The U.S. Food and Drug Administration (FDA) and the Centers for Disease Control and Prevention (CDC) have released new data from the 2020 National Youth Tobacco Survey (NYTS) showing a decline in youth use of e-cigarettes but an increase in use of disposable products.
Compared to 2019, the number of youth using e-cigarettes is down 1.8 million. However, the number of youth using disposable e-cigarettes has risen: 26.5 percent of high school users are using disposables, up from 2.4 percent in 2019, and 15.2 percent of middle school users are using disposables, up from 3 percent last year.
The use of flavored products is also high—more than eight out of 10 surveyed youth reported using flavored products. Fruit, mint, candy and menthol were the most commonly reported.
This is the first year the NYTS has distinguished between mint and menthol. Previously, products were identified in the survey as “mint/menthol.”
“After two years of disturbing increases in youth e-cigarette use, we are encouraged by the overall significant decline reported in 2020,” said FDA Commissioner Stephen Hahn. “This is good news; however, the FDA remains very concerned about the 3.6 million U.S. youth who currently use e-cigarettes and we acknowledge there is work that still needs to be done to curb youth use”
Financial analysts are now falling in love with Turning Point Brands (TPB). The company’s stock, TPB, now has at least three analysts covering the stock and the consensus rating is “Buy.” The company has submitted premarket tobacco product applications (PMTA) for 250 products.
The target price ranges between 50 and 39 calculating the mean target price of 42.67, according to data from seekingalpha.com. TPB’s share price reflects a potential upside of approximately 30 percent based on the underlying business with additional “upside optionality” from each of the opportunities noted above.
Reasons for the growth include recent U.S. Food and Drug Administration (FDA) regulatory intervention that “creates multiple market share ‘land grab’ opportunities for TPB as non-compliant competitors are forced to exit the marketplace. There are also new growth initiatives for the smokable CBD segment through product introductions (e.g., cones, hemp paper) and entry into alternative growth channels (e.g., headshops, dispensaries and e-commerce) in both US and Canadian markets,” according to seekingalpha.
“The NewGen division represents TPB’s growth engine and platform focusing on developing, testing, acquiring and investing in high-growth new proprietary businesses,” writes the author. ” While it is the largest revenue segment, it currently includes mostly lower margin third-party products sold through online distribution channels. As the product mix shifts towards proprietary products, the gross margins will rise to proprietary standard margins of 50%+ without impacting costs.”
A lawsuit brought by an anti-marijuana group seeking to block statewide legalization of recreational cannabis was quickly rejected by the Montana Supreme Court.
An attorney for Wrong for Montana and its treasurer, Steve Zabawa, filed a petition Tuesday seeking to invalidate Initiative 190, a ballot measure that would legalize marijuana in the state, according to the Daily Inter Lake. The group argues I-190 would illegally earmark tax revenue from pot sales to be used for specific purposes, which is a responsibility reserved for the Legislature.
Zabawa and his attorney, Brian Thompson, pointed to Article III, Section 4 of the Montana Constitution, which says, “The people may enact laws by initiative on all matters except appropriations of money and local or special laws.” Their lawsuit hinged on the meaning of the term “appropriation.”
The court dismissed the suit on Wednesday, saying Zabawa’s group did not demonstrate the case is urgent enough to skip over the usual trial and appeal phases, according to the story.
New Approach Montana, the committee backing I-190, celebrated the court’s decision.
New Approach Montana also backs a companion amendment to the state Constitution that would raise the legal age for recreational marijuana use to 21. The group says legal marijuana would generate more than $236 million in taxes over the next six years, citing a study from the University of Montana’s Bureau of Business and Economic Research.
Medicago, a biopharmaceutical company headquartered in Quebec City, Canada, has reached an agreement with Public Services and Procurement Canada to supply up to 76 million doses of its vaccine candidate for Covid-19, subject to Health Canada approval.
Innovation, Science & Economic Development, another department of the Canadian federal government, will contribute CAD173 million ($131 million) to Medicago to support its ongoing vaccine development and clinical trials, and for the construction of its Quebec City manufacturing facility.
