When Government Deems Who Can Sell What (Part 3)

(This is part three of a multi-part series delving into the vaporizer and e-cigarette industry. Part one can be found here. Part two can be found here.)

In this final part of the series on vaping, we look at the regulations which are poised to basically destroy this industry as it currently stands and potentially hand it to the oligopoly of Big Tobacco and potentially create a black market of vaping products.

During the Obama Administration, Democrats rammed through the Tobacco Control Act (TCA) of 2009 which retroactively determined that February 15, 2007 was the market date after which all new tobacco products must be put through an authorization process which is extremely burdensome under the guidance of the Food and Drug Administration (FDA). This arbitrary date is what has been dubbed by the vaping community as the “Deeming Rule” and is currently set to go into effect on August 8, 2018. The FDA has determined the cost for this may be $300,000 per product. Think about that for a second: if you want a new e-liquid flavor, that’s $300,000, new nicotine-free flavor another $300,000, new mod $300,000, new atomizer that’s another $300,000. That’s merely for the testing and the research.

However, the vaping industry determines these costs will be much higher, and to add insult to injury, paying that fee doesn’t guarantee your product will be approved. Why is this such a big deal? Did any of us know what vaping was back in 2007? There was an extremely small number of vaping products in 2007 being sold. Effectively ending the majority of companies in the vaping industry, as most are small- and medium-sized businesses, would hand the industry back over to Big Tobacco as they are really the only industry capable of absorbing these compliance costs. $300,000 is more than some smaller manufacturers generate in a year. Keeping the current products I and many others enjoy would require a lengthy application for the manufacturers and many millions of dollars.

All hope is not lost, however, for the freedom to put whatever we vape into our bodies. Nicopure Labs, LLC the maker of the Halo and Evo brand e-liquids is at the forefront to challenge the FDA over the Deeming Rule in federal court. Other parties have joined the lawsuit, and the case has been seen in the news extensively and is still ongoing. In the US House of Representatives, Tom Cole (R-OK) and Sanford Bishop (D-GA) introduced a bill, HR 1136, called the “FDA Deeming Authority Clarification Act of 2017.”

I reached out for comments from a couple of the vaping communities most popular advocates and Youtube personalities for their input on how this will affect the industry:

“The FDA deaming regulation will decimate the vaping industry in the U.S. if it’s not changed or repealed by 8/8/18. The big losers will be b&m’s and liquid companies. Most vapers will look to buying products from overseas companies and it could potentially create a huge black market. Legislation would stop the bleeding and I am optimistic that the lawsuits will at least bring about a partial win when it comes to the hardware side of things. There are multiple different ways that the industry is fighting this, and in my opinion, the more the better. It would probably be a lot faster process for the executive branch to somehow curtail this in the near future, but in the long term, some sort of legislation needs to happen.” – Matt Culley from Suck My Mod

 

“I’m a freedom guy, so I believe that as a free, adult, American.  I should be allowed to put whatever I want into my body.  Thankfully all I want to put into my body is a balanced diet, the occasional beer and some low nicotine vapor.  That system has been working great for the last 8 years.  It’s been 8 years since my last cigarette thanks to vaping.  What the democrats and FDA want to do is take that away from me.  Not just take that away from me, but also destroy tens of thousands of small businesses as well as hundreds of thousands of jobs.  They want to snuff out an industry that will literally save lives.  As they are written right now, the FDA “deeming” regulations of vapor products will accomplish exactly that, the death of a live saving industry. 400,000 people will die this year from complications due to combustible tobacco products.  Yet we have the federal government actually defending tobacco. Seems strange until you realized that the Federal Government makes $15 billion annually from the sales of tobacco cigarettes.  Tobacco sales and farms literally built this country, and now it’s time to save the citizens from from the all-too comfortable relationship that big tobacco has had with the federal government for the last 100 years. “ – Nick “GrimmGreen” Green

At the state level there are some different battles the vaping community is fighting. This one, headed predominately by Democrats, it seems, as back in February 12, 2014 a since-deleted page on the Democrats committee on energy and commerce titled, “Democratic Leaders Urge State Attorneys General to Bring E-Cigarettes Under Tobacco Master Settlement Agreement.“ What exactly is the Master Settlement Agreement? The reality behind this situation which Nick Green touched on is that it all has to do with money from Big Tobacco going into state and federal coffers. In 1998, a major deal was struck between 46 states in the USA and the biggest tobacco companies, called the Master Settlement Agreement (MSA). This agreement created a deal that these big tobacco companies would make yearly payments to the states in exchange for the states dropping lawsuits against them which were related to deaths and expenses incurred from smoking. The amount of money big tobacco companies give the states is directly dependent on the amount of sales of cigarettes.

