On May 14, premarket tobacco product applications (PMTAs) are due for all non-tobacco nicotine products. The legislation enacted on March 15 makes clear that U.S. Food and Drug Administration can regulate tobacco products containing nicotine from any source, according to an FDA statement.
Additionally, no new non-tobacco nicotine, such as synthetic nicotine products, can be entered into the market beginning today, as some portions of the law take effect. Electronic nicotine-delivery system (ENDS) products must ensure compliance with applicable requirements under the Federal Food, Drug, and Cosmetic Act (FD&C Act) resulting from this law, such as:
Not selling these products to persons under 21 years of age (both in-person and online);
Not marketing these products as modified risk tobacco products without FDA’s authorization; and
Not distributing free samples of these products.
Additionally, the owners and operators of establishments engaged in the manufacture, preparation, compounding, or processing of NTN products must register with the FDA and list all these tobacco products that they manufacture, prepare, compound, or process for commercial distribution.
The May 14 PMTA is the deadline for only those using the recommended FDA’s electronic submission process. An application submitted in hard copy must be received by FDA no later than 4:00 p.m. EDT on Friday, May 13, according to the agency.
A patent infringement lawsuit has been filed by Zanoprima Lifesciences against Hangsen International Group for infringement on Zanoprima’s patent to produce synthetic nicotine.
Filed in the U.S. District Court in the Western District of Texas, Zanoprima claims Hangsen violated its patent entitled “Process for Making (S)-Nicotine” (U.S. Patent No. 10,913,962) and Hangsen has been importing products that include a a synthetic nicotine into the U.S. that is produced by using Zanoprima’s patent.
“Over many years, Zanoprima has invested substantial time, resources, intellectual capital, and scientific expertise into developing Zanoprima’s groundbreaking enzymatic patented process for synthesizing an (S)-nicotine that is devoid of tobacco-specific nitrosamines and other impurities,” stated Ashok Narasimhan, CEO of Zanoprima, in a press release. “Zanoprima’s legal action reflects our company’s dedication to vigorously protecting our intellectual property in the U.S. and around the world.”
The complaint alleges that, after publication of Zanoprima’s patent, Hangsen filed a Chinese patent application describing a process that copied the process invented by Zanoprima. However, as alleged in the complaint, Hangsen’s patent application was rejected by the Chinese Patent Office in June 2021 citing Zanoprima’s patent as prior art.
The complaint also alleges Hangsen imports into the U.S. from China and sells products containing “alleged high-purity synthetic (S)-nicotine and nicotine products that are marketed and sold under various names including as MOTiVO Synthetic S-Nicotine,” and that such imported products “are manufactured by a process that practices every step … of the Zanoprima patent.”
In addition to seeking damages for infringement, Zanoprima’s complaint seeks preliminary and permanent injunctive relief to prevent Hangsen from continuing infringing upon Zanoprima’s patent.
Zanoprima is the first company to manufacture and make commercially available an enzymatically synthesized form of pure (S)-nicotine, SynNic, according to the release. The synthetic nicotine is chemically identical to that derived from tobacco but devoid of harmful tobacco-specific nitrosamines, carcinogens, alkaloids, and other impurities that accompany tobacco-derived nicotine.
China’s State Tobacco Monopoly Administration (STMA) regulations for e-cigarettes are strict. The country will begin enforcing the license management for e-cigarette production, wholesale and retail entities starting from May 1, according to a translated version of updated regulations. They apply to all hardware and e-liquid products, including all components and ingredients. The announcement follows preliminary draft rules authorities issued in December 2021.
“The administrative department in charge of tobacco monopoly of the State Council takes charge of national supervision and management of electronic cigarettes, and is responsible for the formulation and organization of implementing electronic cigarette industry policies,” the regulations state. “The administrative department in charge of tobacco monopoly of the State Council shall organize professional institutions for technical review of electronic cigarette products based on inspection and testing reports and other application materials.”
Rules for products being produced for export could be market changing, and crushing for destination countries. China states that all products produced for export must comply with the regulations and laws in the destination country. If a country does not regulate e-cigarettes, China’s rules for vaping products would apply to those exports, including bans on flavors and synthetic nicotine.
“Electronic cigarette products not sold in China and only used for export shall comply with the laws, regulations and standards of the destination country or region,” the rules state. “If the destination country or region does not have relevant laws, regulations and standards, they shall comply with China’s relevant laws, regulations and standards.”
One industry expert with knowledge of China’s vapor industry said that China may choose to not enforce its export rules, however. “China doesn’t want to crush vaping exports,” he said. “They could choose to hold back enforcing the export provisions.”
The most critical changes locally in China’s rules is the country will now ban all non-tobacco flavors. China will also not allow for the sale of open systems, only closed pod systems will gain marketing approval. The importation of any vaping related products, such as pre-mixed e-liquids, must also be approved by Chinese authorities, according to the regulations.