Since 2008, Philip Morris Investments B.V. (PMIBV), a subsidiary of Philip Morris International (PMI), has been a shareholder of Medicago (in which it currently holds an approximately one-third equity stake) and has supported Medicago’s innovative plant-derived research and development focused on vaccines.
The investment is consistent with PMI’s own efforts to leverage science and innovation. Japan-based Mitsubishi Tanabe Pharma Corporation (MTPC) is the majority shareholder and PMIBV’s partner in Medicago. Among other things, PMIBV and MTPC will contribute additional funding to support Medicago’s efforts to develop a Covid-19 vaccine candidate.
“We welcome the collaboration announced between two departments of the Canadian government and Medicago to accelerate its efforts against Covid-19,” said PMI CEO André Calantzopoulos in a statement.
“Better outcomes can be achieved when governments and companies join efforts to promote shared objectives for the greater good. We are pleased to be able to support Medicago’s work to develop, substantiate, manufacture, and make available a Covid-19 vaccine candidate. We all hope they will be successful.”
Medicago began Phase 1 testing on volunteers on July 14 and is anticipating that Phase 2 trials will begin in early November 2020. If Phase 2 trials are successful, Phase 3 trials are expected to begin in December 2020.
California’s ban on flavored e-cigarettes and other tobacco products is being challenged by several tobacco companies. Reynolds American Inc. (RAI) and its subsidiaries, alongside three other entities, called the ban “draconian” and want the law overturned.
California Gov. Gavin Newsom signed the ban Aug. 28. Opponents filed a petition to put the question to voters in a referendum to overturn it shortly after its passage. The lawsuit could prevent enforcement of the ban if successful.
Helix Innovations LLC, Neighborhood Market Association Inc and Morija LLC (Vapin’ the 619) have joined RAI in a lawsuit they hope will overturn the law. The lawsuit was filed Oct. 9 in the U.S. District Court of Southern California.
The filing names Xavier Becerra, attorney general of California, and Summer Stephan, district attorney for the County of San Diego, as defendants.
The Food and Drugs Administration (FDA) continues to face backlash from stakeholders who are now threatening to file corruption charges before the Ombudsman following the regulatory agency’s admission of receiving funds from foreign vested interest groups.
The FDA conducted virtual public consultations on the general guidelines for e- cigarettes and heated tobacco products (HTPs) on October 6 and 8, 2020, where a ranking FDA official admitted that the agency received grants from The Union and Bloomberg Initiative after questioning from Nueva Ecija Rep. Estrellita Suansing who noted the potential conflict of interest, according to the Inquirer.net.
The public consultation described by some stakeholders as “moro-moro” was suspended upon the request of Deputy House Speaker Deogracias Victor Savellano who also moved to conduct a full-blown House of Representatives investigation on the FDA.
Nicotine Consumers Union of the Philippines (NCUP) president Anton Israel said: “If the FDA ignores the views of legitimate and impacted stakeholders and proceeds with the adoption of an administrative order lifted from the playbook of their anti-tobacco patrons, we would be constrained to file an anti-graft case with the Ombudsman.”
Philippine representative to the Coalition of Asia Pacific Tobacco Harm Reduction Advocates (CAPHRA) Clarisse Virgino said they were “shocked and aghast by the admission of the FDA that they received money from the Union and Bloomberg Initiative. These groups are known advocates of prohibition for all forms of tobacco products including better alternatives to cigarettes like e-cigarettes and heated tobacco products.”
Philippine E-Cigarette Industry Association president Joey Dulay said during the last FDA public hearing that, “We are saddened to hear that the proposed FDA Guidelines on the regulation of vapor products was based on the recommendations of only the public health NGOs, we (vapers and industry) are the ones most affected with these guidelines and should be heard and considered also.”
