Comments of the Vapor Technology Association

Presented by Tony Abboud, Executive Director

INTRODUCTION

Good morning.  The Reagan-Udall Foundation’s mission[1] of “modernization,… accelerating innovation and enhancing product safety” could not be better applied to any other product category within the FDA’s ambit of authority than less harmful nicotine products.

This review couldn’t have come at a more important time and Commissioner Califf should be applauded for calling for it and Director King should be applauded for embracing it. FDA’s new leaders have an historic opportunity to dramatically change public health in the U.S. by boldly correcting errors of the past, eliminating political interference in the scientific process, providing a clear roadmap for the approval of less harmful nicotine products, and accelerating innovation away from the deadliest product on the market – the combustible cigarette.

But, this will not happen, if at all, at a fast enough pace to save the lives of millions of Americans who still smoke cigarettes unless serious process changes are made.

What has the Agency done well?  

You have asked us to address three components and I will start with what the FDA has done well.

1. In 2017, Commissioner Gottlieb announced a Comprehensive Plan for addressing tobacco and nicotine issues.  Foreseeing the challenges of PMTA compliance, Gottlieb extended the deadline for filing from 2018 to 2022 since the agency still needed to “issue foundational rules to make the product review process more efficient, predictable, and transparent for manufacturers.” The comprehensive plan also expressly acknowledged the continuum frisk and that ENDS products fall at the lower end of the risk continuum when compared to cigarettes.
   
2. CTP issued an ANPRM on the important issue of flavors to examine their impact on initiation and on smoking cessation.
   
3. CTP has effectively administered its Substantial Equivalence application process for reviewing new tobacco products.  

What has the Agency not done well?

Unfortunately, these positive steps have not led to the successful execution of CTP’s mission.

Since January 2020, CTP’s efficient management of the SE process has bizarrely resulted in the authorization of 600 new combustible tobacco products, 250 of which are new cigarettes. In contrast, FDA’s management of the PMTA process has authorized only 6 less harmful ENDS devices, some of which are antiquated technologies and/or have virtually no market presence.  How did this happen?

First, the FDA abandoned its Comprehensive Plan and did everything but create the “efficient, predictable, and transparent” process Gottlieb said was necessary. 

CTP never finalized the “foundational rule” for PMTAs before applications were filed and it acquiesced to a 2-year acceleration of the filing deadline notwithstanding the unavailability of that final rule. This forced companies to rely on non-binding guidance, rush scientific research and data collection, submit redundant applications, and conduct unnecessary testing. 

Second, CTP failed to apply the continuum of risk in its comparative assessment of ENDS to cigarettes and also failed to distinguish between open and closed ENDS products.

Third, CTP abandoned its ANPRM on flavors in 2018, ignoring the enormous body of science presented by all stakeholders, including VTA’s substantive review of all flavor studies.

Fourth, CTP altered its review process and standards AFTER applications had been accepted for substantive review, using those changes to deny countless PMTAs all without conducting that substantive review, and failed to balance all the prongs of the APPH test, choosing instead to use single alleged deficiencies to deny applications.

These actions plunged the entire category into chaos and CTP’s decisions into protracted litigation.

This was all driven by an exclusive focus on youth and flavors which has been directly criticized by the 15 past presidents of SRNT, the most esteemed group of tobacco-control scientists, as threatening the chances of adult smokers to quit. I’ll briefly explain one example of how the Agency’s prior interim leadership allowed outside influences to subvert the PMTA scientific process on this issue alone.  

Flavor Example

In August 2020, CTP’s Office of Science documented its process for reviewing applications for flavored ENDS products and explained that it anticipated approving such products as APPH.  At a June 11, 2021 public meeting, the Office of Science transparently explained the process and priorities it was using to review PMTAs.

Two weeks later, when FDA’s Acting Commissioner Woodcock testified before a Congressional committee on June 23, committee members demanded that Woodcock deny JUUL’s PMTAs and deny any flavored e-liquid PMTAs claiming thatwas her responsibility regardless of the science.

Immediately after the hearing, I learned from those inside the FDA that Woodcock injected herself on the  flavor issue. Two weeks thereafter, CTP documented Woodcock’s interjection in a now infamous July 9 “fatal flaw” memorandum, explaining that the Office of Science was “tasked” by the Acting Commissioner to implement a “new plan” to “take final action” on as many flavored ENDS applications as possible – a complete reversal of both the process and priorities they announced less than one month earlier.

The memorandum articulated a review process which imposed a new testing prerequisite, 11 months after the applications were filed. CTP created a new “presumption” that all flavored products are attractive to youth to justify the new requirement for long-term product specific studies on cessation and a heightened standard for flavored ENDS.  CTP’s scientists were forced to alter their process to ensure the blanket rejection of virtually all flavored applications and did so without even reviewing the applications and science submitted.  The process change effectuated a de facto policy change and as it was unfolding in September 2021, I heard from people inside FDA who were stunned that the Agency had changed its position “without any scientific support.”

