In this episode of “At Your Convenience,” CSP Editor Diane Adam talks with David Spross, executive director of the National Association of Tobacco Outlets, Washington, D.C. The two talk at CSP’s Tobacco Plus Forum, held in September in Schaumburg, Illinois.
On this podcast, Spross discusses the Food and Drug Administration’s plan to fast-track nicotine pouch authorizations, state excise taxes and challenges of the illicit e-cigarette market.
“At Your Convenience” brings industry experts and analysts together with CSP editors to discuss the latest in c-store news and trends. From mergers and acquisitions to foodservice and technology, the podcast delivers the story straight to listeners in short-format episodes, perfect for the morning commute or a quick break at the office.
Listen to their conversation above, or read the transcript here, which has been edited for length and clarity:
Diane Adam: NATO co-signed a letter to the White House with other national trade associations asking for action from the FDA's Center for Tobacco Products (CTP). Can you share with our listeners what the letter called for and why they are important?
David Spross: It’s been a major push amongst the trade associations for a couple of years now and really based on the feedback from our members over concerns of the lack of transparency coming out of the FDA. It’s been a frustrating process. If you look at the premarket tobacco product application (PMTA) process, there is a lack of information coming out of where applications stand, and coupled with that is the lack of product authorizations. We were just talking earlier today about the 30-some odd vapor products that have been approved or authorized. If you look at a lot of those 30 products, they’re not commercially viable. I think the ask of the FDA was a couple of things. Because of the lack of product approvals, it’s created this huge environment for the illicit vapor disposables to influx the market. What we wanted was increased enforcement from the FDA, more transparency from CTP on what they’re doing for enforcement and as it relates to the PMTA process. The FDA has acknowledged the relative risk of whether it be vapor products or nicotine pouches compared to combustible cigarettes, so hopefully we will see more action in that regard.
Adam: Do you think the FDA’s plan to fast-track nicotine pouch authorizations is a step in the right direction? What will this mean for c-stores who sell these products?
Spross: I’m very bullish on more product authorizations and there are two things that I like to cite. There’s the Zyn authorization in January of this year, which is obviously the market leader in the nicotine pouch space. The fact that their application was one of the first to be rolled out in the pouch space I think it provides a roadmap for other applications that are coming down the pike.
The other thing that was recently mentioned that you reported on was that the FDA is going to be fast-tracking nicotine pouch applications. That’s another encouraging sign that the FDA has kind of figured out efficiencies to go through these applications, which are thousands of pages with a lot of scientific data at the end of the day. It does take time, but I think what we’ll probably see in the pouch space is more authorizations as we get through the second half of this year and into 2026.
In the vapor space, same opportunity. The Juul authorization in July I thought was a watershed moment for the vapor segment. Juul came under a lot of public scrutiny through the years, but I think certainly at the end of the day the FDA recognized the relative risk of that product and authorized it. That’s a great sign to me. I think we’ll probably see other authorizations within the vapor space.
What I would like to see is vapor flavors authorized, hopefully the “adult” type flavors, not some of the childlike flavors out there. Adult cigarette consumers use the flavors to migrate off of combustible cigarettes so I’m positively optimistic that I will see more in that regard.
Adam: Another topic I want to talk about is cigarette taxes. They continue to be viewed as a remedy to fill budget deficits. What can retailers expect to happen going forward?
Spross: I’ve been in the industry going on 25 years now and tobacco taxes have always been a front and center issue. I think this year what we saw was kind of a watershed year, so to speak. And what I mean by that is you reference that states are under increasing budgetary pressure. There’s some uncertainty about the federal dollars they’re receiving. They all had to do state budgets and fund various programs of state government. So that was one of the key drivers this year. The other driver is it’s been a number of years since some states haven’t increased tobacco taxes.
One of the states that probably got the most attention this year was the state of Indiana, which implemented quite a high cigarette tax increase, I think of $2. Part of the reasoning was they had a huge budget deficit that they needed to fill—a multi-billion-dollar deficit. It had been since 2007 since they had increased the cigarette tax.
The third thing I would say is there’s a number of new products. There’s a lot of commercial excitement around the pouch segment and also obviously e-cigarettes. But a lot of states do not capture revenue from those products. Roughly half the states still don’t tax e-cigarettes or vapor products. I would say 35 states don’t tax nicotine pouches.
I think one of the challenges for the industry is that states will eventually start to tax those products. If those products are going to be taxed the key is that they’re taxed by relative risk, meaning that they don’t have the same risk profile as cigarettes.
Adam: Let's take a minute to talk about the illicit market. A lot of retailers are saying it’s a challenge. Can you talk a little bit about where this is headed and how things are progressing?
Spross: We’ve been on our front foot pushing the FDA for more enforcement against the illicit products. The past two or three weeks have been really encouraging in terms of the enforcement, particularly from the multi-jurisdictional task force on the federal level, which was formed about a year ago.
