Category: This Issue

  • Restrictive Sales

    Restrictive Sales

    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.

  • Disruptive Science

    Disruptive Science

    Credit: TTI

    A new version of synthetic nicotine eliminates the cancer-causing impurities in leaf-derived nicotine.

    By Timothy S. Donahue

    No tobacco-specific nitrosamines (TSNAs). A new synthetic nicotine coming to market has none of the possible cancer-causing impurities that are found in traditional leaf-derived nicotine. In November, eLiquiTech, a wholly owned subsidiary of Tobacco Technology Inc. (TTI), will release its newly patented SyNic synthetic (S)-nicotine. The announcement has the potential to revolutionize next-generation tobacco products, such as electronic nicotine-delivery systems (ENDS), oral nicotine-delivery systems and heat-not-burn (HnB) products.

    SyNic USP/EP, SyNic nicotine bitartrate and SyNic polacrilex resin are manufactured in U.S. Food and Drug Administration (FDA)-registered facilities using current good manufacturing practices (cGMP). These products have confirmed purity levels of more than 99.9 percent, (S) levels of more than 99.7 percent and are free of TSNAs and carcinogens, according to eLiquiTech CEO George Cassels-Smith. “What is the value of noncarcinogenic nicotine base to any tobacco product manufacturer?” he asks. “What is a noncarcinogenic tobacco product portfolio worth to the tobacco consuming public? But high-purity, pedigreed natural nicotine will continue to have a large seat at the table nevertheless.”

    SyNic got its start seven years ago when e-LiquiTech began working with U.K.-based Zanoprima Lifesciences with the goal of developing a unique and patented portfolio of synthetic nicotine products. The group wanted those products to cover the entire nicotine value chain with a focus on next-generation tobacco products.

    E-LiquiTech, through TTI, is committed to Zanoprima to serve as SyNic’s global distributor and the manufacturer of record for synthetic nicotine bitartrate and synthetic nicotine polacrilex resin as well as proprietary SyNic e-liquid formulas. “Ensuring that synthetic nicotine is readily available is the right thing to do for our industry—and now also is the right time to do it,” said Cassels-Smith.

    Zanoprima holds the patent and eLiquiTech maintains the exclusive rights for global distribution to the tobacco and ENDS industries, but the product won’t be available to everyone, according to Cassels-Smith.

    “This will not be available directly to the consumer market. We will soon post a set of standards online that manufacturers must meet to purchase our synthetic nicotine,” he says. “This product is not intended to circumvent the rules governing the tobacco and ENDS industries nor evade regulation. We will not sell it to companies that have that intent.”

    SyNic will refrain from entering the highly contentious U.S. vapor market until its potential customers can show they have an accepted for review premarket tobacco product application (PMTA) submitted to the FDA’s Center for Tobacco Products. “Our objective is to work with the FDA, not around it,” says Cassels-Smith.

    When synthetic nicotine first appeared on the market in 2016, the product was marketed as being a potential way to circumvent the FDA’s proposed deeming rule for next-generation tobacco products. The FDA’s definition of “tobacco product” includes any product made or derived from tobacco, including any component, part or accessory of a tobacco product. E-liquids that do not contain nicotine or other substances made or derived from tobacco may still be components or parts and, therefore, subject to the FDA’s tobacco control authorities.

    Cassels-Smith says that Zanoprima has filed multiple global patents for its technologies and has also begun the process of filing drug master files with the FDA for SyNic nicotine, SyNic bitartrate and SyNic polacrilex resin. “Coupled with e-LiquiTech’s exclusive distribution, competitive pricing and carrying the e-LiquiTech guarantee, these products will be available only to responsible partners operating within the regulatory guidelines of the global tobacco industry,” said Cassels- Smith. “The synthetic nicotine is cleaner than naturally derived nicotine because it has no TSNAs. These nitrosamines have the potential to turn into carcinogens. SyNic will not have any nitrosamines and is 100 percent carcinogenic-free by design.”

    E-LiquiTech’s synthetic nicotine resembles its naturally derived cousin. Like a naturally derived liquid nicotine, e-LiquiTech’s new synthetic nicotine is more than 99 percent pure (S)-nicotine. This purity of (S)-nicotine has a better effect on the body, and SyNic carries fewer impurities than naturally derived nicotine that comes from leaf tobacco.

    “Nicotine exists in nature in two forms, (R) isomer and (S) isomer. One is basically a mirror image of the other, but the nicotine desired by vapers and smokers alike is the (S)-nicotine alone. Naturally grown tobacco contains over 99 percent (S)-nicotine, and the rest is very little (R),” says Cassels-Smith. “The body considers (R)-nicotine a filler with substantially less physiological effect. It’s considered a waste product, and [the body] does not absorb it. SyNic is slightly superior to the (S)-nicotine content found in a naturally derived nicotine because of its higher levels of (S)-nicotine with qualified and quantified impurities.”

    Traditionally, a problem for the producers of synthetic nicotine has been that the entire production process is both complicated and expensive. As a chiral molecule, nicotine is far easier to produce as a synthetic nicotine with equal amounts of both (R) isomers and (S) isomers compared to a nearly pure (S)-nicotine. “(R)-[nicotine]/(S)-nicotine requires additional refining processes, which [are] time consuming and expensive to convert it to a true synthetic (S)-nicotine,” explains Cassels-Smith. “Also, because (R)-nicotine has substantially [fewer] physiological properties, it takes twice as much 50/50 synthetic nicotine in an e-liquid to achieve parity with SyNic. Because SyNic has greater than 99.7 percent (S), it only needs half the amount of SyNic to create the same effect for users as current synthetic nicotine offerings on the market.”

    Naturally derived nicotine and synthetic nicotine are identical on a molecular level. The differences are the individual or potential impurities. Nicotine derived from tobacco can contain potentially harmful impurities if it is not purified sufficiently. That can be very difficult and costly because the impurities appear structurally very similar to the nicotine molecule itself. But synthetic nicotine is virtually free of any impurities from the beginning and none are carcinogenic.

    SyNic, by design, carries no heavy metals and contains no residual pesticides. Additionally, unlike tobacco-derived nicotine that uses harsh acids and chemical solvents in its process, SyNic, is produced using a “green chemistry” method. “Its manufacturing is environmentally friendly, and any solvent used is recovered completely before being recycled for future use,” explains Cassels-Smith. “The SyNic process makes the tobacco-derived nicotine process appear dirty by comparison.”

    SyNic will help manufacturers meet the FDA’s goals by consistently creating high-quality nicotine to deliver to the consumer without the possibility of potential carcinogens, according to Cassels-Smith. “We will allow vaping products to have the cleanest delivery and the best delivery,” he says. “That isn’t going to happen with the old technology. SyNic is a new frontier and a perfect tool for this industry to reinvent itself. It is constantly developing and reinventing itself. This product can help make all tobacco products better.”

    Because of its unique patented process, Cassels-Smith says SyNic can achieve price parity with tobacco-derived nicotine. He adds, however, that this synthetic product will always be marketed at a higher cost than naturally derived nicotine to ensure there will always remain a naturally derived pedigreed nicotine market where the tobacco farmer can sell his crops.

    “We have a lot of respect for the natural product and foresee our synthetic nicotine being a compliment to those that wish to remain all natural. There is enough room in the market for everybody. SyNic, with its known qualities, will have a place at the table alongside pedigreed natural tobacco-derived nicotine. But there are issues with nicotine sourced from scrap and dust as traceability is impossible and controlling pesticide and heavy metal contamination is problematic,” Cassels-Smith explains. “I foresee a future requiring the tracing of [natural] nicotine’s origin from the seed and soil through the extraction process and also quantifying impurities, all in cGMP facilities.”

    SyNic’s potential is unlimited in the number of products in which it could be used. Cassels-Smith says that he cannot think of a single nicotine product that could not benefit from SyNic. In a heat-not-burn product, for example, during the rod-making process, SyNic could augment the prevalent nicotine source—or even be the sole source.

    “Zanoprima has adapted their SyNic technology and patented an extremely unique and stable nicotine salt that does not use organic acids and retains pH stability,” he says. “SyNic also has the potential for being associated with superior purity and shelf life stability in all tobacco products of the future. SyNic will raise the bar, and we are just scratching the surface. It is a great tool that emerges at the perfect time for every tobacco product designer. The portfolio of potential products that can utilize SyNic is infinite.”

  • An Avalanche of Paper

    An Avalanche of Paper

    Gerri and James Jarvis

    The ‘Davids’ of the vapor industry prepare for war.

    By Maria Verven

    In many ways, Gerri and James Jarvis are the epitome of the Davids who are up against the Goliaths of the vapor industry.

    Now that the U.S. Food and Drug Administration’s (FDA) premarket tobacco product application (PMTA) deadline of Sept. 9 has come and gone, the wait is on to see which products—and which Davids—will survive.

    The PMTA battle plan

    Gerri and James own Jarvis Vaping Supply, a wholesale vaping supply store, as well as four retail stores called Vapor Station in and around Columbus, Ohio. James is also president of the Ohio Vapor Trade Association, and both Gerri and James are avid advocates of the vapor industry.

    The Jarvis’ first got into the industry after watching the growth of Westside Vapor, which was started by their friend, Jason Gang.

    “My passion for the industry came from the loss of my grandmother when I was 16 due to smoking-related issues,” James said. “I saw how successful vapor was for Jason in his goal of quitting smoking. It really made me want to help others do the same thing.”

    The Jarvis’ business was going gangbusters until media reports of e-cigarette or vaping product use-associated lung injury (EVALI). Now known to have been caused by the addition of vitamin E acetate, a product that isn’t used in any store-bought e-liquids, EVALI scared many customers away from vaping.

    Vapor Station experienced a devastating 50 percent loss in sales from EVALI reports, and then Covid-19 hit, causing another major loss as stores had to close during the early months of the pandemic. “Unfortunately, during the pandemic, several people went back to smoking since cigarettes were so easy to get,” James said.

    While James continued to run the business, Gerri worked day and night over six months to fill out PMTAs for 998 products (SKUs). In the end, she dumped roughly 3 million pages off at the FDA.

