The China-based vapor company COEE has recently completed A-round financing of several million yuan, led by QF Capital investment, followed by investments from other financial groups.
“We mainly use A-round of financing to focus on improving our production R&D, layout in the global market channel and user development as benefits of maintaining our product competitiveness and market influence,” said Tongliang Gao, co-president of COEE, in a statement. “We are upholding the core values of long-termism, adopt[ing] innovative ‘manufacturer to sale integration’ channel strategy, consistently respond[ing] and embrac[ing] policy supervision from the government, follow[ing] to the bottom line of protecting minors, and striv[ing] to become a marathon runner in the market.”
Established in January 2021 in Shenzhen, COEE is a user-focused vape company that integrates with vape industry supply chains and strong market channel partners, according to the release. COEE has become the standing director unit of the E-Cigarette Industry Committee and China Electronic Chamber of Commerce.
COEE products include its first-generation “Meet” series that was launched in April. The device now offers 17 pod flavors. COEE stores have covered 30 provinces and 180 cities in the China mainland, and various stores and sales points have reached nearly 5,000. Qiyuan Liu, head of consumption investment for QF Capital, said that COEE’s core operation team previously worked in the mobile phones market.
“COEE has unique experience in channel construction and terminal management,” Qiyuan said. “Capitals recognize COEE team capabilities very much, and we are seeing COEE consistently put efforts in responding and cooperating with the supervision of the government. We are optimistic about the future development prospects of the project driven by demand.”
North Carolina Attorney General Josh Stein on Nov. 16 announced “major actions” against the e-cigarette industry due to ongoing concerns about kid-friendly flavors, youth marketing and poor age verification.
In addition to suing Juul Labs’ founders James Monsees and Adam Bowen, Stein commenced a statewide investigation into Puff Bar and other e-cigarette manufacturers, distributors and retailers.
“We made major progress in protecting young people from e-cigarette addiction when we secured a court order dramatically changing the way Juul does business and recovering $40 million to help kids conquer their nicotine addiction. But many of the billions Juul made from addicting kids to nicotine are now in the personal accounts of its founders and early investors. The people behind this company must be held accountable and pay to clean up the mess they made,” Stein said in a statement.
“At the same time, the market Juul created still exists, and other companies are filling the vacuum. We are actively investigating Puff Bar and other companies at all stages of the distribution chain, from manufacturers to retailers and everything in between, to ensure they are not profiting off kids. Where I find illegal behavior, I will not hesitate to take legal action.”
As Juul discontinued some its flavored products in the U.S., Puff Bar has emerged as the vape of choice among young people. In 2020, the Food and Drug Administration told Puff Bar to stop selling its flavored vaporizers as part of a broader crackdown on underage vaping. However, the company resumed sales in early 2021 with products using synthetic nicotine, which the company believes are outside the FDA remit. In response, the agency launched an investigation of the redesigned Puff Bar.
Puff Bar sales in retail stores tracked by Nielsen totaled $156 million for the year ended Sept. 25, according to Goldman Sachs, although it is unclear how many of those sales are counterfeit products. In a federal survey released in September, 26 percent of high school vapers said they used Puff Bar. Among middle school e-cigarette users, 30 percent reported that their generic brand was Puff Bar.
Pyxus International has appointed Flavia Landsberg as its new executive vice president and chief financial officer (CFO).
Landsberg joins Pyxus with more than 20 years of financial experience, most recently serving as CFO of High Ridge Brands, a private equity-backed company. Throughout the course of her career, she has also served as CFO of Westminster Foods, EOS Products and Bunge Limited’s Food and Ingredients division. Landsberg began her career in investment banking and holds a Master of Business Administration degree from the New York University Stern School of Business.
“On behalf of Pyxus and the board of directors, I am pleased to welcome Flavia to the company. Her impressive background in global agricultural finance, strategic planning and data-driven analytics, coupled with her proven track record of delivering profitable growth, makes her the ideal candidate as we continue to execute on opportunities to drive the business forward,” said Pyxus President and CEO Pieter Sikkel in a statement. “I am confident that Flavia’s invaluable financial leadership experience will complement the company’s vision for the future.”