Any company that produces e-cigarettes in China must now get a license. If a company wants to expand its production or product portfolio, the company must garner approval from the STMA. All nicotine must be tobacco derived and purchased from approved sellers in China, the regulations state. Chinese regulators will also establish a unified e-cigarette traceability system to strengthen the whole-process management of vaping products.
“Electronic cigarette wholesale enterprises shall not provide electronic cigarette products to units or individuals that are not qualified to engage in electronic cigarette retail businesses,” the regulation states.
The rules also state that “enterprises or individuals that have obtained the tobacco monopoly retail license … shall purchase electronic cigarette products from local … wholesale enterprises, and shall not exclusively operate the electronic cigarette products sold on the market.” One industry expert explained to Vapor Voice that the statement means all retail outlets must sell multiple brands and not just a single brand. Traditionally, stores such as RELX, the largest vaping retailer in China, only sold its own brands.
Additionally, authorities will establish a “unified national electronic cigarette transaction management platform” that e-cigarette industry businesses that have obtained tobacco monopoly licenses must conduct all transactions through. It is unclear if China will also begin cracking down on manufacturers of counterfeit products for export, however, the rules do encourage the reporting of these and other illegal manufacturers.
“Rewards will be given to units and individuals who have made meritorious deeds in reporting cases of illegal production and sales of electronic cigarette products, e-atomization material products and electronic cigarette nicotine,” the rules state.
The long roller coaster ride for the vapor industry will likely continue for the foreseeable future.
By Chris Howard and Rich Hill
It’s been a long and arduous journey since the finalization of the Deeming Rule in 2016. As most of you will recall, this was the moment when we transitioned from operating in an unregulated market to plowing forward under a complicated and onerous regulatory scheme in the blink of an eye. Shortly thereafter, the U.S. Food and Drug Administration announced a renewed prioritization of harm reduction and proclaimed that vapor could play a leading role in that effort.
Chris HowardRich Hill
Then, as quickly as a bright future for harm reduction blossomed, the lights dimmed, and vapor became the villain in the harm reduction story overnight. In addition to paralyzing propaganda and misplaced demonization by activist groups throughout the U.S., the industry also faced an onslaught of crippling requirements associated with a 10-month window to submit premarket tobacco product applications (PMTAs). Costing millions of dollars, 99 percent of the PMTAs ultimately submitted to the FDA’s Center for Tobacco Products (CTP) were summarily rejected based upon a standard, akin to a clinical cessation trial, that none in the industry expected.
As of the date of this writing, some of the largest players in the e-liquid space have closed their doors or have moved into yet another risky proposition—synthetic nicotine. Despite the setbacks over the past several years, many still believe reports of vapor’s death as a harm reduction tool are greatly exaggerated. Notwithstanding this cautious optimism, it is clear that 2022 is going to be yet another difficult year for the vapor category.
Current state as we enter 2022
As we enter 2022, much of the flavored e-liquid market is gone and may never return. While we have seen marketing orders for first-generation e-cigarettes and tobacco disks that are no longer marketed, we have not seen marketing orders for any modern electronic nicotine-delivery system (ENDS) or oral nicotine products. We have seen a marketing order for a combustible low-nicotine cigarette, along with a reduced exposure order for the same. While litigation continues around the rejected PMTAs, the FDA still lacks a commissioner, and we have no knowledge of who will replace retiring CTP Director Mitch Zeller. Most importantly, other than removing flavors from the market, we have no clear understanding of the FDA’s harm reduction strategy.
Predicting the future in 2022
PMTAs. Few question the fact that the CTP was given a Herculean task by the Maryland federal court. Processing, let alone reviewing, 6.5 million PMTAs in a year was unquestionably an impossible requirement. Candidly, the fact that the CTP was able to get the majority through acceptance and filing was a significant achievement. Of course, for most reading this, the outcome was obviously disappointing as nearly all requests for marketing orders for flavored ENDS products were rejected in late 2021. As the various challenges to the marketing denial orders play out over the next year, many hold out hope that the CTP will be found to have violated the Administrative Procedures Act and/or acted arbitrarily or capriciously in its decision-making process.
Credit: JHVEPhoto
With respect to those applications that remain pending with the CTP (primarily tobacco and menthol flavors, pod systems and disposable devices), we believe the FDA will issue marketing orders for several tobacco-flavored pods and disposable e-cigarettes in 2022. Assuming the remaining applications otherwise meet the statutory standards, there is little reason for the CTP to deny applications for tobacco-flavored pods, e-liquids and disposables given the evidence that such products are not particularly attractive to youth. That said, we question whether any action will occur before the new FDA commissioner and CTP director are in place and have an opportunity to address policy concerns.
