The vapor wave: E-cig makers eye opportunity amid regulation

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The vapor wave: E-cig makers eye opportunity amid regulation

The frontier in the vaping and e-cig space is closing, but opportunity still is presenting itself for both retailers and suppliers. The category continues to draw new regulations and scrutiny, even as it shows promise as a method to help quit smoking and sales of combustible cigarettes decline. Manufacturers in the category said they are maintaining compliance with the Food and Drug Administration’s guidelines, but noted several headwinds to more widespread adoption and innovation existed.

Regulatory Pressure
First, the bad news: The e-cigarette and vaping category spent much of 2018 drawing the ire of Food and Drug Administration commissioner Scott Gottlieb. Early in the year, he put out a notice of proposed rulemaking regarding flavors on electronic vaping systems. In November, responding to the National Youth Tobacco Survey logging a 78% increase in e-cig usage among teens, Gottlieb pushed for a selective flavor ban that would prevent sale of flavors besides traditional tobacco and menthol from retail locations that don’t have a separate section inaccessible to minors.

As a result, Juul Labs, one of the larger names in the vaping space, moved to downsize the presence of its flavored pods in retail stores. In mid-

November, the company’s CEO, Kevin Burns, said that Juul Labs would no longer be filling orders from the roughly 90,000 retail stores that stocked its products for its cucumber-, mango-, crème- and fruit-

flavored pods. That left only its products that mirror cigarettes — Virginia tobacco, classic tobacco, mint and menthol — to be sold by retailers.

While Juul moved quickly to scrub the physical retail presence of its flavored products to showcase compliance, other industry players are largely unsure of Juul’s long-term compliance efforts. At E-Alternative Solutions, which sells the Cue and Leap brand vaping products, company officials are seeking ways to stay compliant as they wait for more information from the FDA.

“EAS prides itself on being compliant. In addition to complying with federal and state laws, we have our own set of voluntary guidelines to ensure our products are marketed to adult smokers,” said Chris Howard, EAS vice president, general counsel and chief compliance officer. He also said that the company stresses preventing youth access to its products, and its marketing focuses only on adult smokers seeking alternatives to combustible cigarettes. “We don’t agree flavors are determinative to youth when deciding to experiment with these products. We acknowledge the rise in youth experimentation with e-cigarettes needs to be addressed. That said, we must make sure that measures implemented don’t restrict adult smokers’ choices, which could ultimately drive them back to using combustible cigarettes.  So our plan, at least at this point, is to continue with our current adult-only practices.”

Similarly, officials at Fontem Ventures’ blu said that it has not sought to entice young people to try its products. “For 10 years, blu has been committed to delivering something better for adult smokers,” said Greg Moser, vice president of marketing at blu. “This mission has always gone hand in hand with ensuring blu is responsibly marketed to adults. We are disappointed that the actions of some in our industry may have put our youth in danger and jeopardized the choice of genuine adult smokers.”

Media coverage of the FDA’s scrutiny on the vapor category pose a challenge, EAS’ Howard said, in particular because it requires time to respond to what he characterized as a “campaign of misinformation.” In addition to defending the harm reduction potential of the category, all companies must spend time passing regulatory muster.

“Another huge burden for EAS and other vapor companies is the uncertainty associated with FDA requirements for vapor products,” Howard said. “With only limited, vague guidance from FDA, companies need to develop data in support of Premarket Tobacco Applications to demonstrate their products are for the net benefit of public health. I would say dealing with this regulatory uncertainty and knowing that however it plays out, it’s going to be expensive and time-consuming, that’s a real challenge for us and similarly situated companies.”

Promise for Converting Smokers
Challenges for the category are coming as combustible cigarettes decrease their annual sales. Per IRI data, cigarette unit sales were down 4.6% in 2018 versus 2017. This was as electronic smoking devices registered 13% sales and 16% unit sales growth.

Additionally, more research is taking place to assess the efficacy of vaping products as smoking cessation tools. In late January, the New England Journal of Medicine published findings from British researchers who used a randomized trial to compare e-cigarettes to other nicotine-

replacement therapies. Over the course of a year, the abstinence rate among e-cigarette users was 18%, compared with 9.9% in the nicotine replacement group. Additionally, roughly 80% of the e-cigarette users were likely to still be using the e-cigarette a year into the study, compared with 9% of the other group.

Though the study focused on refillable e-liquid vapes, blu, EAS and Juul all offer closed systems that allow for easy refilling using pods. EAS CEO Jacopo D’Alessandris said the main reason for using a closed system is quality control. It also offers easy variety, particularly when it comes to flavors.

Within flavors, EAS and blu both offer differing nicotine levels — including 0% nicotine formulations.

“As flavor variety plays a large role in adult smokers switching, myblu features an expansive flavor range, while also offering multiple nicotine strengths from 4.0% to 0%, ensuring there is a myblu liquidpod to meet the need of any adult smoker,” Moser said.

D’Alessandris said EAS is among the few offering a 0% nicotine formulation for every flavor it sells with its Cue system. The company’s Leap system currently only offers 4.8%, but is set to have 2.4% and 0% formulations available soon. Blu offers its myblu flavors — Cherry Crush, Gold Leaf, Vivid Vanilla and Magnificent Menthol — in a 0% formulation, though its myblu Intense flavors are only available in 2.5% and 4%.

The New England Journal of Medicine in January also published an editorial from Belinda Borreli and George O’Connor about using e-cigarettes to assist with quitting smoking. The authors noted a consensus around the safety of e-cigs relative to combustible cigarettes, but suggested they be used when FDA-approved treatments and behavior counseling fail, with a clear timeline for winding down use at the lowest level necessary to manage cravings.

One area to watch is innovation, something that D’Alessandris said is currently impossible in the United States due to FDA regulations and puts American companies behind European ones. “This situation is gradually making the gap between what’s happening in the United States versus other countries increase,” he said. He also said that because European regulators take a different approach to the category, “companies there are still able to innovate and launch new products.”

Building the Category
With everything happening in the vaping and e-cigs category, one of the main hurdles retailers face can be how to educate smokers looking to switch.

“A lot of these smokers don’t really know what this technology does or what type of experience it’s going to give to them,” D’Alessandris said. “They have a lot of questions. We help customers and retailers to make sure their assortment is as simple as possible.”

One of the mistakes he said many retailers make is having too large an assortment, which can lead to confusion with too