    With just the help of a Facebook group called PMTA Sharing, Gerri was able to climb the PMTA mountain without any help from firms experienced in submitting PMTAs. The Jarvis’ were among 1,600 vapor company representatives who joined this and other private groups to help them navigate the PMTA process.

    “With Covid-19 hitting right in the thick of the PMTA process, money was so tight that we needed to be careful with spending. Thanks to the help of the Facebook group, we were confident that we could turn something in to the FDA,” Gerri said.

    But that wasn’t enough. She then went on to help her friend Jason Gang of Westside Vapor as well as several other small companies negotiate the PMTA process, including Dripology, Vapor Generation, KL Labs and E Cig Cafe. Gerri said Westside Vapor’s PMTAs for its 1,800 products totaled over 6 million pages.

    The waiting game begins

    Now the wait begins. Encouraged by the successful FDA acceptance achieved by business colleagues at ECIG Charleston and Bad Drip, the Jarvis’ have high hopes for their PMTAs. All had used processes shared in the PMTA Sharing Facebook group.

    They are also realistic, knowing that the FDA has received a flood of applications. The Jarvis’ are one of many e-liquid manufacturers and small vape shops that make their own e-liquids in dozens, if not hundreds, of flavors and in a variety of nicotine strengths and volumes. And each of these distinct products in every flavor and nicotine strength requires a separate PMTA.

    The FDA publicly acknowledged that the market for vapor products is extremely large—“several orders of magnitude greater than anything the agency has experienced … The likelihood of [the] FDA reviewing all of these applications during the one-year review period is low.”

    We asked Gerri to give us a glimpse inside the process of pulling together PMTAs for nearly 1,000 products. Here’s what she shared with Vapor Voice:

    When did you start pulling together all the information you needed to complete the PMTAs?

    As an industry, we’ve been working on this since August 2016, but we started really getting the paperwork together in March of 2020. I guess it took deadlines from the FDA to really hit us to get to the point of pulling together the PMTAs.

    We currently offer 998 SKUs, or products. We provided information on and requested PMTA approval on every one of our products.

    Please tell me all about the PMTA process: How long did it take? What sort of information did you provide?

    I started working in March 2020 and worked pretty close to nonstop from July to September. The Facebook PMTA Sharing group helped me run the studies and programs to gather the needed data, such as underage studies, customer surveys and PMTA review literature.

    In our customer survey of around 5,000 customers, we learned that 90 percent used flavors—and most preferred the fruit flavors. If those flavors go away, the majority—76 percent—said they would go to the black market or back to smoking. We have the weirdest industry in the world: Our business model is to get people to switch to vaping from smoking and then reduce their level of nicotine and eventually [get] off of vaping all together.

    Why did you decide to do it on your own? How confident did you feel about the process?

    With Covid-19 hitting right in the thick of the PMTA process, money was so tight that we needed to be careful with spending. Thanks to the help of the Facebook group, we were confident that we could do the initial submissions ourselves.

    Please share what you can about the expense of pulling together the PMTAs.

    For the preliminary review, we had to pay for programs such as the Environmental Assessment Generator and Cover Letter Generator and other environmental assessments. If the FDA accepts our initial applications, we will then move into the substantial review phase for the product testing analysis and safety information. The FDA has only accredited six labs, and the expenses are exorbitant: Each SKU could cost us anywhere from $84,000 to $480,000, depending on which lab we use. 

    That’s why we’re working to try to get some kind of reform through Congress by reaching out to our senators and congressional leaders and explaining that these costs will kill small businesses—all but about 5 percent of the industry. The costs are blowing their minds. If we can pass some type of reform, there are labs right here in Ohio that can do the testing for a whole lot less.

    Please share your emotions during this process: Were you ever frustrated? Were you worried about what should or should not be included? Were you worried it might not pass or pay off in the long run?

    During all the hours we were putting together the PMTA, there was always that thought in the back of our minds that all this work could be for naught. We had no clue if what we were putting together was going to be enough to get us to the next level of the process or not.

    We were very stressed with all the work on the PMTAs while also running the day-to-day operation of our shops. We had very late nights when our systems stopped working and the generators were running slow. And to top it off, the FDA brought out a new system just nine days before the submission deadline.

    What’s the status of your PMTA?

    We are still waiting on the news. We know people who used the same process who were accepted, which gives us hope for our PMTAs. We were told we might have to wait up to 180 days to hear back from the FDA. There is no real timeframe established. We just have to sit and wait for the FDA to contact us. But we are encouraged by the fact that three or four companies in the PMTA sharing group have received acceptance letters.

    I understand you’ve helped other companies navigate the PMTA process.

    I helped our friend Jason Gang pull together the files to run the programs for the cover letters, description sheets and environmental assessments. I would stay up for hours making sure the files were correct.

    And I completely fixed one company’s FURLS (files with product information that must be submitted to the FDA) so they could complete the filing. We spent hours on the phone and Facebook Live, helping walk them through the process.

    What are your takeaways? What would you do the same? What would you do differently?

    I learned that a lot of the process is repetitive. I would spend the same time helping others get to the finish goal. I would have started earlier and kept better records, such as more proof of the dates [that] our products went on the market.

    How is business going now? Do you have any predictions for the future of your business?

    Business online and at our vape shops has been terribly slow with Covid-19. We are hopeful that with all of our teamwork, this community of small independent businesses will grow stronger.

    We need everyone to see the unrealistic, onerous and prohibitively expensive process we were thrust into and how hard we are working to save our technology for consumers, our employees and our businesses. 

    The original “Vaping Vamp,” Maria Verven owns Verve Communications, a PR and marketing firm specializing in the vapor industry.

  • States of Confusion

    States of Confusion

    Following the PMTA deadline, vape shops are unsure what vapor products are legal to sell in the U.S.

    By Timothy S. Donahue

    On Sept. 10, vape shop owners in the United States faced a dilemma. Numerous hardware and e-liquid manufacturers in the electronic nicotine-delivery system (ENDS) industry were required to pull their products from store shelves. Any product for which the manufacturer failed to file a premarket tobacco product application (PMTA) to the U.S. Food and Drug Administration (FDA) by Sept. 9 is now illegal to market in the U.S.

    Tim Scarborough, general manager for Tennessee Vapor Factory, with several stores in Tennessee, said that after talking with distributors, he removed thousands of dollars in product from his store shelves. “It was a straight-up loss. We estimate it to be probably upwards of $10,000,” he said. “We haven’t gotten final figures, but it was [a] large sum.”

    As for ordering new products, Scarborough says that many manufacturers and distributors have lists of products for which they have filed PMTAs. Those are the products Scarborough’s shop is trying to keep in stock. “It’s getting harder. We are having to do research to figure out if some of these products filed as well,” he says. “The selection, variety of product, is really minimal right now. We don’t even know for sure the FDA is going to approve a product. I think that, in the long run, this will push people back toward cigarettes.”

    During the Global Tobacco & Nicotine Forum (GTNF) held virtually in September, a representative of a large vapor industry distributor told Vapor Voice that his retailers had no way of knowing exactly what products are legal, so they have been selling off the product currently on shelves but have been weary of ordering new product. The distributor did not want to be named due to fears of potential FDA reprisal.

    “I’ve had retailers call and say they have lost 50 percent of their juice wall because of the companies they know didn’t file PMTAs. Shop owners have been asking for a letter of acceptance and maybe even a list with all the SKUs for the files we have submitted,” he said. “Retailers don’t want to incur fines for selling illegal products, but how can we even as a distributor know if a company has filed a PMTA? How many products have even been filed? I saw something the other day where the FDA was expecting 2 million PMTAs. A vape shop in Texas had 333 submissions. Beard e-liquids had 72. We submitted 105, but its more than that if you break it down into the different flavors and nicotine strengths. If we broke down our submission like that, it’s about 7,000 PMTAs. It’s really hard to know what exactly the FDA is doing.”

    Many manufacturers and retailers have closed their businesses due to the cost of submitting a PMTA and the uncertainty surrounding the industry. NicVape, BlueDot Vapor and Stash E-liquids did not submit PMTAs, for example. A note on Illinois-based e-liquid manufacturer Level Up Vapor’s website reads only, “Closed; We are no longer accepting orders.” In a letter to its customers, VapeWild, explained it would not be submitting PMTAs and was shutting down. The company had been in business for six years and was a favorite of vapers worldwide.

    “The PMTA deadline is finally upon us … It’s been a long road, and we did our best, but in the end, we just aren’t able to pull it off,” VapeWild wrote. “These are crazy times we’re living in, and they just keep getting crazier,” the letter states. “Our sincerest hope, though, is that we have somehow made a difference in the world for the better.”

    Only a small number of the thousands of vapor companies in the U.S. have announced that they filed PMTAs by the deadline. Complicating matters, most of those companies have not released what devices or e-liquid flavors they have filed. So far, based on Reddit posts, press releases and media reports, just over 100 companies stated they have filed a PMTA or had the intent to file before the deadline. Just over 50 companies announced they had filed an application before the deadline. Even fewer revealed that the PMTA had been accepted by the regulatory agency. All the major tobacco companies in the U.S. have a PMTA currently accepted, filed and under review for a vapor product.

    Credit: Smoque Vapor

    Once an application is sent to the FDA, manufacturers are permitted to sell their products for a year unless the agency acts. So far, Philip Morris’ heated-tobacco device IQOS and Swedish Match’s General snus are the only two tobacco brands to have survived the PMTA process.

    And the process does not end with marketing authorization. After receiving a PMTA, a company must continue to conduct postmarket surveillance and studies to determine the impact the orders have on consumer perception, behavior and health and to enable the FDA to review the accuracy of the determinations upon which the orders were based. These postmarket requirements also include a rigorous toxicity study using computer models to help predict potential adverse effects in users, according to the FDA. The orders also require the company to monitor youth awareness and use of the products to help ensure that the marketing of the products does not have unintended consequences for youth use.

    In July, the director of the FDA’s Center for Tobacco Products, Mitch Zeller, said the agency would prioritize policing vapor products aimed at youth. However, the Covid-19 pandemic has put vape shop inspections on hold, according to Zeller, adding that no date has been announced for when in-person inspections would begin again.

