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Vapor Technology Association Amicus Brief In Support Of Fifth Circuit Rehearing En Banc

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New Orleans, LA – September 9, 2022  – The Fifth Circuit granted the Vapor Technology Association’s (VTA) unopposed motion to file an amicus brief in support of Petitioners’ Petition for a Rehearing En Banc in the case Wages & White Lion Investments, a/k/a/ Triton Distribution v. FDA.

Recently, a panel of Fifth Circuit judges denied Triton Distribution’s appeal of the FDA’s market denial order (MDO) for its flavored e-liquid products in a 2-1 decision.  Thereafter, Triton filed a Petition for en banc review, asking the entire Fifth Circuit to reconsider the ruling. 

VTA’s amicus brief supports Triton’s request by explaining that it involves issues of “exceptional importance” necessitating review by the entire Fifth Circuit Court of Appeals.   VTA’s amicus brief highlights three key points:

  1. Economist John Dunham & Associates’ evaluation of the adverse economic impact that the ruling would have if it lead to the removal of all flavored open-system vaping products from the states comprising the 5th Circuit (Louisiana, Mississippi, and Texas);
  2. The leading tobacco-control scientists who have warned that removing flavors will deter adult smokers from quitting and have recommended limiting the sale of flavored vaping products to adult-only stores; and
  3. The results of VTA analysis of FDA’s compliance data between 1/1/20 and 6/30/22 which reveals:
    1. The rate of illegal youth sales of cigarettes and cigars are twice the rate of vaping products;
    2. Of all violations for youth vaping sales, only 3.61% occurred in true brick and mortar vape shops with nearly 80% occuring in non-age-restricted facilities; and
    3. 60% of all youth vaping sales violations involved traditional tobacco flavors (tobacco, mint, menthol) with less than 40% involving other flavors which the 5th Circuit’s ruling would adversely limit.

VTA’s full amicus brief + the economic impact report is available HERE.

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Bloomberg Law Calls VTA Unlikely FDA Ally

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DEEP DIVE

The FDA has gained an unlikely ally in its plans to ban menthol cigarettes—a leading vaping trade group that wants to see smokers switch to e-cigarette products.

The agency received hundreds of thousands of comments on its effort to target menthol and other flavored tobacco products that can make smoking harder to quit. The Vapor Technology Association, which represents an industry typically known for its combative relationship with the Food and Drug Administration’s Center for Tobacco Products, says it wants to see the proposal go through, so long as the FDA authorizes more e-cigarettes as an alternative.

“Removing menthol cigarettes from the marketplace is an important step forward, presuming that the agency does what it needs to do in terms of securing and providing alternative products that are legal and authorized and getting them introduced into the marketplace,” VTA Executive Director Tony Abboud said in an interview.

One proposed rule (RIN 0910-AI60) would prohibit tobacco manufacturers and retailers from making, distributing, and selling cigarettes containing menthol as a flavor. The second (RIN 0910-AI28) would ban all characterizing flavors, including menthol, in cigars.

Public health and anti-tobacco groups say the proposals would go far in the FDA’s efforts to reduce negative health outcomes and disparities fueled by products disproportionately used by Black Americans and other minority groups. The FDA has warned that menthol can make smoking more addictive and appealing, especially among youth.

The vaping industry has long framed its products as a way for smokers to transition away from combustible tobacco. But health groups say that offering products as an off-ramp for traditional cigarette and cigar users isn’t part of the FDA’s mandate, and that there’s not enough evidence for the agency to take an official stance on e-cigarettes as a reduced-harm alternative.

The FDA has said it likely won’t be able to complete its review of tobacco-based e-cigarette marketing applications until June 30, 2023—nearly two years after a court-imposed deadline of Sept. 9, 2021. It’s so far authorized 23 electronic nicotine products and recently ordered Juul Labs Inc. to remove its products from the US market, but subsequently stayed that order pending further review.

The agency said in an email that it couldn’t comment on a specific timeline for reviewing public input on the menthol proposals, but added that it plans to “move carefully and quickly in considering all public comments received and determining next steps to protect public health.”

The FDA said it may ultimately “decide to end the rulemaking process, to issue a new proposed rule, or to issue a final rule.”

Harm Reduction

The VTA said in comments to the FDA that it supports the menthol ban in cigarettes, but that it should do more to help adult smokers.

“VTA promotes regulation that can hasten the reduction in smoking cigarettes and that focuses on the critical importance of tobacco harm reduction as an essential public policy objective,” the group said in its letter.

In addition to the proposed ban, the FDA should “simultaneously accelerate the review and approval of menthol vaping products and other flavored vaping products,” Abboud said in an interview.

“If you’re going to take away cigarettes from a large population of consumers that are addicted to those products, you must provide them alternatives,” Abboud argued.

