The $1.5 billion U.S. electronic-cigarette industry has tripled sales this year with the help of TV ads, NASCAR sponsorships, and product giveaways. Government regulation may now threaten those marketing tactics.
The Food and Drug Administration is set to decide this month whether to lump e-cigarettes with conventional smokes as part of its oversight of the $90 billion U.S. tobacco market. Such a step would set the stage for greater restrictions on production, advertising, flavorings, and online sales.
With at least 40 U.S. states seeking stricter rules and federal health officials raising the alarm about e-cigarette use by children, manufacturers of the smokeless devices are preparing for a FDA crackdown.
"We do anticipate becoming a regulated industry, so it is very possible the way in which we advertise will change," said Andries Verleur, cofounder of e-cigarette maker VMR Products.
E-cigarettes heat liquid nicotine into an inhaled vapor without the tar of normal cigarettes. Currently, marketers operate with few, if any, of the regulatory limits that apply to tobacco companies such as Philip Morris USA and Reynolds American Inc. TV ads by tobacco companies were banned in 1971, and in 2010 the FDA eliminated cigarette sampling.
With the FDA seeking to expand its regulatory authority beyond conventional cigarettes and smokeless tobacco, some e-cigarette companies are opening up the marketing spigot while they can.
Victory Electronic Cigarettes Corp., run by the same marketing executive who helped build InBev NV into a dominant brewer, is handing out one million e-cigarettes starting this month at events in 50 U.S. cities. There will be a traveling van and tents at NASCAR races, said chief executive officer Brent Willis, a former president of InBev's Asia-Pacific operations who also helped introduce the Kraft brand to China.
Logic Technology Inc., which accounts for 17 percent of industry sales, plans a push in Manhattan bars and nightclubs this year or early in 2014.
"You go where adult smokers are," Miguel Martin, president of Livingston, N.J.-based Logic, said in an interview.
The industry says e-cigarettes are a healthier, cleaner alternative to traditional smoking. But on Sept. 24, at least 40 U.S. state attorneys general urged the FDA to immediately regulate sale and advertising of electronic cigarettes, in a letter that said that the products are appealing to youth and that no one was "ensuring the safety of the ingredients."
The FDA has oversight over the cigarette market under a 2009 law that gives it sway over manufacturing, marketing, and other tobacco-industry practices. The law permits the FDA to determine whether it will extend its reach to related products.
The agency has sent a proposal to the White House Office of Management and Budget, seeking to expand its regulatory authority beyond cigarettes, Steven Immergut, an FDA spokesman said in an e-mail.
"Their review will begin when the government shutdown ends," he said.
E-cigarette companies are on board with manufacturing standards and age restrictions while saying advertising limits should not be on the table.
VMR's Verleur said his company, which makes V2 Cigs, and his competitors have asked the FDA for meetings to give their side of the argument.
"One thing that would be very bad," he said, "is to lump us in with traditional cigarettes and apply some of the same standards."
Value of the U.S. electronic-cigarette industry.
Value of the U.S.
States that seek stricter rules on e-cigarettes.
Market share held by
Logic Technology, which plans promo push.