Regulation

E-cig makers warn new regs would extinguish industry

Electronic cigarette manufacturers are fighting to change a provision in looming regulations for electronic cigarettes that they warn would all but wipe out 99 percent of the burgeoning industry.

In it's proposed rule to assert, for the first time, its authority over e-cigarettes, the Food and Drug Administration said all products that hit stores after February of 2007 would have to apply retroactively for approval - a process that companies say would be prohibitively expensive.

As much as 99 percent of the applicable products came after 2007, said Jan Verleur, co-founder and CEO of VMR Products.

VMR, best known for manufacturing the brand V2, claims to be the world's largest online retailer for e-cigarettes, with over $100 million in sales. But with over 500 "SKUs," or individual products, Verleur said the FDA's new regulations could carry a compliance cost that's five times the company's revenue size.

"This makes it so any product released after the grandfather date would require premarket approval," he said of the FDA's proposed rule. "The process could cost us half a million to million dollars per SKU."

FDA spokesman Michael Felberbaum said the agency does not believe it has the authority to alter or amend the grandfathering date, since it was set by statute in the Family Smoking Prevention and Tobacco Control Act (TCA) that was signed into law by President Obama in 2009.

"The agency sought comment on whether there are other legal interpretations of the grandfather provision that FDA should consider," he said.

The agency received over 135,000 comments on the rule, which was first proposed more than a year ago. With the final regulations now months overdue, industry and advocacy groups are pushing the FDA to release a final rule this summer.

"FDA is committed to moving forward expeditiously to finalize the rule," Felberbaum said of the current timeline, though he declined to elaborate.

While e-cig makers say the rule would benefit the sellers of conventional cigarettes, even major tobacco firms developing electronic brands are pushing back against the rule.

Altria, for instance, supports the FDA's move to regulate e-cigarettes. But the company, which owns Philip Morris USA, said the Feb. 15, 2007, date no longer makes sense.

"Not revising this date would mean that newly-deemed tobacco products - like e-cigarettes - would be treated much more harshly than originally-regulated products, such as cigarettes, as they will face a substantial equivalence period that is much longer, at least four times longer, than what cigarettes faced when they came under FDA's jurisdiction in 2009," company spokesman David Sutton said.

Altria, which owns the e-cigarette companies Nu Mark and Green Smoke, said its goal is to develop and market nicotine products that consumers want in whatever category that may be.

"The e-vapor category has grown significantly since 2008," Sutton said. "If the adult consumer is looking for that alternative, we want to be providing those types of products to those adult consumers who want to move into that category."

The FDA said it intends to provide time for all regulated entities, including small businesses, to comply with the requirements of the deeming rule. In it's rulemaking, the agency said manufacturers will have 24 months to submit their pre-market tobacco applications and will be able to continue selling their products while applications are under review.

The agency estimates that the pre-market application process will cost the e-cigarette industry between $6.67 million to $26.68 million in the first 24 months. For those companies aiming to prove they were on the market in time to be exempt from the application process, projected costs run anywhere from $120,361 to $4.13 million in the first 24 months, according to the FDA.

Pharmacist and inventor Hon Lik first developed the electronic cigarette in Beijing, China, more than a decade ago. But there is debate among industry groups about who was first to market the product in the U.S. and when the product first hit stores. The Consumer Advocates for Smokefree Alternatives Association (CASAA) said it was between 2006 and 2007.

Due to the emerging nature of these products and unanswered questions about their health effects, the FDA has said the benefits of regulating electronic cigarettes "are unknown and therefore cannot be quantified."

The industry is steeling for a legal battle over the rule. Because the economic impact of the rule is so great, Verleur said, a court would likely grant an industry's request for an injunction.

"It's essentially a death sentence for industry," he said. "It could be held up in litigation for many years."

In Congress, meanwhile, Rep. Tom Cole (R-Okla.) has introduced legislation to clarify that the FDA has authority to adjust the dates and timelines for deemed tobacco products.

In a statement, Cole said it's important for regulations to be prospective in nature.

"It is unfair to penalize those products previously unregulated once the FDA decides to regulate something new," he said. "An arbitrary 2007 date should not be the 'grandfathering standard' for all products the FDA may decide to regulate in 2010 or in 2100. My legislation ensures the grandfathering date is linked to the actual regulations that FDA proposes."

Separately, a $20.65 billion agriculture appropriations bill that cleared the relevant committees in both the House and Senate would keep the FDA's Center for Tobacco Products from forcing e-cigarettes already on the market to go through the lengthy and costly premarket review process.

However, due to funding concerns, the bill has hit a dead end in both chambers.

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