“Otherwise, we fear the worst happens,” he added, noting 2021 research cited by the FDA that estimates nearly 46% of menthol smokers ages 35 to 54 would become non-menthol tobacco cigarette smokers after a ban.

“That is not the best public health outcome that we can have,” Abboud said. “When you think about how popular menthol cigarettes are, the goal is to get them off of cigarettes altogether.”

Youth Risks

Tobacco policy analysts say there isn’t clear evidence that e-cigarettes is a less harmful alternative, and that such benefit must be balanced with the risks that youth will become smokers through vaping.

In 2021, roughly 39% of middle- and high-school smokers in the US reported frequently using e-cigarettes, compared to 19% for cigarettes and nearly 21% for cigars, according to the Centers for Disease Control and Prevention’s annual National Youth Tobacco Survey.

The only people likely to benefit from flavored e-cigarettes as a reduced-harm alternative are current cigarette smokers, Joanna Cohen, director of Johns Hopkins University’s Institute for Global Tobacco Control, said.

“It’s not reduced harm when you’re not using any tobacco product,” said Cohen, who recently served as a voting member on the FDA’s Tobacco Product Scientific Advisory Committee.

Joelle Lester, director of Commercial Tobacco Control Programs at Mitchell Hamline School of Law’s Public Health Law Center, said that while e-cigarette companies have argued the “potential” for their products as a “harm reduction strategy or cessation strategy, they haven’t demonstrated it to the FDA.”

“We don’t have to wonder about the harm for youth initiation or the role that menthol plays, because we know a lot about that already,” Lester said. “I don’t think that those should hold equal weight.”

Health Disparities

Public health groups say that the FDA should move ahead quickly with the menthol and flavor bans as a pivotal step forward to address health disparities.

“FDA’s public health mission requires it to finalize the proposed rule to permit its life-saving benefits to be realized as quickly as possible,” the Campaign for Tobacco-Free Kids and the American Lung Association said in a joint letter to the FDA along with more than 100 other patient advocacy and medical groups.

They added that the tobacco industry “has targeted Black Americans with marketing for menthol cigarettes for decades,” and that “Black Americans suffer a disproportionate toll of the disease and death caused by menthol cigarettes.”

“By increasing cessation in these communities, the proposed rule will reduce smoking-related health disparities and increase health equity,” they added.

In a separate letter on the proposed flavored cigar ban, the groups said that these products use flavors to “help mask the harshness of cigars,” making them especially attractive among youth. They added that the tobacco industry “targets Black youth with cheap, flavored cigars,” resulting in a “disproportionate impact on underserved populations.”

Nearly 85% of non-Hispanic Black smokers report using menthol cigarettes, compared with just 30% of non-Hispanic White smokers, according to the FDA. The agency has also said that in 2020, the 30-day cigar smoking levels for non-Hispanic Black high school students were twice as high as White students.

Cohen said it’s “long overdue to get menthol cigarettes banned in this country,” as places like Canada and the European Union have already instituted similar policies.

Lester said that the FDA should also be “directing additional cessation support for whom this is an opportunity to quit smoking altogether,” especially communities of color that tobacco companies have historically targeted in their product marketing.

“It’s the FDA’s responsibility to deliver sufficient support in the same sort of targeted careful way,” Lester added. “We want to make sure we’re reaching the most affected communities.”

Michael Bloomberg has campaigned and given money in support of a ban on flavored e-cigarettes and tobacco. Bloomberg Law is operated by entities controlled by Michael Bloomberg.

(Updated with comments on the proposed cigar ban in the 26th paragraph.)

To contact the reporter on this story: Celine Castronuovo at ccastronuovo@bloombergindustry.com

To contact the editors responsible for this story: Alexis Kramer at akramer@bloomberglaw.com; Cheryl Saenz at csaenz@bloombergindustry.com

Celine Castronuovo

Reporter

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VTA Meets with FDA Again on Synthetic Nicotine PMTAs

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VTA MEETS WITH FDA FOR SECOND TIME IN
30 DAYS ON SYNTHETIC NICOTINE PMTAS

