Our team recently attended, and presented at, the 100th Annual Meeting of the Federation of Tax Administrators (FTA) Tobacco Tax Section in Washington, D.C., which brought together state tobacco tax administrators, excise tax professionals, attorneys general, compliance officers, tax filing solution providers, and other industry stakeholders. Despite the challenge of navigating our Nation’s Capital in light of preparation for the Freedom 250 Grand Prix, we are glad we had the opportunity to attend and connect with colleagues to advance thought leadership in the tobacco and nicotine industry. The meeting included a line-up of speakers who discussed topics highly relevant to industry, and we wanted to highlight a few themes that emerged related to state vapor and nicotine product directories, nicotine analogues, enforcement, and destruction of illicit vapor products.
State Vapor and Nicotine Product Directories
A growing number of states require manufacturers to certify the U.S. Food and Drug Administration (FDA) premarket tobacco product application (PMTA) status of their products as a condition of in-state sale. Generally, these directory laws require manufacturers to annually certify that their products either have received a marketing granted order from FDA, or were on the market as of August 8, 2016, and are subject to a PMTA submitted on or before September 9, 2020, where the PMTA either remains under FDA review or has received a marketing denial order that has been stayed, rescinded, or vacated. State agencies then publish directories of certified products, and only listed products may be legally sold in those states. Penalties for violations can be steep. Nevertheless, these directory laws vary by state. For example, Alabama and Louisiana’s directory laws include nicotine pouches in addition to traditional vapor products, and some states allow products to be listed if they qualify for FDA enforcement discretion. We wrote about FDA’s most recent enforcement guidance here, and a case challenging that guidance here. A presentation by regulators from Arkansas, Nebraska, North Carolina, and Wisconsin indicated that states continue to consider how to address the gap between that guidance and their state directory laws.
Several lawsuits challenging these directory laws on various legal grounds have generally not succeeded. Industry should expect directory laws to remain in effect for the foreseeable future and expect more states to adopt them.
Nicotine Analogues
Panelists discussed emerging products containing nicotine analogues, which have effects similar to nicotine but differ in chemical structure. FDA lacks authority to regulate these products under the Tobacco Control Act, which defines nicotine narrowly by chemical structure. However, as we discussed last year, FDA could use its existing “drug” authorities to regulate nicotine analogues, because a “drug” includes “articles (other than food) intended to affect the structure or any function of the body of man or other animals” — so analogue products making therapeutic claims could fall within that definition. Nevertheless, when FDA last faced a growing new category — synthetic nicotine — it declined to use its drug authorities and instead waited for Congress to amend the definition of “tobacco product” to include products “containing nicotine from any source.” Absent therapeutic claims, FDA may again wait for congressional action.
Given this federal gap, we expect states to find creative ways to regulate these products under current authorities or to pass legislation expressly regulating them. Arkansas, for example, noted that its “vapor product” definition is broad enough to cover nicotine analogue products for purposes of its advertising and marketing restrictions, see Ark. Code Ann. §§ 20-65-101, 104, and that while its directory law does not currently reach analogue products, the state may address the issue in upcoming legislative sessions.
Enforcement
States continue to find creative ways to enforce tobacco product laws despite limited resources. The Nevada Department of Taxation presented on its use of open-source digital intelligence to identify noncompliant actors, highlighting sellers who never obtain licenses, sellers who continue selling after licenses expire, sellers who register for sales tax but not tobacco product taxes, and out-of-state shippers selling directly to consumers. Nevada leverages third-party vendors to review websites, Google Maps listings, and social media feeds; relies on tips from licensed businesses such as wholesalers; reviews monthly reports to identify sales to unlicensed persons; and uncovers unlicensed wholesalers by auditing retailers and examining upstream data. Notably, Nevada also seeks cooperation from other states from which remote sellers ship into Nevada without proper licenses or payment of excise taxes.
Destruction of Illicit Vapor Products
States seize vapor products and e-liquids for many reasons, including because they are not authorized for sale by FDA (a position that raises questions) or the state, or because they are authorized but sold by unlicensed sellers. States continue to wrestle with how to destroy seized products: a myriad of environmental requirements governs their disposal, and compliance is very expensive and has a significant impact on budgets. States continue to seek opportunities to partner with industry to assist with these destruction and disposal processes.
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Our team regularly attends the FTA Annual Tobacco Tax Section Meeting and other tobacco product industry conferences, which provide an invaluable opportunity to connect with state regulators and understand the issues that most concern them. We are well positioned to advise on federal and state tobacco product issues, so please do not hesitate to reach out if the need arises. For more information, please contact Agustin Rodriguez or Nicholas Ramos, or visit our Tobacco + Nicotine practice page.
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