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E-cigarette sales could drop under new FDA rules as advocates call for clarity

Large e-cigarette makers could take a sales hit from the U.S. Food and Drug Administration's proposed guidelines limiting the sale of flavored products, analysts said, while industry advocates called for greater clarity on the rules.

"A whole lot of retailers and small manufacturers are going to be contemplating what their futures are after today," American Vaping Association President Gregory Conley said in an interview.

The FDA on March 13 issued draft guidance restricting e-cigarette sales to specialty vaping shops, online channels and age-restricted sections of other retailers to curb what Commissioner Scott Gottlieb, who is set to resign in April, has called rising use by minors.

Regulators also want to move a deadline for e-cigarette manufacturers to file for premarket review to Aug. 8, 2021, a year earlier than the current deadline. The agency is collecting comments on the draft guidance for 30 days before issuing final rules.

If enacted, the restrictions — which apply to all e-cigarette flavors except mint, menthol and tobacco — could hurt sales for British American Tobacco PLC, Imperial Brands PLC and Japan Tobacco Inc., Jefferies equity analyst Owen Bennett said in a March 13 note to clients. The companies kept flavored e-cigarettes on shelves after the FDA announced a crackdown on the product in September, Bennett said.

Juul Labs Inc., meanwhile, pulled its flavored products from retailers in November 2018 and likely lost sales to its competitors as a result, Bennett said in the note.

The FDA's warning that it could pull e-cigarettes marketed specifically to minors from shelves could "raise a risk of all pod products being removed, and especially raises the risk for Juul," Bennett said.

In a March 13 statement on the new guidance, San Francisco-based Juul said it removed flavored pods from retail stores in November, exited social media accounts, enhanced online age verification, and strengthened its retail compliance and secret shopper programs.

"We support category-wide action including the responsible, restricted sale of flavored products and will review today's draft guidance as we continue to work with FDA, state Attorneys General, local municipalities, and community organizations as a transparent and responsible partner in combating underage use," Juul said in the statement.

A British American Tobacco spokesperson said in a March 13 email to S&P Global Market Intelligence that menthol, mint and tobacco flavors are the company's top-selling e-cigarettes. The company also plans to sell other flavors in specialized vaping shops in the U.S.

"We will continue working with the FDA as the agency moves this proposed compliance change forward over the coming weeks. We will be submitting comments for the FDA to review and consider as the agency works to finalize the guidance document," the spokesperson said.

Altria Group Inc., Japan Tobacco and Imperial Brands did not respond to messages from Market Intelligence seeking comment on the new rules.

Smaller players hit harder by new rules

Larger companies are also more likely to meet the proposed 2021 premarket review application deadline than smaller manufacturers that will now face an even shorter deadline to file the applications that can easily exceed 100,000 pages each, the vaping association's Conley said.

"That is moving up the execution date of this industry and seemingly all because a company with billionaire investors in San Francisco did things the FDA disagrees with," Conley charged.

The FDA also has yet to issue final guidance for premarket e-cigarette applications, Conley said.

The agency issued draft guidance in 2016. An FDA spokesperson did not respond to a message from S&P Global Market Intelligence seeking comment on the agency's timeline for final guidance.

The updated deadline could also result in a "de facto regulatory thumb on the scale" for some companies, leading to less variety in the market, Vapers United spokesperson Liz Mair said in a March 13 statement.

The FDA's guidelines also do not specify how retailers should sequester flavored e-cigarettes from other products, which could cause some retailers to overcorrect and indirectly make it harder for smokers to switch from cigarettes to vapor products, Mair said.

"We do not consider the debate surrounding vapor regulation to be anywhere near settled, and we would urge FDA to provide further clarity as soon as possible," Mair said.

The Campaign for Tobacco-Free Kids called the FDA's new restrictions a step forward but ultimately "inadequate" to address youth e-cigarette use.

"The FDA must do more to reverse this epidemic and also move forward with its bold proposals to further drive down smoking, including banning flavored cigars and menthol cigarettes," President Matthew Myers said in a statement from the group.