The FDA dropped a bombshell on the Cigar Industry (and others, but I think the Cigar Industry was the most surprised) when it issued its 500 page final rule in early May 2016. The rule, comments, and responses are rambling at times and a bit hard to follow, so hopefully this explanation will assist a bit for those who are unfamiliar or who simply have better things to do than read 500 pages of Bureaucratese.
The Family Smoking Prevention and Tobacco Control Act of 2009, signed by President Obama gave the U.S. Food & Drug Administration (FDA) the authority to regulate all tobacco products. Previously, the agency had regulated only cigarettes and smokeless tobacco through legislation passed by Congress. However, cigars, pipe tobacco and the growing e-cigarette/vape market had not been subject to FDA regulation.
In April 2014, FDA released a draft of the proposed regulations for cigars, pipe tobacco, e-cigarettes/vape products and other tobacco products. In it, FDA outlined two options for cigars. Option 1 was clearly the most restrictive – it treated all cigars the same as any cigarette, e-cig, chewing tobacco, or other tobacco products. Option 2 gave much more lenient restrictions on regulating premium cigars, but did not exempt them entirely from regulation.
As all regulatory agencies must do, the FDA asked for industry comments to the proposed rules. The industry responded with a variety of common-sense reasons why Option 1 shouldn’t be implemented. Option 2 was the lesser of two evils, in that it eliminated the need for most premium cigars to undergo the PMTA process (more on that later) before being approved for market. When the time came for the review by the White House Office of Management & Budget (OMB), which oversees the economic impact of agencies like FDA, OMB changed Option 2 to include a full exemption as part of the draft – a big win for the industry right?
Wrong. The FDA completely ignored OMB’s change and instead included Option 1, the regulation of all cigars, along with a few other changes. Those regulations are now set to begin on Aug. 8, 2016.
I’ve heard all the talk of this being an arbitrary and capricious overstep of the Executive Power, that the rule has no basis in science or reason, and that a lawsuit is necessary to fight the tyrants on the hill. In fact, I believe there are 8 pending lawsuits right now with plenty more to come. I want to make clear that I totally agree with these arguments, the government really made no effort to take the least-restrictive position on this issue, as they are mandated to do by two Executive Orders; one signed by Clinton in the 90s and one recently signed by Obama in 2013.
However, I do tend to be a pragmatist. Tobacco restrictions will likely never be eased. Once that rope has tightened, there’s no way that there’s enough political will in DC to loosen it. If we’re being honest, being outwardly “pro-tobacco” hasn’t won anyone any votes for the last 30 years or so. Tobacco, in any of its forms, is slowly creeping toward prohibition while marijuana is slowly creeping to supplant it. No doubt both of those ideas are a long-way off, but the smart money is on that inevitability.
So what do cigar manufacturers do? Take up other business? Start planning for early retirement because compliance is going to be way too costly? Take a second mortgage on the house to fund the 9th or 10th or 25th lawsuit against the FDA? I may be the first industry-lawyer to say this, but I really don’t believe the sky is falling here folks. The deeming rule, as lengthy as it was, didn’t make the process for compliance too terribly complicated. A pain in the ass? Absolutely. Insurmountable? Definitely not. Costly? Yes, but we’re not talking business-shattering costly.
The only part of the regulation I’m going to address in this post is the ‘market pathway’ issue. The labeling, yearly reports of product lists etc. are tedious and annoying, but they aren’t game-changing. Of any part of the rule, the market pathway issue has certainly caused the most sleepless nights.
Let’s start with the good news: if you had a cigar on the market before February of 2007, and continued to market it after that date, then that product is grandfathered and not subject to the pathway regulation (but labeling and other regulations DO STILL APPLY, so if you haven’t read the FDA’s compliance guide…get on that!) If you have a cigar that was marketed only after February 2007 but before August 8, 2016…yes this year, then it’s still good news because you can keep your cigar on the market until February 8, 2019. You cannot release a new cigar to market after August 8, 2016 (including changing the shape/size/blend) unless you get prior market approval from the FDA.
So, if you’re reading this and you didn’t already hear…i will all-caps this next statement all by itself:
HURRY!!! IF YOU’RE EVEN THINKING JUST A LITTLE BIT ABOUT PUTTING A NEW CIGAR ON THE MARKET, OR ADDING A SIZE, OR GIVING A SLIGHTLY DIFFERENT BLEND TO YOUR PRODUCT IN THE NEXT FEW YEARS…DO IT BEFORE AUGUST 8, 2016!!!!!!!!!!!!!!
