E-Cigarettes Dominate First Half of 2019

CHICAGO — Of all the tobacco-related stories to make headlines so far in 2019, revelations surrounding electronic cigarettes seem to have overshadowed the rest.

Flavor bans, U.S. Food and Drug Administration (FDA) action and e-cigarette volumes and sales numbers have all kept the industry focused on this fast-growing tobacco subcategory.

Here’s a midyear recap of e-cigarette developments so far in 2019, all following on the heels of the FDA’s announced crackdown on vaping flavors that began last fall …

Though technically announced in December, Altria Group’s $12.8 billion deal for a minority stake in e-cigarette maker Juul Labs, San Francisco, put 2019 and the topic of vaping on an accelerated track.

A few weeks prior to announcing the deal, the Richmond, Va.-based tobacco giant pulled the plug on its own e-cigarette lines, causing speculation that it would make a significant move on what was the biggest brand in the retail-vaping space. The decision came at a high price, according to reports, especially because Juul announced it would pull the retail sale of four flavored pods—creme, cucumber, fruit and mango—retreating to online options for those products.

Ever since the September release of the National Youth Tobacco Survey and indications of a spike in vaping among middle school and high school students, Scott Gottlieb, who at the time was FDA commissioner, appeared several times in mainstream media, openly discussing ways the agency could remove flavored e-cigarettes from store shelves. Those interviews continued into early 2019.

In the early part of 2019, the FDA took multiple steps against retailers allegedly caught selling tobacco products to underage operatives. Among these actions were warning letters to several retailers and even the threat of banning sales of tobacco products at two locations.

Through the first quarter of 2019, e-cigarettes outperformed all other tobacco subcategories in terms of growth. Reviewing preliminary numbers from the NACS State of the Industry (SOI) Summit, Joe Teller, category management director for Swedish Match, said OTP, led by e-cigarettes, had become the fastest-growing segment of the category. OTP grew both in dollar sales (20.5%) and gross profits (26.4%) in 2018 vs. a year ago, according to NACS, while cigarettes fell in both areas, down 3.1% in dollar sales and 4.4% in gross profits.

“[OTP] not just partially offset [cigarette losses] like in the past, but more than offset those losses,” he said during the May 14 webinar co-sponsored by CSP and Richmond, Va.-based Swedish Match. “That’s really an amazing story.”

The 2,500-store Rite-Aid drug chain, based in Camp Hill, Pa., announced it would stop selling e-cigarettes at its stores.

That chain, and two others—Walgreens, Deerfield, Ill., and Walmart, Bentonville, Ark.—subsequently announced they would raise the purchase age of tobacco products from the federal minimum of 18 to 21 at their stores.

While the FDA targeted flavored e-cigarettes, industry trade groups spoke out against the growing restrictions, arguing for consumer choice and warning about burgeoning illicit markets.

Just two years into his term as FDA commissioner, Gottlieb announced his resignation, citing the long commute to his residence and the need to be with his family. Questions arose as to how the FDA would proceed on flavored e-cigarettes after his departure.

Ultimately, those following legislative issues believed the FDA would stay the course.

After almost two years of review, the FDA authorized Philip Morris’ heat-not-burn device, IQOS, for marketing and sale in the United States. In April, the FDA decided favorably on the New York-based tobacco-maker’s premarket tobacco application (PMTA), allowing PMI’s partnership with Altria to allow the latter to proceed with marketing and selling IQOS in the U.S. market.

Altria announced it would start with Atlanta, employing a strategy that would involve about 500 area c-stores and at least one IQOS-branded retail location.

Meanwhile, news that Juul was intending to try its hand at Juul-branded retail stores surfaced in a report from CNBC. The news organization quoted an anonymous source saying that the company had not made a decision but that preliminary moves had been made.

In May, a court ruling held against the FDA’s decision to push back deadlines for new tobacco product applications into 2021 and 2022. The court decision created confusion because the original deadlines were in 2018. At press time, the FDA had not publicly announced its next course of action.

In June, the FDA issued its final guidance document on PMTAs, both the application processes and agency expectations. The guidelines provide a road map for manufacturers wanting to officially introduce new tobacco products—including all vaping devices—into the U.S. market.

All during 2019, the specter of local flavor bans loomed. Two notable ones were from San Francisco plus Albany County in upstate New York. In the meantime, Beverly Hills, Calif., became the first U.S. city to ban the sale of all tobacco products from a majority of retail establishments.