FDA Extends Vaping Industry Regulation Deadlines

In a move that simultaneously surprised and dismayed the vaping and tobacco industries, the Food and Drug Administration announced a series of changes that will have significant ramifications for years to come. FDA commissioner Scott Gottlieb, M.D. disclosed his plans to restrict nicotine levels found in traditional cigarettes. The strategy aims to provide an avenue for smokers to quit their habit, and move towards safer alternatives.

The most distinct smoking alternative is vaping. Unlike nicotine gum or patches, vaporizers or e-cigarettes offer an experience analogous to smoking while substantially mitigating the risks associated with traditional cigarettes. Former smokers still crave the sensations of drawing-in aerial materials -- gums and patches simply fall well short. This is also the reason why such alternative products are not necessarily effective.

From Vapor Authority: "According to Greg Connolly, director of the center for global tobacco control at the Harvard School of Public Health, NRTs and other nicotine-related products are not an indefinite solution. Rather, they are designed to ameliorate withdrawal symptoms, which can occur from the initial time of quitting until about six months out. NRTs are then no longer used once the withdrawals go away; however, temptation or other factors are not addressed by physical nicotine therapies."

As both Dr. Gottlieb and the FDA states, nicotine-based tobacco products are the leading cause of preventable disease and death in the U.S. In a bid to improve the health and standards of living of all Americans, in addition to eliminating unnecessary productivity losses, the FDA requires additional time to explore the benefits of tobacco alternatives.

Because the FDA is committed to scientific research towards the betterment of society, the administration decided to extend the deadline for alternative product oversight. This stunning announcement has dramatic implications for the vaping industry. Under the initial FDA proposal, which can be found here vaporizer manufacturers were required to submit a costly approval application for any vaping product that hit retail markets after February 15, 2007, according to political newsletter The Hill.

The initial proposal was scheduled to be enforced in August of 2018. Under Dr. Gottlieb's new plan, "applications for newly-regulated combustible products, such as cigars, pipe tobacco and hookah tobacco, would be submitted by Aug. 8, 2021, and applications for non-combustible products such as ENDS or e-cigarettes would be submitted by Aug. 8, 2022."

Of course, this is tremendous news for vaping manufacturers and the vaporizer community. The FDA provided a critical, and most importantly, a fair lifeline to small businesses across the United States. But the impact could extend much further than the promotion and normalization of vaping.

Leading Up to a Massive Collision

To understand the true value of the FDA announcement, we must consider the history of the vaporizer. While the technology that drives e-cigarettes have been in place for decades, it wasn't until the late 1990s to early 2000s that vaping entered the retail landscape.

At the time, vaporizers occupied an extremely niche market. Early renditions were functionally suspect and aesthetically unpleasing. However, early pioneers used this infancy phase to catalyze creative synergies. Through much trial and error, the vaporizer technologies that enthusiasts take for granted today were fostered during this inception period.

After working out the kinks in early vaping models, the next greatest challenge for the industry was marketability. Somehow, someway, vaporizer manufacturers had to convince the smoking-enthusiast sector that the digital platform was cleaner, safer, and all-around superior to the traditional analog platform.

Admittedly, this was no easy task. The first go-around was hardly profitable. For some upstart companies, the revenues barely covered expenses, if at all. Slowly but surely, the money started to come in. By 2008, the e-cigarette market raked in $20 million in sales, according to the Tobacco Vapor Electronic Cigarette Association.

For large organizations, especially the Big Tobacco conglomerates, $20 million is chump change, a rounding error in their gargantuan income statements. But astute and discerning tobacco executives took note of something extraordinary in the vaporizer industry. In 2009, one year after the onset of the Great Recession, total vaporizer sales jumped to $39 million, nearly doubling its pre-stock market crash sales.

In sharp contrast, Altria Group Inc. -- one of the biggest tobacco firms in the world and the North American Marlboro distributor -- saw revenues decline 13% from 2008 to 2009. The global financial crisis disproved the common adage that cigarettes are secular products and therefore, immune to economic recessions.

It turns out that nothing kicks a bad habit more than getting kicked in the wallet!

But the extraordinary event was that vaporizers and e-cigarettes, which were not considered secular due to its innovative technology and lack of awareness at the time, were growing rapidly in the face of unprecedented economic turmoil. If consumer financials were this robust in the leanest of times, what would happen when the underlying economy improved?

The vaporizer industry answered this question through rip-roaring sales. Years 2010 and 2011 witnessed total revenues of $82 million and $195 million, respectively. But as Vapor Authority argues, 2012 was the milestone year for the industry. Thanks to a combination of explosive manufacturer growth, and full-scale social media integration, vaping and vaporizers shed their niche market persona. Instead, the vaping became a culture.

That sparked a then-unprecedented total revenue of a cool $500 million. Again, while these figures are no match for tobacco's old guard, they reaffirm the tremendous grassroots sentiment for vaping. Furthermore, from 2012 and beyond, vaping had entered the mainstream conscious. Even the most respected journalistic outlets such as The Wall Street Journal covered vaping and its plethora of subculture derivatives such as cloud chasing and industry conventions.

Big Tobacco was on notice. But by the time they started reacting, small-business vaporizer manufacturers benefited from years of engineering know-how. Furthermore, vape companies analyzed vaping trends, and they developed strong relations with their customer base.

