FDA Action May Hamper E-Cigarettes, Boost Big Tobacco

The agency is eyeing more restrictions on e-cigarettes, but critics claim that this may wipe out smaller businesses and lead to fewer adults switching from more-harmful cigarettes.

AP Photo/Frank Franklin II
Sept. 18, 2018, 8 p.m.

The head of the Food and Drug Administration says child and teen vaping has become an “epidemic.” But the threatened crackdown on flavored e-cigarettes could end up sparking a boon for the tobacco industry and traditional cigarettes, proponents of vaping warn.

E-cigarettes are considered safer than regular cigarettes, according to the Centers for Disease Control and Prevention, but evidence is inconclusive that it leads smokers to quitting. Health advocates argue that stricter regulation could help produce products that would be more effective in helping smokers drop the habit.

The FDA’s recent announcement targeted e-cigarette manufacturers over youth access to the product. This comes after the agency recently issued more than 1,300 warning letters and fines to stores that sold e-cigarette products, including JUUL, to minors during an undercover operation during the summer.

“We see clear signs that youth use of electronic cigarettes has reached an epidemic proportion, and we must adjust certain aspects of our comprehensive strategy to stem this clear and present danger,” said Commissioner Scott Gottlieb in a speech last week.

The FDA sent letters to the makers of the top five e-cigarette brands—JUUL, Vuse, MarkTen XL, Blu, and Logic—requesting details on how they will address widespread youth access to their products. If the companies fail to do so or if the plans are not adequate, the agency would revisit its regulations, including possibly making companies remove all or some of their flavored products.

Although tobacco giant Altria Group’s e-vapor product, MarkTen, was included in that roundup, the company’s stock saw a jump after the FDA’s announcement. Altira has spent around $4.9 million lobbying this year on largely tobacco-related issues, and this includes lobbying on FDA regulations.

The company said it welcomes the agency’s decision and looks “forward to sharing our thoughts about how to prevent and reduce youth use, an issue we have focused on for decades,” Altria Group spokesperson George Parman said in an email to National Journal.

A group advocating for pro-vaping business policies, American Vaping Association, said Gottlieb’s announcement was a gift to the tobacco industry. “Commissioner Gottlieb is threatening to shut down all these businesses unless larger manufacturers unilaterally choose to change their marketing practices,” said AVA President Gregory Conley in a statement. “It is absolutely absurd and a perversion of how regulatory agencies are supposed to approach their work.”

Conley told National Journal that “any action that sends a signal that [the] FDA may make it harder for adult smokers to switch” benefits tobacco companies and their investors. “Any regulation that makes flavors less available will absolutely lead to less smokers switching,” he said.

While large tobacco companies have moved into the e-cigarette space, they have not kept up with e-cigarette companies like JUUL, said Guy Bentley, consumer-freedom research associate at the libertarian think tank Reason Foundation. Any restrictions on e-cigarettes will likely turn into a windfall for tobacco companies that rely largely on combustible-cigarette sales, he added.

“Whether it’s a tariff, a tax, a ban, potential ban, or flavor restrictions, anything that makes e-cigarettes relatively less attractive vis-à-vis combustible cigarettes, will be a bonus for those companies that produce combustible cigarettes,” he said. “The tobacco industry, you know, there’s a lot of experimentation in selling of vapor products and heat-not-burn products in other markets, but overwhelmingly their profits are still generated by sales of combustible cigarettes.”

Bentley said he has concerns over the FDA’s focus on flavors, adding that this option appeals to adults who are trying to switch from smoking to vaping.

But FDA regulations may actually assist the e-cigarette industry in producing products that would lead people to quit smoking, argued Matthew Myers, president of the Campaign for Tobacco-Free Kids.

“One of the reasons why I think Wall Street’s reaction is not only out of proportion but is ill-informed is effective FDA regulation will promote the right type of innovation from the e-cigarette industry,” he said. “By that, I mean it will promote the development of products that are helpful at assisting smokers and it will put a premium on those manufacturers who conduct a scientific study to demonstrate that their products work.”

“So there will be winners and losers. The winners will be those people who produce products that are actually effective in helping smokers quit and [are] documented adequately. The losers will be the many manufacturers who are producing flavored products without regard to who uses them,” Myers added.

While in the short-term, tobacco companies are seeing the benefits of the FDA’s announcement, the industry may not be too keen on increased FDA regulations as regular cigarettes lose popularity and it looks to diversify its products.

“The tobacco industry has largely been lobbying to ease a lot of these restrictions, mainly because they have products of their own that they want to sell,” Bentley said. “As the traditional types of their business like cigarettes continue to decline year on year, they want to have a viable strategy, looking to the years ahead, and keep customers alive and then switched onto a safer product.”

“They believe that each of the products of their own can capture a significant amount of this market and so they don’t want to hamper themselves by getting tied up in too much government regulation,” he added.

In the meantime though, Altria will have less to lose under FDA’s forward motion to target e-cigarette makers. “Given the market's overarching concerns about JUUL's impact on cigarettes, especially Marlboro, we think a potential ‘ban’ on JUUL would be positive for” MarkTen, wrote Bonnie Herzog, senior analyst at Wells Fargo Securities.

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