Author: GTNF Trust Staff

A state-of-the-industry seminar presented by the Vapor Technology Association set a solid foundation for the newly formed advocacy group.

By Timothy S. Donahue

It’s coming. Once deeming regulations for the vapor industry are finalized, the lobbying efforts and court battles will intensify. Training for the big fight could prove to be one of the toughest tests for the fledgling industry as it attempts to take over tobacco. In fact, vapor advocates have already gained valuable experience and momentum in various battles in multiple levels of government across the U.S. It isn’t enough, however. There is still a lot of work ahead.

The vapor industry needs to do a better job of informing legislators and the general public about the public health benefits of vaping. Too much misinformation has been disseminated and propagandized by major media outlets and the anti-vapor faction. This was the main message of the first e-cigarette summit hosted by the newly formed Vapor Technology Association (VTA). Held in Washington, D.C., in early October, the inaugural event brought fresh ideas from voices not typically heard at e-cigarette seminars.

Lobbyists, lawyers and industry leaders all shared their insights into the rapidly evolving vapor market. Fittingly, the focus was on the U.S. Food and Drug Administration’s (FDA) deeming e-cigarette regulations and strategies for state and federal lobbying efforts. Ella Yeargin, ombudsman for the FDA, told the invitation-only crowd that she serves as the focal point for addressing complaints and assisting in resolving disputes between companies or individuals and FDA offices, such as the Center for Tobacco Products. She said her office expects to be quite busy once deeming regulations have been reviewed by the White House.

The ombudsman serves as a neutral and independent resource for members of FDA-regulated industries (such as vapor and tobacco) when they experience issues with the regulatory process. She expressed that her office could be contacted without repercussions from the FDA. “Firstly, I know nothing about when deeming [regulations] are coming,” she said. “Contacts to my office are held in confidence [between the person/company and the ombudsman].” This could prove vital as companies may want to ask questions before having a formal discussion with the regulatory agency.

Drew Perraut, founder of Radiant Strategies—who formerly worked with the Office of Information and Regulatory Affairs (OIRA), a statutory arm of the White House’s Office of Management and Budget that is currently reviewing the FDA’s deeming regulations—said the FDA has a very “particular” perspective concerning the vapor industry. The FDA’s mission is the protection of public health. “The impact on the regulated community is not of great interest to them,” he said.

OIRA has a different role, said Perraut. The White House looks more at the effects on industry, as well as society. “As ‘deeming’ wraps up, OIRA is a place where your interests will really be taken into account. It is your best chance to impact how these policies come about,” he said. “The FDA is going to have to make their case [for the proposed rules] since all the science seems to indicate that the risk profile [for e-cigarettes] is dramatically lower than the FDA wanted to admit in the proposed rule.”

That is a fundamental change. “It is extremely important that people weigh in on the final rule,” Perraut said, adding that deeming regulation has the ability to create change unlike any other proposed rule in tobacco history. “Moving to a product-by-product analysis opens up the final rule to be quite different than the proposed rule.” In reference to flavors, Perraut said there will “be action on flavors before the end of this administration.” That is in stark contrast to the view of industry experts who have said that the FDA will not act on flavors until after the presidential election in 2016.

Beyond regulation, speakers also confronted current legislation that could benefit the vapor industry. Ashley Davis, a partner at West Front Strategies, said the industry needs to get behind legislative issues such as the Cole Bill, which would amend the Food, Drug and Cosmetics Act to change the grandfather date for “deemed tobacco products.” This change would allow for all vapor products currently on the market to remain on the market without being subject to the burdensome premarket FDA approval application process.

A provision of the Tobacco Control Act echoed in the FDA’s draft deeming regulations would require any product deemed by the agency to be a tobacco product to go through a lengthy, expensive “premarket tobacco application” process to remain on the market—unless its marketers can prove that it’s “substantially equivalent” (SE) to a similar product already on the market as of Feb. 15, 2007, an essentially random date chosen by those who wrote the law. “The SE requirement could destroy the industry,” said Davis.

Another bill, sponsored by U.S. Rep. Robert Aderholt of Alabama, would prevent the FDA from requiring premarket reviews of e-cigarettes that already are on the market. The provision is a technical change that would keep the deemed products under FDA oversight but allow them to be regulated in the same way as currently regulated tobacco products. “We are supporting these bills because they are the best options we have available right now,” said Davis.