“Upon questioning by Congress representatives present in the hearing, it came out that the FDA has been receiving financial grants of Bloomberg, basing guidelines on medical NGO’s who are known anti-vapor groups, shows partiality. We would like to humbly request the FDA for more fair and impartial conduct of the drafting of the guidelines. That is all we ask, so we may work things together hand in hand please,” Dulay added.
Virgino reminded the FDA that the solicitation or acceptance of gifts is prohibited under Republic Act No. 6713, or the Code of Conduct and Ethical Standards for Public Officials and Employees, especially if it involves a piece of regulation: Section 7 of RA 6713 prohibits public officials and employees from soliciting or aaccepting, directly or indirectly, any gift, gratuity, favor, entertainment, loan or anything of monetary value from any person in the course of their official duties or in connection with any operation being regulated by, or any transaction which may be affected by the functions of their office. It is clear that funds received from anti-vaping groups would jeopardize FDA’s treatment of tobacco harm reduction products such as e-cigarettes and HTPs,” she said.
FDA’s acceptance of the grant is a clear case of conflict of interest driven solely by financial considerations, according to Israel. “We know this government is uncompromising with corruption and President Duterte will not tolerate this abuse of authority,” he said.
Virgino said the FDA as a regulatory agency should be an independent body free from the influence of any foreign or local institution that tries to push their own interests.
“It is supposed to safeguard public health, and not become a subordinate to moneyed foreign groups,” she said.
A judge says the state of New York state will now have to reimburse the Vapor Technology Association’s (VTA) attorney fees after the state attempted to ban flavored vaping products last year.
Acting state Supreme Court Justice Catherine Cholakis said wednesday that she agreed that state officials overreached their authority and thus should cover the legal costs associated with fighting the ban.
Several vape shops and the VTA are seeking about $381,000 in attorneys’ fees and costs from the state. Cholakis noted an evidentiary hearing will be set to determine if the amount is accurate, court records show, according to The Journal News.
In the order, Cholakis noted the state Attorney General’s Office lawyers representing New York made a compelling case that the emergency ban “was in response to the serious problems of underage vaping and pulmonary illnesses traced to vaping.”
But in explaining why the state must cover the group’s attorneys fees, she added: “There can be no denying the seriousness of the health issues surrounding vaping. Concern for those issues, however, cannot excuse clearly unconstitutional action.”
Cholakis, however, questioned the amount of money sought by the vaping groups.
New York state’s lawyers “bristle, though, at the amount of costs and fees sought by (the vaping group),” she wrote.
KT&G will launch its Lil Hybrid 2.0 system Miix in Japan on Oct. 26 through its partnership with Philip Morris International (PMI), reports The Korea Times.
Unlike in Russia and Ukraine, where KT&G released Lil Solid, the Japan will get a Lil Hybrid 2.0 and a dedicated Miix stick. The first products to be sold will be available in matte black, cobalt blue, prism white and metallic bronze.
Consumers can choose from three stick types: Miix Regular, Miix Ice and Miix Mix.
“We will continue to provide various options to consumers in overseas markets through continuous cooperation with PMI,” said Lim Wang-seop, head of KT&G’s next-generation product business division.
The regulatory wave is crashing down on internet ENDS retailers.
By Nicholas A. Ramos, Agustin E. Rodriguez and Bryan M. Haynes
Online businesses selling electronic nicotine delivery systems (ENDS) to consumers must contend with a “patchwork quilt” of state laws. This patchwork of laws creates significant regulatory uncertainty and risk for businesses selling online in this space. There are many legal issues facing online retailers, like bans or restrictions on “flavored” tobacco products, minimum age and age-verification requirements, and state and local licensing and tax requirements. This article discusses some of the key legal issues associated with selling ENDS to consumers online and highlights proposed state legislation that may impose more requirements on the industry.
State licensing
Online retailers looking to comply with the myriad of state laws should first look at the states in which consumers purchase their products and, for each state, identify potentially applicable licensing laws. States may require licensing or registration under tax laws, health and welfare laws, and/or general business laws before online retailers may sell to consumers in their states. Idaho, for example, requires licenses from its Department of Health and Welfare to prevent youth access to tobacco products and electronic smoking devices. Washington, D.C., however, requires a basic business license from its Department of Consumer and Regulatory Affairs.