Washington, D.C. – May 3, 2022 –  As we reported on April 13, immediately after the new law governing synthetic nicotine was signed by President Biden, the Vapor Technology Association (VTA) knew that it had to engage with the U.S. Food & Drug Administration’s Center for Tobacco Products (CTP) on the issue of synthetic nicotine and we did so in early April.  During that meeting with dozens of CTP regulators from seven different offices inside CTP, we presented a thoughtful case for synthetic nicotine products that, to our knowledge, had not yet been made to any policy maker.  As we previously explained, we were encouraged by CTP’s level of engagement, but also knew that urgent follow up would be necessary given the arbitrarily short deadline imposed by Congress for the filing of synthetic nicotine pre-market tobacco applications (PMTAs).
To that end, yesterday, VTA’s Board of Directors and members conducted their second meeting in less than 30 days with CTP, this time with CTP’s Office of Science.  The meeting organized by our executive director ensured that the most relevant and accurate scientific picture of synthetic nicotine was presented through experts who have deep experience in tobacco and nicotine science and regulation, including Dr. Bill Jackson, PhD (Organic Chemistry), Dr. David Johnson, PhD (Physical Analytical Chemistry), Dr. Ray McCague, PhD (Organic Chemistry), and Dr. Willie McKinney, PhD (Inhalation Toxicology).  Importantly, Dr. Johnson and Dr. McKinney also have extensive experience with the FDA having, among other things, previously served on FDA’s Tobacco Products Scientific Advisory Council.
During the meeting, our experts were able to dig in on the science of synthetic nicotine explaining the processes by which synthetic nicotine is manufactured, the scientific purity of certain forms of synthetic nicotine, the similarities and differences between synthetic nicotine and tobacco-derived nicotine, the differences between synthetic nicotine products and cigarettes, and the numerous unique benefits that would be realized by the successful introduction of products containing synthetic nicotine into the marketplace.  Most importantly, we were able to discuss how science can and must be the driver of this PMTA process.
As with our first meeting, we are encouraged by the level of engagment by the Office of Science on this issue.  And, we greatly appreciate the participation of numerous FDA scientists from the various responsible divisions within the office with whom we were able to share our scientific knowledge and advanced thinking on the key issues.
But, our work is not done.  These meetings, and the additional meetings that we are working on, are just part of VTA’s multi-pronged strategy to ensure the proper and full assessment of synthetic nicotine PMTAs.  If your company is manufacturing products containing synthetic nicotine and is serious about regulatory compliance, or if your retail operation wants the ability to continue to diversify its retail offerings with synthetic nicotine products, or if you want to have continued access to innovative products containing synthetic nicotine, you should strongly consider being engaged in our strategic efforts.
To learn more about what you can do, please reach out to us. 
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VTA Meets with FDA; Makes Case for Synthetic Nicotine

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VTA Meets with FDA on New Federal Synthetic Nicotine Law
 Washington, D.C. – April 13, 2022 – After passage of the new law governing synthetic nicotine last month, VTA had to adjust its prior strategy and immediately began working on a strategy to ensure a viable path for companies which are selling products containing synthetic nicotine and which are serious about regulatory compliance.  A serious strategy for companies intending to file substantive applications would require at least two critical elements.
First, we knew that it would be critical to engage with FDA to give the Agency reasons to take seriously the PMTAs that will be filed.  We knew that we had to present to FDA the scientific and public health benefits to the consumer and the Agency of encouraging the development and marketing of products containing synthetic nicotine.   We knew that we had to counteract the narrative the synthetic nicotine products exist only to circumvent FDA regulation – a point that has been made by FDA and Members of Congress.  We knew that we had to give FDA new reasons to use its enforcement discretion to engage in a full scientific analysis of synthetic nicotine PMTAs.  And, we knew that we had to immediately act given the short time frames imposed by the new law.
To that end, last week, VTA’s Board of Directors and members met with the FDA Center for Tobacco Products (CTP) on the issue of synthetic nicotine.  In attendance was a large group of FDA personnel (35+), including senior leaders, representing seven different offices inside CTP dedicated to addressing the issue of synthetic nicotine.  Our team included presentations by three Ph.D’s in Organic Chemistry and Physical Analytical Chemistry, enabling us to frame critical scientific and public policy issues that we believe had not previously been presented to or considered by the FDA.  We are encouraged by the meeting and are now working on the necessary follow-up.
Second, we knew that it would be critical to educate Members of Congress on synthetic nicotine who have been fed a negative and narrow narrative that synthetic nicotine products are merely an attempt at circumventing regulation. It is clear that Members of Congress know little to nothing about how and why synthetic nicotine was invented or what synthetic nicotine products offer by way of benefits to the public.  To that end, VTA’s lobbying team – which has been working to defend the industry and promote a consistent message on harm reduction since 2015 – has developed a strategic plan for taking the same message we shared with FDA to Congress and for that we are going to need your help.
How You Can Help.  As with every other major challenge, we know that a sound and strategic approach can reap benefits but only if approached in a thoughtful manner and if supported with adequate resources.  VTA is the trade association that has had a continuous seven-year lobbying presence on Capitol Hill.  We have been at the center of every major fight on vaping.  While we have not won every fight, we played a pivotal role in every victory and, in so doing, dramatically extended the time our harm reduction industry had to grow.  Here are a few examples:
• getting the PMTA deadline extended from 2018 to 2022 (before it was snapped back to 2020),
• stopping multiple federal and state flavor ban bills,
• stopping Cuomo’s flavor ban executive order in court,
• convincing President Trump to reverse the flavor ban he announced in 2019,
• stopping the PACT Act bill three times before it finally passed, and
• defeating last year’s huge vape tax bill that would have imposed the first federal tax on vaping products which would have been 9 times higher than the cigarette tax.
If your company is manufacturing products containing synthetic nicotine and is serious about regulatory compliance, or if your retail operation wants the ability to continue to diversify its retail offerings with synthetic nicotine products, or if you want to have continued access to innovative products containing synthetic nicotine, we need your help and you need to be plugged into our campaign.  
So, please join our team and support our efforts today.  Your support has made everything we have done (and are doing) possible and will be critical to future success. 