Beyond the regulatory debate, there are things the industry could be doing now in preparation for the final rule, according to William McGrath, a partner at Potomac Law Group. “This is the kind of stuff we can pretty much guarantee will be in the final rule,” he said. “Child-resistant caps, for example, will be a final rule.” McGrath said a successful future for a vapor business will be based on how well those businesses weather the storm. “You need to be ready for the regulations so you can pick the battles and prepare yourself to do what needs to be done to keep your products on the market.” Other steps manufacturers could make include nicotine warnings on labels and packaging that doesn’t appeal to youth.

Creating industry-wide standards could help motivate regulators to move in a more vapor-friendly direction, according to Arnaud Dumas de Rauly, the secretary-general for European and international relations of FIVAPE, a French vapor trade association. He told attendees that because France had little to no vapor manufacturing standards, the French vapor industry decided to create its own standards.

“We were then able to use those standards and use them to lobby regulators so they could make decisions based on these standards,” he said. The industry basically incorporated the basic [Tobacco Products Directive] principles for Europe into vapor industry standards, according to de Rauly. “I got an e-mail today from the European Commission that states they will base all of the implementation acts on the works being done at the European standards body.” This is something the American vapor industry should try to mimic, said de Rauly. “It has really helped us over the past two years. We are using standards to get regulators to do what we want them to do.”

Welcome to the industry

The VTA is the latest addition to the long list of industry associations. Ron Tully, a partner at Next Generation Labs and a co-founder of the VTA, said the organization was created because there are different needs in terms of commercial interests concerning vapor regulation and legislation that other associations are not currently addressing. “What we are finding is there isn’t a sufficiently broad-based trade association that is actively engaged in areas such as positive and active engagement with the FDA and state-level regulators,” Tully said. “Having a trade association that is positive and proactive can make an important impact in filling voids where there is currently no guidance in the vapor industry.”

During an exclusive interview with Vapor Voice before the seminar, Tony Abboud, national legislative director for the VTA, said the organization will be run by a professional public policy and communications team “never before seen” in the industry. This would include federal lobbyists, state lobbyists, and lawyers and public affairs professionals with industry experience. “Our mission is keeping vaping markets competitive for both large and small players,” said Abboud. “We want to ensure the long-term viability of the industry, defeat bills that stifle innovation critical to public health and transform the public debate on vapor products.”

The organization has a three-pronged approach to accomplish its goals, according to Abboud. He said that the VTA must not only confront attacks on at the state and federal legislative levels but also keep an eye on how the media reports on the vapor industry.

“The anti-vaping regulatory and media campaigns are being conducted by an entrenched, highly coordinated and well-funded public-health lobby, aided by Big Pharma corporate interests,” said Abboud. “These groups, along with the Centers for Disease Control [and Prevention] and state departments of public health, are unethically peddling fear and false information by making statements that are contradicted by science and are inconsistent with the FDA’s own position on nicotine-containing products.”

The VTA messaging will be based on the significant body of scientific data supporting the positive health implications of vapor products on adult consumers, according to Abboud. “The VTA will not only respond to negative press, but we also will develop a proactive engagement strategy promoting the obvious and established life-saving potential of the vapor industry with national and local media outlets,” he said. “We will not stand idly by while lawmakers and regulators try to destroy our industry based on emotion, but will coalesce the forces to advocate for rational regulation based on science.”

“We won’t get fooled again,” says the public health community, as it equates vaping with smoking. Scott Ballin is trying to get them to sing a different tune.

By Maria Verven

Scott Ballin has spent more than 40 years enmeshed in issues surrounding tobacco and public health and is now one of the central figures in the vapor wars.

A tobacco and health policy consultant in Washington, D.C., USA, Ballin was vice president and legislative counsel with the American Heart Association and chaired the Coalition on Smoking or Health for more than 10 years. He’s played a part in U.S. Food and Drug Administration (FDA) regulations, excise tax increases, clean indoor air laws, tobacco agriculture and labeling reforms, among other important developments.

But even Ballin is growing battle weary with the current vapor wars.