Landsberg reports to Sikkel and is responsible for all aspects of the company’s financial strategy and operations, including financial planning and analysis, investor relations, treasury, financial reporting, tax and accounting. She succeeds Joel L. Thomas, who announced his retirement in June. Thomas will remain with the company in an advisory capacity through June 30, 2022, to help ensure a smooth transition.
“The board and I would like to thank Joel for providing his financial leadership and dedication to the company for the past 16 years, including the seven years he has served as CFO,” said Sikkel. “Joel has been pivotal in our company’s transformation, positioning the business for long-term success. It has been a privilege to work with him, and we wish him all the best in his retirement.”
Participants heard from scientists, retailers, legal experts and CTP Director Mitch Zeller.
Scientists, data analysts and legal experts shared their insights into the rapidly changing U.S. nicotine business on Nov. 17, the first day of TMA’s “From Chance to Change” webinar. Participants also heard from retailers and the industry regulator.
Mitch Zeller
Mitch Zeller, director of the Food and Drug Administration’s Center for Tobacco Products (CTP), reviewed the latest data on youth e-cigarette consumption, which he said continues to be concerning. However, Zeller was quick to point out that because the 2021 study was the first to be conducted completely during the Covid-19 pandemic, the data could not be compared to that of the previous year.
Zeller also provided an unprecedented behind-the-scenes peek into the center as it processed millions of premarket tobacco product applications. The agency received applications covering more than 6.5 million deemed products, and most of them were submitted close to the Sept. 9, 2021, deadline—a date that, Zeller reminded his audience, had been brought forward by a full year following litigation by public health groups.
Because companies were not required to submit their applications in a particular way, the agency had to be ready to process a wide variety of formats. “We had to prepare operationally, technically and logistically to ‘ingest’ all those applications,” said Zeller, adding that the agency was thrilled its submission system did not collapse under the volume of last-minute applications.
The FDA has by now acted on the vast majority of applications, sending refuse-to-file letters, issuing marketing denial orders (MDOs) or, in a handful of cases, granting marketing orders. “We are down to 80,000 products—most of them in the final stages of review,” said Zeller. Those still-pending applications, he acknowledged, include ones submitted by the companies with the largest market shares because they tend to be the largest and most complex applications.
Zeller also commented on the rising popularity of synthetic nicotine, which some MDO recipients, including market-leading Puff Bar, have embraced as a tool to keep their products on the market because they believe it is outside of the regulator’s remit. The FDA defines a “tobacco product” as anything “made or derived from tobacco that is intended for human consumption, including any component, part or accessory of a tobacco product.”
Synthetic nicotine, said Zeller, presents a new challenge for the regulator, in part because it is increasingly difficult to distinguish the compound from its naturally derived counterpart. Nicotine, he explained, comprises two isomers: R and S. Tobacco-derived nicotine is 99 percent S, and early synthetic nicotine had a 50-50 split between R isomers and S isomers. However, newer versions of synthetic nicotine have much higher proportions of S isomers, making it harder to tell them apart from natural nicotine.
Jim Solyst
The first panel discussion of TMA’s online seminar, moderated by Jim Solyst, principal of JMS Scientific Engagement, debated the status quo from an applicant’s perspective. The panelists included Brittani Cushman, senior vice president, general counsel and secretary at Turning Point Brands; Beth Oliva, partner at Fox Rothschild; Brian Erkkila, director of regulatory science at Swedish Match; and John Pritchard, vice president of regulatory science at 22nd Century Group.
While all participants expressed appreciation for the FDA’s daunting workload, some voiced disappointment with the fact that many applications appear to have received only a perfunctory “fatal flaw” review—a review in which the agency, rather than reviewing a submission on its merits, simply looks for the presence or absence of certain studies. The panelists lamented that the pathway to market is more cumbersome for reduced-risk products than it is for deadly combustible products.