As long as you get it out and marketed by that date, you can keep it on the shelves until, at least, February 8, 2019. Most folks are saying that you need to sell to at least 3 different buyers in substantial amounts, I tend to agree with that, but more would likely be much better.
Ok, with that out of the way, let’s get to the fun stuff. If your cigar is not grandfathered, then at some point in the future you will need to get FDA approval to put it on the market. The FDA gives three pathways for approval (not counting grandfathering):
1. Substantial Equivalence Exemption (SEE)
2. Substantial Equivalence (SE)
3. Premarket Tobacco Market Authorization (PMTA)
For premium cigar folks, sorry, just cross off number 1. It’s only for cigars whose only change (from a grandfathered product) is that there are some new non-tobacco additives that are not harmful. Since premiums don’t have non-tobacco additives (I’m not going to bring up glue…but that IS an issue, so if you want to discuss, please give me a call), it’s not going to apply.
For the sake of this posting, let’s cross off number 3 also. I’ve heard talk that people expect to be forced to do PMTA for premium cigars. I’m just not buying that. PMTA is for truly new products that we have no real concept of how they affect the human body (think e-cigs). The government is asking that those sorts of new products go through the rigorous scientific study process before their potential ill-effects are unleashed on the populace. It ain’t gonna happen with premium cigars. They’ve been around longer than our country has, and any way you look at it, it’s just tobacco wrapped in tobacco. If someone is telling you PMTA is likely for premium cigars, they are either 1) not well versed in the law or 2) trying to scare you into paying them for “protection”.
So what we’re left with is Substantial Equivalence. We are all going to be sick of Substantial Equivalence very very soon because I can’t even fathom how many of these applications are going to be produced over the next 5-10 years. The basic idea is this: if your “new product” is substantially equivalent to a “legally marketed product”, then no PMTA is needed. A “legally marketed product” can be one that is grandfathered (pre feb 2007) or has already been granted SE or PMTA approval. Sounds great right? Well how to they define substantial equivalence?
A substantially equivalent product is one that has been found by FDA to either
1. have the same characteristics as a predicate tobacco product; or
2. has different characteristics than the predicate tobacco product but the information submitted demonstrates that the new product does not raise different questions of public health.
Most of us can cross out number one here, unless you’re putting out a “virtually equivalent” product to a grandfathered product (same size, blend, leaf, glue, wrapper, everything!). Under the rule, #1 is nearly an unreachable threshold. So here we are again, by process of elimination, we’re down to 1 choice. One way to proceed. 500 pages of Bureaucratese and it really all boils down to this simple idea:
How are we going to demonstrate that the “new’ cigar does not raise different questions of public health?
Thats IT folks, that’s all there really is to this for the premium cigar industry! (there are other things, but they aren’t industry-killing…)
Because of the work I’ve been involved in over the past several years, I am keenly aware that this can be proven, relatively cost-effectively. Others throughout the tobacco industry (think BIG-tobacco) are light-years ahead in this respect…they have been testing leaf and filler blends for years. YEARS! At least a DECADE! The labs know what to do, the field technicians know what to do, the whole process is already in place. It’s not an easy code to crack, but it can be done, and it’s being done every day by some of the biggest corporations on the planet.
The FDA has published the Harmful and Potentially Harmful Constituents in Tobacco and Tobacco smoke here:
There are 93, and they’re not all created equal. Some are majorly bad for you. But the good thing for premium cigar folks: it doesn’t matter what your level is, as long is it’s at or below the grandfathered product. And even better…it can be someone else’s grandfathered product!! Granted, that is going to require some industry cooperation, but this is great news.
So in a nutshell i see it like this: compliance made easy:
1. Identify grandfathered products
2. Test grandfathered products for HPHC’s to get baseline levels
3. Identify new products
4. Test new products for HPHC levels
5. If at or below grandfathered product…pass! If above, just look for another grandfathered product because chances are someone out there has a grandfathered one with higher levels than your new one!
I know I’ve over-simplified this, and with all the reporting and changes and monitoring, this will no doubt be a pain in the ass. But the industry will survive, and everyone who puts on their helmet and learns how to ride down this crazy SE pathway will be stronger and better positioned than those who decided to fight it instead of doing the smarter approach: beating it.
I will post more on this in the near future. The testing regiment and nuts-and bolts part of the SE application will surely bring up new issues, but from a broad perspective…this could definitely be much worse!