“Many of my public health friends and colleagues at the American Cancer Society, Campaign for Tobacco-Free Kids and the American Heart Association, where I worked for many years, are unwilling to even engage in a dialogue. They’re stuck in the 1990s,” he says, referring to their battles with Big Tobacco.

“I was in the middle of that and fought with the tobacco industry for years,” Ballin says. “They couldn’t be trusted. Do you remember when the CEOs stood before Congress, swearing that nicotine was not addictive? It’s easier for some in public health to just say ‘we won’t get fooled again.’

“The resistance coming out of the public health community today is no different than during the tobacco wars; in fact, it is in some ways even worse. The perplexing thing is, they’re digging their heels in even more. They don’t want change. They don’t want new products. They’re basically throwing the baby out with the bath water, which ultimately could be a detriment to public health.”

Fingers in their ears

Ballin has seen that, by bringing parties together to discuss the issues, the dynamic can and will change. He first saw it in 1985 when former President Jimmy Carter brought stakeholders together at the newly established Carter Center to talk about tobacco. He witnessed it in the 1990s when the University of Virginia fostered face-to-face dialogues between tobacco growers and the public health community.

“It was quite extraordinary,” Ballin says. “Tobacco growers learned the public health community wasn’t the bad guys, that we weren’t trying to put them out of business,” he says. “And the public health folks learned that, even if they could put tobacco growers out of business, it wouldn’t reduce the number of cigarettes coming into the U.S. The products would just be less regulated.”

“By engaging with the growers, we basically took some of the wind out of Big Tobacco’s sails. When both sides agreed on about 95 percent of the issues, Big Tobacco could no longer use tobacco growers to do their lobbying,” he says. A senior vice president from Philip Morris later told Ballin it was one of the most strategic things the public health community had ever done.

Ballin says a key issue is that the public health community doesn’t want to be perceived as supporting the use of any tobacco or nicotine product. “They’re always raising the issue of unintended consequences: What’s in these products? Are they being marketed to kids? They don’t see it as any different than what the tobacco industry did to promote low-tar, low-nicotine cigarettes: fight FDA regulation and pull the wool over the health community’s eyes.

“These issues can and should be resolved, but public health won’t talk with anybody in the industry about their concerns or how we can work together. They think it’s a purely black and white war. But there are many gray areas, and those gray areas offer opportunities for stakeholders to work cooperatively to achieve a very important objective—to reduce disease and death from combustible cigarettes.”

Relative risk and the FDA’s role

Ballin strongly advocates regulating products based on their relative risk compared to smoking.

“Vaping provides a solution to smoking. Traditional patches and gums weren’t doing the trick. There needed to be more attention given to harm-reduction strategy,” he says.

“You just can’t have a spectrum of products out there with people saying, ‘It’s lower in risk than cigarettes.’ We need a more effective regulatory structure that takes relative risk into consideration,” he says. “Regulate tobacco cigarettes as rigidly as possible at the high end, and then go down that continuum of risk into noncombustible products, then the e-cigarette category, and then the [nicotine-replacement therapy] NRT products.”

While its final regulations have yet to be published, the FDA shared its deeming regulations well over a year ago. Ballin credits Mitch Zeller and the FDA for going to great lengths to engage stakeholders in its regulatory process, including those in the e-cigarette and tobacco industries. “That never occurred in the 1990s,” Ballin says.

Now there’s little more to do but wait until the final regulations come out later this year or early 2016.

“The FDA is going to have to deal with some major issues related to how they’re defining e-cigarettes,” he says. “They’re working from a statute—and I can’t emphasize this enough—that was outdated the day it was signed into law. It didn’t reflect what was happening in the marketplace, and that’s why we’re having this discussion about the dates of implementation and why they originally proposed that e-cigarettes developed after 2007 be thrown out the window.”

Ballin also advocates setting marketing, advertising and labeling standards that reflect the relative risk, so consumers can understand what these products are, and what they can expect from using them—whether it’s deadly cigarettes at one end or NRT products at the other end.

“Your article [“Too Big for the Bathtub,” Vapor Voice Issue 3, 2015] is a perfect reflection of the fact that we need good product and manufacturing standards for this industry. The public health community should have said, ‘We agree and collectively we need to work together to determine what those product standards should look like.’ But for the most part they do not want to engage at this point, although there is some movement on the part of a few.”

