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REGULATION FOCUS — Interesting Times

Interesting Times

Short-term curse or long-term blessing? Forecasting the 2020 regulatory environment for tobacco products.

>BY BRYAN M. HAYNES

In my job as a tobacco regulatory lawyer, I am frequently reminded of the old saying, “May you live in interesting times.” In almost 17 years of helping tobacco and alternative nicotine companies comply with (and sometimes fight) government regulations, I am hardpressed to identify a period when times were more “interesting” than the current regulatory environment.

Perhaps fittingly, the expression, “May you live in interesting times,” is said to be the translation of a traditional Chinese curse. “While seemingly a blessing, the expression is normally used ironically; life is better in ‘uninteresting times’ of peace and tranquility than in ‘interesting’ ones, which are usually times of trouble,” according to the Wikipedia entry on the matter. The “interesting times” of 2020 are almost certainly a short-term curse for tobacco interests, but in some respects could be a longterm blessing for compliant companies.

With these thoughts in mind, I offer my forecast for regulatory developments in the coming year.

FDA ENFORCEMENT OF PREMARKET REVIEW REQUIREMENTS

As I write this article, the FDA has just released the long-awaited guidance document on “Enforcement Priorities for Electronic Nicotine Delivery System (ENDS) and Other Deemed Products on the Market Without Premarket Authorization” (“the Guidance”). Effective February 1, 2020, the FDA will “prioritize enforcement action” (implicitly banning from lawful sale) against all “flavored, cartridge-based” ENDS products on the market (other than tobacco- or menthol-flavored ENDS products). As such,

> The Guidance indicates that the FDA “is unable, as a practical matter, to take enforcement action against every illegally marketed tobacco product” and that it will make enforcement decisions on a case-by-case basis, including based on youth usage rates.

the FDA is not seeking to ban at this time the sale of flavored ENDS products that are not cartridge-based, such as e-liquid flavors produced in vape shops or numerous smaller manufacturers.

The Guidance thus focuses on cartridge-based flavored ENDS, while exempting open systems. The FDA also declined to take action against flavored cigars (despite earlier indicating that it would) or hookah tobacco, citing the lower youth prevalence of those products. However, the FDA reiterated its intent to enforce premarket review requirements for all “deemed” tobacco products (including cigars, pipe tobacco, hookah tobacco and any other product made or derived from tobacco) as of May 12, 2020. In other words, if a company has not submitted a request for marketing authorization for a “new tobacco product” by that date, that product is subject to immediate enforcement action.

For compliant companies, the accelerated premarket review deadline of May 2020 represents an extremely challenging, but not insurmountable, obstacle. But as responsible companies struggle to comply with these requirements, how aggressively will the FDA enforce premarket review requirements against non-compliant products?

The Guidance treats this issue inconsistently. On one hand, in attempting to rebut claims that the new policy will create a flavored ENDS black market, the FDA states that it “has regulatory tools and enforcement authorities to address ENDS and other tobacco products that are marketed without authorization,” including warning letters, import alerts, seizure or injunction actions and criminal prosecution for illicit trade of tobacco products.

On the other hand, the Guidance indicates that the FDA “is unable, as a practical matter, to take enforcement action against every illegally marketed tobacco product” and that it will make enforcement decisions on a case-by-case basis, including based on youth usage rates.

So will the FDA take immediate action against all non-compliant companies? Odds are that it will not. It is reasonable to assume that the FDA will conduct targeted enforcement action over a period time, eventually (but not immediately) clearing the market of illicit products. The FDA’s enforcement efforts may be bolstered by state and local authorities, which have taken an increasing interest in stemming the sale of illicit tobacco products. Thus, the short-term curse of the FDA’s premarket review requirements and a less-than-rigorous enforcement environment could eventually become a long-term blessing for compliant companies when non-compliant products are eventually cleared from the market.

