The Supreme Court recently announced it will review a case where the FDA denied marketing approval for two e-cigarette markers selling flavored products. The FDA is looking to appeal a 5th Circuit Court of Appeals decision, ruling that the rejections were “arbitrary and capricious” and “unannounced requirements for certain types of studies.”
Since 2016, when the FDA extended Pre-Market Tobacco Application (PMTA) requirements to e-cigarettes, Big Tobacco has tightened its grip on the market. The onerous requirement of the pre-market approvals has made it harder for smaller e-cigarette companies to compete. Many independent vape shops and e-juice makers had to choose between selling e-cigarette products to willing buyers without the FDA’s permission, or filing for bankruptcy.
Before FDA oversight, the top-selling e-cigarette brand was not owned by big tobacco. Most popular brands now are owned by Atria or RJ Reynolds (leading the pack with 38.5 percent market share). They are proving that the FDA-mandated PMTAs are an effective barrier to entry into the US market.
But SCOTUS has an opportunity this October to loosen Big Tobacco’s government-granted monopolization of nicotine. Upholding the 5th Circuit’s opinion will not only be a benefit to public health and harm reduction efforts, but also increases competition in the e-cigarette market. The high court striking PMTAs down will reduce barriers to entry, discourage rent-seeking, and give vapers more options.
Unfortunately, the stringent pre-market approval requirements set by the FDA have prevented smaller companies from entering the market. The costs of compliance can be prohibitively high. Per the Reason Foundation, the FDA estimates that the application process can cost “between $117,000 and $466,000”, but compliance could cost millions. The 5th Circuit ruled that the FDA requirements were vague and didn’t provide “sufficient notice.” To top it all off, the FDA also requires clinical studies assessing “the public health risks” of alternatives to cigarettes.
The complex web of red tape and compliance costs makes it difficult for smaller producers to sell their products. Larger firms have the “financial and legal resources” to comply with the FDA’s demands. For example, Phase 1 of a clinical trial can cost anywhere from $1.4 to $ 6.6 million, a drop in the bucket for an established consumer product corporation but a death sentence for a startup. In 2020, these burdensome requirements had over 14,000 businesses consider shuttering their doors.
The cigarette companies are aware of the comparative advantage that costly regulatory compliance gives them over smaller producers. Cigarette sales have been declining for years, but the emergence of e-cigarettes has accelerated this trend. Cigarette makers responded by purchasing existing vape producers (Juul) and backing expensive, anti-competitive regulation. The tobacco firms have even restored to direct rent seeking. Commentators have speculated that the big players favored the “Tobacco 21” law as the impetus for more regulations. The CEO of Altria has even called for a “crackdown” on the flavored e-cigarettes coming over from China.
As observed by economist Bruce Yandle, there is a “demand for regulation” among incumbent producers. Continuing to push for regulation, such as flavor bans and extensive approvals, allows large producers to secure profits without innovating. Innovation is a strength of the independent producers, as they are more in touch with vapers. Frequently, they are individuals looking to quit smoking or vape themselves, allowing them to foresee the needs of the consumer by being able to empathize with them.
One of the best examples of this was Juul, before it was acquired by Altria. A company founded by smokers who wanted to quit improved the e-cigarette experience by introducing nicotine salts, which made vaping smoother and more satisfying.
Studies have found that flavored e-cigarettes have been found more effective at helping smokers quit than tobacco-flavored devices. The fruity or sweet-flavored vapor helps smokers break the association between tobacco and nicotine. E-cigarettes used to be a boutique industry, with no shortage of options for nicotine addicts to snuff out their cigarette habit.
The FDA’s gatekeeping of e-cigarettes through regulations has drastically reduced the number of legal e-cigarettes to choose from. PTMAs and procedural barriers have limited the quantity and quality of e-cigarettes, to use the the consumer welfare standard of antitrust law. The FDA so far has only approved devices owned by Big Tobacco.
None of these devices seem to make the list of top e-cigarette brands within the vaping community. The only flavor to receive the FDA seal of approval has been menthol. Limiting the supply of products sold and marketed limits options and raises prices.
Much like the failure of drug prohibition, the FDA’s restrictions have not prevented unapproved flavored e-cigarettes from entering the US market. Vapers continue to purchase Chinese devices from the internet or from black-market suppliers. The sale of bootleg devices has created an additional public health crisis, EVALI.
The CDC found that 84 percent of the EVALI cases involved black-market e-cigarettes. When e-cigarette options are limited enough, many vapers will return to smoking cigarettes. Even when faced with flavor restrictions, 87 percent of vapers indicated that they would continue to use nicotine products. The most popular alternative in the United States is combustible cigarettes, a leading cause of cancer.
The FDA’s pre-market approval process is not only legally dubious but has allowed tobacco companies to retain their dominance of the market and push out smaller competitors. It is one thing if a firm dominates a market because it produces a superior product or service, but this isn’t the case. Cigarette producers have been losing ground for years, and intense scrutiny from the FDA over e-cigarettes was a blessing for them. Hopefully, SCOTUS addressing this administrative flaw will curb the undeserved market dominance of Big Tobacco.