Tax based on relative risk

Ballin also has strong opinions with regard to taxing e-cigarettes. “It’s easy to simply tax the vaping products at the same level, which is why there’s a lot of talk to make vaping equal to cigarettes and apply all the same requirements, restrictions and taxes.”

However, Ballin believes we need a comprehensive nicotine policy that regulates products based on relative risk. “Tax the hell out of combustible, deadly cigarettes. But if it’s scientifically established that these products are lower in risk, I don’t think they should be taxed at the same level as cigarettes. In fact, I think there should be incentives.”

He acknowledges that, if the rate of smoking drops, both state and federal tax revenue will decline. “It’s just not public health that’s at stake here. It’s also revenue streams going into state activities. If you’ve been funding programs with an excise tax, and that goes away if everybody stops smoking, where is that money going to be made up?”

Ballin notes that public health organizations still receive money through the Truth Initiative (the renamed American Legacy Foundation established with money from the 1998 Master Settlement Agreement). State money also gets dispersed to help fund tobacco control programs. But he says, so far, no one has tried to sort through where the money is coming from, where it’s being dispersed and then evaluate the financial consequences of declined cigarette use.

“That’s an important issue, because that money enables them to continue their programs and activities. But I don’t think the public health community is necessarily motivated to address that issue yet,” Ballin says.

The world is changing

Ballin has started getting various stakeholders together at the University of Virginia to talk about how to define, regulate and monitor e-cigarette products in ways that are fair and effective for all stakeholders.

“We’re trying to bring people who normally don’t talk to each other to take off their hats and check their egos at the door,” he says. “We’re asking them to come as individuals, not representatives of an organization or company, to talk about harm reduction, our common goals and how we can remove some of the barriers and obstacles to reaching our goals.

“The world has changed. Mitch Zeller is talking about a comprehensive nicotine policy, not a tobacco policy, at the FDA. But every time I pick up an article, it’s clear that we’re not there yet. Public health is still fighting, and it’s still a very volatile environment. Many still oppose having e-cigarettes on the market, in spite of the growing evidence that these products could have a very positive role in the public health agenda.

“Many years ago, a public health colleague of mine said, ‘If you keep running into a brick wall, just go around it.’ That’s exactly what we’re trying to do with these dialogues. We’re trying to find another route to achieve our public health goals and make that route accessible to all stakeholders.”

The original “Vaping Vamp,” Maria Verven is partner and chief marketing mentor of VapeMentors.com.

Stricter regulations will force brick-and-mortar shops to step up their game, but the shakeout may not be as severe as alarmists predict.

By Stephanie Banfield

Since e-cigarettes were initially introduced to the United States less than a decade ago, the vapor industry has grown exponentially, raking in billions of dollars and giving thousands of vape shops—from enormous enterprises to tiny mom-and-pop shops—the opportunity to flourish. With hundreds of new products entering the market each year, there is no shortage of options to choose from as vapers search for the device that’s right for them. Although the popularity of vaping is virtually undisputed, an increase in the number of online retailers able to sell vapor products at a lower price point—and looming legislation that could stop some shops from conducting business as usual—have recently called into question the future of brick-and-mortar stores.

According to Reuters, the U.S. is currently home to 8,500 vape shops—and estimates from Wells Fargo Securities indicate that the U.S. e-cigarette market will reach $3.5 billion by the end of this year. But despite the constantly climbing sales of vapor products year after year, brick-and-mortar vape shop owners competing with online vendors are faced with an assortment of challenges that range from skyrocketing operating costs and inventory management to hiring knowledgeable staff members and keeping customers coming back for more.

“You have to worry about things such as location and operating hours that are non-issues with an online store,” says Kenny Spotz, public relations specialist for Lynden, Washington-based Mount Baker Vapor, which operates both a brick-and-mortar storefront and an accompanying online store. “Your reach is also limited. With an online store, we open ourselves up to customers around the world, whereas a brick-and-mortar isolates us to a certain geographic area. There’s also the issue of physical space. It’s much easier to stock a warehouse and to ship out of it than to have a retail storefront that is big enough to house the kind of selection we offer on our website.”

For Peter Denholtz, CEO and founder of Henley Premium Vapor and The Henley Vaporium in New York City, inventory is another issue that can’t be ignored.