In addition, online retailers of ENDS should determine whether state licensing law definitions actually cover their products. While states have required licenses for the sale of tobacco products for years, they have only recently added definitions of ENDS to their licensing statutes. ENDS may be covered under licensing laws either because the category is explicitly defined, or the definition of tobacco products is broad enough to cover ENDS products.
Nicholas A. Ramos
Online retailers should also determine whether state licensing laws actually cover remote sales. Some states only require licenses for retailers that have a “place of business” or “business location” in their states. Hawaii, for example, is unique in that it requires ENDS retailers to obtain a registration from the Hawaii Attorney General. At this time, however, the Attorney General only requires retailers to register if they are located in the State, which excludes out-of-state online retailers.
It is also important to keep in mind that most state laws regulating ENDS were only passed within the last 3-5 years. Many of those new laws simply amended existing tobacco product laws, and legislatures may not have carefully incorporated those changes in all of the critical statutory sections. Consequently, there are often situations in which the legal requirements are not clear. In those cases, it may be prudent to reach out to regulators to better understand how they interpret their statutes.
State taxes
When online retailers face ambiguous licensing laws, it may be helpful to look to the purpose of those laws. For example, if licenses are required by a tax department, the online retailer should look at the tax statute to determine who and what is subject to taxes. Many states require licenses to facilitate payment of sales or excise taxes.
Almost all states impose sales and use taxes on remote sales of products. For out-of-state online retailers, most states follow the analysis outlined in South Dakota v. Wayfair, Inc., 138 S. Ct. 2080 (2018), which generally permits a state to impose sales tax on an out-of-state seller where the seller has a “substantial nexus with the taxing State.” Some states require a business or tax registration to file returns and pay sales taxes.
Missouri, for example, does not tax or regulate ENDS as tobacco products, but it requires online retailers to obtain a retail sales tax license for sales tax purposes. Furthermore, states typically only require sales taxes from remote sellers when a certain sales volume or revenue threshold has been met. Virginia, for example, requires a remote seller to register for the collection of sales and use tax if it received more than $100,000 in gross revenue from sales in Virginia or engaged in 200 or more separate retail sales transactions during the previous or current calendar year.
In addition, like state licensing laws, the applicability of excise taxes to ENDS products sold online can depend on the specific product definitions in the relevant statutes. Some states’ excise tax statutes explicitly define and include ENDS products, while others attempt to fit those definitions into terms like “tobacco products” or “other tobacco products.” Utah, for example, explicitly taxes “electronic cigarette substances,” “prefilled electronic cigarettes,” “alternative nicotine products,” “nontherapeutic nicotine device substances,” and “prefilled nontherapeutic nicotine devices” in its Electronic Cigarette and Nicotine Product Licensing and Taxation Act.
Agustin E. Rodriguez
Some states explicitly exclude ENDS from definitions that would subject them to excise taxes. Texas, for example, provides defines taxable “tobacco products” to exclude e-cigarettes, or any other device that simulates smoking using a mechanical heating element, battery, or electronic circuit to deliver nicotine or other substances through inhalation.
It is also important to keep in mind that states tax various parts of ENDS products in different ways. Virginia, for example, imposes an excise tax on liquid nicotine products at the rate of $0.066 per milliliter of liquid nicotine, but the State does not impose taxes on other components of ENDS. Washington, D.C., on the other hand, taxes vapor products by making the tax rate equal to the cigarette tax, expressed as a percentage of the average wholesale price of a pack of 20 cigarettes.
Finally, if online retailers determine state excise tax laws apply to their ENDS products, they must still determine who is required to pay those taxes and when they are due. For example, some states, like Kentucky, require that excise taxes be paid by the licensed distributor that first possesses the ENDS products for sale to a retailer or unlicensed person in the State.
