How Will The Hunter’s Bill Help Tobacco Companies?

by Trefis Team
Altria Group, Inc.
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Republican Duncan Hunter introduced legislation in Congress which would ease impending regulations on e-cigarettes. This would represent a big win for the US vaping industry that has been pushing hard for a change in the “Deeming Rule,” which deems e-cigarettes to be tobacco products, and hence, governed by the same tough regulations subjected upon traditional cigarettes. If the Hunter’s bill is passed, e-cigarettes would not be liable to many of FDA’s rules, including one which requires new products to be reviewed and authorized by the FDA before commencing sale. Another bill, introduced by Republicans Tom Cole and Sanford Bishop, would change the predicate date in the FDA’s deeming regulations. This would mean that the existing vaping products would be allowed to remain on the market without obtaining the necessary marketing consent, while new products, introduced after August 8, 2016, would be subject to the FDA’s approval.

What Does The Existing FDA Ruling Entail?

As a result of a dramatic rise in e-cigarette usage among youth between 2011 and 2015, the FDA passed a ruling to limit the e-cigarette industry. While the rule prohibiting the sale of e-cigarettes to minors has been well received, there are doubts whether the other regulations may prevent the sale of vaping devices, considered by many to be a gateway to quitting smoking.

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Small producers of vaping devices, which are battery operated devices that turn nicotine into inhalable vapor, may not be able to bear the costs associated with the approval process initiated by the FDA. However, larger companies, such as Altria (NYSE:MO), would be able to easily afford these expenses. These rules went into effect on August 8, 2016.

While the e-cigarette companies have two years to submit their product applications to the FDA, they must wait a year after that for a review by the agency. This applies to all products which were introduced after 2007, which includes nearly all of them. Details on all ingredients and their production process have to be submitted, along with any health risks associated with the device and whether the product “presents less risk than other tobacco products.” Many companies have more than one vaping product that they sell; this would mean incurring costs which run into millions.

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Is The Ruling Necessary?

Bonnie Herzog, managing director of Beverage, Tobacco, and Convenience Store Research for Wells Fargo, recommended a buy on tobacco companies as a result of the FDA regulations. Even if small manufacturers are able to meet the requirements, they would be forced to pass the cost on to their customers. This increase in the price of the product would end up reducing the savings smokers receive by switching to e-cigarettes, which is one of the main reasons cited for switching. Not only will the FDA regulations kill off the smaller producers, it would also increase the barriers to entry. Many fear that it would also stifle innovation, which would not only be harmful to the companies, but also for public health. A study conducted by the Department of Health in the U.K. stated that reduction in the choice available for consumers may lead to the development of a black market with potentially harmful e-cigarette products. Such regulations also go against a report published by the U.K.’s Royal College of Physicians, wherein it was stated that the use of e-cigarettes should be promoted in the interest of public health.

According to Hunter, in his bill, standards would be implemented which would make vaping safer for consumers. This would include standards on liquids, atomizers, and coils, including the preparation of vaping liquids in dedicated rooms with specified safety and hygiene standards. What encourages vapors, though, was the recent firing of Surgeon General Vivek Murthy, a critic of e-cigarettes, as well as Scott Gottlieb as Trump’s pick to lead the FDA; Gottlieb has earlier served on the Board of an e-cigarette company.

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