SUPPORT OUR WORK ON SYNTHETIC NICOTINE!
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Negative Economic Impacts of Omnibus Synthetic Nicotine Language – STATE BY STATE

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NEGATIVE ECONOMIC IMPACTS OF THE
PROPOSED SYNTHETIC NICOTINE LANGUAGE 

IN THE FEDERAL OMNIBUS BILL

This morning it was revealed that Congressional leaders are planning to include language in the federal Omnibus spending legislation that would effectively ban synthetic nicotine.  This would occur because the proposed bill would impose a Pre-Market Tobacco Application (PMTA) filing deadline of just 90 days after passage for any product containing synthetic nicotine.  Everyone who understands anything about PMTAs knows that no such application can be filed within that short timeframe, particularly because FDA requires at least 6 months of scientific data for such an application.

Our economist, John Dunham & Associates, evaluated the negative economic impacts that this legislation would reap for the U.S. and for each state.  Here are the findings for the United States:

LOST JOBS:                                   16,100

LOST WAGES:                               $ 802,216,700

LOST ECONOMIC OUTPUT:        $ 2.5 billion

—————————————

LOST FEDERAL & STATE TAXES:   $328,188,500

LOST CONSUMPTION TAXES:       $198,930,000

TOTAL LOST TAXES:                       $527,118,500

You can find the details on the negative impact on the U.S. economy here.

Also, you can find the negative impact on YOUR state below.

STATE BY STATE BREAKDOWN OF LOST JOBS, WAGES, TAXES AND ECONOMIC OUTPUT

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

The Negative Economic Impacts of the New Nicotine Tax Imposed Only on Vapor Products In the Reconciliation Bill (HR 5376)

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Prepared by John Dunham & Associates


for the Vapor Technology Association

December 2021

THE NEGATIVE ECONOMIC IMPACTS OF THE
NEW NICOTINE TAX IMPOSED ONLY ON VAPOR PRODUCTS

IN THE RECONCILIATION BILL (HR 5376)

Executive Summary

Background

·       The vapor product industry is an important part of the US economy.  About $8.1 billion in vapor sales lead to 133,600 jobs and $22.1 billion in economic activity. 

·       About 35,000 of these jobs are held by people working for the over 9,850 independent adult-only, retail vape shops located across the country.  Even so, the number of independent adult-only, vape shops has fallen by 27 percent since 2018 as a result of new state and federal taxes and regulations. 

·       Congress is currently deciding whether to impose a new tax only on vapor products of 2.78-cents per milligram of nicotine, believing that such a tax would “equalize” or create “parity” with cigarette taxes.

Conclusions

·       Our analysis finds that the bill would not create anything close to parity with cigarette taxes but, rather, would tax vapor products at a much higher rate – up to nine times higher – than the tax on a pack of cigarettes.

·       Our analysis also finds that, if passed, the proposed nicotine tax in the Reconciliation Bill:

o   Would lead to a net price increase on vapor products at retail of about 53 percent (21.2 percent for a standard two-pack of closed-system pod products and 73.5% for a standard 60 milliliter bottle of open system e-liquid), while the price of cigarettes and other tobacco products would remain unchanged as they would not be subject to any additional federal tax.

o   Would lead to a reduction of nearly 42,800 full-time equivalent jobs and the loss of $2.2 billion in wages and benefits.

o   Would negatively impact the size of the overall economy which would fall by about $7.0 billion.

o   Would result in states and their localities losing $620.1 million in taxes while the federal government attempts to generate revenues.

o   Would lead to a loss of about 31.9 percent of vapor product sales or 3.7 million milliliters of e-liquid consumed.  Of this loss, 61.2 percent would be the result of consumers switching to other tobacco products, including combustible cigarettes.  An additional 18.5 percent of these lost sales would move to the black market.