Participants worried also about how the public would interpret the lack of determinations on major applications, citing persistent misunderstanding of reduced-risk products and the continuum of risk by legislators, journalists and even physicians.
Asked to look forward, one panelist suggested the industry should consider what it would do when the next e-cigarette or vaping use-associated lung injury (EVALI) happens, referring to a mysterious outbreak of lung injuries in 2019 that was caused by illicit THC products but tainted the entire industry. Another participant stressed the importance of enforcement after all marketing applications have been decided. If any “yahoo” can sell products without authorization, she said, it would render the investments by the good actors worthless.
Mary Szarmach
The second panel of the TMA webinar, moderated by Mary Szarmach, senior vice president of governmental and external affairs at Smoker Friendly, reviewed the market from a retailer’s perspective. The panelists included Don Burke, senior vice president of Management Science Associates; Tom Briant, executive director and legal counsel at the National Association of Tobacco Outlets; and Amanda Wheeler, president of the American Vapor Manufacturers Association.
Burke sketched the latest trends in the nicotine market. The pandemic, he said, makes comparisons with 2020 difficult. With many people working from home last year, sales of cigarettes and large cigars experienced unusual growth, but as people returned to the office in 2021, those trends are starting to level off or are even reversing. Burke expects cigarettes to resume more normal consumption patterns next year. Modern oral continues its remarkable growth, albeit at a lower pace than last year because most convenience stores are by now carrying the product. And volume sales of vapor cartridges are up by more than 18 percent as the EVALI crisis fades from memory.
Briant provided a regulatory update, touching on the proposed nicotine tax hike in the Biden administration’s Build Back Better legislation, the FDA’s proposal to ban menthol in cigarettes and flavors in cigars and the status of graphic health warnings, which are currently being challenged in court. Litigation has pushed the implementation date to January 2023, and this could be further extended. Briant noted that there have been no hearings yet on the merits of graphic health warnings.
Asked to analyze vapor retailers’ current predicament, Wheeler drew an analogy with the Hindenburg disaster, after which shattered public confidence marked the abrupt end of the airship era. She cited the avalanche of MDOs, the U.S. Postal Service ban on shipping vapor products and the proposed federal excise tax on vapor products, which would make vapor products more expensive than some cigarettes.
Wheeler said these developments were driving vapers back to cigarettes, illicit products and synthetics—many of them made abroad and falsely labeled. She described a “misguided crusade,” funded by deep-pocketed donors and cheered on by the irresponsible media. “When smoking was plummeting, they took action to make it increase; when American entrepreneurs innovated a news sector, they strangled it,” she said.
Asked what kept them up at night, the panelists named employee safety, flavor bans and lack of enforcement.
Szarmach related how a tax increase in Colorado had instantly resulted in more break-ins and robberies at her stores—an unwelcome development at a time when workers were already in short supply. Briant said that local flavor bans drove customers away without affecting total consumption—consumers would simply buy their products elsewhere. Wheeler said Arizona was not enforcing Tobacco-21 legislations, enabling bad actors to do good business.
The TMA online seminar continues today at 10:30 a.m. Eastern Time with a keynote from CTP Office of Science Director Matt Holman and panel discussions on “Your Path to Market” and global trends.
Read our summary of day two of the TMA conference here.
The Cigar Association of America (CAA) has hired a new president.
David Ozgo will be the new president of the CAA, marking the third change in leadership over 30 years. Ozgo was senior vice president of economic and strategic analysis at the Distilled Spirits Council (DISCUS) for 20 years. Ozgo takes over from longtime CAA President Craig Williamson, who last year announced his retirement.
“David has demonstrated the ability at DISCUS to develop data-driven solutions to industry issues, to successfully deliver the industry’s message in different forums and mediums, and to work constructively with various segments of an industry whose members vary greatly in size and product portfolio. These are precisely the skills CAA and the cigar industry need to navigate through current and upcoming regulatory and legislative challenges” said Javier Estades, chairman of the board of the CAA and president of Tabacalera USA, in a statement.
