Wells Fargo: FDA’s E-Cigarette Regulations Are Good News For Big Tobacco

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Guy Bentley Research Associate, Reason Foundation
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Food and Drug Administration (FDA) regulations that could ban 99 percent of e-cigarette products and wreck industry innovation are a big win for tobacco companies.

That’s according to a Wells Fargo research note by senior analyst Bonnie Herzog. The FDA’s “deeming” rules published Thursday are the first major federal intervention into e-cigarette regulation.

One of the central points of the almost 500-page rule book is that all e-cigarette products released after Feb. 15, 2007, (predicate date) will have to go through the Pre-Market Tobacco Applications process (PMTA).

PMTA is ruinously expensive and can cost millions of dollars per product. By the FDA’s own admission it will take more than 1,500 hours for an applicant to complete. (RELATED: FDA Announces Rule To Ban 99 Percent Of E-Cigarettes)

Since almost all vapor products on the market were released after February, 2007, hardly any will avoid a PMTA and almost no businesses, with the exception of big tobacco companies, will be able to bear the regulatory burden.

According to the FDA’s own analysis, the costs of a PMTA are so high approximately 99 percent of products on the market won’t even be put through the process.

“Our main concern is that these final deeming regs could realistically stifle innovation, which could dramatically slow industry growth by dis-incentivizing consumer conversion from combustible cigs,” says Herzog.

“This would ultimately have a net negative impact on public health, which is clearly in direct opposition to the FDA’s goal.” A 200-page report by the Royal College of Physicians published April 27, concluded e-cigarettes are 95 percent safer than regular cigarettes and should be endorsed as a tobacco harm reduction tool. (RELATED: Game Changer: World Leading Medical Group Backs E-Cigarettes)

“Although these regs could stifle innovation, we believe this could be a net positive for big tobacco given the strength of their core businesses and financial flexibility,” Herzog added.

In a previous note, Herzog said regulation of the e-cig/vapor industry would benefit tobacco companies by increasing and entrenching barriers to entry, leaving already established firms with a huge stake in the e-cigarette space.

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