“One of the biggest challenges of this business, for me, is how much of this product do I buy, how long is it going to be hot, and when is it going to go away?” says Denholtz. “I’ve got $4,000 worth of one mod sitting downstairs that we thought was going to blow off the shelves—and I’ve had it down there for six months. And I’ve got other stuff that I am scared to buy because I don’t know if it’s going to sell. So I’ll buy too little, and then it goes like crazy in a day or two, and then it’s going to take me too long to get more in where I can stay on top of the crest of that wave and make that product a success here at Henley. That balance and understanding of what product to buy and when to get it in is a great, great challenge.”

When it comes to challenges met by brick-and-mortars, being able to compete with the price point offered by online retailers is paramount.

“The biggest disadvantage for brick-and-mortars when being competitive with online stores is price,” says Chip Paul, CEO and co-founder of Oklahoma-based Palm Beach Vapors, which has 17 locations throughout the U.S. “Websites operate at very, very slim margins, and they have very low overhead. So they can offer things at deep, deep discounts. Price is the driver of online purchases. You can just get stuff cheaper online.”

One on one

Despite the high costs associated with operating storefronts, brick-and-mortars have a serious advantage over their virtual competition: the ability to offer one-on-one interactions with their customers.

“Compared to an online shop, the biggest advantage of operating a brick-and-mortar shop is the level of interaction it allows us to have with the consumer,” says Spotz. “There is no replacement for being able to have a face-to-face conversation with someone who is interested in our product. It allows the customer to see the human side of the business, which can be hard to perceive online.”

The customer service component of a brick-and-mortar is key, particularly when it comes to novice vapers attempting to navigate the seemingly endless supply of vapor products on the market, or hoping to find a device that better suits their needs after experiencing a series of failed attempts with previous products.

“Usually, we’re sort of the last stop,” says Paul. “Sometimes people have been educated about vaping a little bit, and they can go online and make purchases, and everything works. But generally people have been through the c-store experience, and they’ve been trying some online stuff, and that hasn’t worked for them. So they just want to come in and find out how everything works—what’s the best tank, what doesn’t leak, and what’s hot and what’s not right now. They just need more information than you can find online. You can find a lot of stuff online, but it’s just in-your-face products, which is just overwhelming.”

According to Spotz, having customer service representatives and knowledgeable staff members in place not only helps people who are new to vaping pick the right product; it can also ensure that their switch to vapor devices from combustible cigarettes is a successful one.

“Every day, new people are getting started, and many are confused by the number of hardware and juice options out there,” he says. “Having a real person to talk to in-person can make all the difference in allowing them to have a successful start to their vaping experience. Also, brick-and-mortar stores allow customers to try juices before they buy them—a huge factor in making sure they get a flavor that will satisfy their needs. One of the reasons customer service has always been the No. 1 priority for us is because it plays such an important role in helping smokers successfully complete the transition to vaping.”

To bridge the customer service gap commonly encountered with online sales, Mount Baker Vapor boasts a customer service center and live chat feature on their website, where experts are available to answer a variety of questions from online shoppers who need extra assistance.

“Customer satisfaction has always been our top priority, and having a convenient, accessible response center is a crucial part of that goal,” says Spotz. “Live chat is an instant service for people that have quick questions on anything from a piece of hardware to the services that we offer. It runs from 7 a.m. to 11 p.m. [PST] and offers a U.S.-based representative to answer any questions a customer might have. The main goal is to provide resources for any problem a vaper might run into in day-to-day operation. Our specialists are knowledgeable about anything from hardware issues to DIY questions. Our main focus is to make the newbies feel advanced, and for advanced vapers to feel as if they are speaking with a peer. The feedback we have received so far makes us feel like we are achieving that goal.”

Looming regulation

While offering superior customer service is a major draw for vapers looking for personalized attention, it can’t protect brick-and-mortars from the impending threat of U.S. Food and Drug Administration (FDA) regulation that has the potential to dramatically alter business as many vape shop owners know it, particularly those who rely on revenue from producing their own e-juices.

