It’s the kind of split that’s played out in a range of industries, from food to cosmetics, as regulation looms. Even the first sweeping tobacco legislation, 2009’s Tobacco Control Act that restricted new products, banned cigarette flavors and set up FDA review, has been snidely called the “Marlboro Monopoly Act” by critics who said it thinned the market out and allowed Philip Morris — now part of Altria — to flourish.
“We’re up for it,” said Richard Hill, CEO of Fontem Ventures, the Imperial Brands-owned e-cigarette company that makes blu vapes. “We believe that we can demonstrate that our products can operate in the interest of national health.”
That is the only way that products will be allowed to stay on market once a May 2020 deadline for FDA review hits. The agency last month released a draft rule laying out extensive requirements to clear its bar, including proof that the public health benefits outweigh the risks for both vapers and non-tobacco users.
“The rule as drafted is designed to help only the largest players in the market, the big tobacco companies,” said Tony Abboud, president of the Vapor Technology Association, which represents smaller brands and thousands of vape shops.
Dominant player Juul recently promised to suspend lobbying efforts on the looming federal regulations, an abrupt pivot from millions it had poured into lobbying, advertising, high-profile hires and both the state and federal level. Just months before — in the second quarter of 2019 — the e-cig giant had spent more than $1 million on congressional lobbying alone. On Thursday, the company said it would preemptively pull all its flavored vapes, except menthol, from the market, jumping ahead of a ban President Donald Trump promised in September.
Altria, which bought a 35 percent stake in Juul last year, first disclosed it was lobbying on e-cigarette issues in 2014 and this year specified it was lobbying on FDA guidelines on e-vapors and flavored cigars. An Altria executive also recently took the helm at Juul, much to the chagrin of public health groups and even vapor companies that saw the divide deepening between independent and tobacco-owned brands.
Altria was still lobbying on e-vapors through July, according to lobbying records, but spokesperson George Parman said the company is “not lobbying in opposition to the administration’s current e-vapor proposal and looks forward to reviewing the FDA’s new e-vapor guidance when it is issued.”
Small companies that helped create the vaping industry, but don’t have the lobbying leverage, are panicking.
“We may be putting the entire ‘harm reduction henhouse’ in the hands of the fox industry,” said Mike Hogan, a lobbyist for the Smoke-Free Alternatives Trade Association, which represents smaller vapor manufacturers and retailers. Some of those members are already weighing when to close up shop and liquidate, says Hogan.
VTA, which until recently counted some big tobacco players among its members, split off from SFATA several years ago.
VTA’s head, Abboud, says the group has not funded any member of Congress. Instead it has fought regulations in the public eye, suing New York, Massachusetts and Michigan to ward off their state e-cigarette or flavor bans. Its action has stalled New York and Michigan’s measures for now. Abboud has also said his trade group would also challenge the FDA’s looming flavor ban is court. VTA also recently launched a TV ad blitz, spending six figures to land spots on Fox News warning that millions will turn back to traditional cigarettes or the black market.
Juul split with the association this summer, in part over its hostile approach to FDA, and the chasm continues to grow. More than 600 vapor retailer and manufacturers sent a letter to Congress this month pressing different reforms they say will curb teen vaping — and laying blame for the teen vaping crisis at the feet of Juul.
“The acceleration of youth consumption only became an epidemic in the last two years along with the increased popularity of easily concealed high-nicotine devices,” said Sam Salaymeh, president of major vape retailer AMV Holdings. “This trend closely follows Juul’s growth and market penetration.” In a white paper, the smaller vapor industry companies strongly defended flavored vapes and said that teen use could be curbed by limiting flavors to lower-nicotine products sold only in vape shops with age restrictions.
Former FDA Commissioner Scott Gottlieb has shared the critique of Juul, accusing the company of intentionally marketing to young people, millions of whom now regularly vape, and reversing a decadeslong downward trend in tobacco product use by teens.
There are areas where the divided industry is in agreement, however. No one wants to see an outright flavor ban, for example, and many argue that the fix can be in marketing changes rather than broadly barring flavors.