As for menthol offerings, we anticipate that the FDA will not act until the proposed product standard banning menthol is released. It was interesting to note that a menthol-flavored combustible cigarette with lower nicotine levels was granted an exposure modification order. The CTP’s action may indicate a desire to provide “off-ramps” for combustible menthol cigarette smokers in a world where menthol cigarettes are potentially banned. Ideally, the CTP will grant marketing orders for menthol-flavored ENDS to provide an alternative product for current menthol cigarette smokers. This would provide a potential cessation or maintenance product to the millions of menthol smokers in the U.S.—thus reducing the risk of the formation of black and gray market activities.
Credit: SYCprod
Finally, marketing orders for flavored ENDS products seem unlikely in 2022. If the clinical cessation trial/longitudinal cohort study requirement proves to be administratively appropriate, it would seem difficult, if not impossible, that any flavored product will even make it to the review phase with such data for six months to 12 months at a minimum. Even then, it is an open question as to how much and what kind of data will be deemed to be sufficient by the CTP. We see a world where flavored ENDS are once again marketed, but it seems unlikely to occur in the near future.
Product standards. We have all heard that the CTP intends to issue draft product standards banning both menthol in cigarettes and flavored cigars by April of this year. These purported product standards, along with the recent marketing orders granted for lower nicotine combustible cigarettes, are telling with where the focus of the FDA’s policy stands. The standards appear to demonstrate an agency bent on removing any flavors from combustible tobacco products unless those products cannot create or sustain addiction. We can be assured that the product standards will face a blizzard of regulatory and legal challenges and will likely take many years to implement.
Synthetic nicotine. A few months ago, synthetic nicotine seemed like the last bastion of flavored ENDS products in the marketplace. While these products currently do not have a regulatory home, we fully expect that the existing legislative efforts will ultimately provide the CTP the authority to regulate synthetic nicotine. Once granted, all regulatory requirements for deemed tobacco products will apply, such as PMTAs. In the unlikely event Congress does not successfully provide such authority, we expect state legislatures to address the issue with prohibitive laws banning synthetic nicotine.
FDA administration. One wildcard in the mix is the turnover in key personnel at the FDA. In his largely collegial confirmation hearing, the commissioner nominee, Robert Califf, stated that his top two priorities upon confirmation were not tobacco related. Rather, he intends to focus on (a) emergency preparedness and response and (b) patient and consumer protection through “systematic evidence generation” related to medical and food products. While he faced few questions on tobacco-related issues, many skeptics believe his views toward tobacco products are similar to the current administration. Whether he will take a proactive stance toward prioritizing harm reduction is unknown.
Credit: Neil Lockhart
Unfortunately, Zeller’s retirement removes a harm reduction proponent. What can we expect in a replacement? In short, the most likely replacement will be a candidate who has solid tobacco control chops and is aligned with the current policy flow against flavored products. We don’t expect to see any novel tobacco control or harm reduction policies (akin to former FDA commissioner Scott Gottlieb’s approach in 2018).
The roller coaster ride continues
Unfortunately, it appears that the long roller coaster ride for the vapor industry will continue for the foreseeable future. The good news, if you can call it that, is that the Biden administration has a variety of nontobacco-related issues to address—particularly up to the mid-term elections—which could lessen the likelihood of additional draconian polices imposed on the industry. At this point, it appears that 2022 will be about waiting—waiting for court decisions, waiting for policymakers and waiting for policy decisions.
We won’t be so naive as to say that things can’t get worse in 2022. That said, if you have made it this far, now certainly doesn’t seem like the time to give up.
Chris Howard is vice president, general counsel and chief compliance officer, and Rich Hill is compliance director and associate general counsel of E-Alternative Solutions, an independent, family-owned innovator of consumer-centric brands.
New Jersey Congresswoman Mikie Sherrill, on Dec. 15, introduced the Clarifying Authority Over Nicotine Act of 2021 — a bipartisan bill designed to give the U.S. Food and Drug Administration (FDA) the authority to regulate synthetic nicotine products just as it regulates nicotine products made or derived from tobacco. In a press release, Rep. Sherrill stated, “This bill will ensure all tobacco products, including products made with synthetic nicotine, are regulated by the FDA in order to protect kids in our communities and those who may seek to use these products.”
Credit: DedMityay
In a blog post, Bryan Haynes and Michael Jordan, attorneys with Troutman Pepper, state that, as it stands, the Federal Food, Drug, and Cosmetic Act (FDCA) defines “tobacco product” as “any product made or derived from tobacco that is intended for human consumption, including any component, part, or accessory of a tobacco product.” 21 U.S.C. § 321(rr)(1) (emphasis added). As the FDA concedes on its website, “it’s possible that a disposable, closed system device that contains an e-liquid with truly zero nicotine (or synthetic nicotine) would not be regulated by the FDA as a tobacco product.”