“With the deeming regulations, you’re going to have to have very deep pockets and be ISO certified and have cleanrooms and all sorts of things,” says Denholtz. “The guy producing stuff in his garage today might be making some unbelievable e-juices—and there are some great e-juices coming out of people’s garages, and there are some shitty e-juices coming out of the labs. But regardless of whether we think it’s good or bad, the FDA is going to put its foot down and determine that it has to be done in a certain fashion, and that’s going to weed out 90 percent of the people that are currently producing e-juice. I would be very scared if I was in the juice manufacturing business right now. I’m rooting for the guys that might fall by the wayside, but I think it’s a tough road for them.”

While many in the vapor industry fear regulatory changes could result in brick-and-mortar vape shops being forced to close their doors if they are unable to comply, others aren’t concerned with pending legislation and welcome requirements that will standardize the industry and improve the products available on the market.

“With FDA’s deeming regulations, the media is making such a big deal out of this closing down vape shops, and honestly those regulations are childproof caps and warning labels on juice, etc.,” says Paul. “The FDA is not going to shut down an industry, and certainly not an $8 billion industry. A lot of what you read is just a lot of BS and scare tactics. If you really dig down into the facts and go out and read the deeming regulations word for word, [Palm Beach Vapors] already complies with them. Every single unit in our system already complies with every proposed regulation in the FDA deeming regulations. So it’s kind of severe, but it’s not an insurmountable mountain; it’s not going to shut down 90 percent of the industry.”

Differentiation

The effect the FDA’s deeming regulations will ultimately have on vape shops remains to be seen, but many brick-and-mortar vape shop owners are launching a pre-emptive strike and attempting to diversify their business as much as possible. From creating unique lounges where vapers can spend hours socializing or simply relaxing while vaping to hosting competitive vaping tournaments that offer prizes and bring enthusiasts together, brick-and-mortar shops across the U.S. are preparing for changes by providing more offerings to their patrons than ever before.

“We’re very lucky because we have the largest backyard in SoHo in New York City, and we have barbecues and yoga-type events and TED-type talks, mural paintings and bazaars where people can buy stuff,” says Denholtz. “We view Henley Vaporiums as three pieces: an education center where people can come learn about and test different products; a retail operation where we can sell those products if they decide they want to engage; and, lastly, what differentiates us is that we also view ourselves as a community center—as a gathering place for people, whether they are into vaping or they’re not into vaping. And we have our share of both that come in here. People will come into Henley and just use the Wi-Fi, grab a cup of coffee and hang out.”

According to Denholtz, offering an experience for customers to enjoy—rather than just shelf after shelf of vapor devices and supplies—is a surefire way to give his company staying power in a constantly evolving industry.

“I believe that having that differentiation will allow us to be more versatile and keep our options open to where this industry is going, whether it’s educating people or whether it’s selling them more products,” he says. “That differentiation is incredibly important to the long-term survival of vape shops.”

Stepping up their game

Although opinions differ greatly regarding the ultimate fate of brick-and-mortar vape shops, there appears to be agreement on the characteristics of the stores that will ultimately survive.

“We think there will be an uptick in the quality of brick-and-mortars, but fewer of them overall,” says Spotz. “As the market matures and consumers become more informed about the high-quality options, you will see less and less of the dark, dingy storefronts that you hear many vapers complain about.”

For Denholtz, it’s the better businesspeople in the bunch who will continue to enjoy success in the vape store space.

“This industry started when the economy was really bad, and a lot of people that got into this business were people that didn’t have jobs,” says Denholtz. “Some of them were horrible businesspeople who never did business, and some of them turned out to be great businesspeople. There was very little barrier to entry to getting into this business: You could buy some product from China, set up a business, and you’re ready to go. As a result, there is so much crowding and competition among vape shops, but that is starting to change now. So a lot of these people are going to start to go away, and the people with deeper pockets that were better businesspeople are going to remain.”

No matter where the industry goes and which stores are left standing once the FDA’s deeming regulations come into force, one thing is certain: Those who are in the business of helping smokers successfully switch from combustible cigarettes to vapor products won’t give up without a fight because they’re involved in an industry that makes a difference in people’s lives.

“I truly believe we’re changing the world, and I truly believe that we might be working with one of the greatest life-saving devices ever invented in our lifetime—and I’m proud to be a part of that,” says Denholtz. “When you get a chance to save lives and make a living at the same time, that’s pretty awesome.”