French Courts Hand E-cigarettes to Big Tobacco, Is the US Next?

December 10th, 2013 | |
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Last night delivered worrisome news for the e-cigarette industry from across the Atlantic. On Monday, France made a monumental decision that could impact electronic cigarette sales around the world. The French Courts have become the first major country to effectively rule that e-cigarettes should be classified as tobacco products.

In a landmark case brought by a local tobacconist owner in Toulouse against a rival e-cigarette shop in the city, the court delivered a stunning blow to e-cigarettes. The e-cigarette shop was banned from selling e-cigs and the court ruled that e-cigarettes qualify as tobacco products, despite the fact that they contain no tobacco. Even worse, the court ruled that only registered tobacconists should sell electronic cigarettes, essentially sending a death notice to small e-cig companies across France.

The court justified the decision by arguing that the electronic cigarette store was violating the “state monopoly on the sale of tobacco”. There is a current policy that only allows tobacco products to be sold through registered retailers, where advertising is banned and the conditions are tightly controlled. Until yesterday, independent vaping shops that specialized only in tobacco-free vaping products were free to sell electronic cigarettes, but the new court ruling will put an end to these businesses, if it is upheld.

Unfortunately, this court ruling could set off a ripple effect across the European Union and eventually, even in the United States. Erik Bloomquist, the Barenberg senior global tobacco analyst urged everyone to watch how the EU would react, particularly when the new revisions of the Tobacco Products Directive are released in 2014.

“This could lead to greater regulation of the e-cigarette industry, and yes, in terms of manufacturing and distribution it could put a squeeze on the nascent e-cigarette industry,” he said.

Ultimately, big tobacco companies will be better equipped to survive the changes, whereas smaller markets will cease to exist. Bloomquist went on to say, “It could in fact be more favorable for the majors (large tobacco companies) because the French ruling suggests that the EU or some major countries are not concerned with damaging the nascent e-cig industry.”

The booming electronic cigarette market could suffer worldwide from this ruling. E-cigarettes have become wildly popular in the past few years because smokers tend to view them as a less harmful option and a practical tobacco-free alternative to their old cigarettes. Euromonitor International analyst Shane MacGuill expects global e-cig sales to hit $3.5 billion this year, with $700-800 million of those sales coming from Western Europe.

Before this ruling, France was anticipating the e-cig market to more than double during this fiscal year, leaping from €40 million to reach new records of €100 million ($137 million US). However these numbers could decline with stricter regulations and e-cigarettes essentially being treated as regular tobacco products.

For French tobacconists, this seems like a victory. However, for the more than 300 French e-cig shops like ESmokeClean, it is a devastating defeat. Fortunately, electronic cigarette shops are no going down without a fight. Attorney Benjamin Echalier said that ESmokeClean intends to appeal Monday’s ruling. He called the court’s verdict “absurd”, pointing that that e-cigs are not classified as of yet by the EU so they should not be treated as such by the French courts.

Mickael Hammoudi from the French e-cigarette lobby group said the implications of this ruling go further than vaping rights and could have an economic impact. “This puts 2,500 jobs at risk,” he said. “The court went beyond its powers deciding on a matter that is not yet subject to a law.”

British American Tobacco, producer of both tobacco cigarettes and a privately owned electronic cigarette, issued a response to the French court ruling, sounding upbeat and positive. BAT spokesman Will Hill told CNBC that the ecig industry would welcome new regulations “to ensure consumer safety and product quality, as well as the appropriate level of innovation, marketing and distribution freedoms required to enable this important category to grow.”

Of course, these remarks are fairly easy to issue coming from a tobacco giant that has the resources to survive new strict regulations. For hundreds of small e-cigarette shops, that will not be the case.

CACE, France’s e-cig stakeholder’s group, called Monday’s verdict “scandalous”. They argued that it was absurd because “the e-cigarette is an everyday consumer product and not a tobacco product.” With around 1.5 million e-cig users in France, it is estimated that almost one in five French adults have tried these devices. They will all be impacted if Monday’s ruling stands.

At the same time that Europe is debating the future of electronic cigarettes, the same arguments are being tossed around here. In the U.S., the industry is expecting the FDA to announce its approach to e-cigarettes at some point in 2014. While French court rulings don’t directly impact the decision of American regulators, it can certainly sway them and set a precedent to guide them in choosing how to address the issue.

If the French court ruling stands, it is bad news for the electronic cigarette industry worldwide. By classifying e-cigarettes as tobacco products, it is counterproductive to everything that vaping stands for. Giving the tobacco industry carte-blanche over e-cigs passes the admission of a cure to the mercy of the disease itself. It is simply absurd and makes no sense from a health or economic standpoint.

Do you expect Monday’s court ruling to stand or will it be reversed during the appeals process? More importantly, how will this shape the future of e-cigarettes for the United States?

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