That said, there are other ways FDA might try to regulate synthetic nicotine, whether under its authority to regulate a “component” of a tobacco product or as a “drug.” In November, FDA Center for Tobacco Products Director Mitch Zeller discussed the “component” aspect of the FDCA’s definition of “tobacco product” and suggested “that components and parts could include everything from coils and batteries to all the ingredients comprised in producing e-liquids (such as flavorings and vegetable glycerin) even if the product does not contain nicotine.” He added, “That’s an assessment that we need to make on a case-by-case basis based upon the totality of all the information that we have.”
FDA could also seek to regulate synthetic nicotine as a drug. The FDCA defines drug, among other things, as “articles (other than food) intended to affect the structure or any function of the body.” 21 U.S.C. § 321(g)(1). To the extent synthetic nicotine is intended to affect a consumer’s body, FDA could attempt to assert jurisdiction. Indeed, in the 1990s, FDA tried to regulate nicotine as a “drug” and cigarettes and smokeless tobacco as “drug delivery devices.” The Supreme Court in FDA v. Brown & Williamson Tobacco Corp. found FDA lacked such authority, but one of the Court’s key findings was that Congress had passed “tobacco-specific legislation [that] effectively ratified the FDA’s previous position that it lacks jurisdiction to regulate tobacco.” Today, things are different. The 2009 Family Smoking Prevention and Tobacco Control Act gave FDA the authority to regulate tobacco products. Should FDA regulate synthetic nicotine as a drug today, it could point to recent legislation from Congress giving FDA a role in this space more broadly. So far, however, FDA has not taken this approach.
With FDA having ordered more than five million tobacco-derived, e-cigarette products off the market, several manufacturers appear to have turned to synthetic nicotine to avoid FDA’s rigorous (and costly) premarket review process. In general, that process requires those who seek to market new tobacco products to demonstrate that their sale is “appropriate for the protection of public health” with the support of scientific evidence. 21 U.S.C. §387j(c)(4), (5). After receiving a denial from FDA of his premarket review applications, one vaping company owner took to Facebook to announce the company’s switch to synthetic nicotine, adding: “We never wanted to switch to [synthetic nicotine], but the FDA forced us to make that decision as we have so many adults relying on us [for alternatives to cigarettes].”
Lawmakers have taken notice. In November, a flurry of investigations and calls to regulate synthetic nicotine products reached a new high. On November 16, nine senators sent a letter to the FDA imploring the agency to regulate synthetic nicotine products. The authors expressed concerns that e-cigarette manufacturers like Puff Bar are switching to synthetic nicotine to skirt FDA oversight and pre-market review requirements to continue selling their products — including flavored products — that they assert appeal to youth. That same day, the North Carolina attorney general launched an investigation into Puff Bar for similar reasons. And, on November 8, the House Oversight Committer’s Subcommittee on Economic and Consumer Policy sent letters to e-cigarette manufacturers Puff Bar and Next Generation Labs LLC, requesting extensive records pertaining to the production and marketing of the companies’ synthetic nicotine products.
Time will tell if Congress will pass Rep. Sherrill’s Clarifying Authority Over Nicotine Act of 2021. Given the uptick in scrutiny of synthetic nicotine products, however, there is a strong chance Congress could give FDA a clear mandate to regulate synthetic nicotine in 2022.
Robert Califf vowed to close the synthetic nicotine loophole if appointed commissioner of the U.S. Food and Drug Administration, according to a report by Vaping360.
During Califf’s nomination hearing on Dec. 14, Wisconsin Senator Tammy Baldwin expressed concern over reports that companies are switching to making flavored synthetic nicotine products in the wake of FDA marketing denial orders.
“As FDA commissioner, how would you work to address the rise in youth use of synthetic nicotine, and will you commit to working with Congress to ensure that the FDA has the authorities and resources it needs to crack down on these products?” Baldwin asked.
In response, Califf first noted that is crucial to appoint the right person to succeed Center for Products Director Mitch Zeller, who plans to retire in April 2022.
“Secondly,” Califf continued, “this is not limited to children. I may have some family members using synthetic nicotine, I learned as I was going through the paces here. And what people don’t realize is that there are two enantiomers of nicotine—one of which is not occurring in nature—that are in this product, and its properties are not known.
“So we’ve got to close this loophole,” Califf added, “so that we make sure that we understand the risks and benefits, and particularly deal with the issues in children.”
The Senate Health, Education, Labor & Pensions Committee will vote soon on whether to recommend Califf’s nomination to the full Senate. If the committee approves him, the former commissioner can expect full Senate confirmation to be the new commissioner soon, probably in January.
China’s domestic e-cigarette market is going to look very different next year. Draft rules governing e-cigarettes were issued on Dec. 2 by the country’s tobacco regulator, the State Tobacco Monopoly Administration (STMA). While the entirety of China’s new draft rules for the regulation of vaping products are vague and still being reviewed by interested parties, the included standards for the manufacturing of vapor products do open a window into the future of China’s domestic vapor market.
