MO Altria Group Inc

By Tripp Mickle 

The U.S. government issued a tough set of rules for the e-cigarette industry on Thursday that included banning sales to anyone under 18, requiring package warning labels, and making all products -- even those currently on the market -- subject to government approval.

In an action e-cigarette makers had been dreading, the Food and Drug Administration said it was assuming regulatory authority over e-cigarettes.

Though the product-approval process will be phased in during three years, that will be little solace to the fledgling but fast-growing $3.5 billion industry that has, until Aug. 8 when the rules take effect, largely been unregulated and dominated by small manufacturers and vape shops.

The most troubling measure for e-cigarette industry players is the FDA approval process. Many of the small vape shops, device manufacturers and liquid nicotine producers are concerned that they won't be able to afford the FDA's approval process, which could cost anywhere from $2 million to $10 million per item, according to the regulatory consulting company SciLucent LLC.

"This is going to be a grim day in the history of tobacco-harm reduction, " said Greg Conley, president of the American Vaping Association, an industry-funded advocacy group. "It will be a day where thousands of small businesses will be contemplating whether they will continue to stay in business and employ people."

A spokesman with Altria Group Inc., the nation's largest tobacco company, voiced similar concerns about the FDA's product approval requirements. He said the company wants Congress to pass laws addressing that issue, among others.

Many fear that now that FDA has assumed regulatory oversight, it is likely to move forward with other rules related to the devices.

In June, the agency proposed requiring warning labels and child-proof packaging because of an increase in nicotine exposure and poisoning incidents among young people. The FDA could move to regulate advertising or flavors such as cotton candy and watermelon that might appeal to youth.

"We're looking at the flavor issue with e-cigarettes," said FDA Tobacco Center Director Mitch Zeller during a news conference.

Later Thursday, he said the agency was aware of "anecdotal reports" that e-cigarettes have helped smokers kick their habit, but those benefits were outweighed by concerns about youth using the devices.

In addition to e-cigs, the FDA said it would be taking regulatory authority over other tobacco products, including cigars, pipe tobacco and water-pipe tobacco.

The FDA has been regulating cigarettes since Congress granted it oversight of traditional smokes with the 2009 Family Smoking Prevention and Tobacco Control Act.

"Today's announcement is an important step in the fight for a tobacco-free generation -- it will help us catch up with changes in the marketplace, put into place rules that protect our kids and give adults information they need to make informed decisions," Department of Health and Human Services Secretary Sylvia Mathews Burwell said in a statement.

Most researchers agree that e-cigarettes are less harmful than cigarettes because, unlike cigarettes, they don't combust.

Studies have shown that when traditional cigarettes combust they release more than 60 carcinogens. But the long-term effects of using the electronic devices remain largely unknown, and many anti-tobacco groups and public-health officials are concerned they could become a gateway to traditional smoking.

Under the new rules, e-cigarette manufacturers would have up to two years to continue to sell their products while they submit an application to the FDA. They would have one additional year to sell the product during the FDA's review, which it estimates will cost $285,000 to $2.6 million and take 1,713 hours per application.

The approval process is expected to be less damaging for major tobacco companies such as Altria, Reynolds American Inc., and Imperial Brands PLC that have launched their own versions of the battery-powered devices that heat nicotine-laced liquid into a vapor. Those companies have financial resources to cover the costs that many vape shops and liquid nicotine manufacturers lack.

Independent vape shops and liquid nicotine manufacturers are hoping Congress will preserve an amendment by Rep. Tom Cole (R., Okla.) that was attached to the House fiscal 2017 agriculture appropriations bill that would allow e-cigarette products on the market today to remain there without going through the FDA's so-called premarket approval process.

Those products still would have to abide by FDA rules but could be subject to a "substantially less onerous" approval process, Mr. Cole's office said.

It took the FDA two years to finalize its rules, a lengthy period that helped fuel concerns about the health risks of e-cigarettes and underage use of the largely unregulated devices. The wait triggered criticism from anti-tobacco groups and lawmakers and contributed to a sharp decline in e-cigarette sales.

Concerns escalated when a study published in August by the Journal of the American Medical Association found ninth-graders who used e-cigarettes were 2 1/2 times as likely as peers to have smoked traditional cigarettes a year later. The Centers for Disease Control and Prevention reported in April that e-cigarette use tripled among U.S. teenagers in 2014.

As the agency deliberated, the e-cigarette industry swelled to an estimated $3.5 billion in sales from $2 billion, according to Wells Fargo.

The promise of a less harmful nicotine product drew interest from private-equity firms and big-name investors such as Silicon Valley entrepreneur Sean Parker, who invested in NJOY Inc. in 2013.

Tobacco companies including Altria and Japan Tobacco Inc. later bought independent e-cigarette makers such as Green Smoke and Logic.

Wells Fargo tobacco analyst Bonnie Herzog, who has hosted several e-cigarette conferences, said the rule would "stifle innovation, which could dramatically slow industry growth" and discourage consumers from switching to e-cigarettes.

--Tom Burton contributed to this article.

Write to Tripp Mickle at Tripp.Mickle@wsj.com

(END) Dow Jones Newswires

May 06, 2016 02:48 ET (06:48 GMT)

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