    “All the entities that we have contracts with have state level for activities like compliance checks and vape shop inspections,” Zeller said in July. “With that stop-work order, we’ve temporarily postponed all in-person inspections of tobacco retail establishments, but we continue to do all of our monitoring and surveillance and websites and publications and social media because we can do that remotely and have always done that, if you will, remotely from offices.”

    Speaking at the virtual GTNF in September, Alex Clark, CEO of the Consumer Advocates for Smoke-Free Alternatives Association (CASAA), said there is a lot of uncertainty right now not just in what types of products will get acceptance letters but also how quickly the FDA will be able to bolster enforcement. This, at a minimum, gives retailers a little leeway. If regulators can’t inspect stores, then retailers can still sell products if the FDA hasn’t previously stated that a product is illegal.

    “Because there is this lag in enforcement, there [are] still [illegal] products on store shelves,” said Clark. “[The regulatory environment in the U.S.] is bad … we are concerned that [the U.S. is] exporting our bad policy ideas and our bad science and bad campaigns. In New York, for example, bad science … helped change people’s minds and vote to advance the flavor ban language.”

    In a press note on Aug. 31, Zeller wrote that the FDA plans to make publicly available a list of the deemed new tobacco products that are subject to the Sept. 9 deadline and that were on the market as of Aug. 8, 2016 (it had not been released as of this writing). “However, before doing so, we will need to ensure that the publishing of any such information complies with federal disclosure laws and regulations as only certain types of product information from applications can be lawfully disclosed,” Zeller wrote.

    This has left retailers in limbo. Shop owners don’t know if a product they are selling could make them a criminal. Zeller stated that the agency knows of more than 400 million deemed products. To date, the FDA has received applications for around 2,000 products, he said, adding that the agency has processed 40 percent of those. Zeller did not specify how many of those applications were for vapor products. Zeller acknowledged that the FDA was unlikely to be able to review that many applications in the year timeline set for their review.

    “Even if applications are submitted for only a portion of those products, the likelihood of [the] FDA reviewing all of these applications during the one-year review period is low given that this would be an unprecedented number of applications and several orders of magnitude greater than anything the agency has experienced,” Zeller wrote. “Depending on the number of new applications we receive by the deadline—which could be anywhere from a few hundreds of thousands to millions—as a matter of practicality, we may not be able to fully complete review of all tobacco product applications that we receive by Sept. 9, 2020, within the year.” The FDA has not announced how many products filed PMTAs.

    Zeller also stated that the agency was willing to work with manufacturers. The FDA has said it could allow some smaller manufacturers to submit a “deficient” PMTA and keep marketing products until the necessary data is collected. He said the FDA would accept several justifications for such applications, such as the Covid-19 pandemic and a limited amount of lab space for testing. “Although we expect high quality and complete applications to come in by Sept. 9, if we do find deficiencies, it is likely [the] FDA will issue a deficiency letter with a 90-day deadline for companies to respond,” Zeller wrote.

    Orion Saith, with Smoque Vapours Electronic Cigarettes in Chicago, says that her store had already destroyed most of their disposable products because of Chicago’s ban on flavored vapor products. The company is still selling mix-in flavors for e-liquids and has its own line of e-juices as well. “We haven’t taken any juices off the shelves yet. We have our own juice line, and those PMTAs were submitted to the FDA, so we are doing OK for now,” said Saith.

    Finding hardware, however, has been extremely challenging. Saith says that knowing what products are legal to sell while PMTA submissions go through the process is getting more difficult by the day. “It is very difficult. We have been getting whatever we can that is still in stock from wholesalers who say that the devices are legal,” she said. “It involves a lot of trust. We have been asking to see submission letters from the FDA too. What’s concerning is that as some of these large major brands leave shelves, the consumers are the ones who suffer. If you can’t get a quality device, you probably end up going back to cigarettes. That’s just a horrible thing to force on someone.”

    Credit: Thorn Yang

    The FDA has been sending notices to companies selling illegal products. In late April, the FDA issued 10 warning letters to retailers and manufacturers who were selling, manufacturing or importing unauthorized ENDS products that “were clearly targeting use, or likely to promote the use, of these products by young people.” The agency sent three more notices on Sept. 9, the same day PMTAs were due. Zeller said the agency will continue to send warnings.

    “All told, since our compliance and enforcement program began in 2010, we have completed over 1.2 million retailer inspections. This has resulted in over 97,000 warning letters, over 11,000 of which were for illegal products,” said Zeller. Many experts predicted the vapor industry would come to end after the PMTA deadline. For now, at least, it will continue.

  • Clear Consideration

    Clear Consideration

    Credit: Scott Graham

    Aquila Solutions helps vapor companies format their PMTA submissions to FDA requirements.

    By Timothy S. Donahue

    The deadline has passed. Now, for a vapor product to be sold in the United States, it must gain marketing approval in advance from the U.S. Food and Drug Administration (FDA). As technology for vapor products continues to improve, companies will continue to submit premarket tobacco product applications (PMTAs). The regulatory process is arduous, and experts say many of the FDA’s expectations remain vague.

    One of the most challenging aspects of preparing a PMTA for submission is structuring and formatting the publication to meet the FDA’s guidelines. While the FDA has provided a format, the regulatory agency doesn’t quite explain how it wants that formatting to come together, according to Josh Boutwell, founder and CEO of Aquila Solutions, a regulatory submission consultation and electronic publishing firm.

    “The format, especially for vapor and tobacco products, is extremely questionable. The FDA doesn’t seem to know what they want or know how it should work, primarily because they were rushed into the format,” explains Boutwell. “What that means is that, yes, there is technically a format, but that doesn’t mean that the FDA or any company really knows where things are supposed to go or how they fit together. Do you need to present things, and what order do you put them in? Do you need to duplicate work, duplicate documents? These are important factors in a regulatory submission.”

    Boutwell founded Aquila Solutions in 2010. He had previously worked at major pharma and biotech companies as well as international contract research organizations. In addition to his work in regulatory affairs, Boutwell has worked for the U.S. Centers for Disease Control and Prevention (CDC) in Atlanta, Georgia, as well as conducted research at Emory University.

    Since founding Aquila Solutions, Boutwell has managed thousands of projects, including numerous initial regulatory applications. He began Aquila with William McDonald, currently Aquila’s program manager, and the company has slowly grown over the last decade. The past few years, Aquila’s growth has accelerated from 50 percent to more than 150 percent annually. “From last year to this year, we have roughly tripled our production,” says Boutwell.  

    Aquila Solutions specializes in regulatory publications. For the vapor industry, the company takes data and documents provided by a client and puts them together in a way that “tells a story” to the FDA that is centered on why the submitted application is a product that is beneficial for public health. “The data is meaningless if the FDA can’t find it,” Boutwell explains. Aquila Solutions became involved in publishing PMTAs for next-generation tobacco product clients through word of mouth, according to Business Development Manager Robert “Buddy” Abercrombie. Even though Aquila at the time had not done work for the vapor sector, it had considerable experience dealing with the FDA. When a customer disappointed with the service of its existing publishing company inquired about Aquila’s services, Aquila set up a meeting and researched the PMTA process. “We got the job,” says Abercrombie.

    Josh Boutwell

    The PMTA process is challenging. Many filers are former traditional tobacco employees, and technology has changed since most tobacco companies made submissions. PMTAs for traditional tobacco products were often submitted in paper form. While paper submissions may still be tendered, the FDA now prefers to receive electronic submissions. “The electronic nature of the Electronic Tobacco Technical Document for PMTAs means that the way a paper is volumized and just having all the documents all together doesn’t match well with electronic submission,” says Boutwell. “We had clients that really wanted to write documents that are hundreds of pages long, explaining everything all in one document, and then having a limited number of appendices. It is better to break the documents down into smaller components that are easier for the FDA to track electronically. Doing things this way also makes it easier for the sponsor to update a submission in the future.”

    Many companies that have filed PMTAs were unprepared for the length of time it takes to collect the required data and the physical size of the applications. Submissions have been reported to be anywhere from 40,000 pages to 1 million pages long (one known submission is more than 3 million pages). All that data needs to be organized in a way that best shows the FDA what the data has concluded. Not properly organizing a submission can have catastrophic results.

    “The biggest issue is that the FDA requires things to be broken up in specific ways. And if the PMTA hasn’t been compiled properly, the FDA may kick everything back to have it recompiled by the sponsor,” advises Boutwell. “This could essentially cost a company weeks or months of work. The company may even have to do a lot of duplicate work in order to be able to resubmit it.”

    Boutwell says a typical PMTA submission is often between 50,000 pages to 100,000 pages unless there are specific or unusual additions. The first step in the process for Aquila Solutions is setting up standard meetings so everyone involved in the project is “on the same page” and understands what is needed.

    Robert Abercrombie

    “We would discuss the schedule for when documents will come in and make sure we have enough time for checking everything at the end. When documents start coming in, we’ll start figuring out the final structure of the application. Where does it need to go, what does it need to say and how does it interact with everything else?” explains Boutwell. “Then as we actually receive the documents, we process them, make sure they’re usable by the FDA and then create the internal and external links.”

    Internal links connect to sections in the same document. External links connect anywhere else. The FDA expects the links to be in the document where they are referenced and only used when necessary.

    “The links are necessary, and they must go to where they’re supposed to so that the FDA reviewers can easily analyze your application,” says Boutwell. “Our No. 1 priority is making sure a client’s submission gets through to the substantive review phase. The FDA’s computer servers do their own analysis, and that is followed by an administrative review to make sure that the PMTA is complete enough for a full review.”

    Next, the substantive review process can begin. The FDA goes through its scientific process, and before a PMTA is authorized, it goes before the Tobacco Products Scientific Advisory Committee (TPSAC) where it’s decided whether an application meets the standard for the betterment of public health, according to Boutwell.

    “Getting the marketing order is the final goal. For Aquila, getting an application accepted is the easy part. The harder part is trying to make the review process as easy as possible for the FDA reviewers. Our experience has been that if you make it too difficult to find things, reviewers will throw up their hands and say, ‘I can’t find it,’” says Boutwell. “Then it’s either outright rejected or the FDA sends you a huge list of questions that they could probably find on their own, but the application was too complicated and time consuming in their view. The point of a PMTA submission is not to make the reviewers miserable. You don’t want a decision-maker annoyed with an application because nothing is where it should be.”

