E-cigarettes are about to Change the

Source from:  Tobacco Reporter  08/13/2013

Originally, the FDA wanted to regulate e-cigarettes as medical devices, which, among other things, would have sub-jected the products to burdensome approval processes. The FDA gives permission to market medical devices only if their manufacturer is able to demonstrate the products are safe and effective—a high, if not insurmountable, hurdle for a product designed to mimic smoking.

NJOY sued the FDA to have e-cigarettes regulated as tobacco products, which are subject to less-stringent regulations— and won. The FDA said it would comply with the court ruling, but has yet to announce any regulations specifically for e-ciga-rettes. The agency has had its hands full dealing with traditional cigarettes, over which it gained regulatory authority as part of the 2009 Family Smoking and Tobacco Prevention Act.

Analysts believe the worst possible outcome for e-cigarette manufacturers would be regulation similar to that govern-ing the traditional tobacco industry—which would level the  playing field and still be manageable. Frija points out that the FDA has tested a number of e-cigarettes and did not find quantifiable amounts of elements it deemed dangerous. "If the product had any sort of issue at that point, they would have pulled it off the shelf," he says.

It seems unlikely the FDA would make it more difficult to buy an e-cigarette than to buy a traditional cigarette when the toxicity and harm of tobacco cigarettes is well-established. Doing so, says Weiss, would not be in the interest of public health. As the body responsible for public health in America, he says, the FDA "can't be perceived to be driving people back to a toxic cigarette.

"We can look to cigarettes, and say, well, what have  [the regulators] done? They've banned characterizing  flavors; it's just traditional and menthol flavors. There's an age ban—minors aren't permitted to buy cigarettes. Non-self-service displays, advertising restrictions, remote sale ban and the like, and some manufacturing practice standards. To me, that's in some respects a worst-case scenario for electronic cigarettes."

One outcome could be the FDA not recommend-ing e-cigarettes as an alternative, but allowing less-severe  warning labels, or labels with factual comparison to  cigarettes (i.e. "no combustion" or "lower TSNAs"). The great-est opportunity for e-cigarettes would arise if the FDA allows modified-risk labeling.

Get ready for regulation

E-cigarettes are currently not subject to federal excise tax. States have begun exploring the taxation of e-cigarettes, but none imposes levels comparable to those applied to tobacco cigarettes. New York, California, Hawaii and Idaho have started regulating e-cigarettes, mostly by restricting their sale to minors. New Jersey banned e-cigarettes in enclosed public places and workplaces, while Boston, Massachusetts, banned e-cigarettes in workplaces. Hawaii tried, but failed, to pass legislation that would tax e-cigarettes at the 70-percent, "other-tobacco-prod-uct" rate.

So far, only one state—Minnesota—has taxed e-cigarettes, and it did that about two years ago, according to Frija. "So one would imagine, if the other states were to follow suit, they would have done so by now," he says. "The fact that it's been two years, and we really haven't seen taxation at the state or local level to speak of, is a good sign."

The reason may be that most states tax tobacco prod-ucts by the amount of leaf in the product—and e-cigarettes don't contain tobacco. While the nicotine they deliver is extracted from the tobacco plant, it would be nearly impos-sible to impose any significant tax on e-cigarettes under the  traditional formula.

"They can do a derivative of how much tobacco it took to extract that nicotine, which is very little," says Frija, who expects any taxes to be passed on to the consumer.

At the time of this writing, more than 35 proposals for regulation had been introduced in various state legislatures. Among the states, only Utah has proposed taxing e-cigarettes like regular tobacco products, according to Karmen Hanson, a tobacco policy analyst with the National Conference of  State Legislatures.

Regardless of what regulation will look like, it's almost cer-tain taxes will ultimately be imposed on e-cigarettes, especially as they encroach on the turf of traditional cigarettes and start to detract from federal and state tax revenues.

In 2008, the World Health Organization (WHO) prohibited manufacturers from claiming that the e-cigarette can be used as an aid to stop smoking, according to the TVECA. And despite studies done in New Zealand that showed toxic chemicals in e-cigarettes were below dangerous levels, Turkey's Ministry of Health banned its use. Canada, Israel, Brazil, Jordan, Panama, Saudi Arabia, Hong Kong and Australia followed suit. These countries cited concerns such as other chemicals contained in the e-juice that might pose a health risk or that it contained irritants. Thailand and Singapore have banned the importation and distribution of vapor cigarettes.

The future forecast

Despite the actions mentioned above, it appears e-cigarettes are here to stay. But the long-term potential for the product remains anyone's guess. Regulation is going to happen, in nearly every form—FDA guidelines, advertising, local, state and federal gov-ernment legislation and taxation—that has befallen traditional cigarettes. The most immediate impact on e-cigarette produc-tion and sales, however, is going to be patent and intellectual property litigation.

Ruyan has brought patent infringement lawsuits against var-ious e-cigarette manufacturers, including blu eCigs and Vapor Corp. The case against Vapor Corp. is scheduled to come to trail this month. Vapor Corp. says that the claims brought by Ruyan are without merit. "We don't believe there is any patent that covers any and all electronic cigarettes completely," says Frija. Vapor Corp. might argue that its product design is more in line with Gilbert's original, unprotected patents.

Prior to its purchase by Lorillard, blu eCigs had settled, for an undisclosed sum, with Ruyan to use its　technology. Remarkably, no royalties were involved. Regardless, this begs the question of what other manufacturers are going to be con-sidered infringing upon Ruyan's patents and, if so,how aggres-sively will Ruyan defend its patents in court? Manufacturers, retailers and distributors of e-cigarettes may find it's less expensive to develop their own intellectual property, which would leave them less exposed to patent-infringement issues.

Besides its potential as a reduced-risk nicotine-delivery system, the e-cigarette could make an impact in other ways, too. For example, according to the London School of Economics, smokers cost U.K. employers a staggering £2.1 billion ($3.23 billion) every year. E-cigarettes could reduce the number of work days missed due to tobacco-related ill-nesses and cut the need for smoking breaks, which could boost productivity and employees' moral. However, it is also possible to imagine a future in which e-cigarettes are banned from public places merely because of their resemblance to traditional cigarettes.

Then there is the financial factor. On average, e-cigarettes are 70 percent cheaper than tobacco cigarettes. Most e-cig manu-facturers offer "starter packs." They can cost from $30–$80 and typically contain 25 cartridges, which is almost equivalent to 17.5 packs of traditional cigarettes ($2–$5 per pack). Refill cartridges, which are equal to about one pack of cigarettes, run about $2–$5 each. This presents a considerable value proposi-tion to traditional smokers, most of who can be found on the lower end of the income scale.

Beyond the regulations and taxation that lie ahead, beyond the lawsuits and infighting that are sure to take place, one thing is certain: E-cigarettes are going to make a huge impact on the traditional cigarette market. And as they do so, one group will benefit more than any other, whether financially or through lowered health risks: the consumer. Enditem