To counter, Big Tobacco relied upon the one true advantage that they could depend upon -- their untouchable resources. But even that stick was going to be a severe challenge to wield as both the FDA and societal norms went to battle against nicotine.

The Achilles' Heel of Nicotine

Nicotine has always been the Achilles' Heel of Big Tobacco firms. Without the substance, smokers cannot get the "throat hit" through the analog platform. This unique experience of smoking, combined with nicotine's addictive nature, cynically provides a constant stream of revenue source and cash flow for traditional cigarette companies.

In tobacco's early days, ignorance was bliss. Throughout the early 20th century, cigarettes were viewed as a status symbol. No one brought up the health risks associated with nicotine or the smoking process because such studies either did not exist or were quickly censored.

But after World War II, scientists and researchers began earnestly analyzing smoking and its correlation to various conditions and diseases. They discovered a link between nicotine and smoking addiction. Furthermore, nicotine addiction necessarily exposed a smoker to health risks associated with the combustion of harmful chemicals, such as carbon monoxide poisoning.

Beginning in the 1970s and 1980s, and up until the present age, government and educational agencies promoted "butts out" campaigns aimed at curbing juvenile smoking. While tough going at first, these social efforts began to pay off, particularly in the late 1990s to the 2000s.

Today, the initiatives sparked decades ago produced undeniable results. According to The Washington Post, "Smoking in the United States is at an all-time low, with just 15 percent of adults still lighting up. And tobacco use among youth has reached similarly historic lows, which has sparked hope among public health officials that a smoke-free generation may finally be within reach."

A big part of the reason why the FDA made their tobacco and vaping announcement is that they genuinely foresee a future without nicotine and traditional, analog smoking. But given the enormous business and economic implications of an FDA approval process, the administration must tread carefully.

For tobacco firms, the FDA announcement was a full-on fire alarm, not necessarily because it impacted them but because it largely has positive implications for the vaping industry.

Under the traditional platform, it's impossible for cigarette smokers to avoid harm. First, nicotine is one of the most addictive consumer elements available, and can take years for the average smoker to fully kick the addiction. Second, and more critically, addicted smokers are constantly exposed to harmful substances brought about by the combustion process.

Combustion is the act of burning elements beyond their thermal threshold. The temperature ignites chemicals into aerosol form, causing microscopic particles to enter a smoker's bloodstream. Additionally, the combustion process creates exhaust fumes, which necessarily emits carbon monoxide. Excessive concentration of CO is fatal, but even frequent, diluted exposure can cause long-term health repercussions.

Vaporizers, on the other hand, deliver nicotine and other e-juice flavors through the vaporization process; hence, the name. Vaporization is a far gentler approach than combustion, which also has the disadvantage of destroying much of the flavor content and replacing it with harmful residue and carcinogens. With vaporizers, the end-user only inhales the purest essence of the desired material, with little to no toxic derivatives.

The FDA will be analyzing this critical difference between combustion and vaporization. Though the official jury is still out, tobacco firms know that the jig is over. For years now, the major conglomerates have been hard at work developing their own nicotine-alternative products, with varying degrees of success.

The problem is, they're now fighting in the vape manufacturers' turf.

Reversal of Fortune

Wall Street has been unequivocally bearish following the FDA announcement. For instance, British American Tobacco shares dropped 7% in market value against the prior day's trading session. Altria Group took a brutal bashing, hemorrhaging 9.5%. Even smaller tobacco outfits like Vector Group, which also sells e-cigarettes, dropped 4.7%. In contrast, publicly-traded vaping companies like mCig, Inc. have been rising ahead of the news.

The ugliness in the markets signals that the revenue stream of traditional cigarettes is dangerously under fire. Indeed, it may change the entire paradigm of the broader enthusiast market. For once, Big Tobacco firms must adapt -- and do so quickly -- or risk obsolescence.

If tobacco firms were looking for a reprieve, they shouldn't hold their breath. Given the record unpopularity of the Trump administration, the President can only rely on his sole ace -- his business and economic acumen. By supporting vaping and vaping innovation, he would through logical extension support small businesses and American industry. By going the other way, President Trump would be perceived as bowing to multinational corporate interests. 

In fact, vaping is one of the few industries in America where it is currently profitable to innovate and manufacture domestically. The FDA certainly recognizes the dual benefits of health and economics, and is therefore approaching the vaporizer markets in a more assuaging fashion.

Ultimately, vaping enthusiasts can adopt a bullish approach to the FDA announcement. If the government agency were to hamstring vape manufacturers, inevitably, international competitors that don't have onerous regulations will quickly gain a stronghold at American companies' expense. That wouldn't sit well with the administration, which has publicly prioritized that American interests should come first.

Even Big Tobacco needs a helping hand. Eliminating nicotine without providing a viable alternative would mean lost profitability for shareholders -- which can include retirees' pension plans -- and pink-slipped workers. Tobacco firms' own innovations would get hijacked before it ever had a chance to take off.

None of this is socially or politically palatable. It also makes for bad business. America was founded on the virtues of capitalism and free markets. Stymieing progress, particularly towards a safer, cleaner alternative to harmful cigarettes, would be completely illogical.

In addition, the vaping market is only increasing in awareness and integration. As such, government agencies can't treat the vaporizer community as an esoteric, niche sector. In concert with its health benefits and growing financial influence, vaping makes a compelling case to the FDA.