Another Active Year

Taxes, flavor bans and the future of alternative tobacco products are still on the table

By Melissa Kress

2022 COULD PROVE to be another active year for tobacco regulation and legislation.

The calendar may have flipped but, as has become typical with the tobacco category, the same issues remain on the table: taxes, flavor bans and the future of alternative products.

During the 2021 congressional session, Congress considered a budget reconciliation bill that included significant increases in the federal tax rates for cigarettes and other tobacco products (OTP). Those increases were since removed from the bill, which as of press time had yet to be considered by the full U.S. Senate.

"Even though the tax increases are no longer in the bill, it is important to understand how significant the increases would have been, and because of the industrywide effort, those increases were deleted from the legislation," Thomas Briant, executive director of the National Association of Tobacco Outlets (NATO), said during a recent industry presentation delivered as part of the 2022 Tobacco Plus Expo (TPE).

According to Briant, changes under the congressional proposal included: • A 100-percent increase in the federal cigarette tax, from $1.01 per pack to $2.02; • The tax on large cigars would have changed in two respects: one change was to a dollar amount tax of $49.56 per pound, and the other would have implemented a minimum tax of at least 10 cents per cigar; • The tax on moist snuff would increase 1,700 percent to $26.84 per pound; and • A tax was proposed on modern oral nicotine and vapor products to $1.15 per pod or $4.45 per 20-pack of pouches or lozenges.

“The takeaway from this congressional attempt to raise tobacco taxes is that it could happen again,” Briant cautioned. “Federal tax rates were last raised in 2009 — that’s some 13 years ago. It is important to remain watchful for future congressional moves to raise tobacco tax rates, even though the legislation has not passed Congress as of yet.”

The need to remain vigilant to any potential change to the federal tax rates is evidenced by the potential economic impact. According to a NATO-commissioned economic impact study, levy increases would have resulted in $801 million in lost sales, 14,000-plus lost jobs, and $1.26 billion in lost state cigarette and OTP tax revenue.

FDA Moves

Drug Administration (FDA). The agency announced that it would propose product standards by April 2022 and that those standards would ban the use of menthol in cigarettes and flavors in cigars.

The FDA has the authority to adopt product standards without further congressional action.

While the agency may be on track to release measures to ban menthol cigarettes and flavored cigars in a matter of months, Briant pointed out that the FDA needs to follow a nine-step process that includes drafting the new regulation, submitting it to the White House Office of Management and Budget, requesting public comments, and finalizing the rule with an implementation date.

“The time it takes a federal agency to go through each of those steps before new regulation can go into effect is generally a couple of years," he said. "It means that the prohibition of menthol in cigarettes and flavored cigars will not occur in the near-term, but could take a couple of years.”

Any litigation after the final regulation would delay it even further, Briant added.

Other FDA moves on the tobacco regulatory front are:

• New graphic warnings for cigarette packaging and advertising, which are currently slated to go into effect on April 9, 2023; • Review process of premarket tobacco product applications, which the agency extended past the court-ordered Sept. 9, 2021 deadline under Enforcement Discretion; and • The agency's recent announcement that it will regulate synthetic nicotine products on a case-by-case basis.

Taking an Alternative Route

As the tobacco industry faces the possibility of a combustible-free future, there are questions around the FDA’s regulations and their impact on alternative tobacco products.

For instance, the vapor industry is a notable player in the U.S. economy. During a TPE 2022 education session, Tony Abboud, executive director of the Vapor Technology Association (VTA), shared findings from a VTA-commissioned study. The research found that the number of vape shops in the United States has declined. In 2018, there were roughly 11,500 vape shops. In 2021, there were 10,257 vapor companies in the U.S., 8,328 of them (81 percent) being vape shops.

With this decrease has come a reduction in industry jobs, from 166,007 in 2018 to 133,000 jobs last year. Industry wages dropped from approximately $7.9 billion to $7 billion.

“Though the industry is contracting and consolidating, it is still paying its workers significant money in terms of wages and benefits,” Abboud noted, adding that the study found the vapor industry currently generates more than $22 billion for the U.S. economy.

From a regulatory standpoint, the vapor industry is still waiting on the FDA to wrap up its premarket tobacco product application (PMTA) process. Under the PMTA pathway, manufacturers must demonstrate to the agency that, among other things, marketing of their tobacco product would be appropriate for the protection of public health. The FDA must approve PMTA bids for e-cigarette and vapor products to stay on the market.

All PMTA bids had to be submitted by a Sept. 9, 2020 deadline. To date, the FDA has yet to make decisions on PMTAs from larger manufacturers, such as Juul Labs Inc. — with the exception of R.J. Reynolds Vapor Co.’s Vuse Solo electronic nicotine delivery system (ENDS). The agency authorized this system and its accompanying tobacco-flavored e-liquid pods for the U.S. market. This marked the first authorization under the PMTA process.

The FDA to date has issued marketing denial orders for almost 1,000 companies covering more than 6 million flavored ENDS, essentially removing flavors from the market.

TPE 2022 International took place as a hybrid event this year, with TPE Ignite online education sessions occurring Jan. 10-14 and a live trade show occurring Jan. 26-28 in Las Vegas. CSN

The FDA to date has issued marketing denial orders for almost 1,000 companies covering more than 6 million flavored ENDS, essentially removing flavors from the market.