By John Lofstock, Editor
It has been another tough year for the tobacco industry as legislators at the local, state and federal levels have targeted both tax increases and new smoking regulations on all forms of tobacco products, most notably, e-cigarettes.
In April, the U.S. Food and Drug Administration (FDA) proposed its deeming regulations on e-cigs. The positive side is that marketing to adult consumers and flavor products are still allowed and that no products will immediately be taken off the market. The other side is all new products will require pre-approval, virtually every product on the market will require a substantial equivalence determination (if not a new product approval), and manufacturers will essentially be forced to ignore the intended purpose and relative safety of the product by not being allowed to correctly point out that these products are much safer than tobacco cigarettes.
The National Association of Tobacco Outlets (NATO) is at the forefront of the retailers’ fight to sell tobacco responsibly. NATO’s retail members operate more than 28,000 tobacco stores, convenience stores, grocery stores and liquor stores nationwide. Tom Briant, executive director of the association, sat down with CSD to discuss e-cigs and the current state of the tobacco industry.
CSD: So far this year, have you seen the same level of proposed state tobacco taxes as in prior years?
TB: One major difference from last year to this year is the reduction in the number of states considering increases in cigarette and tobacco taxes. In 2013, cigarette or tobacco tax increase bills were introduced in 36 states with seven states actually enacting a tax increase. In contrast, this year, legislatures in 19 states introduced cigarette and tobacco tax increase bills. So far, these tax bills have been defeated or died due to the state legislature adjourning in California, Florida, Hawaii, Kansas Kentucky, Maryland, Mississippi, Nebraska, Oregon, Tennessee, West Virginia, Wyoming and Wisconsin. As of early May, cigarette and tobacco tax bills were still pending in Missouri, New Jersey, New York, Ohio, Pennsylvania and Vermont.
CSD: Why are so many fewer states seeking cigarette and tobacco tax rate increases?
TB: There are several reasons for this downturn in the number of state legislatures proposing higher taxes. First, the economy is improving and fewer states are facing annual budget deficits. Second, this is an election year and generally lawmakers try to avoid raising taxes in a year in which they are seeking re-election. And third, state lawmakers are realizing that there is a point of diminishing returns to further increases in cigarette and tobacco taxes.
CSD: What about states attempting to tax electronic cigarettes?
TB: So far, Minnesota is the only state that taxes e-cigarettes and the rate is 95% of the wholesale price. This high tax rate effectively doubles the price of a single, disposable e-cigarette with the average retail price being about $16.99. The retail price for the same disposable e-cigarette in states without an e-cigarette tax is approximately $7.99-$8.99.
In 2014, nine states have proposed taxing e-cigarettes. E-cigarette tax bills that were not passed include:
• Hawaii: 100% of wholesale cost;
• Indiana: 24% of wholesale cost;
• Kentucky: 20% of wholesale cost;
• Oregon: 81.25% of wholesale cost; and
• Washington: 95% of wholesale cost.
CSD: Which states are targeting e-cigarette taxes?
TB: The states with e-cigarette tax bills still pending include New Jersey (cigarette tax rate of $2.70), New York (75% of the wholesale cost), Ohio (cigarette tax rate of $1.85), and Rhode Island (80% of wholesale cost).
One interesting thing to note is that neither Congress or the Obama administration has proposed taxing electronic cigarettes at the federal level, likely waiting for the FDA to finalize its regulations on e-cigarettes.
CSD: Since New York City late last year prohibited the sale of cigarettes, tobacco products and e-cigarettes to anyone under 21, have any states proposed a similar measure?
TB: It is difficult to know if New York City’s action prompted states to consider raising the age to 21, but this year, nine states introduced bills to raise the legal sales age to either 19 or 21. Bills to raise the legal age did not pass in Colorado, Hawaii, Maryland and Utah and bills remain pending in Massachusetts (19), New Jersey (21), New York (bills for 19 and 21), Rhode Island (21), and Vermont (21).
CSD: With the FDA releasing its proposed deeming regulations, can you provide an overview of the basics?
TB: The release of the FDA’s deeming regulations are important for not only the regulations that the agency proposes to enact, but also for the kind of regulations that are not being proposed.
The FDA proposed two deeming regulatory options. Option 1 would extend the agency’s regulatory authority to cigars, pipe tobacco, electronic cigarettes, nicotine gels, hookah tobacco and dissolvables. Option 2 would extend the FDA’s regulatory authority to all of these categories of tobacco products, except premium cigars.
CSD: What proposed FDA regulations would impact retailers?
TB: Just like the federal prohibition on free samples of cigarettes, no free samples of the deemed tobacco products would be allowed. Also, the minimum age to purchase these tobacco products would be 18 years old and retailers will be required to verify through photographic identification the legal minimum age of a customer who is younger than 27 years old.
In addition, the FDA would require a new health warning on all deemed tobacco products, all cigarette tobacco and roll-your-own tobacco packaging, and all advertisements for these tobacco products. This warning would read: “WARNING: This product contains nicotine derived from tobacco. Nicotine is an addictive chemical.” It is important to note that retailers would be required to include this warning statement on all advertisements that they create for deemed tobacco products, cigarette tobacco and roll-your-own tobacco products.
CSD: What type of regulations did the FDA skip regarding potential deemed tobacco products?
TB: The proposed regulations do not ban flavors for any of the deemed tobacco products. The ban on flavor only continues to apply to cigarettes. However, the FDA is requesting comments on whether a particular tobacco product, such as a little cigar or other non-cigarette tobacco product like an e-cigarette, could be characterized as a “cigarette” and thus subject to the current flavor ban.
CSD: Will the FDA consider other e-cig regulations in the future?
TB: The FDA’s proposed regulations acknowledge that the agency does not have sufficient scientific data about e-cigarettes to determine what effect they have on the public health. At the same time, the FDA is seeking additional scientific data to determine how e-cigarettes should be regulated given the fact that the products may be lower risk than combustible tobacco products. This means that the FDA may consider proposing additional regulations on e-cigarettes sometime in the future.
CSD: What’s the next step regarding the FDA deeming regulations?
TB: The FDA is allowing the public a 75-day comment period through July 9 to submit comments about the deeming regulations. NATO and a number of manufacturers and other trade associations have asked the FDA for an extension of time to submit comments because of the scope of the deeming regulations.