This leads me to recommendations.

RECOMMENDATIONS

1. CTP must implement safeguards to ensure that the review process is free of external pressures. I have only highlighted one of many examples. Unless the process is insulated, CTP will never be allowed to execute its mission.
2. Unapologetically follow the science and announce approvals.  The Office of Science must be allowed to complete its reviews and when it authorizes applications, those decisions should immediately and loudly be announced to the marketplace. 
3. Immediately reverse the fatal flaw memo and actually review the science presented.  This means not imposing a non-product-specific presumption regarding initiation (i.e. that ALL flavored products are attractive to youth) while demanding “product specific” data regarding cessation.
4. Restore the primacy of APPH balancing test. This means treating the cessation and population benefits prong equally to the initiation prong.  This means conducting a holistic review and not singling out one set of data on which it justifies denials.
5. Use CTP’s enforcement discretion to work companies through the PMTA process.  Virtually all PMTAs have been submitted on grossly accelerated timeframe. Working with companies that can comply with the requirements and providing them the time necessary to complete the required science ensures a stronger process. This particularly applies to FDA’s recently acquired non-tobacco nicotine authority. This also applies to smaller manufacturers who don’t have large scientific staff or resources.
6. Avoid rejections based on administrative or technical failings.  CTP has refused to accept certain otherwise robust applications because of technicalities. In these cases, reviewers should be authorized to pick up the phone and get those technicalities cured, rather than plunge the agency into protracted and wasteful litigation
7. Establish defined testing methods.  This should be done for HPHC testing and while ensuring those methods are consistent with normal human use.
8. Eliminate redundant and unnecessary testing.  For example, biomarker studies and inhalation studies are irrelevant when companies have presented data showing a dramatic reduction (or absence) of toxins.
9. Use the full scope of its post-marketing order authority. In balancing the APPH, CTP should rely on post-market surveillance and post-market consumer studies to monitor its authorizations and suspend or withdraw a marketing order if it finds new evidence would so justify it.
10. Equally fund research proposals.  FDA funded research is critical to the review process. To date, the agency has only funded research purporting to identify problems, i.e., youth initiation. CTP should equally fund research on smoking cessation.

CONCLUSION

In conclusion, today, CTP is stuck, trapped if you will, managing a monstrous rule of its own creation.  It needs direction from this Foundation to impose a transparent set of requirements and to ensure strict and fair adherence to science-based decisions.  As a final note, CTP needs to appreciate that the entire application approval process is being made virtually irrelevant due to the Agency’s inability to stop the flow of products into this country from companies ignoring the regulatory process. It is our hope that the Reagan-Udall Foundation’s review will ultimately create an “efficient, predictable, and transparent” process and, in so doing, make real the promise of less harmful nicotine products.

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[1] Mission of R/U and mission of the FDA: “The Reagan-Udall Foundation for the Food and Drug Administration is an independent 501(c)(3) organization created by Congress “to advance the mission of the FDA to modernize medical, veterinary, food, food ingredient, and cosmetic product development, accelerate innovation, and enhance product safety.”

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.

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.
• 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!
CHOOSE YOUR OPTION BELOW TO ENGAGE!

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

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:
• 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.
• Would lead to a reduction of nearly 42,800 full-time equivalent jobs and the loss of $2.2 billion in wages and benefits.
• Would negatively impact the size of the overall economy which would fall by about $7.0 billion.
• Would result in states and their localities losing $620.1 million in taxes while the federal government attempts to generate revenues.
• 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

	Direct	Supplier	Induced	Total
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-System	Cigarette 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 Nicotine	0.5-cents	2.8-cents	2.8-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)

	Direct	Supplier	Induced	Total
Jobs	87,581	29,427	48,999	166,007
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)

	Jobs	Percent of Jobs	Stores
Direct Jobs	87,574	100.0%
Vape Shop Jobs	58,429	66.7%	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)

	Direct	Supplier	Induced	Total
Jobs	66,364	28,098	39,111	133,575
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

	Direct	Supplier	Induced	Total
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 2021	Jobs	Percent of Jobs	Stores
Direct Jobs	66,364	100.0%
Vape Shop Jobs	34,957	52.7%	9.847

Change from 2018	Jobs	Percent Change	Stores	Percent 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

	Milliliters	Percent
Current Vapor Sales	11,692,582,699
Lost Vapor Sales	-3,732,570,585
Of Which
Switch to Other Products	-2,283,717,028	61.2%
Quit	-757,711,829	20.3%
Black Market	-691,141,729	18.5%

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

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[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