The authorisation of the primary e-cigarette by US regulators this week was described by business specialists as a historic second for the $5bn sector, which has been working below a cloud since a crackdown on a teen vaping “epidemic” in 2018.

However the US Meals and Drug Administration’s selection of product for its first ever inexperienced gentle — an unpopular machine formed like an actual cigarette made by a subsidiary of British American Tobacco — puzzled some observers.

Juul, the market chief with a 43 per cent share, has additionally filed for authorisation, and has but to search out out whether or not its merchandise shall be authorised too.

Nonetheless, by rubber stamping the Vuse Solo e-cigarette and associated units, the company despatched a transparent sign that it doesn’t intend to ban vaping outright. Slightly, it began to sketch out a brand new regulatory regime the place it should permit merchandise designed to assist folks stop smoking whereas clamping down on these aimed toward first time vapers who are usually not hooked on tobacco — particularly youngsters.

“It a historic second and an inflection level within the lengthy, drawn out and controversial means of tobacco laws,” mentioned Cliff Douglas, director of the College of Michigan Tobacco Analysis Community.

Simply as vital was the company’s resolution to reject 5 flavoured tobacco merchandise additionally made by Reynolds American, the BAT subsidiary that markets the Vuse Solo. In doing so, the FDA expressed its distaste for the sorts of vaping merchandise that had led to an explosion in utilization amongst teenagers.

It has additionally declined, up to now, to rule on BAT’s way more fashionable machine, the Vuse Alto, and positioned strict advertising and marketing curbs on the Solo product.

“The FDA is below huge political strain and is attempting to string a needle in a manner that satisfies its scientific and public well being mission within the face of litigation, threats and political hardball,” mentioned Douglas.

He mentioned the denial of flavours by the FDA clearly signalled it might take a conservative strategy to any merchandise that had been fashionable amongst faculty kids and younger folks.

Final 12 months, US regulators briefly banned the manufacture, distribution and sale of cartridge-based fruit and mint flavoured e-cigarettes to deal with what they referred to as an “epidemic” of teenage vaping. The FDA required all US e-cigarette producers to submit their merchandise for evaluate or take them off the market.

Even earlier than the FDA formalised its crackdown, the rising regulatory uncertainty had sparked a administration shake-up at Juul in 2019 and prompted Philip Morris Worldwide to call off talks a couple of $200bn merger with Altria, which owns a 35 per cent stake in Juul.

Juul has since in the reduction of on advertising and marketing spending and stopped promoting flavoured pods for its vaporiser machine.

The strategic reset has value the corporate market share, which has fallen from 64 per cent in Might 2018 to 43 per cent final month. Retail gross sales of Juul merchandise fell 10 per cent to $1.99bn within the 52 weeks to September 25, in line with a Goldman Sachs evaluation of Nielsen information.

GM161027_21X US ecigarette market

However Juul is assured that by repositioning itself as a accountable business chief targeted on grownup people who smoke it might scale back regulatory threat and construct a sustainable enterprise over the long run.

Final month the corporate launched a brand new Juul2 machine within the UK, which incorporates new know-how to stop using counterfeit pods and make its units much less accessible to kids.

“Over the previous a number of years, we reset our firm as a result of whereas hundreds of thousands of grownup people who smoke have transformed to our merchandise from cigarettes, we are going to solely be trusted to offer options to grownup people who smoke if we proceed to fight underage use,” mentioned Joe Murillo, Juul’s chief regulatory officer.

Reynolds has benefited from Juul’s strategic pivot and has continued advertising and marketing aggressively over the previous 12 months. It additionally reduce the value of its important e-cigarette machine to 99 cents, one-tenth of what Juul’s units usually value. Retail gross sales of its e-cigarette merchandise surged 60 per cent to $1.2bn within the 12 months to September 25, in line with Goldman evaluation.

Analysts mentioned the FDA’s approval of the Vuse Solo product was unlikely to offer Reynolds with a lot of a aggressive benefit as a result of it’s such a small a part of its e-cigarette gross sales — about 1.5 per cent.

Bar chart of Market share (%) showing Total US nicotine market

“The FDA is authorising a tiny, mainstream vapour product in Vuse Solo — a product not even featured on the Vuse model web site,” mentioned Christopher Growe, analyst at Stifel, an funding financial institution.

He mentioned the FDA’s resolution was maybe extra noteworthy for what it had not authorised: Reynolds’ important e-cigarette product Vuse Alto, the a lot slicker e-cigarette which accounts for the overwhelming majority of the corporate’s market share.

Reynolds mentioned it was assured within the high quality of its software to the FDA for Alto, which was submitted almost a 12 months after the appliance for Solo.

However business and well being specialists say the FDA’s resolution to reject the corporate’s software for flavours and severely limit advertising and marketing for Solo despatched a powerful message to the business about future approvals.

“It was unclear till now if the FDA would take the same strategy to the bigger and extra highly effective corporations,” mentioned Desmond Jenson, a lawyer specialising in tobacco on the Mitchell Hamline College of Regulation. “Now they’ve . . . That half is excellent information for public well being.” 

However the FDA nonetheless has massive choices to make on whether or not to authorise menthol e-cigarette merchandise, probably the most fashionable classes, and Juul’s purposes, mentioned Jenson.

The American Vaping Affiliation mentioned it welcomed the authorisation of the Vuse Solo product however instructed the Monetary Instances it might encourage Reynolds to sue the FDA over its rejection of flavoured merchandise.

Gregory Conley, AVA president, mentioned banning fashionable flavours would push folks to in the direction of gray market merchandise or again to smoking.

Whilst regulation is catching up with the e-cigarette business new rivals are rising which have up to now managed to keep away from FDA scrutiny. Puff Bar, an organization run by vaping entrepreneurs Patrick Beltran and Nick Minas, is promoting merchandise utilizing artificial nicotine — a substance that isn’t at the moment regulated by the FDA.

Critics allege the corporate markets a number of flavours equivalent to banana, watermelon and mint that are fashionable amongst kids. It has change into the most important vendor of disposable e-cigarettes, producing $155m in gross sales within the 12 months to September 25, in line with Goldman Sachs evaluation.

Puff Bar didn’t instantly reply to a request for remark.

Stifel’s Growe mentioned Puff Bar was now the primary youth model and the FDA had been caught flat footed once more in being unable to manage the merchandise that had been hottest amongst youthful folks.

“We stay disillusioned within the FDA’s regulatory actions which proceed to punish corporations following its guidelines whereas turning its head on the businesses breaking the foundations,” mentioned Growe.

Further reporting by Andrew Edgecliffe-Johnson in New York