    If a PMTA is poorly designed and/or poorly published, the FDA will have more questions than if the PMTA is submitted properly. An application may still get approved because it is technically sound and scientifically sound, but it will be much harder and much more expensive in the long run if you don’t make the effort to make it as user-friendly as possible, explains Abercrombie. “They start off having one question. Then, suddenly, they have 50 [questions]. And then they’ll need more data,” he says. “You set them on that path by handing in an application that just didn’t have it presented in the proper way.”

    Vapor industry representatives have repeatedly complained about the vague guidelines provided by the FDA for PMTA submissions and publications. According to them, “They really didn’t give us any guidance on what they wanted, and the only way you can know what they want is after you submit it,” says Abercrombie. “Historically, the FDA uses a five-[year] to six-year rollout process where they propose standards and formats and trial periods and then have it be optional before moving on to it being required. There was none of that for electronic nicotine-delivery system [ENDS] products.”

    What’s more, even though ENDS differ substantially from traditional tobacco products, the FDA requires the same data, which is problematic. “We can take tests for [harmful and potentially harmful chemicals] HPHCs, but a cigarette has 5,000 chemical components to it. An e-cigarette has about three,” says Abercrombie. “It’s completely different, and yet they want all this other data.”

    Cost is an important consideration in the decision of whether to hire an outside agency for help with a PMTA publication. Boutwell says that submissions due before the Sept. 9 deadline were new projects, so the amount of data was large. Moving forward, the volume of data required—and by extension, the cost—should go down, in part because companies will increasingly be able to reference tobacco product master files in their applications. Boutwell says that, in general, the publishing of PMTA updates costs about $750 and $3 per page for the next 5,000 pages and becomes progressively lower as the number of pages grows. Turnaround could be anywhere from a day to a few months, depending on the size of the submission.

    Aquila Solutions has submitted 13 major PMTA applications, including quite a few for leading vapor industry companies. The company has done a variety of e-liquids, hardware and even some nicotine lozenges. Several of its applications have already been accepted and filed by the FDA while others are in their administrative review phase.

    “We’ve been able to manage the large projects with clients who have never done this before. I mean, at the time, we hadn’t done it before either, but we had background on how the FDA operates with these types of applications,” says Boutwell. “We were able to help guide our clients to get all their documents in place, written acceptably well, and put together and submitted on the client’s timeframe.”

    Looking ahead, Boutwell expects to see a lot of consolidation in the vapor industry. Yet he also can see a scenario where new companies start up after products begin to gain marketing approval.

    “There’s going to be a continual influx of new companies to the market. There’s going to be some, I suspect, relatively rapid turnover as well. It’s such a big potential market,” he says. “There will always be someone willing to step up. And then, after some of these applications are approved, there will be a lot of the follow-up products that in many ways will rebuild the market. But that’ll take a couple of years.”

    If Boutwell could offer the FDA one bit of advice, he’d suggest the agency pay close attention to the ways its system processes incoming files. Some of the applications Aquila sent to the FDA wouldn’t go through the regulatory agency’s Center for Tobacco Products (CTP) portal. It turns out that the server behind the CTP portal had trouble processing files with “.sas” extensions.

    “When you have programs that go with your databases, you need to make sure that they don’t cause issues when you upload data,” says Boutwell. He recommends CTP rename all “.TXT” extensions on SAS files.

    Customer reviews for Aquila Solutions have been positive. Many clients say that they appreciate Aquila’s flexibility in getting the job done, according to Boutwell. “The first thing they do is compare us to their previous experience of going through a nightmare to having someone hold their hand and working with them, helping guide them through the maze,” he says. “We are here to support anyone who has an application or wants to submit one.”

  • Forecasting Growth

    Forecasting Growth

    Market research suggests the global vapor market could exceed $59 billion by 2027.

    By VV Staff

    Even amidst regulatory concerns, the vapor industry is poised for growth. The latest research suggests that the global market could see a more than 300 percent increase in value in just seven years. Currently, the 2020 global vapor market is estimated at $16.9 billion, according to a July 2020 report from Global Industry Analysts (GIA). The report also projects a 19.6 percent compound annual growth rate (CAGR), reaching $59.3 billion by 2027.

    Globally, GIA’s report, E-cigarettes—Global Market Trajectory & Analytics Report, projects double-digit growth in all the major electronic nicotine-delivery system (ENDS) markets, including the United States, China, Japan, Canada and Germany. In the U.S., the world’s largest vapor market, GIA estimates the market’s 2020 value to be $5 billion, growing to more than $20 billion by 2027. Other market analysts have estimated that the U.S. surpassed $8 billion in 2019 and is poised to grow at an estimated 2 percent CAGR between 2020 and 2026.

    Credit: Austin Distel

    China, the world’s second largest economy, is forecast to reach a projected market size of $10.1 billion by the year 2027 “trailing a CAGR of 18.7 percent” over the analysis period 2020 to 2027, according to GIA. China is expected to be one of the fastest-growing vapor markets over the next seven years, according to GIA. The entire Asia-Pacific region is also forecast to rapidly grow in their vapor markets. “Led by countries such as Australia, India and South Korea, the market in Asia-Pacific is forecast to reach $7.1 billion by the year 2027,” the report states.

    Among the other noteworthy geographic markets are Japan and Canada, each forecast to grow at 17.9 percent and 16.6 percent respectively over the 2020 to 2027 period, according to the GIA report. “Within Europe, Germany is forecast to grow at approximately 14.1 percent CAGR,” it states.

    Reports on how much the vapor market will grow over the next several years vary, but all reports show growth. According to a recent Arizton Research and Intelligence report, Vape Market—Global Outlook and Forecast 2020–2025, their research shows the e-cigarette industry will grow globally at a CAGR of approximately 15 percent during the period 2019 to 2025.

    “The global vape market would realize an absolute growth of 590 percent—a phenomenal leap of over $49 billion revenue between 2015 and 2025,” researchers wrote. “Buoyed by a growing shift in preferences for next-generation smoking products and the demand for HnB [heat-not-burn] tobacco [products] among [the] smoking population, the overall revenue of vape products will reach over $57 billion by 2025.” The Arizton report also predicted that HnB products are set to displace vapor products by 2022, but no other analysts could be found that agreed with that assertion.

    An August 2020 report from Mordor Intelligence, Europe E-Cigarettes Market—Growth, Trends and Forecasts (2020–2025), states that the U.K. is the largest market for e-cigarettes in Europe and the second-largest market in the world. Mordor estimates that the European e-cigarettes market could witness a CAGR of 12.98 percent during the forecast period. The U.K. e-cigarette market is growing rapidly because the country’s health authorities promote ENDS products over combustible cigarettes, according to the Mordor report.

    Europe captures more than a 33 percent market share of global vapor market revenues, according to the Mordor report, and Poland, Germany, Italy, Russia and the Czech Republic are the major contributors to the European market. Poland has been witnessing tremendous growth, with the revenue increasing from $130 million in 2014 to $542.6 million in 2016, according to Mordor. The growth can be attributed to heavy taxation on traditional tobacco cigarettes and the presence of low-cost vapor products in the country.

    “Unlike the U.S. where e-cigarettes have not yet been approved as a cessation device, authorities in the U.K. believe these devices to be a means for people to transition from the much harmful habit of using conventional/combustible cigarettes,” the report states. “On the distribution front, it has been observed that the online retail [segment] accounts for a significant share of the market and, the fastest growing channel [is predicted] to be” specialty vape shops.

    An earlier report’s analysis had even higher expectations for the global vapor market. The February 2020 report E-cigarette and Vape Market Size, Share & Trends from Grand View Research estimated the worldwide e-cigarette and vapor market to be valued at $12.41 billion in 2019. That report states the market is expected to expand at a revenue-based CAGR of 23.8 percent from 2020 to 2027. “The market is expected to gain traction over the forecast period, owing to increasing product demand from millennials,” researchers wrote. “The availability of a variety of e-cigarette options is anticipated to further fuel product adoption.”

    According to the World Health Organization, there has been a small but steady decrease in the estimated number of cigarette smokers globally to just over 1 billion. The number of vapers, however, has been increasing rapidly—from about 7 million in 2011 to 41 million in 2018, according to market research group Euromonitor. That research estimates that the number of adults who vape globally will reach almost 55 million by 2021.

    The Grand View report also found that harsh regulatory environments implemented by local authorities across several countries, including the U.S., India and Germany, have restricted market growth. “Multiple countries have banned the distribution and sale of vapor products, which in turn has led to lower sales,” researchers wrote. “Furthermore, stringent trading laws have made it difficult to import vaping devices for personal consumption.”

    Every major tobacco company doing business in the U.S. has filed a premarket tobacco product application (PMTA) with the U.S. Food and Drug Administration (FDA). This allows products to be on the market for a year unless the FDA takes earlier action. Many of the major Chinese vapor hardware manufacturers have also announced PMTA submissions for a small number of products.

    According to Arizton, major tobacco companies used their “decades-old established distribution networks” of tobacco products to help gain an upper hand over pure-play companies. “However, small vape and tobacco shops continue to dominate with about 34 percent share of the retail markets worldwide,” say Arizton researchers.

    Both the Grand View and GIA reports suggest that the market in the U.S. is especially challenging to predict due to the unknowns surrounding the FDA and the PMTA process. The Grand View report states that “large tobacco companies have flourished by introducing [ENDS] devices through various brands that cater to different requirements, thereby enhancing the product quality and level of customization.”

    Grand View researchers state that innovation will continue to be a driving force in market growth across all segments of the industry. “The market is driven by the growing awareness … owing to various medical studies that term e-cigarettes as a safer alternative to traditional cigarettes,” the report notes. “Moreover, the customization options offered by vendors and continuous improvement toward new product development is expected to drive the market growth over the forecast period.”

    Both the Grand View and GIA reports state that mod (open system) devices are anticipated to emerge as the fastest-growing product segment over the forecast period. GIA predicts a record 22.1 percent CAGR and reaching a value of $37.4 billion by the end of the analysis period.