The National Standards of the People’s Republic of China for e-cigarettes allows only for closed pod systems with tobacco-derived nicotine and tobacco-derived nicotine salts. Flavors will be allowed and cartridges can’t leak, according to a translated copy of the proposed rules.
Unlike other countries, China will only allow tobacco-derived nicotine. The rules do not allow for a synthetic nicotine. “Nicotine extracted from tobacco should be used, and the purity should not be less than 99 percent,” the standards state. “Benzoate, tartrate, lactate, levulinate, malate and citrate of nicotine are allowed, and nicotine for preparing the above nicotine salts shall meet the requirements of [the previous statement].”
However, synthetic nicotine will still be allowed in products for export. What isn’t clear is if that synthetic nicotine must be shipped into China premixed in PG and/or VG and held in bond or if a pure synthetic can be imported. “There’s no legal imports of nicotine as far as we can tell. There’s seems to be no leeway for legal imports of a pure synthetic nicotine. However, we think if people import e-liquids with nicotine as a certain percent of that, that’s okay,” an industry representative told Vapor Voice and asked not to be named because they didn’t have permission to speak on the matter. “We don’t know if it’s 10 percent or 20 percent and it can only be brought into the country to be manufactured for re-export, that appears to be okay. That is just how we are interpreting the rule though, maybe someone else is seeing it differently.”
It also seems that the proposed rules also do not allow for a company to import finished vaping products into China and then sell them domestically without having a license and being registered with STMA (local companies will also need licenses). However, the country will continue to encourage exports, and wants domestic manufacturers to develop markets overseas.
“What they’ve really done is they’re clamping down on anything that is destined for the domestic market,” the source said. “They’ve also tapped into the tax department. Any time a manufacturer wants to manufacturer an e-cigarette or parts for an e-cigarette, they have to have a local representative from the taxation bureau there. And each day’s production that they run, they have to pay tax on those products at the end of that day. They’re clamping down in terms of what people can do as well as trying to ensure that they collect relevant taxes from all the manufacturers.”
Chinese vapor manufacturers are still waiting to understand what needs to be done officially for a company to produce vaping products for the international and/or domestic market. “We’re still waiting on that. The important piece isn’t the product standards,” the source said. “What I’m really interested in is the registration process, who’s allowed to do what, who has to issue licenses, because now there’s an emergency management bureau involved, not just STMA, so it’s a lot of people. We’re also trying to figure that piece out.”
China’s product standards do clarify what types of products China will allow domestically. The country will only allow closed-pod systems to be sold, stating that “devices and cartridges using e-liquid should have a closed structure to prevent artificial filling.” Additionally, flavors will be allowed for now, but flavors are only approved under a “temporary permit for additive in e-vapor matter” and any substance or flavor not listed “shall be used only after being proved to be safe and reliable by risk assessment,” the standards state. The listed additives include numerous flavoring extracts such as coffee, cocoa, prune and vanilla bean.
The standards only allows for a maximum amount of nicotine of 20 mg per milliliter (mL). The source also said that the way he interprets the rules is that vape symposiums, such as the recently held 2021 IECIE Shenzhen eCig Expo (held Dec. 6-8), wouldn’t make sense to be held in China anymore.
2021 IECIE Shenzhen eCig Expo (Credit: IECIE)
“I can’t imagine, if they’ve really taken bookings and got one on the cards currently, that they will cancel it, but we’ll see shortly,” the source said. “The Chinese domestic market is off limits to outsiders now. Moving forward, I don’t see a place for [trade shows] in this market anymore.”
For China’s domestic manufacturers the outlook is grim. While international players will still survive, they are still confused about what will be expected when the rules are finalized. Stock shares for RLX, China’s largest domestic brand, fell by more than 16 percent after the SMTA released the proposed rules. In Shenzhen, the capital of global vapor manufacturing, the industry is in a state of shock, according to the source.
“Everybody, from big to small, is scrambling to try and find out how this relates to them,” the source said. “They all have to register immediately with State Tobacco Monopoly to continue doing business. They have to register what they’re going to be manufacturing, what their exports are, where they are going. It’s a complete disaster.”
A more detailed version of this story will appear in the next issue of Vapor Voice.
Synthetic nicotine could be considered a component of e-cigarettes, which would allow for the product to be regulated by the U.S. Food and Drug Administration. Mitch Zeller, director of the FDA’s Center for Tobacco Products, said the agency was concerned about the use of synthetic nicotine to avoid regulation and enforcement and is considering its options in dealing with its use.
Mitch Zeller, director of the FDA’s Center for Tobacco Products
On Nov. 17, the first day of TMA’s “From Chance to Change” webinar, Zeller said that the agency is charged with regulating tobacco products, which according to the Tobacco Control Act is anything that’s “made or derived from tobacco that is intended for human consumption, including any component, part or accessory of a tobacco product.” Zeller said that components and parts could include everything from coils and batteries to all the ingredients comprised in producing e-liquids (such as flavorings and vegetable glycerin) even if the product does not contain nicotine.