Ozgo said he “couldn’t be more excited to work in such an outstanding industry, one with issues and opportunities similar to those in the distilled spirits industry and with such a strong association. I’m honored and humbled by the board’s confidence in me.”
Estades also praised Williamson, saying “in almost two decades with CAA, the last 10 years as president, he has been a tireless advocate for the entire cigar industry. Many of our industry’s successes have resulted from his hard work; we are grateful for his dedication and wish him well in the future.”
Teodoro Locsin Jr. (Photo: Philippine Department of Foreign Affairs)
Tobacco harm reduction (THR) advocates and vapers have praised Philippine Foreign Affairs Secretary Teodoro Locsin Jr. for his insistence at the ninth Conference of the Parties (COP9) that the latest scientific information must be considered to solve the global smoking problem.
“We salute his bravery at COP9 for promoting the Philippines’ balanced and evidence-based approach to safer nicotine products,” said Peter Dator, president of consumer group Vapers PH and Coalition of Asia Pacific Tobacco Harm Reduction Advocates (CAPHRA) member. “Opponents and officials have since done their best to discredit Secretary Locsin and disrespect our country’s democracy and sovereignty, but they have failed badly.”
“In a world where smoking causes 8 million deaths every year, Secretary Locsin has done everyone a huge favor,” said Nancy Loucas, executive coordinator of CAPHRA. “Telling COP9 about the success of ‘far less harmful novel tobacco products’ and the Philippine government’s political support for them was music to the ears of the millions who’ve successful[ly] quit deadly cigarettes via vaping.”
We salute his bravery at COP9 for promoting the Philippines’ balanced and evidence-based approach to safer nicotine products.
Loucas organized a global livestream called sCOPe during COP9, featuring leading THR experts and consumer advocates. The livestream added to the increasing pressure on the WHO to embrace safer nicotine products.
“How can we trust the WHO and the FCTC when they are afraid of science? In this age of fake news and alternative facts, it is important for governments to take a stand for the facts and know how to sift through the propaganda. This is what Secretary Locsin did at COP9, and I join the Philippine Cabinet and Congress in commending his actions,” said Dator.
The health department said that it was misleading to praise the tobacco industry’s role in raising tax revenues. In 2011, the cost of tobacco-related diseases was estimated at PHP177 billion ($3.54 billion) annually, the agency noted. This was seven times higher than the PHP25.9 billion collected in taxes from tobacco products.
Imperial Brands reported net revenue of £32.79 billion in the full year that ended Sept. 30, 2021, up 0.7 percent over that reported in 2020. On an organic adjusted basis, net revenue was £7.59 billion, down 1.9 percent but up 1.4 percent at constant currency.
The company operating profit increased 15.2 percent to £3.15 billion. On an organic adjusted basis, operating profit was £3.57 billion, up 2.1 percent (4.8 percent at constant currency) over the previous fiscal year.
“This has been a year of important progress and significant change as we begin to deliver on the new, focused strategy we announced in January 2021,” said Imperial Brands CEO Stefan Bomhard in a statement.
“We have substantially refreshed our leadership team, making new hires to strengthen our consumer-facing capabilities, while building on our existing deep tobacco experience. We have changed the way we work, placing the consumer at the center of our decision-making. We have simplified the organization, creating efficiencies for reinvestment. And we have introduced more rigorous performance management, enabling better prioritization of resources.
Through our focused, consumer-led next-generation products strategy, we are committed to making a meaningful contribution to harm reduction over time.
“This approach is already delivering improved operational and financial outcomes. In tobacco, our sharper focus and increased investment in the top-five priority markets have begun to stabilize the aggregate market share performance. This is encouraging early progress in addressing the long-term historical declines. We will build on this foundation in the coming year with further investment in brand building and sales execution.
“Through our focused, consumer-led next-generation products strategy, we are committed to making a meaningful contribution to harm reduction over time by offering adult smokers potentially reduced-risk products. In line with our plans, we launched market trials for our heated-tobacco proposition, Pulze and iD sticks in the Czech Republic and Greece, as well as a trial of an improved consumer marketing proposition for our U.S. vapor product, Blu. We will track the consumer data over the coming months to inform our next steps.