    One reason all three reports are forecasting a massive rise in open system sales is that when the FDA announced its enforcement priorities in January of this year, the agency did not mention prioritizing open systems. The three urgencies that earned a bullet point were:

    • Any flavored cartridge-based ENDS product (other than a tobacco-flavored or menthol-flavored ENDS product)
    • All other ENDS products for which the manufacturer has failed to take (or is failing to take) adequate measures to prevent minors’ access
    • Any ENDS product that is targeted to minors or whose marketing is likely to promote use of ENDS by minors.

    The Grand View report states that the market for smaller rechargeable pod-style devices, such as Juul, generated the highest revenue globally in 2019. “These devices cost fairly less, which is expected to increase their adoption,” the report states. The GIA reports that “after an early analysis of the business implications of the pandemic and its induced economic crisis, growth in the rechargeable e-cigarette segment is readjusted to a revised 15.6 percent CAGR for the next 7-year period.”

    The disposable device market is expected to be the second-fastest growing market in the vapor industry through to 2027. According to GIA, the U.S., Canada, Japan, China and Europe “will drive the 16.9 percent CAGR estimated for this segment. These regional markets accounting for a combined market size of $2.3 billion in the year 2020 will reach a projected size of $6.8 billion by the close of the analysis period.”

    Credit: Sabrina-Rohwer

    The regulatory environment is the biggest unknown in trying to predict the vapor market, according to several financial experts. Regulation is sure to have an impact both short term, such as the PMTAs in the U.S., and long term through flavor bans and taxation globally. At a panel on investing at the Global Tobacco & Nicotine Forum (GTNF) held in September, several industry analysts spoke about the future of the electronic nicotine-delivery systems (ENDS) market and the impact of regulations both in the U.S. and globally.

    The panelists agreed that in the European market and in other developed countries that allow vaping, market regulation is more predictable than in the United States and excise taxes in those countries will probably continue to increase (maybe higher than predicted because of Covid-19 economic hardships).

    Erika Karp, founder and CEO of Cornerstone Capital, believes that growth will depend on how individual countries approach reduced-risk tobacco products (RRPs), such as snus and vaping. “For instance, South Africa. They are obviously quite anti-tobacco as we’ve recently seen with them during Covid-19 [and banning tobacco products],” she said. “But they are also one of the few emerging markets with a vapor product that BAT [British American Tobacco] recently bought and owns there. So, they’re an example of a market where the government may be a bit more aggressive in wanting to be accommodating towards RRPs and a bit tougher on tobacco.”

    Moderated by Erik Bloomquist, a global nicotine and tobacco investment consultant, the panelists said that the FDA had received hundreds, perhaps even thousands, of PMTA submissions. Given the FDA’s track record, however, it is unclear how quickly those applications will be reviewed and decided upon, according to Bloomquist.

    “And then it’s unclear how many will actually come through with a successful application.”

    Rupert Wilson, owner and managing director of Strategic Business Consulting, said that the recent National Youth Tobacco Survey, released by the U.S. Centers for Disease Control and Prevention (CDC), showed that youth vaping, a major issue with regulators and anti-vapor groups in the U.S., is down significantly from 2019 and 2018. He predicts the U.S. will see an ever-greater drop in youth use over the next two years.

    “I don’t think that those numbers (2019) really reflected the impact of Tobacco 21, the removal of flavors, and certainly, then I would expect quite a significant decline again when we get to the 2021 survey coming out in September of next year,” he said. Wilson expects the vapor segment—especially the open and refillable pod systems—to start growing. “That’s already been happening over the last 12 months,” he said. “I would say that the vaping category is going to grow [rapidly], especially as we move into the second half of next year and into 2022.”

    Jonathan Fell, partner and co-founder of Ash Park Capital, said the overall ENDS market “remains extremely volatile and impossible to predict.” He says a major factor in the volatility is misconceptions surrounding the use of nicotine. “The debate about whether nicotine use is safe longer term is still a live one. It’s not nicotine that’s the problem. It’s inhaling combusted tobacco smoke,” said Fell. “Companies need to get consumers to reduce overall nicotine intake … Now, that’s what will make the big public health difference.”

  • Individual Success

    Individual Success

    The Vapor Technology Association has launched a program for individual memberships.

    By VV Staff

    The vapor industry’s fight for survival has only just begun. While the deadline for premarket tobacco product applications (PMTAs) has passed, the U.S. Food and Drug Administration (FDA) has not yet approved an e-liquid-based electronic nicotine-delivery system (ENDS).

    Several states have passed flavor bans and many more are considering the action even as studies show youth use declining. On the federal level, several lawmakers have proposed flavor bans as well as outright bans on all vapor products. Vapor industry experts say they expect these regulatory actions to continue to burden the marketplace for some time.

    For the voices of the industry to be heard by lawmakers, the vapor industry depends on several advocacy groups. One of the largest groups—which has also effectively lobbied at the federal and state levels—is the Vapor Technology Association (VTA). Traditionally, however, the VTA has only allowed business owners to serve as members. That rule has now changed. Just moments after the PMTA deadline passed, the VTA launched its first-ever individual membership program.

    “By welcoming Individual members, VTA’s board has recognized the critical importance of amplifying the millions of voices for vaping—former smokers who have turned to vapor products on their journey to quit smoking—as well as for the business owners who serve them,” says VTA Executive Director Tony Abboud. “This new membership will take our unified fight to defend vapor to the next level by combining the power of consumers and businesses into the largest vapor advocacy force in the country.”

    The individual membership program is designed to engage more vapers and vape advocates in the VTA’s mission to save the vapor industry, according to Abboud. The program is part of the organization’s “Voices for Vaping” initiative that VTA launched in 2018 to amplify the voices for vaping in defense of vapor products.

    “Now, VTA is taking the fight to the next level by combining the power of businesses and consumers into the strongest vapor advocacy association defending your right to vape and sell vapor products,” says Abboud. “This membership will elevate the voices of vapers and those individuals who believe in vaping and engage them in the fight with access to cutting-edge advocacy tools.”

    Consumers have always been a part of vapor advocacy. It’s the customer’s lives that are saved when they switch to vapor products from combustible tobacco. “We’ve always lauded the collective power of the vapor community,” says Abboud. “Our most successful battles have been fought hand in hand with consumers, and now we want to bring together the multitude of voices that use vapor products to maximize our impact, especially as highly coordinated critics continue their offensive against vapers and the industry.”

    The cost of a VTA individual membership is $25 a year. Upon joining VTA, a recent press release states that individual members will benefit by joining “sophisticated and established lobbying efforts to protect their right to vape. “VTA has lobbied in Washington, D.C., for the past five years and, in the past two years, VTA lobbied in 40 state capitals defending vapor,” the release states. “The impact of businesses and individual consumers fighting side by side guided by professional lobbying teams cannot be overstated.”

    Members will also receive up-to-date information on all things vapor, participate in successful vapor advocacy campaigns, access advanced technology to engage with legislators and local media and receive discounts on vapor products at participating stores across the country. “VTA believes that consumers—the actual Voices for Vaping—will make all the difference in the ongoing fight to save vapor. Knowing that ‘all politics is local,’ VTA has invested in new technology that will link your voice directly with media in your community,” according to the release.

    Credit: Vaporesso

    To help in this effort, the VTA offers online advocacy software that makes it easy for consumers to connect with their legislators by signing petitions, sending emails and getting their message to them on Twitter and Facebook. “More importantly, because all politics is local, VTA now has software that makes it easier for individual consumers to tell their personalized stories in the form of letters to editor so that they can be submitted to all the local news outlets of their choosing in one shot,” explains Abboud. “This tool will allow coordinated letter-to-the-editor campaigns rivaling those of the highly funded opponents of vaping.”

    Flavors have long been important to retailers, distributors and consumers. After joining the VTA online, new members will receive a welcome email that states, “The commitment of our board of directors to defending flavors is unmatched. We are dedicated to preserving a diverse industry filled with small businesses selling a variety of the flavors that are being demanded by adults like you.”

    When President Donald Trump announced he would be banning flavors in all vapor products last year, the VTA responded by crafting and funding a successful advocacy campaign, according to Abboud. The campaign involved a discrete digital campaign, two national television advertisements defending flavors and the industry, and the polling of individual vaping consumers.

    “[The campaign] framed the issue clearly for the president that vapers overwhelmingly opposed flavor bans and overwhelmingly support raising the age to smoke and vape. As a result of this campaign, [the] VTA was invited to the White House to share with President Trump the important role flavored e-cigarettes played in helping adults quit and stay away from combustible cigarettes,” says Abboud. “Without [the] VTA’s campaign, it is safe to say [that] the White House would not have reversed course and preserved the open-system flavored e-liquids relied on by vapers throughout the U.S.”

    Credit: Echo Grid

    Abboud told Vapor Voice that, earlier this month, the VTA and its members (including new individual members) successfully obtained the first gubernatorial veto of a flavor ban in Florida. “Immediately after the bill passed the state legislature in March, the VTA began a multimedia veto campaign strategy that involved the VapersSayVeto call to action site, a television advertisement directed at the governor, a social media drumbeat, and professional economic analysis from economist John Dunham & Associates,” says Abboud. “[The] VTA’s vapers and vapor businesses, along with the Florida Smoke Free Association’s vapers and vapor businesses, presented an unrelenting united front against the ban, educating Governor DeSantis on its impacts and ultimately influencing his decision to veto.”

    The VTA has a large variety of industry players as members. These include numerous state associations, manufacturers, distributors and retail stores. Those members have played an active role in spreading the word about the new program. “[They are] encouraging the consumers they interact with on a regular basis to defend their right to vape by becoming Individual members,” Abboud says. “Already, we’re seeing high levels of engagement and a growing VTA community that will render us stronger for whatever challenges lie ahead.”

    Abboud says that as a bonus to individual consumers who join the VTA, some retail stores are offering discounts. “Over 200 stores across the country have signed up to participate and offer discounts to VTA individual members. Check with your local shops or check out our website for shops near you to see who is participating,” he says. “VTA has the largest network of vape shop members, but any store can sign up to participate.”