“That’s an assessment that we need to make on a case-by-case basis based upon the totality of all the information that we have,” said Zeller, adding that another challenge is that synthetic nicotine is now of such high quality and complexity that it has become difficult to differentiate it from nicotine derived from natural tobacco. “Historically, that hasn’t been a problem,” he said. “It’s not a problem now, but it could become a challenge for us going forward.”
Zeller explained that nicotine is comprised of two isomers: R and S. Tobacco-derived nicotine is 99 percent S, and early synthetic nicotine had a 50-50 split between R isomers and S isomers. However, newer versions of synthetic nicotine have much higher proportions of S isomers (as high as 99.9 percent pure), making it harder to tell synthetic apart from natural nicotine. Tobacco-derived nicotine is also becoming higher in quality.
“Tobacco-derived nicotine is now being made available at a higher quality … pharmaceutical grade from a purity standpoint. And with that, it may be harder for us to see that chemical fingerprint, if you will, whether it’s tobacco DNA or tobacco-specific nitrosamines,” he said. “We could see this as a problem going forward. Coupled with the clear intent of certain companies to do this to evade FDA regulation … We are concerned about what this means for product regulation, for the public health, and a product like Puff Bar proudly proclaiming its use of synthetic nicotine, [and] being the number-one brand used by youth.”
In the short term, Zeller said the FDA is talking internally about how to best address the growing number of products that are using synthetic nicotine to skirt FDA regulation. He said the agency is also responding to questions from Congress about synthetic nicotine and providing technical assistance to members when asked.
“There are a lot of companies out there that pride themselves on playing by the rules. They have every right to expect that the playing field is going to be level. That’s where we come in with our compliance and enforcement authorities,” Zeller said. “We agree that one of the most important things that we can do, using our compliance and enforcement tools, is to level the playing field and to have our actions [in the e-cigarette space], hopefully, serve as a deterrent. There’s nothing that I can say from a compliance enforcement standpoint on synthetic nicotine other than we have ongoing investigations.”
For more on Zeller’s speech at TMA read the next issue of Vapor Voice coming in mid-December.
Experts say Congress’ latest attempt to tax nicotine is complicated, confusing and harmful to public health.
By Timothy S. Donahue
To help pay for an infrastructure bill, the U.S. Congress has again introduced an excise tax on next-generation nicotine products, such as e-cigarettes and snus. The excise tax would apply to nicotine vapor products using both natural and synthetic nicotine as well as nicotine pouches. Experts say the provision, which would ultimately be paid by tobacco consumers, goes against U.S. President Biden’s campaign promise to not increase taxes on those making less than $400,000, negatively impact tobacco harm reduction efforts, increase sales of combustible tobacco products and boost an already growing black market.
The nicotine tax has been removed and reintroduced to Biden’s Build Back Better (BBB) legislation at least three times. The proposed vapor tax provision is now part of the latest version of the administration’s social spending and climate bill. According to Ulrik Boesen, a senior policy analyst with the Center for State Tax Policy at the Tax Foundation, taxes on tobacco and nicotine products tend to serve at least two purposes: to improve public health and raise revenue. He claims that a nicotine tax could do that if it is properly designed.
Ulrik Boesen / Credit: Tax Foundation
“A good design means internalizing externalities related to consumption of a product,” Boesen stated. “With tobacco and nicotine product consumption, these externalities are the health risks connected to frequent use and [the] quantity consumed. Nicotine is the addictive substance in the products but not the harmful ingredient. In other words, the proposal does not target the harmful behavior directly.”
Taxing based on nicotine content would favor low-nicotine liquids and could encourage increased consumption in the quantity of liquid, according to Boesen. “For example, a vapor pod that has a nicotine content of 3 percent and contains 1 mL of liquid would be taxed at $0.83 whereas a vapor pod that has a nicotine content of 5 percent and also contains 1 mL of liquid would be taxed at $1.39 even if there is no difference, or even a negative differential, in broader health effects of the two pods,” he states, adding that the effects of the tax are most substantial for nicotine pouches, such that the category is unlikely to survive.
Other estimates show that a 60 mL bottle of e-liquid with 12 mg of nicotine e-liquid would be taxed at $20.02. A four-pack of 8 mL pods with 5 percent nicotine salt pods would be taxed at $4.45 and a 15-pouch can of 8 mg nicotine pouches would be taxed at $3.34 (alongside state and local taxes, the cost of a single can could grow to $20 in some states).