“Our five-year plan to transform Imperial is divided into two distinct periods. The year ahead will complete the two-year strengthening phase with further investment in our five priority markets and NGP pilots, the embedding of new ways of working and cost-saving initiatives. This period builds the foundations for the subsequent three-year phase, which focuses on the acceleration of returns and sustainable growth in shareholder value.”
In related news, Ngozi Edozien and Diane de Saint Victor joined the Imperial board as nonexecutive directors on Nov. 15, 2021.
Edozien will join the audit committee, and de Saint Victor will join the remuneration committee, with effect from Nov. 15. There are no other changes to committee memberships.
Edozien is a nonexecutive director of Guinness Nigeria, Stanbic IBTC Holdings and Barloworld Limited and was a nonexecutive director of PZ Cussons until September 2017.
De Saint Victor is a nonexecutive director of Transocean Limited and Natixis, which delisted in July 2021.
De Saint Victor was a director of ABB India until July 2020 and was a nonexecutive director of Altran Technologies until April 2020 and Barclays until May 2017.
The World Health Organization’s fourth WHO global tobacco trends report, which was released today, shows that there are 1.3 billion tobacco users globally compared to 1.32 billion in 2015. This number is expected to drop to 1.27 billion by 2025.
Sixty countries are now on track to achieving the voluntary global target of a 30 percent reduction in tobacco use between 2010 and 2025; two years ago, only 32 countries were on track.
According to the WHO, millions of lives have been saved by effective and comprehensive tobacco control policies under the Framework Convention on Tobacco Control and by measures taken under the global health body’s MPOWER initiatives (Monitoring tobacco use, Protecting people from tobacco smoke, Quitting tobacco, Warning about the dangers of tobacco, Enforcing tobacco advertising, promotion and sponsorship bans and Raising taxes on tobacco).
“It is very encouraging to see fewer people using tobacco each year and more countries on track to meet global targets,” said WHO Director-General Tedros Adhanom Ghebreyesus in a statement. “We still have a long way to go, and tobacco companies will continue to use every trick in the book to defend the gigantic profits they make from peddling their deadly wares. We encourage all countries to make better use of the many effective tools available for helping people to quit and saving lives.”
To see numbers reduce from 1.32 billion to 1.30 billion tobacco users over five years cannot be argued as evidence of a successful strategy.
Critics, by contrast, said the WHO report showed tobacco control failing. “As the WHO publishes its latest global tobacco trends report, it trumpets falling tobacco use. But the global health institution is celebrating failure,” said Gerry Stimson, emeritus professor at Imperial College London and project director for the Global State of Tobacco Harm Reduction.
“To see numbers reduce from 1.32 billion to 1.30 billion tobacco users over five years cannot be argued as evidence of a successful strategy. Eight million lives are lost every year due to smoking-related disease. What we are seeing is evidence of a dereliction of public health duty.”
Stimson lambasted the WHO for failing to consider reduced-risk products in its strategy.
“With modern safer nicotine products, these technological disruptors such as vaping devices, nicotine pouches [and] heated-tobacco products, we have the means at our disposal to end smoking and to end it soon,” he said.
“Global State of Tobacco Harm Reduction estimates put the number of users of harm reduction products at 100 million worldwide. Many smokers are put off from switching, though, as a direct consequence of the distortion of public health messaging from the WHO and other tobacco control organizations funded by U.S. philanthropic interests that seem to care little for the health of current smokers.
“Harm reduction is the third pillar of the tobacco control strategy named in the FCTC along with supply and demand reduction. We urge the WHO to integrate harm reduction into its approach to tobacco control as it already does for drug use and HIV/AIDS prevention and to address current deficits in the WHO’s MPOWER strategy by enabling it to become EMPOWERED—adding ‘Engage with affected communities,’ ‘Encourage smokers to switch to safer nicotine products’ and ‘Deliver accurate information about safer alternatives.’”