  • Bad for Business

    Bad for Business

    While there is little evidence that flavor bans prevent youth use, bans are forcing businesses to close.

    By Timothy S. Donahue

    As of Aug. 1, Jeff Barry no longer owns a vape shop. Barry, who once owned three retail stores in the state of New York, had to close his last store because of New York’s ban on flavored vapor products. During the past nine years, Barry has had to close six vape shops across two states. All because of overregulation.

    Barry started vaping in 2008 to quit smoking combustible cigarettes. He was the part-owner of a logistics company. Soon he was buying devices for several other smokers to help them quit. A few months later, Barry was selling 30–50 devices a day and lots of e-liquid from his house. His vapor side business soon grew too large for his home. He sold his half of the logistics company. Barry then used $15,000 of his savings to open his first vape shop in New York. Then New York legislatures started talking about banning vapor products. So, Barry moved his business to Warren, Pennsylvania, in 2012.

    Barry then opened a second and third vape shop in 2014 and 2015. He was going to open a fourth store in 2016 when it happened. That year, Pennsylvania Governor Tom Wolf signed off on a budget bill that included a massive new tax on electronic cigarettes. The estimated 350 vape shops scattered across Pennsylvania were devastated. The new 40 percent wholesale tax on all vapor equipment and supplies was even more crippling because the same 40 percent tax applied not only to purchases made after Oct. 1—the day the tax took effect—but also covered all inventory on store shelves on that date. A store with $100,000 worth of inventory owed the state $40,000.

    Credit: Jeff Barry

    “Fifty percent of all vapor stores closed in six months. I closed two stores in September of 2016 and my last store on Jan. 1, 2017,” says Barry. “I moved to one small location in New York in April 2017 and quickly opened two more stores over the next two years.” The entire time he was also doing advocacy work to help fight to keep life-saving vapor products on the market.

    Like a bad dream, it happened again. Regulation would ruin Barry’s businesses. New York became the first state in the nation to restrict the sale of flavored vapor products. Snuck into a budget without debate on April 3 while most of the state’s citizenry was focusing on the Covid-19 pandemic, New York banned the sale of all flavored vapor products other than tobacco flavors. This was labeled a huge win for public health and the only real solution to the youth vaping issues. The e-liquid flavor ban went into effect on May 18, 2020, for brick-and-mortar sales and July 1 for online sales.

    The Consumer Advocates for Smoke-Free Alternatives Association (CASAA), a nonprofit group, said in a release that the New York budget was passed under the guise of dire circumstances and that it was necessary to keep the state functioning in the midst of a crisis, but all of this was introduced by Governor Andrew Cuomo well in advance of the coronavirus outbreak in New York.

    “Even under normal circumstances, voters and lawmakers are hard-pressed to amend or remove even the most egregious sections of the governor’s budget proposal,” the release stated. “There are deep cuts and rollbacks to other programs and reforms that will arguably threaten the health and financial security of millions of New Yorkers and, again, all of this was on the table before anyone was recommending austerity measures to slow the spread of Covid-19.”

    Barry closed his first location on April 1. Then the second on July 1. He closed his last store on Aug. 1. “I have lost many nights’ sleep over these choices. Many people with no other option or accessibility to products in a convenient local will simply go back to smoking,” explains Barry. “Some will go to the Indian reservation (where products are not banned). Some will travel to other states to get their product.”

    According to the Vapor Technology Association (VTA), in 2018, the vapor industry directly generated 87,581 jobs, including manufacturing, retail and wholesale employment. Those jobs generated more than $3.2 billion in just wages. The vapor industry has also created thousands of secondary jobs in the United States, bringing the industry’s total economic impact in 2018 to $24.46 billion.

    In the same year, the industry generated more than $4.9 billion in taxes, according to the VTA. In 2016, 78 percent of e-liquid sales were flavored products, and 69 percent of disposable vapor product sales were flavored and menthol products.

    Unreasonable action

    Several state and local governments have now passed laws banning the sale of flavored e-liquids. In 2020, New Jersey, New York and Rhode Island enacted bans on the sale of flavored e-cigarettes. In 2019, eight states—Massachusetts, Michigan, Montana, New York, Oregon, Rhode Island, Utah and Washington—issued emergency rules to temporarily ban the sale of flavored e-cigarettes, according to the Campaign for Tobacco-Free Kids.

    Barry says that New York’s government and other states that enact flavor bans will effectively eliminate a product that is 97–99 percent safer than combustible cigarettes. With the U.S. Food and Drug Administration’s (FDA) premarket tobacco product application (PMTA) due date looming (Sept. 9), the future of the vapor industry is still unknown.

    “Just because the government took the legality away does not mean they took the passion to help people quit smoking away,” explains Barry. “I was not a criminal two months ago, and now I am? Vaping is on the right side of science; the government will not be able to lie forever, so myself and people like me will not go away because we can’t.”

    Bans on flavored vapor products began as an attempt to curb rising rates of youth use. According to 2018 National Youth Tobacco Survey (NYTS) data, current e-cigarette use among middle and high school students increased between 2017 and 2018, with more than 3.6 million kids using e-cigarettes in 2018. Flavors, however, may not even be the real cause for the increase of youth vaping. There is also no evidence to support that bans lower youth initiation.

    The FDA has said that Juul was the most popular e-cigarette brand used by youth. In response, Juul ended sales of all flavors other than tobacco flavors in the U.S. However, in May, the Journal of the American Medical Association (JAMA) published a study on its website that concluded that youth are not using Juul for the flavors.

    In a JAMA study text survey of 1,129 respondents between the ages of 14 years and 24 years, only 4.7 percent of respondents cited “flavors” as a reason for people their age to use Juul. Conversely, 62.2 percent of respondents cited social reasons.

    According to Tobacco Harm Reduction 101 (THR 101), overwhelmingly, youth are using vapor products because friends and/or family members are using the products. In a Heartland Institute analysis of available youth surveys in five states, only 15.6 percent of high school students cited using e-cigarettes because of flavors.

    “Existing evidence indicates that flavor bans have not reduced youth e-cigarette use in several localities that track this data. Adults rely on flavors in tobacco harm reduction products. In a 2018 survey of nearly 70,000 American adult e-cigarette users, 83.2 percent and 72.3 percent reported vaping fruit and dessert flavors” respectively, according to THR 101.

    Credit: Ali Yahya

    In 2019, researchers from the University of Texas and the University of North Texas set out to look at the impact of e-cigarette advertising. They found that adolescents exposed to e-cigarette ads in retail stores are twice as likely to start vaping within several years. Some countries, Canada for example, have banned all vapor product advertising.

    Another reason used to justify various bans on vapor products had nothing to do with nicotine-based products. In the summer of 2019, public health authorities identified an outbreak of a deadly vaping-related lung injury. The U.S. Centers for Disease Control and Prevention (CDC) later called the condition e-cigarette or vaping product use-associated lung injury (EVALI). In November of 2019, the CDC admitted that marijuana (THC)-based vapor products containing vitamin-E acetate were responsible for the lung illnesses, but the damage to the nicotine vapor industry was already done.

    “The latest national and state findings suggest products containing THC, particularly those obtained off the street or from other informal sources (e.g., friends, family members, illicit dealers), are linked to most of the cases and play a major role in the outbreak,” the CDC said in a statement.

    Many of those who advocate for bans on vapor products also claim that e-cigarettes are a “gateway” to smoking combustible cigarettes. A study released in July found this to be untrue. The study, “Association of initial e-cigarette and other tobacco product use with subsequent cigarette smoking in adolescents: a cross-sectional, matched control study,” was published in Tobacco Control.

    Researchers from University College London in the U.K. concluded that “over the time period considered, e-cigarettes were unlikely to have acted as an important gateway towards cigarette smoking and may, in fact, have acted as a gateway away from smoking for vulnerable adolescents; this is consistent with the decrease in youth cigarette smoking prevalence over the same time period that youth e-cigarette use increased between 2014 and 2017.”

    Unintended consequences

    Many legislatures have argued that adults don’t use flavored e-liquids to quit; however, several studies have found that adults do use flavored e-liquids to quit smoking cigarettes. A study from the University of Waterloo, Waterloo, Ontario, Canada, that was released in May of this year, found that most regular vapers in Canada and the U.S. use nontobacco flavors. It also concluded that greater satisfaction and enjoyment with vaping are higher among fruit flavor and candy flavor users.

    The study showed adult vapers use a wide range of flavors, with 63.1 percent using a nontobacco flavor. The most common flavor categories were fruit (29.4 percent) and tobacco (28.7 tobacco) followed by mint/menthol (14.4 percent) and candy (13.5 percent).

    “While it does not appear that certain flavors are associated with a greater propensity to attempt to quit smoking among concurrent users, nontobacco flavors are popular among former smokers who are exclusively vaping,” the researchers wrote. “Future research should determine the likely impact of flavor bans on those who are vaping to quit smoking or to stay quit.”

    Additionally, flavor bans bring a potentially bigger problem. Writing in RealClear Policy, Elizabeth Sheld described a June meeting of the Massachusetts Department of Revenue’s Illegal Tobacco Task Force in which participants expressed fear that the ban will lead to increased smuggling and black market sales.

    “I’m concerned that placing an added burden and tasking law enforcement with the enforcement of flavor bans will only stand to create a significant new black market, this includes both cross-state border smuggling and counterfeit tobacco,” said Charles Giblin, a retired special agent in charge of the New Jersey treasury’s office of criminal investigation. “At the onset, you’ll start to see an increase between Massachusetts and New Hampshire in smuggling and illegal importation via the internet of counterfeit flavored cigarettes from countries including China and Paraguay. They will skyrocket almost incredibly instantaneously. Another underestimated source will be Canadian First Nations reservation cigarette manufacturers, who are rather robust.”

    The black market is already growing, writes Sheld. Rich Marianos, who served 27 years at the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives, told the task force that “the illegal tobacco trade along Interstate 95 on the East Coast is a $10 billion industry that is already working to fill the void created by Massachusetts’ new law.”

    Distributors know vape shops are closing from flavor bans. Many have said that they expect to see a major change in the number of vape shops after Sept. 9. Chris Howard, from EAS, says he knows from personal experience that owners are closing brick-and-mortar vape shops. He says it isn’t easy for business owners to survive the PMTA deadline, flavor bans and then the Covid-19 pandemic. It’s almost a perfect storm.