Table 1
Economic Impact of Proposed Nicotine Vapor Product Tax Increase

 DirectSupplierInducedTotal
Jobs-21,331-8,974-12,470-42,776
Wages-$869,866,251-$636,356,853-$707,328,020-$2,213,551,124
Economic Output-$2,562,607,363-$2,205,386,235-$2,255,024,480-$7,023,018,078
State and Local Taxes   -$620,087,422

Background on the Proposed Nicotine Tax Increase in HR 5376

The U.S. Senate is currently considering the Reconciliation Bill, known as HR 5376, which was recently passed by the U.S. House of Representatives.  As passed by the House, HR 5376 would impose a new tax only on e-cigarettes or vapor products containing nicotine that are manufactured in or imported into the United States in the amount of $50.33 per 1,810 milligrams of nicotine.  The nicotine tax rate would be $0.0278 for each milligram of nicotine in a vapor product ($50.33 / 1810 milligrams of nicotine = 2.78-cents/mg). In HR 5376, taxes on existing tobacco products, including combustible cigarettes, would remain unchanged.[1]


The proposal claims to equalize the tax on e-cigarettes at the same rate as cigarettes, at least at the Federal level, in an effort to create parity between the products.  However, our analysis finds that the bill would not create anything close to parity with cigarette taxes but, rather, would tax vapor products at a much higher rate – up to nine times higher – than the tax on a pack of cigarettes.

The current federal tax on cigarettes is $50.33 for every 1000 cigarettes, which amounts to a federal tax of $1.01 for a pack of cigarettes ($50.33 / 1000 = $0.05033 x 20 cigarettes per pack).  

A pack of cigarettes contains approximately 204 milligrams of nicotine (10.2 mg/cigarette x 20 cigarettes per pack).  Applying the proposed nicotine tax of 2.78-cents per milligram to cigarettes, means that the tax on a pack of cigarettes should be $5.41, not $1.01. 

Viewed another way, the federal tax on cigarettes, if applied to their nicotine content, would only amount to less than half a penny per milligram, not the 2.78-cents Congress seeks to impose on e-cigarettes ($1.01 per pack / 204 mg of nicotine per pack).

As defined in the bill, the proposed tax would be equal to about $2.22 on the standard closed system nicotine vapor product (such as a two pack of JUUL pods), and an astonishing $10.01 on the standard average 60 milliliter bottle of nicotine containing e-liquid used in an open system vapor device. The following table shows the significant tax differential on a per unit and as a percentage of the retail price for each of these products and demonstrates that HR 5376 fails to create any parity, but significantly overtaxes e-cigarettes, making cigarettes more financially attractive.

Table 2
Comparison of Proposed Nicotine Tax to Actual Cigarette Taxes in the United States

 Cigarettes(pack)Closed-System Vape (2-pods)Open-System Vape (60ml)Cigarette Tax < Closed-SystemCigarette Tax < Open-System
Tax Per Unit$1.01$2.22$10.01-120.3%-891.1%
Tax as Percent of US Retail $14.4%21.2%73.5%-47.1%-410.2%
Tax Per Mg of Nicotine0.5-cents2.8-cents2.8-cents-461.6%-461.6%

The Negative Effect of Recent Taxes and Restrictions on the Vaping Industry

The nicotine vapor industry is an important segment of the American economy; however, a range of new laws including a ban on most flavored nicotine vapor products, increased age-of-use, and the imposition of taxes and bans at the state and local levels have already led to significant losses in jobs and tax revenues from the sector.

The first comprehensive analysis of the economic impact of the industry in the country was completed in 2018.[2] At that time, over 166,000 jobs depended on the production and sale of vapor and electronic cigarette products. Those holding these jobs received nearly $7.9 billion in wages and benefits, while generating almost $24.5 billion for the US economy.  (Table 3)

In 2018, the Federal government received about $1.9 billion in various tax revenues from the industry’s businesses and employees. State and local governments received about $1.5 billion in tax revenues from the industry and its employees, and an additional $909.0 million in state excise and sales tax revenues from adult consumers who purchased nicotine vapor products during that year. (Table 3)

Table 3

Economic Impact of Nicotine Vapor Industry in the United States (2018)

 DirectSupplierInducedTotal
Jobs87,58129,42748,999166,007
Wages$3,277,220,400$2,092,844,100$2,527,825,000$7,897,889,500
Economic Output$9,151,211,700$7,272,386,500$8,033,914,100$24,457,512,300
     
Federal Taxes   $1,860,313,877
State and Local Taxes   $2,359,821,765
  Taxes on Businesses and Employees  $1,450,820,541
  Consumption Taxes   $909,001,224
Total Taxes   $4,220,135,642