Bryan Haynes, a partner with the law firm Troutman Pepper who specializes in tobacco and vapor regulations, said that, at a minimum, the proposed nicotine tax is “a hastily written addition” that will “have a negative impact on tobacco harm reduction efforts and public health.” He said that it’s the first time the tobacco industry has seen an excise tax placed on an ingredient instead of a finished good. “This is an unprecedented type of tax that will ultimately drive former smokers back to combustible products,” said Haynes, adding that taxing an ingredient could also cause unforeseen issues for manufacturers, such as moving material between factories.
Bryan Haynes / Credit: Troutman Pepper
“If a company is producing nicotine or even synthetic nicotine, moving product from one factory to another could trigger the need for an Alcohol and Tobacco Tax and Trade Bureau (TTB) license, and when product is removed, so to speak, from their factory, they would be responsible for remitting the taxes,” explained Haynes. “There may be a way, for example, if the company removed the nicotine from their factory and transported it in-bond to another TTB factory that you could make that work. But it’s just not clear. There is the potential for a lot of unforeseen issues to arise the way the tax is currently being proposed.”
States often tax nicotine products by its cost. Boesen says the tax on the product will pyramid since the federal tax would be levied at the manufacturer level and the state tax is levied at the distribution level. “In effect, the state tax base includes the federal tax and becomes a tax on a tax. This means that even if the taxes on tobacco and other nicotine products are approximately equal at the federal level, by the time it reaches the consumer, the nicotine product will carry a higher tax (and often a higher price),” he states. “This is highly problematic when considering that cigarettes are much more harmful than nicotine products. That makes the federal tax proposal look like a harm-maximizing strategy.”
Credit: Tax Foundation
The bill also subjects synthetic nicotine products to the nicotine tax. Many in the industry have expressed concern that this provision could allow the U.S. Food and Drug Administration to assert authority over the substance. Synthetic nicotine is covered not only in the proposed tax bill but also in the Prevent All Cigarette Trafficking (PACT) Act, which bans the U.S. Postal Service from mailing any vaping products.
Azim Chowdhury, a partner at the law firm Keller and Heckman who specializes in vapor, nicotine and tobacco product regulation, said that’s just not possible and Haynes agrees. “The definition of a tobacco product in the Tobacco Control Act (TCA) is clear. It’s just not ambiguous; a product must be made or derived from tobacco, or a component or part of a tobacco product, to be a tobacco product,” said Chowdhury.
Azim Chowdhury
“Congress would have to change the Tobacco Control Act’s definition of a tobacco product in order to give FDA’s Center for Tobacco Products the authority to regulate synthetic nicotine products as tobacco products. That won’t happen overnight. I also see a scenario where synthetic nicotine could be regulated as a drug and that would be a whole different and more onerous regulatory regime.”
The FDA could, however, cite the inclusion of synthetic products in the PACT Act and the latest nicotine tax proposal in its lobbying efforts to change the TCA’s definition of tobacco, said Haynes. “I could see the FDA telling Congress, ‘You just amended the Internal Revenue Code to make these products subject to federal excise taxes just like tobacco-derived nicotine, so it’s not a big stretch to amend the Tobacco Control Act’ in the same way,” he explains. “That’s how I would do it. It’s not really a legal argument, but it could be a decent lobbying argument.”
It isn’t just vapers, business owners and attorneys that find fault with the proposed nicotine tax; researchers suggest the tax could also harm public health. Michael Pesko, an associate professor in the Department of Economics at Georgia State University, used a $1.4 million dollar grant from the National Institutes of Health (NIH) to conduct e-cigarette policy evaluation research, including the evaluation of e-cigarette taxes (Pesko receives no funding from the tobacco industry or related groups). Pesko found that e-cigarettes and other nicotine vaping products function as what economists call “substitutes” for conventional cigarettes.
“In practical terms, if e-cigarettes and cigarettes are substitutes, then raising the price of one on average leads people to increase use of the other. Given extensive peer-reviewed evidence indicating that these products are substitutes, an unintended but inevitable effect of increasing taxes on e-cigarettes is to increase cigarette use,” Pesko said. “Given that cigarettes are believed to be substantially more harmful than e-cigarettes, this effect on [combustible] cigarette use is concerning …. A wide array of research suggests that this boost in cigarette use as a result of large e-cigarette tax increases would significantly increase overall tobacco-related death and disease.”
Michael Pesko / Credit: GSU
These findings prompted Pesko to send a letter to Congress concerning the proposed vape tax. In the letter, he states that his research team’s economic evaluations of existing state and county e-cigarettes taxes found that increasing e-cigarette taxes to parity with the combustible cigarette tax rate would “sizably increase cigarette use across teens, adults and pregnant women compared to taxing tobacco products differentially in proportion to their health risk.”
