Keller and Heckman will has announced the agenda for its sixth Annual E-Vapor and Tobacco Law Symposium.
The two-day virtual seminar will focus on legal and regulatory issues critical to the vapor, tobacco and CBD industries in the aftermath of the U.S. Food and Drug Administration’s decisions on millions of premarket tobacco product applications (PMTA).
Among other topics, the seminar will cover PMTA marketing denial order challenges, new requirements for PMTAs and substantial equivalence reports and the outlook for synthetic nicotine products.
In addition to Keller and Heckman’s regulatory attorneys and scientists, this year’s program features numerous expert guest speakers, including from Tobacco Vapor Cannabis Group, the American Vaping Association, McKinney Regulatory Science Advisors and the Tax Foundation.
The symposium will take place Feb 2-3 from 10:30 am to 6:30 pm Eastern Time.
China’s recently announced intention to regulate e-cigarettes as tobacco products will reverberate around the world, according to an analyses published on Keller And Heckman’s The Continuum of Risk blog.
On Nov. 26, 2021, China’s State Council announced it would amend the country’s tobacco monopoly law to subject e-cigarettes to the same requirements as traditional cigarettes. On Dec. 2, the State Tobacco Monopoly Administration (STMA) published on its website the draft management rules for e-cigarettes for public comment.
The draft rules define “e-cigarette” as an electronic delivery product that produces nicotine-containing aerosol for human inhalation. The definition does not include heat-not-burn tobacco products, which are already regulated as combustible cigarettes in China, according to Keller and Heckman. The draft rules make clear that e-cigarettes should be regulated like tobacco products by STMA and its local agencies and provide that e-cigarettes must comply with the e-cigarette national standard.
Among other things, e-cigarettes will be subject to premarket registration upon a safety review by the STMA under the draft rules. Producers and sellers of e-cigarettes in China must obtain the same tobacco monopoly licenses as traditional cigarette manufacturers. In addition, all vapor product companies will be required to trade on a national e-cigarette platform to be set up by the SMTA. The draft rules also contain requirements to protect minors such as age-restrictions and warning labels.
Because the draft rules’ registration and production licensing requirements apply to all e-cigarette manufacturers operating in China, they will also impact products sold abroad. China manufactures more than 95 percent of the world’s e-cigarette hardware.
In 2019, China notified the World Trade Organization about its first national standard on e-cigarettes, which covers raw materials, technical requirements, testing methods and labeling, among other topics. On Nov .30, 3021, China published updated draft of the standard for comment.
According to Keller and Heckman, the STMA plans to implement the standard “three to five months after its publication.”
During the transition period, existing enterprises can continue manufacturing and operational activities. However, investors are banned from investing in new e-cigarette enterprises; existing e-cigarette production and operation entities must refrain from constructing or expanding production capacity, and they may not establish new e-cigarette retail outlets and market new products. “New import of e-cigarettes” will also be suspended during this period.
The public comment period for the draft management rules closes on Dec. 17, 2021, 15 days after its publication, and the public comment period for the draft standard closes on Jan. 29, 2022.
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 U.S. Food and Drug Administration is unlikely to incorporate electronic nicotine-delivery devices (ENDS) into its proposed rulemaking to ban menthol cigarettes and flavored cigars, according to Azim Chowdhury and Neelam Gill.
Azim Chowdhury
Writing on the Food and Drug Law Institute’s website, the Keller and Heckman attorneys say that doing so would only further complicate a rulemaking that is already poised to receive hundreds of thousands of comments and will likely be litigated once final.
In its announcement, the FDA did not mention ENDs, which come in a wide variety of nontobacco flavors and have been the subject of much debate.
Chowdhury and Gill believe Congress is more likely to defer to the premarket tobacco product application (PMTA) process rather than intervene and legislate a flavored ENDS ban. All ENDS products require FDA marketing authorization through that process.
But while a federal ban on flavored ENDS seems unlikely while FDA reviews the science and the manufacturers’ arguments, these products continue to face the threat of prohibition at the local level, according to the attorneys.
Many state and local authorities and attorneys general are pushing for bans or have requested the FDA to deny PMTAs for flavored ENDS. New York, New Jersey, Rhode Island and Massachusetts have already banned the sale of flavored ENDS while Maryland, California and Connecticut are considering similar measures.
Keller and Heckman will hold its fifth annual E-Vapor and Tobacco Law Symposium virtually Feb. 9–11, 2021.
The three-day seminar will address legal, scientific and public health issues relevant to the e-vapor and tobacco industries in a post-PMTA world.
The virtual platform will closely replicate the interaction and dynamics of the in-person event, including opportunities to chat with the speakers one-on-one, network with colleagues and participate in discussion forums.
Keller and Heckman has announced two new partners, Kathryn Skaggs and Natalie Rainer.
Kathryn Skaggs
Skaggs is a resident in the firm’s Washington, D.C., office and practices food and drug law. She counsels clients on the regulation of food contact materials in a host of jurisdictions throughout North America, Europe, South America and Asia. Skaggs assists companies in bringing to market new food contact substances through submissions to government agencies in the U.S. and abroad.
She manages post-market issues for food contact substances, such as accidental adulterations, and advises on compliance with state laws including California’s Proposition 65. In addition to her extensive experience with food contact regulatory matters, Skaggs is an active member of the firm’s tobacco and e-vapor practice. She helps companies in the tobacco and e-vapor industries comply with the U.S. Family Smoking Prevention and Tobacco Control Act.
Natalie Rainer
Rainer is a resident in the firm’s San Francisco, California, office and practices food and drug law, advising clients on regulatory requirements for foods, dietary supplements, cosmetics, and food and drug packaging in jurisdictions around the world, including North America, Latin America, Europe, Asia and the Middle East.
Keller and Heckman has asked the U.S. Food and Drug Administration to postpone its Sept. 9 deadline for filing premarket tobacco applications (PMTAs) by six months because of the Covid-19 pandemic.
On behalf of a group of small vapor product manufacturers, retailers and trade associations, the law firm filed a citizen petition asking the FDA to postpone the PMTA due date until March 8, 2021.
Many of Keller and Heckman’s clients have experienced delays in preparing their applications because of the coronavirus. Without an extension, small vapor companies will either have to file incomplete PMTAs or forego submission altogether, according to Keller and Heckman. This would force them to layoff thousands of employees, close their doors permanently, and remove from the market less risky vapor products that addicted adult smokers rely on to move away from cigarettes, the law firm said.
The current PMTA deadline was set by a federal district court in Maryland as part of a lawsuit filed by anti-vaping groups challenging an earlier August 2022 deadline established by FDA through guidance issued in 2017.
The petition specifically asks FDA to request from the district court an extension on the court-imposed deadline that would apply only to small manufacturers that demonstrate to the agency that they have been working in good faith to complete PMTAs by the Sept. 9, 2020 cutoff and have otherwise taken steps to ensure that their products will not contribute to underage use.
Keller and Heckman will has announced the agenda for its sixth Annual E-Vapor and Tobacco Law Symposium.