Key findings of the WHO report include:
In 2020, 22.3 percent of the global population used tobacco, 36.7 percent of all men and 7.8 percent of the world’s women. Currently, 60 countries are on track to achieve the tobacco use reduction target by 2025.
The steepest decline in prevalence rates over time is seen in the Americas. The average rate of tobacco use there has gone from 21 percent in 2010 down to 16 percent in 2020.
The WHO’s African Region has the lowest average rate of tobacco use at 10 percent in 2020, down from 15 percent in 2010.
In Europe, 18 percent of women still use tobacco, substantially more than in any other region. Women in Europe are the slowest in the world to cut tobacco use. All other WHO regions are on track to reduce tobacco use rates among women by at least 30 percent by 2025.
Pakistan is the only country in the WHO’s Eastern Mediterranean region that’s on track to reach the tobacco reduction target. Four of the six countries in the world where tobacco use is increasing are in this region.
Southeast Asia currently has the highest rates of tobacco use, with around 432 million users, or 29 percent of its population. But this is also the region where tobacco use is declining fastest. The region is likely to reach tobacco use rates similar to the European region and the Western Pacific region by 2025.
The WHO Western Pacific region is projected to have the highest tobacco use rate among men (more than 45 percent) using tobacco in 2025.
Experts say Congress’ latest attempt to tax nicotine is complicated, confusing and harmful to public health.
By Timothy S. Donahue
To help pay for an infrastructure bill, the U.S. Congress has again introduced an excise tax on next-generation nicotine products, such as e-cigarettes and snus. The excise tax would apply to nicotine vapor products using both natural and synthetic nicotine as well as nicotine pouches. Experts say the provision, which would ultimately be paid by tobacco consumers, goes against U.S. President Biden’s campaign promise to not increase taxes on those making less than $400,000, negatively impact tobacco harm reduction efforts, increase sales of combustible tobacco products and boost an already growing black market.
The nicotine tax has been removed and reintroduced to Biden’s Build Back Better (BBB) legislation at least three times. The proposed vapor tax provision is now part of the latest version of the administration’s social spending and climate bill. According to Ulrik Boesen, a senior policy analyst with the Center for State Tax Policy at the Tax Foundation, taxes on tobacco and nicotine products tend to serve at least two purposes: to improve public health and raise revenue. He claims that a nicotine tax could do that if it is properly designed.
Ulrik Boesen / Credit: Tax Foundation
“A good design means internalizing externalities related to consumption of a product,” Boesen stated. “With tobacco and nicotine product consumption, these externalities are the health risks connected to frequent use and [the] quantity consumed. Nicotine is the addictive substance in the products but not the harmful ingredient. In other words, the proposal does not target the harmful behavior directly.”
Taxing based on nicotine content would favor low-nicotine liquids and could encourage increased consumption in the quantity of liquid, according to Boesen. “For example, a vapor pod that has a nicotine content of 3 percent and contains 1 mL of liquid would be taxed at $0.83 whereas a vapor pod that has a nicotine content of 5 percent and also contains 1 mL of liquid would be taxed at $1.39 even if there is no difference, or even a negative differential, in broader health effects of the two pods,” he states, adding that the effects of the tax are most substantial for nicotine pouches, such that the category is unlikely to survive.
Other estimates show that a 60 mL bottle of e-liquid with 12 mg of nicotine e-liquid would be taxed at $20.02. A four-pack of 8 mL pods with 5 percent nicotine salt pods would be taxed at $4.45 and a 15-pouch can of 8 mg nicotine pouches would be taxed at $3.34 (alongside state and local taxes, the cost of a single can could grow to $20 in some states).
Bryan Haynes, a partner with the law firm Troutman Pepper who specializes in tobacco and vapor regulations, said that, at a minimum, the proposed nicotine tax is “a hastily written addition” that will “have a negative impact on tobacco harm reduction efforts and public health.” He said that it’s the first time the tobacco industry has seen an excise tax placed on an ingredient instead of a finished good. “This is an unprecedented type of tax that will ultimately drive former smokers back to combustible products,” said Haynes, adding that taxing an ingredient could also cause unforeseen issues for manufacturers, such as moving material between factories.
