FDA Regulations On Tobacco Could Take 3 Years

Smokers and tobacco users will have to wait months, perhaps up to three years, to feel a substantial impact from federal oversight of the tobacco industry, analysts say.
President Obama signed the Family Smoking Prevention and Tobacco Control Act into law yesterday.
The Food and Drug Administration now has the power to regulate the content of tobacco products including: removing ingredients considered as hazardous; restricting the marketing and distribution of cigarettes and smokeless tobacco; focusing on limiting the impact of advertising on youth; expanding warning labels; and stopping the use of such characterizations as “light” or “low tar.“
From the consumer end, the initial cost of FDA regulation is projected at 1 to 2 cents a pack, likely beginning in October. Even when the Center for Tobacco Products is fully operational by 2012-13, the cost is not projected to exceed 7 cents a pack, according to research by UBS Investment Research.
By comparison, smokers already have had to absorb a 62-cent increase in the federal excise tax this year.
However, FDA regulation is likely to spur consolidation by driving up compliance costs for smaller discount manufacturers.
“It will force them to register with the FDA and test their products,“ said Adam Spielman, an analyst with Citigroup Global Markets Inc. “It probably will make it impossible to launch new brands and lines without a series of tests that will be expensive for them.
“It probably will require them to use tobacco that has been treated in complicated ways to reduce certain constituents.“
All of which could add tens, if not hundreds, of thousands of dollars in expenses, Spielman said.
“Due to lesser-scale efficiencies, these manufacturers could either be forced to take meaningful price increases - lower price gaps for premium brands - or be forced out of business due to the costs of new labeling costs of compliance with FDA standards and more complex inventory management,“ said Nik Modi, an analyst with UBS.
Calvin Phelps, the chairman and chief executive of Renegade Holdings Inc. of Mocksville, said that it will take years of FDA regulation to determine how much of an impact it will have on the industry.
Phelps based that on his experience with the 1998 Master Settlement Agreement, which limited the advertising and marketing of tobacco products.
“I doubt the consumer will notice anything from FDA regulation in the near future,“ Phelps said. “The regulation is being rolled out in stages, and there’s a lot of gray area right now about how compliance will be handled.
“We’re expecting the FDA to require manufacturers to be able to trace the constituents and ingredients in their products the way pharmaceutical companies have had to for years.“
The most immediate change is that cigarette flavorings outside menthol will be banned, beginning in September. Analysts said that part of the law will have little impact since most manufacturers abandoned candy- and fruit-flavored cigarettes in recent years.
Spielman said that despite stricter requirements for introducing tobacco products under the FDA, he believes regulation will not undercut R.J. Reynolds Tobacco Co.‘s smokeless innovation programs. The law requires premarket approval for new products, those introduced after Feb. 15, 2007.
“We disagree with the consensus view, which is that the legislation will harm Reynolds because it will make it harder (or nearly impossible) to introduce new products like Camel Crush,“ Spielman said.
“This is because the rules on new products do not require sign-off from the FDA if the product is substantially equivalent health-wise to existing products.“
Camel Snus were introduced before February 2007, said Maura Payne, a spokeswoman for Reynolds. “There were also substantially equivalent snus products sold in the United States prior to Camel Snus.“
Payne said that the orbs, sticks and filmlike strip for the tongue are substantially equivalent to dissolvables sold by Star Scientific Inc.‘s Ariva and Stonewall.
Spielman said he doubts that “the FDA will interpret the law in an obsessive way, trying to block every line extension.“
Bill Godshall, the executive director of SmokeFree Pennsylvania, said that where Reynolds could be impacted is in its elaborate cigarette packaging compared with Marlboro.
“Whereas most Marlboro smokers know that a red Marlboro box means regular, gold means light and silver means ultra light, there is no similar color coding for Camel,“ Godshall said.
Analysts said that there’s no guarantee that the law will fulfill the lifesaving messages touted by anti-tobacco groups.
For example, UBS research found that in four of five countries that have regulatory warnings covering most of the cigarette pack - Australia, Brazil, Canada and United Kingdom - sales dropped only between 0.8 percent and 2.4 percent in the first three years. In India, sales increased by 0.5 percent.
“None of the goals envisaged will be achieved as similar provisions in other countries have failed,“ said Anthony Hemsley, a vice president of Commonwealth Brands, which has a plant in Reidsville. “Congress has rushed through regulation that will have a disproportionate effect on smaller manufacturers, hurt honest adult consumers and create an illicit trade nightmare.“

Richard Craver can be reached at 727-7376 or .