    Credit: Vaporesso

    “I know they’ve closed numerous shops and the PMTA deadline hasn’t even passed. That is definitely happening. These are some die-hard vapor advocates, and they’ve been left with no choice,” says Howard. “That’s unfortunately a reality. With regard with what we are seeing happening with the consumers, we’ve seen the reports that Altria’s Marlboro brand’s sales are up whatever percent. I mean, I think a lot of people are going back to smoking. I hate it, but that is an unintended consequence.”

    Despite such challenges, Barry believes the industry will survive. He says that some responsible business owners and innocent consumers will become criminals instead of going back to traditional cigarettes. “The Industry will survive. It started as a grassroots product. It will simply go back to that. We won’t stop. We only tried to help people quit smoking and make a legal business income from doing something we were passionate about,” says Barry.

    Numerous public health groups, including the Royal College of Physicians, Public Health England and the American Cancer Society, have stated that the use of vapor products is significantly safer than traditional cigarettes. “E-cigarettes are also twice as effective in helping smokers quit. Further, their use could save states billions in healthcare-related costs,” writes THR 101. “As with any policy area, lawmakers should refrain from outright bans and seek out alternative solutions that reduce youth use while maintaining adult access to tobacco harm reduction products.”

    There is little doubt that flavor bans and other regulations will crush small businesses. The real loser in all of this, however, is the end-user, according to Barry. “I see little hope for small business in this industry to continue to survive,” he says. “The demographic all of this regulation will hurt the most is the consumer—the smokers trying to quit by using a safer product.”

  • Modified Exposure

    Modified Exposure

    Credit: PMI

    Philip Morris Products receives the first modified-exposure order for an ENDS product for IQOS.

    By Timothy S. Donahue

    It’s a major development. It may also serve as a precursor to what action the U.S. Food and Drug Administration (FDA) may take when reviewing premarket tobacco product applications (PMTAs) for vapor products that must be submitted by Sept. 9. On July 7, the FDA issued exposure modification orders to Philip Morris Products’ (PMP) heat-not-burn system, IQOS. The order also included the device’s holder and charger as well as three variants of the Marlboro HeatStick.

    “Through the modified-risk tobacco product application (MRTP) process, the FDA aims to ensure that information directed at consumers about reduced risk or reduced exposure from using a tobacco product is supported by scientific evi-dence and understandable,” said Mitch Zeller, director of the FDA’s Center for Tobacco Products (CTP). “Data submit-ted by the company shows that marketing these particular products with the authorized information could help addicted adult smokers transition away from combusted cigarettes and reduce their exposure to harmful chemicals but only if they completely switch.”

    IQOS is the first next-generation tobacco product to receive exposure modification orders and only the second product to be authorized as a modified-risk tobacco product. In October 2019, the FDA authorized Swedish Match U.S. division’s amended MRTP applications for eight variet-ies of General snus. IQOS is produced by Philip Morris International (PMI), parent to PMP, and marketed in the U.S. by Philip Morris USA, a subsidiary of Altria Group.

    During a recent call with investors, Emmanuel Babeau, PMI’s chief financial officer, said following a review of its extensive scientific evidence package, the FDA found that an exposure modification order for IQOS is appropriate to promote the public health in the United States.

    Credit: PMI

    “[This dem-onstrates] that IQOS is [a] fundamentally different product from combustible cigarette[s] and a better choice for adults who would otherwise continue to smoke,” he said. “The agency concluded that issuing the order for IQOS is expected to benefit the health of the population as a whole, taking into account both users of tobacco products and persons who do not currently use tobacco products.”

    In a press release, Billy Gifford, CEO of Altria Group, stated that the authorization gives its Philip Morris USA subsidiary an “opportunity to communicate additional benefits of switching to IQOS, and this decision is an important step for adult smokers.” In a late July earnings call, Altria announced it would be expanding marketing of IQOS to Charlotte, North Carolina. T

    he company said it plans to expand marketing to four more cities over the next 18 months.
    In April of 2019, the FDA authorized the marketing of IQOS through the PMTA pathway. By granting IQOS an MRTP, the FDA determined that IQOS does not currently meet the standard for marketing with reduced-risk claims but can be marketed with a reduced-exposure claim.

    “The FDA’s decision is a historic public health mile-stone,” said Andre Calantzopoulos, CEO of Philip Morris International. “Many of the tens of millions of American men and women who smoke today will quit—but many won’t. Today’s decision makes it possible to inform these adults that switching completely to IQOS is a better choice than continuing to smoke. [The] FDA determined that scientific studies show that switching completely from conventional cigarettes to IQOS reduces exposure to harmful or potentially harmful chemicals.”

    According to the FDA website, a reduced-risk claim authorization would generally allow a company to say a product is less harmful than combustible cigarettes. However, according to the FDA, the current reduced-exposure claim authorization only allows PMP to state that IQOS heats, rather than burns, tobacco and significantly reduces the production of harmful and potentially harmful chemicals.

    It also allows the company to state that scientific studies have shown that switching completely from conventional cigarettes to the IQOS system significantly reduces the body’s exposure to harmful or potentially harmful chemicals.

    Additionally, when granting its modified-exposure order, the FDA found that “testing of actual consumer perception shows that, as the applicant proposes to label and market the product, consumers will not be misled into believing that the product is or has been demonstrated to be less harmful or presents or has been demonstrated to present less of a risk of disease than one or more other commercially marketed tobacco products.”

    The FDA’s marketing order requires PMP to conduct post-market surveillance and studies to determine the impact of these orders on consumer perception, behavior and health and to enable the FDA to review the accuracy of the determinations upon which the orders were based. These post-market requirements include a rigorous toxicity study using computer models to help predict potential adverse effects in users, according to the FDA. The orders also require the company to monitor youth awareness and use of the products to help ensure that the marketing of the MRTPs does not have unintended consequences for youth use.

    “The FDA decision and subsequent comprehensive post-market controls and monitoring, focusing on use prevention, provide an important example of how government and public health organization around the world can implement an inclusive, science-based approach to help rapidly shift adult smokers who would otherwise continue smoking to better options while simultaneously guarding against unintended consequences,” said Babeau.

    GLOBAL GROWTH

    In the investor call, Babeau revealed that the first half of 2020 has seen continued momentum for IQOS with an estimated 15.4 million users at the end of the second quarter. “Our commercial model pivoted rapidly to digital and remote engagements while preserving high rates of IQOS’ user acquisition and brand retention,” he said. “With volumes of heated-tobacco units growing 24 percent in [the second quarter] shows that, as the applicant proposes to label and market the product, consumers will not be misled into believing that the product is or has been demonstrated to be less harmful or presents or has been demonstrated to present less of a risk of disease than one or more other commercially marketed tobacco products.”

    The FDA’s marketing order requires PMP to conduct post-market surveillance and studies to determine the impact of these orders on consumer perception, behavior and health and to enable the FDA to review the accuracy of the deter-minations upon which the orders were based.

    These post-market requirements include a rigorous toxicity study using computer models to help predict potential adverse effects in users, according to the FDA. The orders also require the includes strong growth in Italy, the Czech Republic, Poland and Germany, and in historically slower markets such as the U.K., where HTU [heated-tobacco unit] volumes increased more than five-fold over the prior year quarter, and Spain. National offtake share surpassed 1 percent in both of these latter markets despite limited distribution.”

    PMI sees its IQOS products as a “critical enabler” for the future growth of RRPs. The company estimates that there were 15.4 million IQOS users worldwide as of June 30. The product’s steady increase in market share reflects widespread user growth momentum across all key IQOS geographies, including Japan, the EU region and Russia, according to Babeau.

    “We further estimate that 72 percent of this total—11.2 million adult smokers—have stopped smoking and switched to IQOS with the balance in various stages of conversion,” said Babeau. “We observe an early indication that the propensity of smokers to switch to RRPs is trending positively since the pandemic began, and we will see how this develops in the coming period. We are also optimistic that the FDA’s granting of the modified-risk tobacco product order for a version of IQOS will contribute over time to a better understanding of the heated-tobacco category and the benefit of switching to IQOS compared to continued smoking.”

    In Russia, where IQOS was released in 2015, IQOS’ market share rose by three points to reach 5.9 percent. In Japan, where IQOS was released in 2014, PMI’s total reported share for heated-tobacco units reached 20 percent in the second quarter, according to Babeau. IQOS users grew to an estimated total of 5.8 million, of which an estimated 4.3 million have stopped smoking traditional cigarettes and fully switched to IQOS.

    “On an adjusted total tobacco view, including cigarillos and adjusted for trade inventory movement, the share for our HTU brands increased by two points versus the prior year quarter and by 0.7 points sequentially to 18.5 percent,” he said. “[Second quarter] 2020 adjusted in-market sales volume for our HTU brands grew 4.9 percent sequentially. This helped drive growth of the overall heated-tobacco category to [a] second-quarter total tobacco share of over 25 percent.”

    In addition to strong RRP growth in existing markets, the geographical expansion of IQOS continues. Despite the pandemic-related restriction, PMI has leveraged its digital capabilities to launch in four new markets: Austria, North Macedonia, Montenegro and Saudi Arabia. This takes the total number of markets where IQOS is available for sale to 57.

    Babeau said the company still plans to expand its portfolio of smoke-free offerings in the second half of the year with the launches of IQOS VEEV in the vapor category and a licensed KT&G product in select markets.

    “We are on track to reach our 2021 target of 90 billion to 100 billion shipments of heated-tobacco units. RRPs now make up almost 25 percent of our net revenue, and we expect this percentage to grow over time. With digital effi-ciency, operating leverage from scale effect and productivity saving simultaneously driving up the profitability of RRPs, this is a very positive dynamic for our margin outlook,” said Babeau.

    “The historic milestone of modified-risk tobacco product authorization for IQOS is a further testament to the integrity of the product and brand proposition and underlying the need for government to implement science-based regulation. In addition, after a difficult April and May, the industry recov-ery has now started, providing better visibility for the rest of the year.”

