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FDA Rules Leave Window Open in E-Cig Category


NEW YORK -- One week after the Food and Drug Administration (FDA) released its proposed deeming regulations -- which cover electronic cigarettes and other tobacco products -- Mistic Electronic Cigarettes CEO John Wiesehan Jr. said today that his initial response is positive.

While he and his team are still reviewing the 240-plus-page document, he is glad the FDA weighed in and is making science-based decisions. The proposed rules do not directly address Internet sales or flavors, but he said they do "give us insight on what they are thinking."

In fact, the lack of an outright flavor ban -- similar to what the FDA enacted with traditional cigarettes in 2009 -- is now spurring Mistic to explore flavor options. Currently, the company's electronic cigarette is only available in tobacco and menthol flavors, Wiesehan said. 

His comments came today during a new installment of the "Tobacco Talk" conference call series with Bonnie Herzog, managing director of beverage, tobacco and convenience store research at Wells Fargo Securities LLC. She noted that while the proposed regulations leave wiggle room for current players in the e-cigarette category, it also leaves the barriers to entry pretty low.

"The [FDA] left the window open for the next couple of years," she said.

Wiesehan agreed, although he sees the retail landscape as "carved out" at this point. However, there is still room with Internet sales, he added.

"I think it will be difficult for new brands to establish themselves at a retail level and, taking it a step further, at the consumer level," he said.

A few years ago, retailers carried two to three e-cigarette brands. The category is more crowded today, but the question of how much space retailers will allow for electronic cigarettes remains. Generally speaking, retailers are designating four to six feet and now, retailers need to place bets on who the winners in the category will be, Wiesehan explained.

The national rollouts of The Altria Group Inc.'s MarkTen brand and Reynolds American Inc.'s VUSE brand will add to the competitive environment, but he said there's room for those brands in the market. And he expects Mistic to hold up against the Big Tobacco players.

"I think Altria and Reynolds getting in helps the category and the perception of the category," he said. Even with all three Big Tobacco companies in the space now -- Lorillard Inc. bought blu eCigs in April 2012 -- Wiesehan still believes there is room for three to four independent players to effectively compete.

Getting into the convenience channel was Mistic's focus moving into 2014, according to Wiesehan. The company has partnered with Circle K and Kangaroo Express for chainwide rollouts and recently inked a deal with McLane Distribution Co.

In addition, Mistic is in the process of rolling out in dollar store chains Family Dollar and Dollar General. With a combined 20,000 locations across the United States, he said dollar stores are sure to have an impact on retail.

The Future

The framework for the FDA's proposal also allows for innovation within the category, which is key to the evolution of e-vapor products, Wiesehan added.

That's a good thing as e-cigarettes, as an overall category, are beginning to flatten with more advanced e-vapor products such as personalized vaporizers gaining popularity among consumers. To that end, Mistic launched Haus personal vaporizers.

"Personal vaporizers did have an effect," Wiesehan said, adding that the company moved forward with personal vaporizers last year "because we thought it was important to offer another configuration to consumers."

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