Tobacco’s Cloudy Future

Selling tobacco products at retail continues to get harder—this time because of H.R. 1108, the Family Smoking Prevention and Control Act, which passed overwhelmingly in the House on July 30 and would, if it becomes law, be the first time the U.S. Food and Drug Administration (FDA) has regulatory authority over tobacco manufacturing and retailing.

Though insiders do not expect enactment in 2008, they suggest that a Democratic victory in the upcoming presidential election would mean eventual passage of similar legislation.

With the exceptions of banning tobacco products, eliminating nicotine content in tobacco and prohibiting the retail sale of tobacco products, the legislation gives the secretary of the Department of Health and Human Services (HHS), as the cabinet-level head of the FDA, wide-ranging authority to impose regulations.

Current Status
The legislation is eliciting a wide range of emotional responses from several different factions. Some industry observers view the bill as a compromise between anti-smoking groups and tobacco companies. Others have suggested that additional restrictions on advertising and sales would benefit those tobacco companies that already enjoy healthy market shares. But the important fact remains: The measure is believed to have the backing of a majority in the U.S. Senate.

The next step will be for the Senate to pass its version of the bill, S. 625. NACS remains opposed to S. 625 in its current form. The Bush administration has said it would veto the measure.

Historically, said Jeff Lenard, the association’s vice president of communications, NACS has opposed similar legislation “and still does not believe that the federal government should regulate tobacco sales, but given the current political climate it was determined to be in the best interest of retailers to amend the bill so that they were protected.”

NACS negotiated with the House Energy and Commerce Committee leadership to include changes that would support the intent of the bill while assuring that retailers were not unjustly regulated.

Among the changes:
• Requires the FDA to insist that Internet and tribal sellers verify purchasers’ ages and regulates advertising that Internet sellers may utilize.
• Makes tobacco stores comply with the same advertising restrictions as other retailers and forces other age-restricted facilities like bars and nightclubs to comply with those same restrictions as long it doesn’t violate the First Amendment.
• Allows retailers to specify where they would like notices of violation delivered to ensure they get into the right hands and retailers have an opportunity to take corrective action.
• Considers the monetary penalty imposed by states in mitigating the amount of federal fines imposed for the same violation.
• Takes into account, when determining whether to impose or modify a no-tobacco-sale order, whether a retailer has a compliance and training program in place.
• Doesn’t hold retailers liable for problems with warning labels on packs of cigarettes and smokeless tobacco unless the retailer acts like a manufacturer in controlling label statements, selling illegal products or altering label statements.

‘Very Existence at Stake’
Tom Briant, executive director of The National Association of Tobacco Outlets (NATO) in Minnesota, said in a recent article that the proposed FDA regulations “put the very existence of retail businesses at stake.” Tobacco retailers, he said, should be alarmed about legislation granting the FDA sweeping powers to regulate tobacco advertising, promotions and sales.

“Imagine a retail environment where the FDA, federal agencies, and state and local governments can routinely and regularly adopt new and more restrictive regulations on how tobacco products are sold,” Briant said. “The uncertainty that such ominous regulatory powers would create could lead to the certain demise of retailers that sell tobacco products.”

Despite retail amendments to the House version of the FDA bill, the legislation “still contains the most repressive retail regulations,” Briant argued. The legislation grants the FDA “the power to adopt almost any regulation on how tobacco products are displayed, merchandised and sold for the ‘protection of the public health.’”

The bill also grants other federal agencies, states, counties and cities the power to adopt “more restrictive regulations than those implemented by the FDA, and the power to outright ban the advertisement, promotion and sale of tobacco products in retail stores.” This, Briant added, “would be the first time such an ominous power regarding tobacco was explicitly written into federal law.”

Beyond all this, the FDA bill would eliminate in-store color advertising of cigarettes and smokeless tobacco, and only allow brand names and prices to be listed by using black letters and numbers on a white background. But the First Amendment to the U.S. Constitution protects advertising as a form of commercial free speech, Briant said.

On the tax side, the bill levies a user fee that Congressional Budget Office estimates say would collect $7.6 billion dollars over the next 10 years to fund the FDA’s regulation of tobacco products, which Briant said “would essentially be a new tax paid by consumers in the form of higher prices for tobacco products.”