    Toward the end of the call, Bonnie Herzog, an analyst with Goldman Sachs, suggested that PMI has been adding more new users during the pandemic than originally expected. Babeau agreed, saying that this is going to come from the continuation of a “very strong acquisition” of new IQOS users. Herzog then asked if PMI had any intention of pursu-ing a modified-risk authorization. Babeau said a full MRTP is in the plans for IQOS.

    “The FDA has left the door open to continue the dialog with them on precisely the next level. We intend to do that in the coming months. I would say the question is whether the reduced-risk authorization for marketing can come through a modified claim or through providing additional study or maybe a combination of both,” said Babeau. “That’s what we intend to discuss with the FDA in the coming months and, of course, we are impatient to have this dialog with them.” V

  • Changing the Tune

    Changing the Tune

    Credit: Mika Baumeister

    Authorities should create independent bodies to evaluate the science behind vapor—and base their policies upon the most credible evidence.

    By George Gay

    June 19, the Australian federal government announced a ban, from July 1, on the import of nicotine for vaping. The ban reportedly amounted to a de facto prohibition on vaping with nicotine because, while it provided for an exemption for imports made on the basis of a doctor’s prescription, the Australian Tobacco Harm Reduction Association (ATHRA) said that using such an exemption would have been complex, time-consuming and ultimately unworkable.

    But temporary relief was granted when, on June 26, the government announced that it was suspending the implemen-tation of the ban while it conducted a review and consultation around the classification of nicotine. At the same time, how-ever, it said that a new version of the ban with a “streamlined” [but at the time unspecified] method for people to obtain prescriptions would be brought in from the start of next year.

    There might be a good reason why the government is going to conduct this review when it has already decided to reintroduce a modified ban within six months, but it wasn’t immediately obvious to me what that reason might be. Having said that, perhaps there is no good reason. The government seems to have form in putting the cart before the horse.

    According to ATHRA, the June 19 announcement of a ban was made before the publication of a report that was based on a scientific inquiry into vaping commissioned, at a cost of aud750,000 ($529,403), by the health minister last year.

    I was reminded by all this of the nonsense song: “You put your left arm in / You take your left arm out / You do the hokey cokey / And you shake it all about.” I mean, even if you assume that vaping policy decisions in Australia are made on the basis of “two-up” and therefore might not always make a whole load of sense, that doesn’t explain the change that took place. Unless, that is, Australia is only partway through a best-of-three-throws series. In which case, before I get to the end of this piece, the policy might have changed again.

    Despite, like the rest of us, being fully paid-up members of the club of sentient animals, Australian smokers and vapers may be allowed to import nicotine for vaping only if they have a prescription from their doctors, a certificate from their spiritual advisers and a letter signed by their mums. For goodness’ sake, these are adults who are allowed to buy and consume any amounts of cigarettes and alcohol, which are surely the two most toxic consumer products on the market.

    I don’t want to trivialize what is a deathly important debate on vaping, but I find it difficult to take seriously such a rapid change of direction, even given that a week is a long time in politics. Of course, an argument can be made that the government acted responsibly in reacting to the opposition that quickly arose in respect of its June 19 nicotine ban—that it listened; that it had an open mind.

    But it must be of concern that the government apparently didn’t listen before it made its announcement. And there has to be concern that the government might have suffered the same fate as many of those who attempt to maintain a completely open mind—that is, its brain fell out.

    In fairness to the government, however, you have to say that the mess it got itself into was simply built on some fairly strong foundations already established by federal and state governments. For instance, as I understand things, even before the new ban was announced, nicotine for vaping was classified in Australia as a poison, and its import was illegal unless approved by the Therapeutic Goods Administration. Though, depending on the laws of individual states, nicotine could be bought over the internet provided it was for personal use. “You put your right arm in,” etc., etc .…

    There are many arguments to be made against a ban on the import of nicotine for vaping, most of which will be familiar to the people who read this magazine, and those arguments are being well made in Australia by individuals, organizations such as ATHRA and politicians, even some within the ranks of the ruling coalition.

    But one of the major problems for those opposing the ban is that it is irrational and, as has often been stated in the past, it is pretty well impossible to reason somebody out of a position that they didn’t reason themselves into.

    And there could be significant negative consequences if the government persists with its policy of banning nicotine for vaping. Despite the best efforts of the World Health Organization (WHO) to ensure that smokers continue to smoke rather than switch to vaping, the smokers of Australia, who, unlike the WHO, don’t exist in a bubble that protects them from unauthorized ideas, know that vaping might be their best route to harm reduction. And some of them will continue, despite the ban, to try to remain on that harm reduction route by obtaining nicotine through whatever means possible.

    This will inevitably create risks because some of that nico-tine will no doubt be produced in unlicensed premises and all of it will be mixed with other e-liquid ingredients by users with no training in such enterprises. Goodness me, to take another example, surely no government would encourage its untrained citizens to start producing their own alcohol?

    And it seems obvious that the Australian government recognizes the risk of homebrewing e-liquids because, as part of its original ban, it set the penalty for infringements at aud220,000. The severity of the penalties set for laws reflect a number of things and, it seems to me, in some cases, one of those is the likelihood that people will break the law because it is unreasonable. And nothing could be more unreasonable than introducing a law that makes it more difficult for an individual to try to improve his or her own health.

    URGENCY TO ACT

    But there are many people better qualified than I am to make the case against the ban and who will be using the time to the end of this year to do so. I am interested in a more general question that arises out of the shambles that was the ban and its suspension—a question that pops up in other countries, that has global repercussions but that is less often addressed.

    Why haven’t countries around the world and even the inter-national community arrived at a working consensus on vaping that leads us down a rational, clearly defined pathway with direction that can be adjusted as new information is received about the best way ahead?
    Why do we persist with performing the vaping “Hokey Cokey”? After all, you would imagine, I think, that this issue would be viewed by authorities around the world as a matter of the greatest urgency.

    We are told by the WHO that tobacco consumption, largely in the form of cigarette smoking, comprises one of the biggest public health threats the world has ever faced, killing more than 8 million people a year worldwide. At the same time, it is indisputable that some cigarette smokers have used vaping to purge themselves of their tobacco smoking habit.

    And, according to a timeline published by the Consumer Advocates for Smoke-Free Alternatives Association (CASAA), the idea of electronic cigarettes has been around for about 90 years, and the first commercial unit was pro-duced 17 years ago.

    In other words, there is clearly a need for urgency here, and there has been time to act. But as can be seen from the Australian experience—and Australia is by no means alone in this—17 years on, many countries are still at the most basic of consultation stages; or, to put it in the Australian vernacular, we’re still running around like headless chooks when it comes to vaping.

    FEAR OF THE NEW

    Why is this the case? I don’t know the answer to that question, but there are a number of possibilities that occur, some, unfortunately, that tend toward the sorts of conspiracy theories that tell you Covid-19 is spread by 5G and that you would be better off forswearing a Covid-19 vaccine, should one be developed, and protecting yourself instead by sitting in a darkened room with a mixture of cow dung and honey on your head while listening to recordings of the narwhal daring us to be free.

    Credit: Obi Onyeador

    But much as I like a truly bonkers conspiracy theory, I think I need to keep this piece on a reasonably even keel and, the more I think about it, the more I tend to the view that the major problem the world has in embracing vaping is that it is different to what we are familiar with—good old smoking. In The Book of Nothing, John D. Burrow quotes Francis Cornford as saying, “Every public action, which is not customary, either is wrong or, if it is right, is a dangerous precedent. It follows that nothing should ever be done for the first time.”

    Perhaps because it is not much into irony, the WHO seems to have taken seriously this reasoning in its approach to vaping. While acknowledging that much has been written about the potential of electronic cigarettes to help tobacco users quit, it says the evidence is inconclusive and goes on to advise against e-cigarette use.

    OBJECTIVE EXAMINATION

    Given the enormous differences between the constituents of tobacco smoke and those of e-cigarette vapor, and given the evidence that points to the ability of vaping to substitute for smoking for a significant number of smokers, the WHO’s position seems to take the precautionary principle to absurd heights. And one of the problems here is that the WHO exerts enormous influence over the health policies of many countries.

    But there is no need for governments of the world to slavishly follow the WHO line. There is available to governments a huge amount of information on vaping from which they can make their own judgements and decisions. At the same time, however, there is a problem because while some of the information available is reasonable, some of it is questionable and some of it is unreasonable.

    And since this information is being made available in a constant stream, there is probably little wonder that governments announce policies that within a week have to be suspended. To my way of thinking, what is needed, therefore, is for countries to establish taxpayer-funded bodies that are isolated from lobbyists and that are staffed with scientists who can examine objectively any scientific papers produced in respect of vaping and vapor devices.

    Such bodies would examine all such papers and exclude any, no matter what side of the debate they supported, that did not meet the required standards of methodologies and results interpretation.

    These bodies could then make precis for politicians of the papers that were found to advance the vaping debate. In this way, governments would be able to make decisions on the basis of facts, they would not be continually pulled this way and that by the latest bungled interpreta-tions of the results of biased research, and they would have no excuse for inserting their own biases.

    Of course, some would complain that this would be an expensive exercise, but given what we are told are the extremely negative health, economic and social con-sequences of the continuing smoking epidemic/pandemic, such expenditure would surely be repaid many times over.

    Others might complain that the U.S., for instance, already has the Food and Drug Administration (FDA) to oversee research in this way, and there is some truth in this. But the FDA also makes and enforces regulations, it interacts with those carrying out research and its decisions are subject to court challenges.

    Credit: Vaporesso

    The bodies I envisage would act sim-ply as filters that let through to regula-tory bodies only the research results that have passed close scientific scrutiny. They would perform peer reviews as part of a process that was properly funded and fit for purpose. They would not make policy recommendations and, importantly, their decisions would not be open to challenge, though the workings of these bodies would be subject to scrutiny by a suitable organization.

    Surely it would be worthwhile putting in place such bodies so that, if vaping has the potential that many people believe it has to prevent a significant number of smoking-related deaths, that potential can be fully realized. And, of course, if it were found that that potential did not exist or could not be realized, it would allow us to move on. Such a process has got to be better than doing the “Hokey Cokey” on a loop. V