Earlier this week, ECCR learned of a breaking story that could impact the entire e-cig industry.
As we reported, the predicate product does exist and tobacco giant Altria, the world’s largest tobacco company and maker of the Mark Ten electronic cigarette, has made an offer to purchase. We do not know the value of the offer but we do know that it’s in the seven figures.
Today, Atlantic Cigs has released a statement confirming that they indeed represent the owners of the predicate product.
Altria’s Negotiations For The Predicate Ecig Product
Altria’s search for the predicate product, and subsequent negotiations, were spearheaded by James Dillard. Before assuming the role of Senior Vice President of Regulatory Affairs and Chief Innovation Officer at Altria, James Dillard served as the Director of the Division of Cardiovascular and Respiratory Devices at the FDA. He has a biomedical engineering background and he well understands both the FDA and technological devices.
Given his background he is clearly well aware of the massive impact of the existence of the predicate product. He knows the FDA, he knows how regulation impacts mechanical technologies related to health and human services, and he knows the electronic cigarette industry. If Mr. Dillard wants the predicate product, then the significance of what this all means cannot be overlooked or underestimated.
There has been some effort made to request that the FDA change the grandfather date. While it may be possible to do so, the FDA will risk looking weak at a time when most states and municipalities are calling for strict regulation. Changing the date will also open the floodgates to other tobacco products being able to avoid the full FDA approval process. Will the FDA change the date? That is a daunting task as Altria well knows given their FDA experience.
In a nutshell, the predicate product is grandfathered and not subject to the full extent FDA e-cigarette regulations that will be enforced on existing electronic cigarette products. Altria would simply access the substantial equivalence pathway to market and for a time they would be the only e-cig available to consumers. In other words, Altria could impose a massive advantage early in the post-regulation e-cigarette business and capture a large share of the market before true competition would truly begin.
Altria’s e-vapor focus would probably be convenience store sales and they could effectively shift the current business dynamic from online and vape shop sales to limiting e-cigs to purchase from the same place where you buy cigarettes. They have a distribution network which includes hundreds of thousands of convenience stores and other retail chains. They do not operate their own retail locations, distribution is their area of expertise. Chances are, they will stick with what they know and limit e-cigs to the retail locations in their network.
Along with focusing on a C-store marketing strategy, the use of the predicate product could have serious fall-out for e-liquid vendors. Can the predicate product be use to either enable e-liquid to be sold separately or could it be used to show that e-liquid is a new tobacco product and force e-juice vendors to go through every aspect of the FDA approval process? That would mean that every flavor and nicotine level would be a different product and have to go through every administrative hoop before becoming available to the public.
Without e-liquid, mods and other advanced e-cigs become moot. The implications for vape shops is very clear. While Altria’s business strategy would be sound, the vaping industry and entrepreneurial vape shop owners could be left in the cold.
To accomplish this, all Altria would have to do is make the predicate product unavailable to any other e-cigarette company. Smaller companies with leading e-cig technology would be at a disadvantage and Altria could potentially acquire the leading technologies at bargain prices.
The business model is very effective, get vapers using Altria products and by the time everyone else is able to offer a competitive product, consumers will already be customers of Altria products. think about tobacco. Once someone smokes Marlboros, they stick with Marlboros.
No one is more aware of the implications than the owner / owners of the product and their representatives from Atlantic Cigs. As indicated in the press release, Atlantic is moving forward with the intention of combining the best possible business decision that also benefits the e-cig industry overall.
There is room for vape shops and convenience stores. A member of Atlantic’s negotiating team compared the situation to coffee. You can buy coffee everywhere but specialty coffee shops can be found on every street corner. The more options available for a smoker to pick up an e-cig instead of tobacco the better.
State Of Predicate Product Negotiations
Atlantic Cigs has met with Altria twice so far. The authenticity of the predicate product was established and Altria quickly dispatched a team to Philadelphia to meet and discuss acquiring the predicate e-cig product.
Atlantic has met with Altria twice so far. After meeting in Philadelphia another meeting was held in Richmond Virginia. A seven figure offer was made. Atlantic indicated that the offer was not sufficient and did not include any assurances to promote the overall advancement of vaping.
Atlantic will consider an offer from Altria if it makes sense from a business perspective and includes some assurances for the benefit of vaping, the e-cig industry and job creation.
We are very familiar with Atlantic Cigs. They were founded in 2013 by individuals who were there when vaping first began. When we first began covering Atlantic, they sold a quality cigalike and five different flavors.
In a short time, they have expanded into a vast product line including mods, 40 flavors of e-liquid, VG e-juice for cloud chasers and a full line of accessories. They have put their stamp on innovation with the development of the Nautilus mod, which is made of plastic, food grade components leading to the lightest weight mod on the market.
Aside from offering a full line of e-cigarettes, Atlantic is also in the vape shop business. They operate Atlantic Vapor in the biggest mall in the US, the King Of Prussia Mall.
Atlantic is an e-cigarette business and is interested in coming to an agreement that benefits vaping overall. This is good news for vapers and smokers still looking for an answer.
So far, Altria has submitted the only offer.
ECCR has contacted key industry players regarding these negotiations. RJ Reynolds, the makers of the Vuse e-cigarette, have no comment at this time.
“R.J. Reynolds Vapor Company has no comment on the Altria activity.”
We have no word from other industry players who are no doubt paying close attention to the final destiny of the predicate product.