising tobacco and vape taxes.

The year was especially challenging for San Francisco-based Juul, which bore the brunt of public scrutiny over e-cigarettes at the state and federal levels. Here’s a synopsis of actions it took in response:

• Reorganization: The company replaced its core leadership, starting with CEO Kevin Burns, who resigned Sept. 25. Richmond, Va.-based Altria Group, which purchased a minority interest in Juul in December 2018, replaced Burns with K.C. Crosthwaite, formerly Altria’s chief growth officer. Crosthwaite presided over $1 billion in cost cuts and a staff reduction of 650 employees in the months that followed.
• Cutting flavors: Over several months, Juul stopped selling its Creme, Cucumber, Fruit, Mango and most recently Mint flavored pods, both at retail and online, as it prepares for the FDA's new product application process.
• Focusing on reducing youth vaping: The company curtailed marketing spending and launched an electronic age-verification system for its products called Retail Access Control Standards (RACS) that works within store point-of-sale (POS) registers.
• Halting advocacy activity: Juul ceased efforts opposing San Francisco’s proposed ban on e-cigarettes and the Trump administration’s moves to restrict flavored pods. While Trump appears to have backed off the flavor issue, San Francisco voters in November did uphold the city’s e-cigarette ban.

Following the above moves, Altria took a $4.5 billion write-down on its investment in Juul this past fall, saying FDA moves on flavored cartridges is a growing concern.

Altria, the manufacturer of Marlboro cigarettes, made several tactical moves in 2019 to position itself for profitability in the future. Among these steps:

• Price increases: Altria initiated a third price increase on its core products, continuing a push to maintain revenue amid an overall decline in cigarette volume.
• Merger talks: The year also brought talks of a possible merger with New York-based Philip Morris International (PMI). Analysts said the talks fell apart several weeks later.
• Movement on alternative systems: Altria advanced on two fronts regarding alternative nicotine-delivery systems. In April, the FDA authorized its heat-not-burn product, IQOS, for marketing and sale in the United States, leading to a fall introduction in Atlanta and an announced introduction later in the year in Richmond, Va. Then in June, it purchased an 80% majority share in the nicotine pouch line On from Burger Sohne Holding in Switzerland, which gave Altria entry into a quickly growing subsegment.

In the fall, several big-name retailers decided to suspend the sale of flavored e-cigarettes or vaping products altogether. Among these chains were Kroger, Cincinnati; Walgreens, Deerfield, Ill.; and Walmart, Bentonville, Ark.

St. Louis-based Schnucks Markets opted to drop the entire tobacco category altogether in 2019.

The FDA made three significant moves with new product authorization and modified-risk classification in 2019. In December, the agency authorized two low-nicotine, combustible cigarettes through its premarket tobacco application (PMTA) process, Moonlight and Moonlight Menthol from Williamsville, N.Y.-based 22nd Century Group.

On Oct. 22, the agency authorized Swedish Match U.S. Division’s amended modified-risk tobacco product applications for eight varieties of General Snus, making it the first tobacco product with the right to be marketed as a less harmful alternative to cigarettes.

The modified-risk status classifies General Snus as a tobacco product that is sold or distributed for use to reduce harm or the risk of tobacco-related disease associated with commercially marketed tobacco products. The FDA also cleared Richmond, Va.-based Swedish Match’s claim that using General Snus instead of cigarettes puts users at a lower risk of mouth cancer, heart disease, lung cancer, stroke, emphysema and chronic bronchitis.

Then in April, the FDA authorized the sale of PMI's heat-not-burn IQOS tobacco device in the U.S. market.

While e-cigarettes did take a hit from highly publicized federal health alerts and state-level bans, vaping continued on a growth trajectory in 2019, according to Management Science Associates (MSA), Pittsburgh. At the same time, nicotine pouches made noticeable strides as tobacco users explored new and expanding alternatives, MSA reported.

In the final weeks of the year, the FDA welcomed a new commissioner following Senate confirmation and swearing in of Stephen Hahn, chief medical executive at The University of Texas MD Anderson Cancer Center in Houston. Hahn takes over for Scott Gottlieb, who left the position in April.

Also, Congress paved the path for the FDA to raise the minimum buying age for all tobacco products from the federal standard of 18 to 21. The measure was part of the year-end spending package that passed both the House and Senate and received Trump’s signature in December.