Potential penalties & enforcement climates
Online retailers facing ambiguous licensing statutes should consider two major factors in their risk analysis—statutory penalty provisions and enforcement climate.
Penalties for operating without a license can be steep. In Idaho, for example, it is a criminal offense to sell ENDS without a permit issued by the Department of Health and Welfare. In addition, a court may impose a fine of $1,000 per day beginning the day following the date of citation as long as the illegal ENDS sales continue. In other states, however, penalties are relatively low. In Montana, for example, failure to obtain a vapor product license is punishable by a civil penalty of $100.
Finally, online retailers should consider the enforcement climate surrounding regulation of ENDS products in certain states. For example, Attorneys General in various states have filed lawsuits against an ENDS manufacturers and online retailers. Although these cases do not directly implicate licensing or tax issues, enforcement actions by Attorneys General may suggest a more aggressive enforcement climate when it comes to licensing or tax violations.
Proposed state legislation
Online retailers should expect upcoming state legislative sessions to be fairly active with regard to regulation of ENDS products. In Colorado, for example, there is no current nicotine products or ENDS tax or licensing scheme. But Colorado HB20-1472 established a voter referendum on whether there should be a tax on “nicotine products,” which would include “products that contain nicotine and that are ingested into the body.”
Bryan M. Haynes
In Georgia, the legislature is considering a bill that will amend its tax and revenue laws “to provide for excise taxes to be levied on certain alternative nicotine products and vapor products” and to “require licensure of importers, manufacturers, distributors, and dealers of alternative nicotine products or vapor products.” HB 1229.
South Carolina is also considering a bill (H.4714) that will “provide for the levying, assessment, collection, and payment of certain taxes on vapor products.”
These are just a few examples of states that are considering ways to regulate and tax ENDS products. Therefore, it is important for online retailers to incorporate accurate state legislative tracking into their compliance strategies.
Conclusion
As with any other new technology, the law is often playing catch up with new business models and products, like the online sale of ENDS products. But given the issues discussed above, online retailers should prioritize compliance with varying state laws to reduce the risks of enforcement action.
Nicholas A. Ramos is an associate with Troutman Pepper. His practical advice enables clients to navigate regulatory compliance and licensing issues, complex investigations, and high stakes enforcement actions that arise under state and federal law.
Agustin E. Rodriguez serves as counsel for Troutman Pepper and has almost two decades of experience counseling tobacco companies in-house and in private practice on tobacco product regulation, taxation and multi-jurisdictional state and local enforcement issues.
Bryan M. Haynes is a partner with Troutman Pepper who specializes in tobacco industry regulatory compliance and enforcement matters. He efficiently assists clients in complying with regulatory obligations and managing risk, consistent with clients’ business objectives.
Tobacco Media Group (TMG) has decided to change the format of the Tobacco Plus Expo (TPE) 2021. The organization is will now be offering a series of virtual educational sessions leading up to the in-person TPE 2021 trade show, scheduled for May 12-14, 2021.
TMG had previously announced plans to move the TPE 2021 from January to May, in order to safely navigate the uncertainty of the Covid-19 pandemic. “The shift in dates allows more time for precautions to be taken and peace-of-mind to develop, making it a solid approach to ensure TPE’s valuable in-person buying, selling, and networking experience, according to a press release.
Led by industry experts, the educational sessions at TPE show offer insight and information about market trends, best practices, and the legislative landscape. For the 2021 show, TMG is placing an emphasis on engagement with the industry advocacy associations.
“TPE 2021 has presented some planning challenges, to say the least,” says Ben Stimpson, managing director of TMG. “But our team is hard at work, looking for ways we can increase the show’s value for both attendees and exhibitors. By moving the educational sessions to Q1, we’re still able to help the industry start the year strong, armed with information to grow their businesses.”
TPE 2021 will be held May 12-14, 2021 at the Las Vegas Convention Center in Las Vegas, Nevada. More details are expected to be released concerning the early virtual educational sessions, according to the release. For more information, please visit the TPE 2021 website.