But smaller manufacturers and vape shops argue that impending FDA regulations and the timeline of the changes are setting up thousands of businesses for failure. The tobacco giants, meanwhile, have the market power and lobbying might to survive a marketing hiatus, and perhaps to get their flavored products restored to shelves after FDA review.
The larger companies can then get a larger share of whatever market remains.
“If you’re a company like Juul and at the end of the day, in a year or two, you are only allowed to sell one or two products, that’s better than not being able to sell any,” said Paul Blair of Americans for Tax Reform, which, along with other free-market groups, has pled with the administration to reconsider flavor bans.
“It should be no surprise that large companies, particularly those that have successfully acquired large market share, are less willing to fight against absurd rules, policies and regulations than those that will effectively be shut down,” Blair said.
In any case, many of the e-cigarette giants appear confident that their flavored products can survive in some form after the crisis passes. Blu’s Hill described the adult-focused flavors his company has developed, including “ginger and ginseng,” that he believes will not appeal to teens. Blu is also developing a Bluetooth-linked vape with a child lock and the ability to track nicotine intake on your phone.
There’s no way to avoid developing a relationship with the regulators, said Hill. “We’re in this together. It’s a brave new world.”
Japan Tobacco International already submitted their e-cigarette products under the brand name Logic for review in August, before the FDA’s draft rule even came out. R.J. Reynolds filed for some of their Vuse products on Oct. 11. Representatives for both blu and Juul said they will file before the May 8 deadline.
The big tobacco companies’ actions mirror tactics used by Altria and Philip Morris as the Tobacco Control Act loomed in 2009, says Marc Scheineson, a former associate FDA commissioner and partner at Alston & Bird working with smaller e-liquid manufacturers. The sprawling control act created FDA’s center to review tobacco products, banned flavored cigarettes other than menthol and heavily restricted sales and advertising. While many smaller tobacco manufacturers opposed the law at the time, Altria and Philip Morris welcomed it, assuming they had the wealth and expertise to survive regulatory hurdles that would kill rivals, Scheineson said. And they did: Though tobacco sales declined steadily over the years, profits climbed. Altria made $11.1 million in 2015; its profits totaled $12.2 million last year.
“Here the initial dynamics are the same. They feel they can outlast their competitors and maybe in the future outlobby their competitors,” Scheineson said.
Applications can cost millions to prepare and file, and the FDA’s draft rule for e-cigarette submissions indicates it will demand evidence of safety, risk and public health benefits that can require years of research.
Abboud of the Vapor Technology Association says the agency could phase its rule in to give smaller manufacturers more time. It could also allow companies to file using safety data for products that are similar to their own, rather than running expensive trials themselves.
But it’s unlikely that the agency will make a special effort to allow smaller manufacturers to survive, Scheineson said. “If past is prologue, FDA is going to paint with the same brush for both smaller and bigger manufacturers. When it comes to business realities, that just does not compute at FDA.”
The dynamics are different from 2009 in one major aspect, however. While all cigarettes may as well have been in the same hot water in those years, former commissioner Gottlieb and other critics have argued that sleek, small, pod- and cartridge-based vapes made by Juul, blu and Vuse are central to the youth vaping problem.
Restricting those types of vapes, as Gottlieb has suggested in a Wall Street Journal editorial, would hit the tobacco giants directly, while possibly protecting the more hard-to-use, sometimes clunky vapes sold in specialty shops. Juul’s product was marketed in a way that attracted youths, and has twice the amount of nicotine compared with many other vapes, argue doctor groups and recently, congressional committees.
There’s a chance FDA could ban vaping pods and some of the high-nicotine products made by Juul and other tobacco-backed companies. That is exactly what many of the smaller players are now arguing. They say any move that culls all flavors will turn thousands of adult vapers back to traditional cigarettes — and maybe away from Trump in the 2020 race, as the grassroots #WeVapeWeVote hashtag suggests.
“You are killing off an industry built by Mom and Pop small businesses to the benefit of JUUL and Big Tobacco,” one advocate responded to Surgeon General Jerome Adams last week after the nation’s top public health official tweeted about online harassment from vapers who he said compared him to Hitler.
“Every single ‘Solution’ you have presented helps JUUL,” tweeted the advocate.