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As we inch ever closer into year-end, there remains an industry wide expectation that the FDA is set to announce regulatory restrictions on electronic cigarettes. The exact timing? It’s anyone’s guess.

We believe the industry is bracing for regulation that could include:  

 

1) A ban of online commerce

2) Age verification standards at retail

3) Flavor limitations (beyond tobacco and menthol)

4) Health/safety certifications

5) Labeling and marketing requirements

 

(For a more comprehensive overview of the industry and regulation please see our recent report: “E-Cigs at the Thanksgiving Table”)

 

As the inevitable FDA announcement draws near, we want to highlight some notable, recent regulatory winds blowing against e-cigs in Chicago and New York City, as well as in France. While we continue to maintain a very bullish outlook overall on e-cigs, especially with Big Tobacco’s participation in the category, these regulatory initiatives, if legally enacted, would represent headwinds to the category.

Chicago and NYC

  • In late November, Chicago’s City Council held preliminary meetings to consider regulating e-cigs as traditional tobacco, and include them under the Indoor Clean Air Act. This could include such measures as increasing the age of purchase to 21 from 18, moving them to the back counter at retail, as well as banning use in parks, restaurants and bars.
  • Last week, the NYC City Council held similar meetings to those held in Chicago. That said, NYC has already voted to raise the age to buy traditional tobacco and e-cigs to 21 from 18, and raise the minimum price per pack of traditional cigs to $10.50 (set to take effect in APR/MAY 2014).
  • Both Chicago and New York are expected to put their respective measures to final votes this month. If passed, they would go into effect sometime in January of next year.
  • Currently, New Jersey, North Dakota, Utah and Arkansas and have “lumped in” e-cig products in with tobacco under their indoor smoking bans. Meanwhile, Minnesota has changed its definition of tobacco products to include e-cigs and subjected them to tobacco-like taxes.

France

  • A French court in Toulouse ruled yesterday that tobacconists should have exclusive rights to sell e-cigs; France's 27,000 tobacconists already have a monopoly on selling traditional cigs in the country.
  • If legislation were to follow the court’s reasoning, it would force e-cig stores to close.
  • Right now, there are an estimated 300 shops selling e-cigarettes in France.
  • E-cig sales in France are expected to more than double to around 100MM EUR this year.
  • France's Health Minister Marisol Touraine is on record saying she wants to ban e-cigs from public spaces and ban advertising on them.

Stateside, depending on the eventual FDA ruling on e-cigs (on the Federal level), we could very well see a number of states being called to action to define and/or redefine e-cigs and tax rules around them. 

Bottom line: Despite increasing regulatory headwinds in the U.S and abroad, we remain very bullish on e-cigs.

Matthew Hedrick

Associate