LEGISLATIVE THREATS

A number of legislative threats face tobacco companies in 2020. There are a number of extreme anti-tobacco measures pending in the US Congress, including ones that would ban flavored tobacco products and prohibit online sales of all tobacco products. Fortunately, the political landscape suggests that these bills have a relatively low chance of getting through the more business-friendly Senate.

State legislatures present a much greater threat for tobacco interests, particularly flavored tobacco products. Massachusetts has already banned the sale in most locations of tobacco products having a “characterizing flavor.” While Massachusetts is the first state to pass a law restricting the sale flavored tobacco products, similar legislation is pending in many other states. Sorry folks, I see no short or long-term blessings here, unless the industry is able to weather the current wave of misinformation regarding flavored products and the apparent effect of that misinformation on certain politicians.

> The FDA proposes to soon issue a rule regarding “tobacco product manufacturing practices” (“TPMPs”) which presumably would regulate the manufacturing process for all tobacco products.

Look for states also to consider caps on ENDS nicotine content and new taxes on alternative nicotine products, such as ENDS and oral nicotine products. Given the public attention to youth consumption rates and declining revenues from traditional tobacco taxes, such measures have a better chance of passage than in years past.

FDA RULEMAKINGS

The coming year also promises to see developments in the form of FDA rulemakings. The Trump Administration’s Unified Regulatory Agenda prioritizes a number of tobacco regulatory initiatives for 2020, along with anticipated timelines. Although I try not to put too much stock in these forecasts because they are notoriously wrong, they do provide some insight regarding the Agency’s priorities.

The Unified Agenda prioritizes final rules for substantial equivalence reports and premarket tobacco applications. These final rules are urgently needed, given that these submissions for deemed tobacco products are due in May 2020. Unfortunately, the Unified Agenda indicates that the substantial equivalence rule will not be issued until April 2020, likely too late to be of much value to stakeholders preparing these submissions. This situation is eerily reminiscent of the situation in 2011, when manufacturers of cigarettes, RYO and smokeless tobacco received their first guidance on substantial equivalence reports just a couple of months before they were due.

The FDA has apparently prioritized a rule that would ban “characterizing flavors” in all cigars. In its recent Guidance, the FDA reiterated its intention to issue such a regulation, indicating it is “actively working” towards that proposed rule. The Unified Agenda suggests that a proposed rule could come as soon as March 2020. Given the popularity of flavors in cigars of all types, the proposed rule surely will be hotly-contested, with any final rule likely challenged in court.

The Unified Agenda also prioritizes rulemakings regarding the manufacture and content of tobacco products. The FDA proposes to soon issue a rule regarding “tobacco product manufacturing practices” (“TPMPs”) which presumably would regulate the manufacturing process for all tobacco products. The FDA has also indicated that it will issue product standards governing liquids and batteries used in ENDS. Depending on the form of these regulations, they could be a blessing or a curse for industry. While the regulations could establish necessary transparency regarding the FDA’s expectations (which are already implicitly enforced through the premarket review process), they also have the potential to impose unattainable requirements for tobacco product manufacturers.

The job of predicting tobacco regulatory developments is notoriously difficult, particularly given the constantly shifting political environment. The Guidance’s history is a perfect example of this, with President Trump first indicating that he would ban all flavors, then indicating that he would save industry jobs with a more measured approach, and then finally striking an odd compromise by banning certain flavored products but not others.

It is not difficult, however, to predict that 2020 will be an “interesting” year for tobacco stakeholders. While companies will face short-term challenges this year, those companies that are prepared to weather and combat the regulatory storm could be poised to more effectively compete in a consolidated market in the years to come.

Troutman Sanders Tobacco Team, Troutman Sanders LLP, 1001 Haxall Point, Richmond, Va. 23219, Tel: (804) 697-2206, Fax: (804) 697-1339, Web: www.troutmansanders.com, Email: bryan.haynes@troutmansanders.com.