2021 Tobacco and Nicotine Year in Review

CHICAGO — Tobacco is a category that has always faced headwinds, and between the drawn-out premarket tobacco product application (PMTA) process and the risk of a substantially higher federal excise tax (FET) on tobacco and nicotine products, it was arguably challenged more than ever in 2021.

There was some good news for the category as modern oral nicotine (MON) products saw growth and industry leaders advanced strategies to expand beyond nicotine and into smoke-free products.

Here are the highlights from this past year from behind the counter ...

The U.S. Food and Drug Administration (FDA) granted its first marketing order for an e-cigarette under the PMTA process in October, making R.J. Reynold Vapor Co.’s Vuse Solo legal to sell in the United States. This came after more than a year of deliberation from the FDA as it reviewed applications for new deemed tobacco products that were submitted by Sept. 9, 2020.

The FDA received premarket applications covering more than 6.5 million products by that deadline. The majority of PMTAs were for electronic nicotine delivery systems (ENDS). While the FDA authorized Vuse Solo and its accompanying tobacco-flavored e-liquid pods, the brand’s menthol-flavored products are still in limbo, and several flavored products were denied. The only other new products authorized this year as of early December were Verve oral nicotine products, which Altria Group Inc., Richmond, Va., discontinued in February 2019.

While the FDA’s court-set deadline was Sept. 9, 2021, to review PMTAs, the agency has said it needs more time to review applications. So far, it has issued more than 300 marketing denial orders (MDOs), which prevent a product from entering the market. Products already on the marketing receiving MDOs must immediately be removed from stores or risk FDA enforcement.

The FDA said it had acted on about 93% of timely submitted PMTAs as of early September.

According to the court order, products for which applications were submitted by the deadline could generally remain on the market for up to a year from the date of the application, Sept. 9, 2021, at the latest, pending FDA review. The FDA retains enforcement discretion, though, and has stated its highest enforcement priorities will be products for which no application is pending.

The FDA intends to continue to devote significant resources to responding to the remaining pending applications and will issue its decisions on a rolling basis, according to FDA’s Center for Tobacco Products (CTP) Director Mitch Zeller.

Convenience-store association NACS, meanwhile, is asking the FDA to release a list publicly of (ENDS) products for which the agency has issued marketing denial orders. While the FDA already lists companies that received MDOs or marketing granted orders, as well as other status updates, on its website, the list does not include the specific products that were denied. This practice leaves room for error when stocking products, NACS said.

Meanwhile, several manufacturers have filed lawsuits challenging the FDA’s issuance of MDOs. Bidi Vapor LLC, Melbourne, Fla., filed a lawsuit challenging the issuance of an MDO for its flavored Bidi Sticks ENDs. The FDA has since stayed Bidi’s MDO.

Turning Point Brands, Louisville, Ky., also filed a lawsuit that was later dropped. In October, the FDA rescinded its MDO previously issued for certain vapor products from Turning Point Brands, causing the company to drop the lawsuit. Its proprietary vapor products, including its Solace-branded e-liquids, will continue to be marketed while its PMTAs remain under review.

An updated version of President Joe Biden’s Build Back Better agenda, also known as the reconciliation package, does not include an increase in the Federal Excise Tax (FET) on tobacco as previously proposed.

The previous version of the legislation suggested doubling the FET on cigarettes and applying tax parity to all other tobacco products, including vapor products, which were not previously taxed at the federal level.

While the new version, released Oct. 28, may not be the final one, NACS called it and other changes “significant wins” for the convenience and fuel retailing industry. The organization had strongly opposed the increase and organized a coalition of retail groups to publicly oppose it.

“NACS met with moderate Democrats in the House and Senate and encouraged them to go to their leadership and ask that it be removed from the bill, which a number of them did,” NACS, Alexandria, Va., said. “Additionally, NACS called the industry to action sending hundreds of retailer letters to the Hill. These efforts appear to have been successful as there is no FET increase in the latest text of the bill.”

The tobacco consumer remains broadly resilient, according to analysis of a second-quarter 2021 Nicotine Nuggets survey of c-store retailers by Goldman Sachs Managing Director Bonnie Herzog. The survey results represent about 42,000 retail locations across the United States, according to the New York-based investment firm.

“While trends vary by category and state, retailers are broadly noticing a return to pre-pandemic behavior, including more poly-usage and switching to noncombustible alternatives,” Herzog said. “Retailers are also seeing less usage occasions as social distancing restrictions ease and consumers return to the office. As such, it is unsurprising to see a sequential increase in the percentage of respondents that view tobacco consumption as less robust than last year at the height of COVID.”

The bottom line is that although nicotine volume growth may have softened in some areas due to tough COVID-19-period comparisons, tobacco consumption remains strong, she said. One of those areas of strength is modern oral nicotine (MON).

