ENDS – Rising From the Ash
A Look at 2021 Market Insights
By Tim Liddicoat, Managing Director at Hall Analytical
Tim Liddicoat, Hall Analytical MD, took some time to write down his thoughts on the current state of the ENDS industry. Some of the key considerations for ENDS companies around the world are COVID-19, Brexit, regulatory guidance such as the PACT act and PMTA, and political change in the United States.
The industry for electronic nicotine delivery systems, commonly called ENDS, is so dynamic that it can be difficult to keep up to date with all that is changing. However, amongst this dynamism and the challenges that currently face the industry, the ENDS market continues to grow.
The key challenges at present are COVID-19, Brexit, regulatory uncertainty, and political change.
Unlike the Pharmaceutical industry, the impact of COVID-19 has been significant in the tobacco industry. Since this work is not ‘essential’ lockdowns continue to have a substantial impact on both the manufacturing and distribution of ENDS products. Large tobacco clients and their Chinese OEM manufacturers are unable to adequately staff manufacturing. Vaping shops closed globally as they are deemed “non-essential”, resulting in many independent vaping organisations pivoting to manufacture anti-bacterial handwash and PPE.
Historically, the biggest distribution channel for ENDS products was via convenience stores and vape shops. Since the onset of the pandemic ENDS companies have shifted attention to online retail channels, however, the shipment of nicotine products has significant logistical complexity and increased regulatory requirements meaning this was not a simple and digital switch.
COVID-19 is particularly pertinent to the tobacco industry given the nature of the disease, associated respiratory health risks and complexities around local lockdowns and social distancing. The ENDS market, like the rest of the world, has slowly adapted to survive in the “new normal”. This, plus the COVID-19 vaccine roll-out, is allowing the vaping market to rapidly regain strength.
British American Tobacco (BAT)
“The strength of the business, combined with the professionalism and resilience of our global teams have enabled us, in 2020, to deliver a strong operational performance during challenging times.” Find the quote and more info here.
Philip Morris International (PMI) told investors
“The COVID-19 pandemic has created significant societal and economic disruption, and resulted in closures of stores, factories and offices, and restrictions on manufacturing, distribution and travel, all of which will adversely impact our business, results of operations, cash flows and financial position during the continuation of the pandemic. Although we have business continuity plans and other safeguards in place, there is no assurance that such plans and safeguards will be effective”. Taken from here.
Uncertainty around post-Brexit trade and movement of products, materials and chemicals has seen a rise in objections to working with service providers in the UK. This has been exacerbated by the international media coverage of the situation continues to build the perception that the UK is difficult to do business.
This is not the case. In fact, we recently wrote about how shipping samples to the U.K. from the U.S. can take less than 48 hours.
Regulatory guidance, PMTA and PACT Act
After significant delays (lawsuits, COVID etc), the FDA announced their Final Rule on Pre-Market Tobacco Applications (PMTA) on the 19th of January and this landmark ruling started to bring a significant period of uncertainty to an end. Prior to the publication, companies submitting PMTA for approval before the September 2020 deadline were unsure if they met the requirements to continue selling their products. Unfortunately, this clarity has been delayed after the Biden administration put the final publication of the ruling on hold.
The ruling, along with feedback from the FDA in the form of product approvals or deficiencies will lead to the testing hiatus starting to ease. Companies will then accelerate testing to fix deficiencies (for which they have 90 days from receipt of the deficiency) and will be more confident in filing PMTA for new products given the clarity on requirements.
We gathered a panel of experts and ran a PMTA Q&A which you can now access on-demand
The final major roadblock to new product PMTA is the FDA list of approved products. The FDA previously committed to releasing information on companies who filed for PMTA and their stage in the process. This was anticipated in early January and is highly sought after by ENDS manufacturers to help drive their testing and product development strategies.
This information is yet to be released but in the meantime the FDA have continued to enforce PMTA by issuing warning letters to multiple companies who are trading without going through the process. To date more than 200,000 SKU’s have been removed from sale, indicating that the FDA are serious about enforcement and the need for testing is not going away.
Historically, the ENDS industry has not been FDA regulated and therefore was unaware of the likely impact of PMTA. Not only was the cost and time commitment to file not well understood the impact of post PMTA addressing of deficiencies and the consequences of the whole industry working to a single deadline was missed. In particular, the market-wide post PMTA pause, while customers digest FDA feedback is completely unprecedented in any other highly regulated industry – where testing revenue delay from the regulatory impact on a companies commercial pipeline is often mitigated by work from other organisations. It is clear that PMTA was not a one-time requirement and large opportunities exist, not only for PMTA deficiency testing but PMTA2+ needed for any new products to enter the market.
In addition to PMTA, one other federal act impacting the US vaping industry is the Prevent All Cigarette Trafficking (PACT) act (link). This act is in the process of being extended to apply to all vaping products, which will have an impact on the shipment of nicotine-containing products within the USA.
This will be enforced from the 27th March 2021 and there will be an impact on vaping companies’ ability to freely ship ENDS devices and e-liquids within the USA as well as a significantly increased level of bureaucracy. While this won’t impact Hall Analytical’s ability to serve the market it may make it difficult for small manufacturers to continue trading and (counter-intuitively) increases perceived issues about shipment outside North America.
Political change in the USA
The FDA announced their Final Rule on Pre-Market Tobacco Applications (PMTA) on Donald Trumps last day in office. Less than 24 hours after the announcement, with the change in administration, the White House Chief of Staff ordered the withdrawal of all rules that had not yet been published, irrespective of market/product type. This has caused severe confusion generally but specifically for the ENDS industry.
Hall Analytical anticipate the situation will calm in the coming weeks as more clarity is gained on the Biden administrations attitude to the ENDS market as well as the appointment of a permeant FDA commissioner. Current thinking is while Biden has favoured even tighter restrictions than the Trump administration this is likely to result in a higher testing requirement and an acceleration to technologies like heated tobacco (HTP).
The new acting commissioner of the FDA, Janet Woodcock must have her nomination confirmed by the senate but if she remains will be pivotal in driving ENDS regulatory policy. Her current position on ENDS products is unknown but the industry feeling is ‘she may be less inclined to wade into pointless political controversies and more likely to allow the agency’s Centre for Tobacco Products to do its work without micromanagement.’
As detailed at the start of this document, the current situation in ENDS is complex and fast-changing. All of the above has driven short term delays and hesitation within the industry. Growing health concerns over the usage of conventional tobacco-based cigarettes continue to drive the growth in ENDS with the global market for e-cigarettes expected to reach the US $24.5billion by 2027.