May 5, 2016 4:49PM

Why Big Tobacco Loves the New FDA E‐​Cig Regulations

Today the FDA issued new rules regarding the sale and production of e-cigarettes and e-cigarette "juice" (the nicotine solution that e-cigs vaporize). The regulations will severely hamper a thriving and highly competitive market, and “big tobacco” is jumping for joy.

It is often difficult to explain to non-free-market types how and why big business loves big government. The song is always the same: we need big government to stop and control big business. Today’s rule offers a great lesson in why that isn’t always the case.

Like most big companies, big tobacco is stuck in a rut--namely, traditional tobacco. When billions of dollars are invested in infrastructure to produce a single product, it is very difficult to shift that behemoth to a new line of production when the product becomes obsolete or unpopular. Thus, small businesses are often, if not usually, the first movers when it comes to innovation. Blockbuster Video, with a costly commitment to brick and mortar video stores, could hardly have been expected to change its entire business model to rental-by-mail or streaming. By the time the threat of  Netflix became existential, it was too late. Many times, when big businesses are in such a situation, one of their last ditch efforts will be to use government to prohibit or hamstring their competitors.

Big tobacco has had a similar problem for some time now. They’ve seen smoking rates fall precipitously, and all future projections show smoking rates continuing to fall. Imagine running a business where the demand to “grow, grow, grow” is belied by an inevitable and irresistible decline. So what do you do? Well, you try to expand into new products such as snus and e-cigarettes.

Yet big tobacco had the same problem that Blockbuster had with Netflix. They weren’t the first movers on e-cigarettes. As they continued to try to plow a field that had grown barren, small companies began to produce e-cigarettes, and people began to use them.

Full disclosure: I’m one of those e-cigarette smokers. What some have pejoratively called a “wild west” situation in desperate need of top-down regulation is actually a thriving market concerned with safety, innovation, and satisfying rapidly changing consumer preferences. There are sub-ohm vapes (huge clouds of smoke), vaporizers that look like lightsabers, vaporizers with variable voltages, and many others, not to mention the proliferation of juice flavors. My preferred vaporizer company, Halo Cigs, is constantly altering its products for better consumer satisfaction and safety.

There are more companies than I can even name. “Vapers” compare their gear, discuss battery life, trade flavors, mix flavors, and generally engage in a highly informed and oddly passionate consumer market.

With today’s rule, that will almost assuredly stop. We will be telling our kids stories about how people used to be “allowed” to just vaporize “anything.” They will look at us quizzically and laugh, unable to comprehend such a silly thing because the FDA--starting today--will begin building up an apparatus of control and prohibition that will make it nearly impossible for future generations to imagine what it was like. “Doctors used to make house calls,” my grandma once told me, and I didn’t believe her.

But big tobacco is jumping for joy. Like many big businesses, they were slow to see the wave of change that was coming. But once they saw it, they jumped on it. Altria (Philip Morris) only recently purchased a prominent e-cig manufacturer, and they’ve long supported the FDA’s regulation of “tobacco products” because “an increasing number of scientists and public health officials are advocating for more clear communications about the relative risks of tobacco products so adult tobacco consumers can make informed choices about them.”

Language like that is just an anti-competitive catechism. They say “consumer choice and confidence,” but it is really about putting competitors out of business through onerous regulations and requirements that only big tobacco has the resources to satisfy. According to the American Vaping Association, under the new rules "submitting an application to get a product approved would take more than 1,700 hours and cost more than $1 million." With the stroke of a pen, the FDA will eventually put hundreds of e-cigarette producers out of business. 

What we’ve seen is a traditional bootleggers and Baptist coalition: anti-smoking crusaders team up with big tobacco to heavily regulate an emerging market. As Jonathan H. Adler, Roger E. Meiners, Andrew P. Morriss, and Bruce Yandle recently wrote in Regulation magazine:

A Bootleggers and Baptists coalition favors the regulation of e-cigs. The coalition is composed of the tobacco companies (Bootleggers) that see their market threatened by a new product, health advocates (Baptists) who oppose e-cigs and wish to see them strictly regulated or prohibited, and state governments (Bootleggers) that have sold bonds backed by tobacco tax revenue that are threatened by the decline in cigarette sales.

In addition, as Jacob Sullum at Reason writes, e-cigarettes are harm-reducers, and making them harder to get could likely result in more cigarette smokers. Personally, I’ve reduced my traditional smoking by about 90 percent with e-cigarettes. I've crafted a flavor and become fond of a vaporizer that meets my needs. Yet my preferred company, and hundreds others, are unlikely to weather this storm.

Welcome back, big tobacco.