 Of the jobs created by the industry in 2018, nearly 87,600 were direct jobs, including people working in the vapor product manufacturing and distribution chain, and most importantly, 58,430 jobs were at small, independent vapor retail stores, or vape shops.[3],[4]  (Table 4)

Table 4

Breakdown of Independent Vape Shop Jobs (2018)

 JobsPercent of JobsStores
Direct Jobs87,574100.0% 
Vape Shop Jobs58,42966.7%13,481

In 2021, we completed a full review of the current vapor industry to determine the current state of the industry.[5]  We found that following the imposition of significant restrictions on the sale of these products at the Federal, state and local levels, the impact of the vapor industry has decreased by about 11.6 percent.  Even so, it is still a major contributor to the US economy, and an even larger taxpayer.  (Table 5) 

While employment is down by about 32,400 jobs in the industry itself (or 24.2 percent), sales are down by just 11.6 percent.  At retail, due to higher prices, sales are down by just 9.7 percent.  However, this was before the FDA required that most vapor product producers pull their items from the shelves.[6]

Overall, due to higher state excise and sales tax rates, the amount collected by government’s has increased by about $494.2 million or 11.7 percent.

Table 5

Current Economic Impact of Nicotine Vapor Industry in the United States (2021)

 DirectSupplierInducedTotal
Jobs66,36428,09839,111133,575
Wages$2,741,178,400$2,018,273,300$2,243,794,900$7,003,246,600
Economic Output$8,087,436,700$6,879,165,500$7,124,240,600$22,090,842,800
     
Federal Taxes   $1,480,211,544
State and Local Taxes   $3,234,123,298
  Taxes on Businesses and Employees  $1,351,790,191
  Consumption Taxes   $1,882,333,107
Total Taxes   $4,714,334,842

A new federal tax on nicotine of 2.78-cents per milligram, as proposed in HR5376 will increase smoking in the United States, as people switch from more expensive vapor products to less expensive cigarettes. Not only will cigarette taxes be substantially lower than vapor taxes under the House bill, but the bill will increase cigarette sales.

In fact, the tax is regressive and a new tax on consumers making less than $400,000 a year.  It would also make cigarette taxes 9 times lower than those on less harmful vapor products.


The Negative Economic Effects of a New Regressive Tax on Nicotine Vapor Product Sales

Based on an analysis conducted by JDA, were the Federal government to impose a new tax on the sale of nicotine vapor products in HR 5376, the impact on the economy would be more than $7.0 billion, with as much as 3.7 billion milliliters in lost sales.[7] 

As many as 42,800 jobs would be lost throughout the country – at a time when nearly 2.6 million people are looking for work. Moreover, the jobs lost as a result of the proposed tax would result in a loss of $2.2 billion wages. Further, state and local governments would lose about $620.1 million in taxes from the vapor industry and its consumers.

Table 6

Economic Losses Resulting from a 2.78-cents per MG Tax on Nicotine Vapor Products

 DirectSupplierInducedTotal
Jobs-21,331-8,974-12,470-42,776
Wages-$869,866,251-$636,356,853-$707,328,020-$2,213,551,124
Economic Output-$2,562,607,363-$2,205,386,235-$2,255,024,480-$7,023,018,078
State and Local Taxes   -$620,087,422

Most importantly, a large number of the remaining 9,847 independent adult-only vapor shops would likely be forced to close, since their fixed costs could far outweigh any remaining sales.

These small, often family-owned retailers have already suffered under the regulations imposed on vapor products.  Between 2018 and 2021, over 3,630 of these stores have shut their doors, putting almost 23,500 people out of work.  These are real people, with real jobs, located throughout the United States.[8]

Table 7

Losses in Adult-Only Vapor Shops Since 2018

As of 2021JobsPercent of JobsStores
Direct Jobs66,364100.0% 
Vape Shop Jobs34,95752.7%9.847
Change from 2018JobsPercent ChangeStoresPercent Change
Direct Jobs-21,210-24.2%  
Vape Shop Jobs-23,472-40.2%-3,634-27.0%

Nicotine Tax Will Increase Cigarette Smoking and Black Market Sales

Economists have long known that for all normal goods, such as vapor products, higher prices lead to lower sales.  That is the nature of most markets and was first contemplated by the 256th couplet of Tirukkural, which was composed around the year zero.[9]

It was not until 1767 that the phrase “supply and demand” was first used by Scottish writer James Denham-Steuart in his Inquiry into the Principles of Political Economy.[10] Adam Smith popularized the term in his 1776 book The Wealth of Nations and brought it to the forefront of economic theory.[11]  In effect, higher taxes lead to higher prices which in turn would lead consumers to either: 

1)               Completely stop using nicotine products,

2)               Switch to another tobacco product, such as cigarettes,

3)               Continue to vape but purchase their products over the already growing black market.

