New FDA Regulations May Snuff Out E-Cig Industry

By Government And Institutions Fool.com

Electronic cigarettes and personal vaping devices could soon be history.

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The Food & Drug Administration's rules that will virtually snuff out the nascent electronic cigarette and vaping industries are now in effect despite tobacco giant Altria (MO)'s last-ditch effort to thwart them. 

In comments submitted to the regulatory agency, the company urged the FDA to loosen the rules to ensure the industry thrives, asserting that the reduced health risks of such products makes them exactly the type of new developments that Congress envisioned when it gave the agency the power to regulate them.

 

A smoking gun

 

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Under the new regulations, which went into effect on Monday, manufacturers of e-cigs, personal vaping devices, and any of the other products the rules cover (except those that are being grandfathered in), will be required to submit information demonstrating their safety within two years. They'll need to prove their products are safer than combustible cigarettes and will help smokers to quit smoking; if they don't meet that standard, they won't be allowed to be advertised or sold.

That sets the bar so high that it appears the FDA's intent is to crush any chance of survival for e-cigarettes. And if that wasn't enough, the cost of compliance is astronomical, so only the largest corporations will be able to afford it.

The FDA estimates the cost per application to be around $466,000, but some non-government analysts put the figure in the millions of dollars per application. Yet even based on the agency's low-ball number, it says the number of U.S. businesses making or selling electronic nicotine-delivery systems (ENDS) will fall from its current range of between 5,200 and 10,200 to somewhere between 1,500 and 7,000.

 

You're doing it all wrong

 

Even though Altria would be one of the beneficiaries of these new rules, as it has the financial wherewithal to put its products through application process, it is calling on the FDA to roll back the havoc it's about to wreak on the industry.

In its 22-page brief, Altria chastises the agency for failing "to provide flexibility and recognize ENDS' position on the tobacco risk continuum." It notes that, as currently written, the rules will force manufacturers off the market depriving consumers of "important product choices."

The tobacco giant goes on to assert that many of the rules exceed the agency's authority, and ignore even its own scientific findings regarding the benefits ENDS provide. While it urges the FDA to continue develop regulations "based on science and evidence," it asks the agency to "revise the final guidance to be clear and consistent" with theFamily Smoking Prevention and Tobacco Control Act that gave it the authority to regulate them in the first place.

 

What's in it for me?

 

Let's not naively believe Altria is altruistically taking on the FDA in an effort to defend its smaller competitors. The tobacco giant spent years and millions of dollars lobbying in favor of the Tobacco Control Act from which the deeming rules arose, and admits in its comments that it continues to "support FDA's regulation of tobacco products, including those containing tobacco-derived nicotine." Even its recent lawsuit against the rules wasn't an attempt to overturn the regulations so much as it was to get its "Black & Mild" brand of cigars exempted from the ban on the use of the word "mild."

The FDA now prohibits tobacco companies from using words like "mild," "light," and "low" to market tobacco products, which is why you can no longer find Altria's once-popular Marlboro Lights brand anymore, though the company stopped marketing them back in 2003.

Both Altria and peer Reynolds-American (RAI) market ENDS products under their MarkTen and Vuse e-cig brands. Analysts estimate sales of e-cigs and vapor products will hit $4.1 billion this year, with the former contributing $1.6 billion and the latter reaching $2.5 billion in sales.

Reynolds' Vuse is currently the market leader with a better than 35% share of the e-cig market, followed by Imperial Brands' (ITYBF) blu eCig that it purchased from Reynolds with 19%, and Altria's MarkTen with a 16% share.

Although the deeming regulations will allow ENDS products on the market prior to Aug. 8 to remain there while their manufacturers submit their applications, it's clear this industry could soon see a significant exodus of competitors unless Altria's efforts are successful.

Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.