Vape Company Fights Back On FDA Regulation

The popularity of vaping devices and e-liquids is undeniable. Tobacco shops are increasingly hard to find while vape shops are in every strip mall across the country. The fruity, sweet smell of vapor liquid is becoming more familiar than cigarette smoke outside of bars and restaurants. Clouds of vape smoke shoot out above crowds at stadiums whose walls are plastered with no smoking signs.

These dramatic changes in a smoking culture that’s remained largely the same since its inception have not gone unnoticed by both the federal and state governments. The “sin tax” on tobacco has historically been high. Many states have nearly doubled the cost of tobacco in recent years with taxes that have been largely supported by an increasingly health conscious population. The decline in tobacco sales that resulted in large part from vapors has lost states millions of dollars in revenue in recent years. To combat this, states aggressively pursued new legislation to regain the lost revenue by taxing a primary source of its loss: vaping devices and e-liquids.

As of the beginning of the year, four states and Washington D.C. tax products. [1] In most cases, states have tried to expand their tobacco tax statutes in order to capture vapor products and impose tax on them at a similarly high rate. But if the justification for high, “sin” taxes on tobacco was that they were burdening the states with all the severe health consequences of their use, is a tax on vapes equally justifiable?

Most medical professions would argue that it is not. In fact, “tests show the levels of dangerous chemicals [vaping devices] give off are a fraction of what you'd get from a real cigarette.[2]” Many have argued that vaping has helped people quit cigarettes and other tobacco products. So is grouping vapor products into the same category, and tax, as tobacco products the right thing to do? Is it even legal?

The FDA seems to think so. On May 5, 2016, the U.S. Food and Drug Administration announced that e-cigarettes will be regulated the same way cigarette and tobacco products are.[3] Referring to vaping products as Electronic Nicotine Delivery Systems or “ENDS,” the FDA claims on its website to have “finalized a rule extending our regulatory authority to cover all tobacco products, including vaporizers, vape pens, hookah pens, electronic cigarettes (E-Cigarettes), e-pipes, and all other ENDS. FDA now regulates the manufacture, import, packaging, labeling, advertising, promotion, sale, and distribution of ENDS. This includes components and parts of ENDS*[4] but excludes accessories.[5]”

The FDA not only has determined that vapors are tobacco products, but they have expanded the definition of “tobacco products” so greatly as to subject even batteries to its intense regulation procedures. This trend of grouping vaping devices and e-liquids under the definition of “tobacco products” is an improper expansion of laws which were designed originally to protect the health of the public. Even more egregious, this comes at a time when medical professionals and researches are developing products that not only help consumers quit tobacco use, but also improve their quality of life. E-medicines and e-vitamins are already appearing in stores and the market for them is expanding[6].

With states trying to gain tax revenue and the federal government trying to expand its regulatory authority over the industry, the entire future of vapors was at stake. On May 10, 2016, one vapor company had enough. Nicopure Labs, LLC filed its complaint in the U.S. District Court for the District of Columbia urging the court to set aside the FDA’s rule as unlawful. [7]

Nicopure Labs, LLC, argued that since none of its products contained tobacco, it was completely ridiculous to include them under the FDA’s definition of tobacco products and subject their products to the expensive and time consuming regulatory process that was previously reserved for cigarettes. Specifically, Nicopure Labs, LLC, stated that the FDA’s new Rule “concludes that vaping devices (or the constituent parts of components of vaping devices) are ‘tobacco products’ subject to the Act’s provisions, even though vaping devices (or their parts) are not made or derived from tobacco or intended for human consumption.” Under this premise, Nicopure Labs, LLC, made two main arguments.

First, Nicopure Labs, LLC, argued that the new rule was an unlawful statutory interpretation. The complaint alleges that the rule is unlawful because “its definition of ‘tobacco product’ and attendant proposed reach of its provisions is unambiguously foreclosed by, and is an unreasonable construction of, the text of the Act.

Second, Nicopure Labs, LLC, argued that the rule was an arbitrary and capricious agency action. By arbitrarily discounting the safety benefits offered by vaping devices, subjecting vaping devices to a process similar to that of new drugs, and preventing manufacturers from introducing new vaping devices and e-liquids for several years, Nicopure Labs, LLC, stated that the rule was arbitrarily “frustrating innovations and advances in public health while preserving the status quo that existed in 2007, i.e., a market dominated by cigarettes.”

Only time will tell if Nicopure Labs, LLC, will be successful in their case against the FDA. But it is certainly about time that someone stands up to governments as they try to expand their authority over and industry they have no business regulating.

About the Author: In his law practice Mr. Donnini's primary practice is multi-state sales and use tax as well as state corporate income tax controversy. Mr. Donnini also practices in the areas of federal tax controversy, federal estate planning, Florida probate, and all other state taxes including communication service tax, cigarette & tobacco tax, motor fuel tax, and Native American taxation. Mr. Donnini obtained his LL.M. in Taxation at NYU. Mr. Donnini is licensed to practice law in Florida. If you have any questions please do not hesitate to contact him via email [email protected] or phone at 954-639-4496.