On a two-year stacked basis, which considers volatility caused by COVID-19, Zyn volume were up 137%, On unit sales grew an amazing 886%, and Velo volumes were up 210% for the two-week period ending on Sept. 25, Herzog said, using NielsenIQ data.

In addition to Swedish Match’s Zyn, Altria’s On and R.J. Reynolds Vapor Co.’s Velo, other products in the segment include Swisher’s Rogue nicotine pouches. BAT, parent company to R.J. Reynolds, acquired Dryft nicotine pouch product assets in late 2020, and folded it into its Velo brand.

The FDA said in April that it intends to make prohibiting menthol as a characterizing flavor in cigarettes one of its highest priorities. The agency is also proposing to ban all flavored cigars, including menthol.

The announcement came because of a court order requiring the FDA to respond to an eight-year-old petition from a citizen that asked the agency to prohibit menthol as a characterizing flavor in cigarettes. The FDA already banned cigarettes with flavors other than menthol, which are known to appeal to youth and young adults, in 2009.

To implement the changes, the FDA will need to start a rulemaking process, which will include drafting and publishing a proposed rule and seeking public comment. The FDA also said it will work with the Department of Health and Human Services (HHS) to enlist and collaborate with other entities at the federal, tribal, state and local levels to provide support to menthol smokers who quit or want to quit. The process would take years before any type of change could be implemented, industry watchers say.

Convenience-store retailers who spoke to CSP about a potential menthol ban said the move could result in a huge hit to sales. Menthol cigarettes make up about 30% of a c-store’s cigarette sales, according to NACS data.

Congress passed the Preventing Online Sales of E-Cigarettes to Children Act, which applies the same safeguards in place for combustible cigarettes and smokeless tobacco products to electronic cigarettes.

Sens. Diane Feinstein (D-Calif.) and John Cornyn (R-Texas) announced the bill’s passage on Dec. 21, 2020. It was included as part of the omnibus federal spending bill for fiscal year 2021, the senators said.

The bill requires online e-cigarette retailers to:

• Verify the age of customers for all purchases
• Require an adult with ID to be present for delivery
• Label shipping packages to show they contain tobacco products
• Comply with all state and local tobacco tax requirements

Major tobacco manufacturers are making moves toward a smoke-free or nicotine-free future as they focus on cannabidiol (CBD), nicotine pouches and other products to continue to satisfy consumers.

Philip Morris International (PMI), New York, said smoke-free products will make up half of its total net revenues by 2025. At the same time, PMI was ordered to remove its heat-not-burn product IQOS from stores in the United States. A U.S. International Trade Commission (ITC) ruled the product infringes on two patents held by rival R.J. Reynolds, a subsidiary of British American Tobacco (BAT).

PMI also has closed on an acquisition of Vejle, Denmark-based Fertin Pharma, a leading developer and manufacturer of pharmaceutical products based on oral and intra-oral delivery systems, which will help create growth opportunities beyond nicotine, the company said. PMI also announced an unconditional offer for Vectura Group PLC, a Chippenham, U.K.-based provider of inhaled drug delivery solutions. The company has 13 inhaled and 11 non-inhaled products marketed by major global pharmaceutical partners, as well as a diverse portfolio of partnerships for drugs in clinical development.

Meanwhile, BAT is working with a licensed Canadian cannabis producer to accelerate its beyond-nicotine strategy. BAT signed a strategic collaboration agreement with Organigram Inc. focused on research and product development activities of next-generation adult cannabis products, with an initial focus on cannabidiol (CBD), the non-psychoactive compound derived from cannabis plants.

London-based BAT also pilot-launched its first CBD vaping product, Vuse CBD Zone, in Manchester, U.K., and has announced its intentions to make products outside of tobacco and nicotine.

In June, Juul Labs Inc. agreed to pay $40 million in a settlement—in which is does not admit wrongdoing—stemming from a 2019 lawsuit filed by North Carolina Attorney General Josh Stein. Stein’s lawsuit alleged the maker of Juul e-cigarettes designed, marketed and sold its e-cigarettes to attract young people and misrepresented the potency and danger of nicotine in its products.

The San Francisco-based company also made several commitments in connection with its marketing and sales activities in North Carolina. It must ensure its products are being sold behind counters, ensure a barcode scanner to validate IDs when selling Juul products is being used, and not market Juul products to people younger than 21, among other actions, according to the final consent judgement, provided by the state attorney general.

Juul will pay $40 million to North Carolina over the next six years. The money will help fund programs to help people quit e-cigarettes, prevent e-cigarette addiction and aid e-cigarette research, Stein said.

A Juul spokesperson said in a statement to CSP that the settlement is consistent with the company’s ongoing effort to reset its company and its relationship with stakeholders as it continues to combat underage usage and advance the opportunity for harm reduction for adult smokers.