The cumulative effect of the legislation’s various provisions, Briant explained, “could very well destroy tobacco retailing as we now know it.” Since there are no objective limits on regulations the FDA can enact to protect the public health, the severity of potential retail regulations is “limitless.”

Regulating Retailing
“If Congress wants the FDA to regulate tobacco manufacturing, that’s one thing,” said Jim Calvin, President of the New York Association of Convenience Stores (NYACS). “But if Congress wants the FDA to regulate tobacco retailing, that’s quite another. We feel here in New York that we are over-regulated already at the state level when it comes to tobacco retailing. Any FDA oversight would duplicate, conflict with, compete with, and confuse the existing state-level regulations our members are required to comply with.”

NYACS is encouraging its members to contact their representatives in Congress “and ask them to oppose at least the retailing provisions of the FDA bill,” Calvin said.

The regulation of tobacco manufacturing has the backing of at least one tobacco giant, Philip Morris.

“We think that regulation by the FDA could benefit consumers as well as other stakeholders because it would create a regulatory framework that would do a few things,” said William Phelps, a spokesperson for Philip Morris USA. “All manufacturers doing business in the U.S. would operate at the same high standards. The framework would also allow for the pursuit of tobacco product alternatives that could be less harmful than conventional cigarettes.”

In addition, Phelps said, “We think it would provide for transparent and scientifically grounded and accurate communications about tobacco products to consumers.”

Philip Morris USA, in short, “supports the legislation. We have supported tough, but reasonable federal regulation of tobacco products for more than seven years.”

RJ Reynolds, Philip Morris’ top competitor, does not support the proposal and said the ways in which the bill does not strike an appropriate balance include:
• Reducing the harm caused by tobacco products.
• Maintaining consumer acceptability of tobacco products.
• Improving informed choice by adult tobacco users.
• Perpetuating real competition in the domestic tobacco product category.
• Recognizing the various economic interests in the tobacco industry (shareholders, jobs, states’ MSA and tax revenues, wholesalers and retailers).

“This is a bad bill,” said Dave Riser, vice president of external relations-trade marketing for RJ Reynolds. “It’s virtually the same bill that’s been around for over 10 years; it’s just got a different date on it. We adamantly oppose it.”

Its passage into law, Riser said, “gives FDA sweeping jurisdiction to do almost anything they want to do for the good of public health. That’s a very broad statement. If you think about that, they could change the consumer’s acceptability of the product, which would have a direct impact on sales of c-stores or any legitimate business.”

The $7 billion in “user fees” would have “a dramatic impact on volume and cost of inventory,” Riser said, adding that the bill is unreasonable and unworkable. “It opens the door for adult smokers to purchase cigarettes through alternative, less-expensive means, whether it’s black market or the Internet. It would drive sales away from those brick and mortar, legitimate businesses owners, which could then lead to loss of jobs for wholesale and retail.”

On top of all that, Riser said, the bill does not pre-empt state and local laws, which means those jurisdictions “could enforce more stringent laws on top of what the FDA could do. That opens a wide door, too.” 

‘Defining Year’
NATO opposes the FDA bill for a number of important reasons, said NATO President Andrew Kerstein.

First, the FDA would have sweeping jurisdiction to enact virtually any kind of restriction on advertising, promotion and sales of tobacco products. Second, the bill bans all flavored cigarettes, including clove. Third, the FDA can extend its regulatory authority to all other tobacco products, such as cigars and pipe tobacco. Fourth, the legislation bans the sampling of all tobacco products in retail stores. Fifth, the bill grants—in writing to all other federal agencies, states, counties and cities—the power to ban tobacco-product advertising, promotion and sales.

NATO’s overriding concern: The increased regulations and expansive government authority at all levels will put the future of tobacco retailers in real jeopardy.

In fact, 2009 “may be a defining year in the how the industry is regulated and taxed,” Kerstein said. “While we are not saying that any of the leading presidential candidates is a true friend of the industry, as retailers we must look at the record and the statements made by all the leading candidates.” CSD

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