Pesko said researchers found several concerning consequences of large e-cigarette tax increases:
Simulating the current bill’s e-cigarette tax on teen tobacco use indicates that this policy would reduce teen e-cigarette use by 2.7 percentage points but that two in three teens who do not use e-cigarettes due to the tax would smoke cigarettes instead. This would result in approximately a half million extra teenage smokers overall. This finding that teens substitute to cigarettes in response to e-cigarette taxes has also been documented using National Youth Tobacco Survey data.
The tax would raise the number of daily adult cigarette smokers by 2.5 million nationally and reduce adult e-cigarette users by a similar number.
For every e-cigarette pod eliminated by an e-cigarette tax, more than 5.5 extra packs of cigarettes are sold instead.
For every three pregnant women that do not use e-cigarettes due to an e-cigarette tax, one smokes cigarettes instead (study).
Pesko told Vapor Voice he was surprised to find that increased e-cigarette tax consistently resulted in substitution across various data sources. “And the magnitudes are fairly sizable,” he noted. “This is an unusual level of accordance for academic research.” Pesko believes that any tax on nicotine products should be based on quantity.
Boesen agreed. He stated that for vapor products, the “obvious choice” is taxing the liquid by volume (per mL), and for nicotine pouches, a tax by weight or per pouch is a straightforward solution. “It is the administratively simplest and most straightforward way for the federal government to tax these goods as it does not require valuation and as such does not require expensive administration,” he stated. “The nicotine tax proposal in the Build Back Better Act neglects sound excise tax policy design and by doing so risks harming public health. Lawmakers should reconsider this approach to nicotine taxation.”
Chowdhury said that the industry must do more and that interested stakeholders and consumers should reach out and push back on the nicotine tax because it will be devastating to the vapor industry. “It seems like the general industry feels like [this nicotine tax] won’t get through somehow, that some people will prevent it from being in the final bill, but I think it’s a huge risk,” said Chowdhury. “Without serious pushback, it could end up there; it could very well end up becoming law.”
Haynes said that if the nicotine tax bill ever makes it to Biden’s desk, “he’s going to sign it.”
U.S. Representative Raja Krishnamoorthi, chair of the subcommittee on economic and consumer policy, has sent letters to two companies that manufacture or sell synthetic nicotine products, requesting information about the companies and their sale of these products.
One letter was addressed to Next Generation Labs, the self-declared market leader in the production and sale of synthetic nicotine. The company claims its unregulated synthetic nicotine is used in more than 60 products and projects its sales to increase by 1,800 percent this year.
“In response, some e-cigarette and e-liquid manufacturers, banned from legally selling their products, reportedly plan to switch to synthetic nicotine in an effort to avoid FDA regulation,” Krishnamoorthi wrote in his letter to Next Generation Labs.
“Next Generation Labs appears to support this approach, with its co-founder, Ron Tully, offering the following thoughts on the FDA laws and regulations governing nicotine: ‘If the statute has been ill-conceived, and the regulation has been ill-drafted, it is not the responsibility of the industry to conform to some kind of idea that you can’t innovate in those spaces where the legislation doesn’t occur.’”
Krishnamoorthi also sent a letter to Puff Bar, whose products have replaced Juul as the vape of choice for many young people after Juul Labs discontinued certain flavored products. In 2020, the Food and Drug Administration ordered Puff Bar to pull its products from the market. Earlier this year, the company introduced new versions of its products using synthetic nicotine.
In a recent profile by The Wall Street Journal, Puff Bar co-CEO Patrick Beltran described the Puff Bar ingredient change as “a forced innovation,” saying that the FDA gave the company no choice. Because the Tobacco Control Act specifically gives the FDA authority to regulate nicotine “made or derived from tobacco,” most people believe the agency’s Center for Tobacco Products cannot regulate products that use synthetic nicotine—at least not without serious legal challenges, according to Vaping360.
“You have apparently made the vile decision to continue enriching yourselves by poisoning children,” Krishnamoorthi wrote in his letter to Puff Bar. “Puff Bar’s meteoric rise in popularity among kids resulted in $156 million in sales in 2020 alone. Puff Bar should not be allowed to continue harming children due to FDA’s failure to regulate synthetic nicotine, and I intend to put an end to your predatory practices.”
In his letter to Next Generation Labs, Krishnamoorthi requested information regarding the company’s sales and new business. In his letter to Puff Bar, Krishnamoorthi requested information regarding the company’s ownership and operations as well as support for the company’s assertion that it is using synthetic nicotine, and requested the company’s co-chief executive officers appear for transcribed interviews.
Greg Conley, the president of the American Vaping Association, said Krishnamoorthi lacked evidence that the targets of his investigation have broken any laws. “As per the usual, he is playing politics, and we are hopeful the demands specified in his letter will be resisted,” Conley told Filter.
“With youth vaping numbers and the associated moral panic continuing to decline,” he continued, “it remains to be seen whether Representative Krishnamoorthi’s primary goal—getting media attention focused on Representative Krishnamoorthi—will actually be met with this campaign.”