Table 8

Shift in Vapor Sales to Combustible Cigarettes or Other Nicotine Products

 MillilitersPercent
Current Vapor Sales11,692,582,699 
Lost Vapor Sales-3,732,570,585 
   
Of Which  
  Switch to Other Products-2,283,717,02861.2%
  Quit-757,711,82920.3%
  Black Market-691,141,72918.5%

JDA’s modeling suggests that a large portion of consumers would react by purchasing unregulated products over the black market or make their own e-liquids. Overall, the market for vapor products would fall by about 31.9 percent, with 18.5 percent of that shifting to black market sales.  Of the remaining 81.5 percent of lost sales, 20.3 percent would be due to vapor users quitting the use of nicotine products entirely, while the remainder, 61.2 percent would result from consumers shifting to other nicotine-based products including combustible cigarettes.[12]

These figures (which reflect a price increase resulting from the tax of 53 percent) are conservative and are not out of line with other studies examining the substitution of vapor products and combustible cigarettes when taxes are imposed. 

For example, a study analyzing Minnesota’s 2013 tax on e-cigarettes suggested that it led to increased adult smoking and reduced smoking cessation.  The analysis suggested that there was cross elasticity of current smoking participation with respect to e-cigarette prices of 0.13.[13]  Note that this suggests that a 53 percent increase in the price of vapor products would increase smoking incidence by 6.89 percent.  Since about 34.1 million Americans currently smoke cigarettes, this would lead to an increase in the number of smokers of 2.16 million individuals.[14]  Since an estimated 8.1 million adults are vapor users, this would mean that more than a quarter of these people would switch to cigarettes.[15]

Still other studies have shown even higher demand elasticities and levels of substitution that are modeled here.[16]

– John Dunham & Associates, 2021

[1]               See Rules Committee Print 117-17 Text Of Hr 5376, Build Back Better Act, November 3, 2021, found at https://rules.house.gov/sites/democrats.rules.house.gov/files/BILLS-117HR5376RH-RCP117-18.pdf 

[2]               The Vapor Industry Economic Impact Study (2018), Prepared for Vapor Technology Association, by John Dunham & Associates, April 29, 2019.

[3]               Ibid.  This includes as many as 3,094 jobs (803 shops) in Florida, 2,832 jobs (614 shops) in Ohio, 2,280 jobs (533 shops) in Pennsylvania, 1,522 jobs (359 shops) in Michigan and 898 jobs (204 shops) in Wisconsin.

[4]               In addition, there are 11,920 full-time equivalent jobs created by vapor product sales at traditional retailers like supermarkets, convenience stores, drug stores, and department stores.

[5]            The Vapor Industry Economic Impact Study (2021), prepared for Vapor Technology Association, by John Dunham & Associates, September 20, 2021.

[6]               See for example: FDA Denies Marketing Applications for About 55,000 Flavored E-Cigarette Products for Failing to Provide Evidence They Appropriately Protect Public Health: Action Marks First Marketing Denial Orders for E-Cigarette Products; Press Release, Food and Drug Administration, August 26, 2021, at: https://www.fda.gov/news-events/press-announcements/fda-denies-marketing-applications-about-55000-flavored-e-cigarette-products-failing-provide-evidence

[7]               Based on a multi-state, multi-market demand model developed for the Vapor Technology Association by John Dunham & Associates, 2021.

[8]               The proposed federal tax on vaping liquids would harm small businesses, resulting in a 31.9 percent reduction in their overall sales. Very few businesses can withstand such a reduction in revenues.

[9]               Chendroyaperumal, Chendrayan, The First Laws in Economics and Indian Economic Thought – Thirukkural, SSRN, January 29, 2010, at: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1545247 The citation states: if people do not consume a product or service, then there will not be anybody to supply that product or service for the sake of price.

[10]              Steuart, James, An Inquiry Into the Principles of Political Oeconomy: Being an Essay on the Science of Domestic Policy in Free Nations, James Williams; and Richard Moncrieffe, 1770.

[11]              Smith, Adam, An Inquiry into the Nature and Causes of the Wealth of Nations, (London: Methuen and Co., Ltd.), 1904.

[12]             Quit rates from: Estimating Consequences of a Ban on the Legal Sale of Menthol Cigarettes, prepared by Compass Lexecon for Lorillard Tobacco Company, January 19, 2011.  On-line at: https://www.thecre.com/ccsf/wp-content/uploads/2011/03/compass_1_19_2011.pdf  According to its website, Compass Lexecon is one of the world’s leading economic consulting firms.

