New FDA Regulations Won't Slow Down Big Tobacco, Analysts Say

Major regulations for e-cigarettes and tobacco products announced this week may not do much to slow down the largest tobacco companies, analysts tell ABC News.

E-cigarettes will face new regulations by the U.S. Food and Drug Administration, including requirements that affect manufacturing, ingredient labeling and not selling the product to those under the age of 18, the agency announced today.

In addition, California Gov. Jerry Brown signed legislation yesterday prohibiting the sale of cigarettes to anyone under age 21, up from 18, and restricting the use of e-cigarettes in public places in the state. The state also reclassified vapor products as tobacco.

The FDA's rules will especially affect the businesses of smaller e-cigarette makers, which may not have the resources to comply with the agency's approval process, said Michael Lavery, an analyst with CLSA (Credit Lyonnais Securities Asia) Americas in New York. Lavery said that "could be a positive" for larger tobacco companies, such as Altria Group, Reynolds-American and Imperial Brands, he wrote in a research note shared with ABC News. E-cigarettes currently make up less than 1 percent of revenue for all three companies, he noted.

In response to the FDA's regulations, Stifel analyst Chris Growe, who follows the tobacco industry, said the larger tobacco companies are already accustomed to numerous laws governing their products.

"We believe the large tobacco companies can thrive in a heavily regulated world, such as the current conditions in the cigarette category," Stifel analyst Chris Growe wrote in a research note provided to ABC News. "In addition, the level of regulation will be so high that small companies, those typically operating in the E-cig category and other tobacco category, will likely find them to be onerous."

He added: "We believe this will thwart new product innovation from many small companies and favor the large tobacco companies."

The rule extends the FDA's authority over any newly regulated product, including e-cigarettes, not on the market before Feb. 15, 2007. The new regulations will likely take time to be implemented, as the FDA expects that manufacturers will sell their products for up to two years before they submit their product for FDA review. It will take another year for the FDA to review an application once it's submitted.

Lavery said he expects Altria Group to challenge the ban on the company's use of the term "mild" on cigar products, including its Black & Mild brand cigars, which would become regulated after 90 days under the new regulations. Manufacturing cigars with the term would be banned after a one-year transition period. Still, cigars are less than 1 percent of Altria's volumes, Lavery pointed out.

A spokesman for Altria said the company is still reviewing the FDA's regulations.

"We are concerned that FDA did not update the predicate date. FDA acknowledges that e-vapor products are 'likely less hazardous' for individuals compared to continued use of traditional cigarettes," the spokesman said. "We continue to support legislation in Congress which would change the predicate date and also address other important issues such as setting battery standards and requiring that all e-vapor products be sold in a non-self-service fashion (with adult-only facility exception)."

The Smoke-Free Alternatives Trade Association, the trade group for the vaping industry, said the FDA's actions would ban 99 percent of all vapor products on the market as a result of the Feb. 2007 predicate date.

"Today's final rule pulls the rug out from the nine million smokers who have switched to vaping, putting them in jeopardy of returning back to smoking, which kills 480,000 Americans each year and costs the U.S. more than $300 billion in annual health care expenses," the trade association said. "These new regulations create an enormously cost-prohibitive regulatory process for manufacturers to market their products to adult smokers and vapers. It also limits access to the 40 million adult smokers in the U.S. yet to make the switch to vaping and cripples a multi-billion dollar job-creating industry, the majority of which are made of small businesses."

The trade group said the California law would negatively impact 1,400 vaping retail locations that are small businesses, "plus hundreds of manufacturers, distributors and related businesses that contribute to the state's economy, generating taxes and thousands of jobs."

"California took a step backwards today by reclassifying vapor products as tobacco," the trade association said in a statement. "Stigmatizing vapor products, which contain no tobacco and treating them the same as combustible tobacco while actively seeking to economically penalize smokers attempting to switch is counterproductive to public health. We ... will continue to work with the legislature, and voters, to educate them on what science says should be embraced as a far less harmful alternative to combustible cigarettes."

ABC News' Gillian Mohney contributed to this report.