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.
As such, the application process most likely benefits Big Tobacco, which has the legal infrastructure, experience and cash flow to handle it, while hampering smaller players, who have offered more flexibility and better margins to retailers.
It's also crucial to remember that these deeming regulations represent the first steps toward regulations. As the FDA's Center for Tobacco Products' head Mitch Zeller said in a media briefing, "You have to walk before you run; before we can restrict advertising or flavors, we have to have jurisdiction (via deeming regulations) over the segment."
In other words, the door is still wide open for further, stricter regulations.
Pressing Questions
Besides the uncertainties of the regulations themselves, there are several questions for retailers to ponder in the upcoming months. Among them:
- What will Congress do? Though the FDA did not limit the e-cig industry's ability to advertise, Herzog pointed out that only Congress could enact a television ban. With many Democrats in both Houses calling for stricter regulations, will they now take such action?
- Will this slow down local battles?New York, Chicago, Los Angeles and others have all adopted strict e-cig regulations, often with little scientific support and often citing the lack of FDA oversight and a desire to tame the "wild-west" segment. Will these proposed regulations calm these concerns or fuel the fire?
- How will the FDA handle product applications?The FDA is already under scrutiny for its lack of movement on substantial equivalence: A House subcommittee has called for closer oversight, and the FDA recently released a new monitoring program (hopefully) to speed up the process. With more than 200 e-cig companies on the market, the FDA is looking at hundreds of thousands of new applications. Will they be able to get this under control by time the e-cig deeming regulations go into place?
- How long will the commenting process take?With the proposed regulations striking something of a middle-ground, who will come out against these regulations? Anti-tobacco groups could lobby for stricter regulations, while smaller e-cig players and public-health advocates like Siegel could argue that the proposal stifles innovation.
With (at least) 75 days in the commenting period, followed by a revisal period that could take months--if not years--the most pressing question on my mind (and I'm sure the minds of many others) is what will these regulations actually look like when they finally come to fruition?
Today marked an important first step. But we still have a long way to go.
What's your take on the FDA's proposed deeming regulations? Are they good or bad for your business? Email your thoughts to mvonderhaar@cspnet.com.
How Will Regulation Change the Course of OTP Retailing?
An exclusive CSP webinar asks "what's next" for tobacco sales. Get the latest insights in e-cigarette, OTP and cigarette retailing, plus key initiatives across the tobacco category, in an exclusive CSP webinar with Nik Modi, tobacco analyst for RBC Capital Markets, and Joe Teller, director of category management for Swedish Match NA.
Members help make our journalism possible. Become a CSP member today and unlock exclusive benefits, including unlimited access to all of our content. Sign up here.