Bryan Haynes / Credit: Troutman Pepper
“If a company is producing nicotine or even synthetic nicotine, moving product from one factory to another could trigger the need for an Alcohol and Tobacco Tax and Trade Bureau (TTB) license, and when product is removed, so to speak, from their factory, they would be responsible for remitting the taxes,” explained Haynes. “There may be a way, for example, if the company removed the nicotine from their factory and transported it in-bond to another TTB factory that you could make that work. But it’s just not clear. There is the potential for a lot of unforeseen issues to arise the way the tax is currently being proposed.”
States often tax nicotine products by its cost. Boesen says the tax on the product will pyramid since the federal tax would be levied at the manufacturer level and the state tax is levied at the distribution level. “In effect, the state tax base includes the federal tax and becomes a tax on a tax. This means that even if the taxes on tobacco and other nicotine products are approximately equal at the federal level, by the time it reaches the consumer, the nicotine product will carry a higher tax (and often a higher price),” he states. “This is highly problematic when considering that cigarettes are much more harmful than nicotine products. That makes the federal tax proposal look like a harm-maximizing strategy.”
Credit: Tax Foundation
The bill also subjects synthetic nicotine products to the nicotine tax. Many in the industry have expressed concern that this provision could allow the U.S. Food and Drug Administration to assert authority over the substance. Synthetic nicotine is covered not only in the proposed tax bill but also in the Prevent All Cigarette Trafficking (PACT) Act, which bans the U.S. Postal Service from mailing any vaping products.
Azim Chowdhury, a partner at the law firm Keller and Heckman who specializes in vapor, nicotine and tobacco product regulation, said that’s just not possible and Haynes agrees. “The definition of a tobacco product in the Tobacco Control Act (TCA) is clear. It’s just not ambiguous; a product must be made or derived from tobacco, or a component or part of a tobacco product, to be a tobacco product,” said Chowdhury.
Azim Chowdhury
“Congress would have to change the Tobacco Control Act’s definition of a tobacco product in order to give FDA’s Center for Tobacco Products the authority to regulate synthetic nicotine products as tobacco products. That won’t happen overnight. I also see a scenario where synthetic nicotine could be regulated as a drug and that would be a whole different and more onerous regulatory regime.”
The FDA could, however, cite the inclusion of synthetic products in the PACT Act and the latest nicotine tax proposal in its lobbying efforts to change the TCA’s definition of tobacco, said Haynes. “I could see the FDA telling Congress, ‘You just amended the Internal Revenue Code to make these products subject to federal excise taxes just like tobacco-derived nicotine, so it’s not a big stretch to amend the Tobacco Control Act’ in the same way,” he explains. “That’s how I would do it. It’s not really a legal argument, but it could be a decent lobbying argument.”
It isn’t just vapers, business owners and attorneys that find fault with the proposed nicotine tax; researchers suggest the tax could also harm public health. Michael Pesko, an associate professor in the Department of Economics at Georgia State University, used a $1.4 million dollar grant from the National Institutes of Health (NIH) to conduct e-cigarette policy evaluation research, including the evaluation of e-cigarette taxes (Pesko receives no funding from the tobacco industry or related groups). Pesko found that e-cigarettes and other nicotine vaping products function as what economists call “substitutes” for conventional cigarettes.
“In practical terms, if e-cigarettes and cigarettes are substitutes, then raising the price of one on average leads people to increase use of the other. Given extensive peer-reviewed evidence indicating that these products are substitutes, an unintended but inevitable effect of increasing taxes on e-cigarettes is to increase cigarette use,” Pesko said. “Given that cigarettes are believed to be substantially more harmful than e-cigarettes, this effect on [combustible] cigarette use is concerning …. A wide array of research suggests that this boost in cigarette use as a result of large e-cigarette tax increases would significantly increase overall tobacco-related death and disease.”