The other part of the problem is that the states spent all that money before they even received it as the majority of states wanted that money upfront instead of awaiting payments, so they sold bonds on Wall Street based on the amounts that Big Tobacco would be paying them. But amazingly the trends began to change and Americans began to smoke less cigarettes by 3.4% per year since 2000, which, as a public health issue, is amazing and we should be celebrating. But states like California are not so happy as they already spent that money they thought they would have received, and thus have put themselves in debt as they can’t pay back the bonds they have already sold. This leaves California having to pull money from elsewhere to cover the costs. New Jersey, Ohio, and Virginia have announced they would have to pull money from their own reserves as well in order to cover the costs of the debt from this miscalculation of the Big Tobacco money they would receive. In fact, with the exploding popularity of e-cigarettes and vaping, cigarette smoking is declining even faster.

California and New York are in the largest amount of problems due to MSA spending, being they have the largest populations and subsequently owe the largest amount of money from spending money they didn’t have. In 2013, Big Tobacco saw their largest decline in cigarette shipments since 2009, and many financial analysts stated the cause of that decline was e-cigarettes. In 2012 Americans bought more than 14 billion packs of tobacco cigarettes and 200,000 e-cigarette packs, while in 2013 sales of cigarette packs decreased by 1 billion, and e-cigarette sales doubled. Wells Fargo Bank has estimated that sales of cigarettes will decline by 68% in the next 10 years, while e-cigarette sales will increase over 13 times.

So is it any wonder why California’s Department of Public Health and others are so against e-cigarettes that they have been pushing their own propaganda campaign to stop vaping? It’s merely because California is in such a bind that they are losing money due to their MSA agreement, despite e-cigarettes and vaporizers being a healthier alternative. They are faced with a decision to either ban e-cigarettes and hope cigarettes will continue to be smoked, in comparable or increasing numbers, or classify e-cigarettes as a tobacco product so they too will be lumped into the MSA agreement, higher sales taxes, and continue to see states not in debt due to their miscalculations with Big Tobacco.

California and other states claim they want to do this in order to have funds to create tools to stop kids from vaping. A few cities and municipalities in California have been slowly banning non-tobacco flavors under a flaccid argument of “saving the kids.” They claim that kids are drawn to e-cigarettes because of the many sweet flavors available, which I say is a flaccid argument, because by that logic shouldn’t wine coolers, Mike’s Hard Lemonade, peach beers and ales along with other alcoholic flavors be equally demonized by departments of public health?

While “it’s for the kids” is always a nice talking point, it simply is not true. In California, only 14.6% of the money they receive is actually used for costs associated with smoking or smoking prevention. So in reality it’s all about the states trying to keep earning their money from Big Tobacco, but e-cigarettes are becoming a major roadblock and headache for the states trying to do that. I guess this should be a major lesson as to why markets should remain free and avoid crony ties to businesses, because it ends up harming everyone in the end.

Update: Shortly after this article was submitted for editing the FDA had decided to push back the date for the “deeming regulations” to August 8th of 2022.

Works Cited:

  1. “Democratic Leaders Urge State Attorneys General to Bring E-Cigarettes Under Tobacco Master Settlement Agreement”. Democrats Committee on Energy & Commerce
  2. “Tobacco Control in California, 2007-2014: A Resurgent Tobacco Industry While Inflation Erodes the California Tobacco Control Program” by the Center for Tobacco Control Research and Education, University of California, San Francisco School of Medicine
  3. Respaut, Robin (24 June 2014). “E-cigarettes could stub out tobacco bonds sooner than thought”. Yahoo Finance. Retrieved 11 July 2017.
  4. Master Settlement Agreement (1998)
  5. “Fact Sheets: Understanding the Tobacco Settlement Agreements.”
  6. “Master Settlement Agreement.” Public Health Law Center at William Mitchell College of Law

This post was written by Alon Ganon.

The views expressed here belong to the author and do not necessarily reflect our views and opinions.

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Knowledge of Mac, GNU/Linux, Windows but preferring to use GNU/Linux. Bitcoin user and expert, Cyber Punk, Minarchist libertarian, Businessman, Firearm lover, Constitutionalist, and a supporter of Free, Libre, and Open Source Software (FLOSS).Businessman and IT Contractor by trade available for hire. Specializing in Medical, Dental, and Small Business IT solutions https://alonganon.info

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