[13]             Based on a 40.7 percent increase in price. See: Saffer et al., E-Cigarettes and Adult Smoking: Evidence from Minnesota, NBER Health Economics Program, December 2019, at: https://www.nber.org/papers/w26589

[14]             Fast Facts and Fact Sheets, Centers for Disease Control and Prevention, at: www.cdc.gov/tobacco/data_statistics/fact_sheets/index.htm?s_cid=osh-stu-home-spotlight-001

[15]             Villarroel, Maria, et. al., Electronic Cigarette Use Among U.S. Adults, 2018, NCHS Data Brief No. 365, April 2020 at:  www.cdc.gov/nchs/products/databriefs/db365.htm

[16]           Cotti, Chad, et al., The Effects of E-Cigarette Taxes One-Cigarette Prices and Tobacco Product Sales: Evidence From Retail Panel Data, National Bureau of Economic Research Working Paper 26724, Revised April 2021, at: http://www.nber.org/papers/w26724

Gov. DeSantis Vetoes Flavor Ban SB 810!

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VAPOR TECHNOLOGY ASSOCIATION APPLAUDS GOVERNOR DESANTIS FOR DECISION TO VETO ADULT FLAVOR BAN BILL

Governor DeSantis is the First Governor to Veto A Flavor Ban

Washington, D.C. – September 9, 2020 – The Vapor Technology Association (VTA) applauds Florida Governor Ron DeSantis (R) for his decision to veto SB 810, a flavor ban. SB 810 was passed by the legislature in March of this year under the mistaken belief that it would raise the age to purchase vapor products to 21. But, due to federal legislation passed in December 2019, the legal age to purchase vapor products was already 21 in Florida making that portion of the bill “superfluous” in the Governor’s words.

“Governor DeSantis has shown true leadership and understanding in his decision to veto SB 810,” said Tony Abboud, Executive Director of the Vapor Technology Association. “On behalf of all the vapor companies, large and small, and the more than one million vapers in the state of Florida, VTA thanks Governor DeSantis for his bold decision to protect Florida’s public health and economy, which comes at a time of great uncertainty for many. This is the positive reinforcement the industry and the people of Florida need.”

The Vapor Technology Association worked closely with the Florida Smoke Free Association, a VTA member association, to educate legislators throughout the legislative session and had moved a meaningful regulatory bill that would have provided real solutions to the core issue of youth access and/or appeal. However, that effort was tossed in favor of an unnecessary and last minute flavor ban, disguised as a bill that would merely raise the age to 21.

Immediately after the bill’s passage in March, VTA went to work on a multi-media veto campaign strategy that involved:

  • the VapersSayVeto call to action site,
  • the industry’s only television advertisement directed at the Governor,
  • a social media drumbeat, and
  • professional economic analysis from VTA economist John Dunham & Associates

The statewide campaign educating the Governor and his advisors on the negative public health and economic impacts of SB 810 was deployed in cooperation with the Florida Smoke Free Association, which also delivered sophisticated and passionate messages of their own to the Governor.

Moreover, VTA’s economists prepared a report and were deployed to explain that, if enacted, this bill would have removed $605.6 million from Florida’s economy, cost $41.3 million in state and local tax revenue, and put more than 4,500 Floridians out of work. In addition, VTA’s economist testified before the Florida Office of Economic Development Review Committee and was asked to provide additional data for consideration leading to the commission announcing that SB 810 would have serious adverse tax implications for Florida’s economy.

Governor DeSantis took the time to learn about the industry’s impact in the state and understand the legislation’s negative consequences, as seen in his veto transmission letter to Florida’s Secretary of State Laurel Lee. He also recognized that this bill would not achieve its goal of reducing youth vaping. We are pleased that the Governor’s thoughtful veto message clearly reflected the same core issues that we presented in VTA’s request for a veto.

VTA has led national efforts to address underage use of e-cigarettes. Our comprehensive plan announced last year, ensures controlled distribution of all tobacco products, including e-cigarettes, and to impose real limits on access and appeal of all tobacco products to youth. Flavor bans like SB 810 are not effective, rather they eliminate adult alternatives to dangerous cigarettes for adult smokers and devastate small businesses. VTA commends Governor DeSantis for listening to his constituents and understanding the real public health policy implications at stake, specifically, that flavor bans will lead to an unregulated black market and will drive adults back to smoking dangerous cigarettes.

About the Vapor Technology Association

The Vapor Technology Association is the U.S. non-profit industry trade association whose 1000+ members are dedicated to innovating and selling high quality vapor products that provide adult consumers with a better alternative to traditional combustible cigarettes. VTA represents the industry-leading manufacturers of vapor devices, e-liquids, flavorings, and components, as well as the largest wholesalers, distributors, importers, and e-commerce retailers, in addition to hundreds of hard-working American brick-and-mortar retail store owners throughout the United States. Follow us on Twitter.

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