Michael Pesko / Credit: GSU
These findings prompted Pesko to send a letter to Congress concerning the proposed vape tax. In the letter, he states that his research team’s economic evaluations of existing state and county e-cigarettes taxes found that increasing e-cigarette taxes to parity with the combustible cigarette tax rate would “sizably increase cigarette use across teens, adults and pregnant women compared to taxing tobacco products differentially in proportion to their health risk.”
Pesko said researchers found several concerning consequences of large e-cigarette tax increases:
Simulating the current bill’s e-cigarette tax on teen tobacco use indicates that this policy would reduce teen e-cigarette use by 2.7 percentage points but that two in three teens who do not use e-cigarettes due to the tax would smoke cigarettes instead. This would result in approximately a half million extra teenage smokers overall. This finding that teens substitute to cigarettes in response to e-cigarette taxes has also been documented using National Youth Tobacco Survey data.
The tax would raise the number of daily adult cigarette smokers by 2.5 million nationally and reduce adult e-cigarette users by a similar number.
For every e-cigarette pod eliminated by an e-cigarette tax, more than 5.5 extra packs of cigarettes are sold instead.
For every three pregnant women that do not use e-cigarettes due to an e-cigarette tax, one smokes cigarettes instead (study).
Pesko told Vapor Voice he was surprised to find that increased e-cigarette tax consistently resulted in substitution across various data sources. “And the magnitudes are fairly sizable,” he noted. “This is an unusual level of accordance for academic research.” Pesko believes that any tax on nicotine products should be based on quantity.
Boesen agreed. He stated that for vapor products, the “obvious choice” is taxing the liquid by volume (per mL), and for nicotine pouches, a tax by weight or per pouch is a straightforward solution. “It is the administratively simplest and most straightforward way for the federal government to tax these goods as it does not require valuation and as such does not require expensive administration,” he stated. “The nicotine tax proposal in the Build Back Better Act neglects sound excise tax policy design and by doing so risks harming public health. Lawmakers should reconsider this approach to nicotine taxation.”
Chowdhury said that the industry must do more and that interested stakeholders and consumers should reach out and push back on the nicotine tax because it will be devastating to the vapor industry. “It seems like the general industry feels like [this nicotine tax] won’t get through somehow, that some people will prevent it from being in the final bill, but I think it’s a huge risk,” said Chowdhury. “Without serious pushback, it could end up there; it could very well end up becoming law.”
Haynes said that if the nicotine tax bill ever makes it to Biden’s desk, “he’s going to sign it.”
The participants in the World Health Organization Protocol to Eliminate Illicit Trade in Tobacco Products will convene Nov. 15–18 in the so-called meeting of the parties (MOP2). The virtual meeting follows the ninth Conference of the Parties to the Framework Convention on Tobacco Control, which concluded last week.
The protocol, which entered into force in 2018, aims to combat illicit trade in tobacco, which according to the parties undermines tobacco control policies and public health. Parties to the protocol have enacted or strengthened national legislation aimed at tackling illicit trade in tobacco products.
Every year, an estimated $47 billion is lost globally to illicit trade in tobacco products. To reduce this loss and improve the effectiveness of tobacco control legislation, the parties this week will consider ways to move forward on implementation of the protocol, including amplifying its effects through improving international cooperation.
“We have serious work to conduct at this meeting,” said Adriana Blanco Marquizo, head of the FCTC secretariat, in a statement ahead of the gathering. “Not only does the illicit trade in tobacco products undermine progress being made on taxing tobacco products, but illicit trade is linked to cross-border organized crime and other activities which threaten our security.”
Among other topics, the parties will discuss ways of securing the supply chain of tobacco products; tracking and tracing technologies are key to achieving this objective. They will also propose the creation of a $25 billion fund to help finance the protocol. This potential new source of financial contributions is targeted at investors outside the traditional health sector.
Along with parties, there will be several state nonparty observers attending as well as a number of tobacco control organizations whose request for observer status is expected to be accepted by the MOP2.
The number of parties to the protocol will soon reach 64 as the treaty enters into force in the most recent country to have ratified it.
