Turning Point Brands, Inc. (NYSE: TPB), the owner of ZigZag rolling papers announced that the Food and Drug Administration (FDA) had issued a Marketing Denial Order or MDO in response to a Premarket Tobacco Product Application (“PMTA”) covering some of the company’s vapor products. Turning Point bought the Solace vape company in 2019. The company’s stock was slipping in early trading in response and was lately selling at $46.35.
Turning Point has reported spending $14 million in 2020 on the PMTA application according to the company’s annual filing. In 2019, the company spent $2.2 million on the PMTA.
“While we believe the FDA’s current conclusion is misguided, we will continue our dialogue with the agency in search of a path forward,” said Larry Wexler, President, and CEO, Turning Point Brands. “As we explore options for appealing this decision, we are hopeful that the agency reaffirms its commitment to science-based decision making and to its announced Comprehensive Plan, which includes fully transitioning adult consumers down the continuum of risk in order to reduce the morbidity and mortality associated with combustible cigarette use by preserving the diverse vapor market.”
Turning Point said in a statement that it stands behind the high quality of its PMTA. “We believe established that the products’ continued marketing would be ‘appropriate for the protection of public health,’ the standard established by the Family Smoking Prevention and Tobacco Control Act of 2009. These products are crucial to improving public health by helping adult smokers migrate to less harmful products. TPB will continue to engage with the FDA and other stakeholders as we consider options moving forward, including a formal appeal of the decision and potential legal relief.”
The PMTA denied by this MDO included an in-depth toxicological review, a clinical study, and studies on patterns and likelihood of use. Turning Point said, “We believe the data demonstrated that TPB products do not appeal to never users, youth, or former users and that a significant majority of users of TPB products had completely ceased use of combustible cigarettes. The scientific literature on lower-risk nicotine delivery systems shows that these products can significantly improve public health by providing alternatives that are much less harmful than combustible cigarettes.”
Turning Point had been selling vape products under the label Solace with flavors like Peach, Mango, and Marshmallow Crispy. These sugary flavors have been very popular with underage consumers and were a big selling point for the competitor Juul. Solace noted on its website that Federal law required e-liquid companies to submit a Premarket Tobacco Product Application (PMTA) to the U.S. Food and Drug Administration (FDA) in order to continue selling products in the United States. These applications require that e-liquid companies demonstrate that products are “appropriate for the protection of public health.”
The application deadline for the PMTA was September 9, 2020. After that date, any tobacco vapor product on the market would need to have submitted an application or be removed from commerce. Solace had already stated that it was no longer shipping its products to Arkansas, Rhode Island, Utah, Vermont, Massachusetts, New Jersey, New York, and Maine.
The past sales for vape products were significant. Turning Point reported that for 2019, net sales in the NewGen products segment increased to $153.4 million from $131.1 million in 2018, an increase of $22.2 million or 16.9%. The increase in net sales was primarily driven by higher Nu-X alternative products sales in 2019 (includes the Solace acquisition) and an additional eight months of IVG net sales in 2019. IVG is International Vapor Group that operates a strong B2C eCommerce business with direct sales to consumers nationwide and abroad through the Direct Vapor and VaporFi brands. Net sales were negatively impacted by the vape disruption in the fourth quarter of 2019.