Obviously, the FDA and the CTP is a key part of that. You’ve also got U.S. Customs and Border Protection (CBP) , ATF [the Bureau of Alcohol, Tobacco, Firearms and Explosives] involved, and so it's been an interesting kind of development there. Department of Health and Human Services Secretary Robert F. Kennedy Jr., Attorney General Pam Bondi and FDA Commissioner Marty Makary held a press conference in the Chicago area announcing the biggest seizure of illicit vapor products in the history of enforcement. And what you’re subsequently seeing is a lot of stings on the state level, including states like Arizona and Tennessee where there's been stepped up enforcement. I think we’re finally starting to see the scales tip on that. Some accounts have the illicit market anywhere from 75% to 80%, so it's going to take time to address that, but I do think we’re going to start to see more enforcement resulting in those products, hopefully being seized and not being such a high market share.
Adam: What are the biggest challenges with these state registry tobacco lists?
Spross: It's been an interesting kind of couple of years. The development of these state vapor directories really were spawned out of the frustration from the FDA. The lack of the product approvals, I think, have created almost a vacuum for the illicit marketplace in the vapor space to thrive. I think states have been frustrated with the lack of enforcement and the lack of product approvals on the federal level.
As a result, some states have decided to take matters into their own hands, for lack of a better term. There have been state vapor directories being considered in probably about half the states over the past couple of years. There's now 13 states that have enacted some form of a vapor directory. For you to sell in a state that has a vapor directory you need to meet three criteria as a manufacturer of a vapor product. No. 1, you can have a marketing granting order (MGO) from the FDA. No. 2, you can have a product application that is currently under review with the FDA CTP and you must show proof that your application has been accepted for review. Thirdly, if you’ve had a product denial, a marketing denial order (MDO) with the FDA, that you are currently challenging in court and you’ve got a stay. The states then take that information and they put together a list of products that meet those criteria. For retailers that is the list that is allowed to be sold in that specific state. They are controversial within the industry, because when these bills are considered before the legislatures, they’re very much debated. The thoughts for people who oppose this type of legislation are that this is the job of the FDA.
NATO has monitored these bills, but we haven't been supportive or opposed them based on our membership that is in various positions on it. What I’d like to see in the 10 states that have passed is some real data. Are the states enforcing against those directories? What is happening to the illicit marketplace? That'll be key.
As for the future of these bills, I think short term, we’ll probably see some more proposals going into 2026. In the past month with all the enforcement on the federal level, it might alleviate some of the pressure at the state level to do something, but we'll have to see more consistency in that regard.
Adam: Convenience stores are continuing to adopt their back bar in the wake of flavor bans. Can you comment a bit further on this topic of flavor bans, especially for California retailers who will only be able to sell vape, nicotine pouch and tobacco products on the state’s new unflavored tobacco list beginning Jan. 1.
Spross: Technically, all the flavored products are illegal in California to begin with and have been for really the past three years. The reality is what’s happened is enforcement has been lacking in California. I think if we were to go visit our favorite town or city in California and visit a few shops we might see some products out there that might be illegal. I think what California is trying to do here is step up their enforcement and so creating the unflavored tobacco list, it’s almost like a green list. The issue with it, like any sort of regulation, is that the devil’s in the details. Bureaucratically, I think there’s some in the industry complying with it and getting on the list the amount of fees and applications that you need to fill out. We’ve been engaged trying to make the process more seamless as much as we can. Hopefully it'll be more transparent for stakeholders in California to comply with that regulation.
Adam: Is there any optimism you are seeing within the industry?
Spross: Working in the regulatory space can be doom and gloom, because it’s a lot of onerous regulations. We talked through a lot of these, including the banning of flavors and high excise taxes. The litany of lists and issues that we are dealing with are onerous for the tobacco and nicotine industry. For me, I am probably the most excited and bullish that I’ve ever been. The reality is if you look at how the categories evolved. You mentioned I’ve been involved for 25 years. The back bar at the time was predominantly cigarettes and a few offerings of moist smokeless tobacco dip and chew.
If you look at how the back bar has evolved, and particularly around some of the tobacco harm reduction products that we’ve talked about such as nicotine pouches and vapor products it’s exciting and there’s more coming down the pike with heat-not-burn products as well. It has completely evolved. It’s not only with the product offerings, but I think it's created a lot of commercial excitement. There’s also a great opportunity, I think, for adult cigarette consumers.
Cigarettes are still a major part of the industry, and will be for the foreseeable future but it’s declining and that’s a good thing. I think ultimately for public health people will migrate away from cigarettes to these less risky products. The key is, I think particularly for us at NATO and other people who engage with governments, to educate them and to make sure that these products [have] regulation. There is no such thing as a safe tobacco or nicotine product, but it needs to be the right regulation that’s not onerous and that doesn't create a black market and that doesn’t make people go back to combustible cigarettes. Ultimately, I think it's going to be great and I can’t wait to see what happens within the next year or two. I know there’s a lot of competition out there amongst some of the manufacturers and some of the new entrants, which I think is great for the category. My job is to keep it legal within the federal and state guidelines.
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