Tobacco Tax Study: VAPOR PRODUCTS

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The study delves into the advancements in tobacco harm reduction through innovative non-combustible tobacco products like vapor products. It explores the role of vapor and aerosol-producing products in reducing harm from nicotine consumption. The study discusses different types of vapor products, their market preferences, and the importance of ongoing research in this field.

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Tobacco Tax Study: VAPOR PRODUCTS Presented by: Stephen E. Baril & Dylan D. Bishop KVCF Solutions October 7, 2019

SB1371: continue studying advances in science and technology in the area of tobacco harm reduction, and the role innovative non-combustible tobacco products can play in reducing harm, including products that produce vapor or aerosol from heating tobacco or liquid nicotine. 2

Nicotine Vapor Product means any noncombustible product containing nicotine that employs a heating element, power source, electronic circuit, or other electronic, chemical, or mechanical means, regardless of shape or size, that can be used to produce vapor from nicotine in a solution or other form. 3

What is VSFA? Approximately 400 Vape Shops in VA Largest Member: AVAIL VAPOR 31 locations in Virginia 190 employees in VA Most Members: Small Businesses 4

2 Types of Vapor Products Closed/Pod System Open/Traditional System 5

Open/Traditional System Sold almost exclusively in neighborhood vape shops Allows reduction of nicotine levels, including nicotine free 30% of vapor products market Preferred by adult smokers 6

Closed/Pod System Generally sold in convenience stores and large retailers 70% of vapor products market Preferred by kids 7

Fmr. FDA Commissioner on Distinction 8

SB1371: continue studying advances in science and technology in the area of tobacco harm reduction, and the role innovative non-combustible tobacco products can play in reducing harm, including products that produce vapor or aerosol from heating tobacco or liquid nicotine. 9

Tobacco Harm Reduction Vaping is 95% safer than smoking, per Public Health England Health and Wellbeing Directorate, E-Cigarettes: A New Foundation for Evidence-Based Policy and Practice, Public Health England, 2015; and Underpinning evidence for the estimate that e-cigarette use is around 95% safer than smoking: authors note, Public Health England, 2015. 10

Tobacco Harm Reduction Vaping is twice as effective as FDA approved nicotine patches and lozenges at helping adults quit smoking Hajek P., et al., A Randomized Trial of E-Cigarettes versus Nicotine-Replacement Therapy. The New England Journal of Medicine, 2019. 11

Tobacco Harm Reduction Most experts agree that e-cigarette vapor is less harmful than cigarette smoke because it doesn t contain most of the cancer-causing chemicals in burning tobacco. - Associated Press, via Richmond Times Dispatch, October 4, 2019 12

Vapor Tax Models 1. Equivalency Tax to Tobacco Products 2. Wholesale Excise Tax 3. Final Point of Sale Excise Tax 4. Per Milliliter Tax 5. Per Milligram Tax 13

Equivalency Tax Taxes vapor products as if they were cigarettes Ignores Tobacco Harm Reduction aspects of vaping Discourages smoking cessation 14

Wholesale Excise Tax Taxes inventory before sale to consumer Disproportionate impact on small businesses: In 8 months, a 40% excise tax in PA closed more than 100 small businesses (25% of the state s vape shops) and eliminated nearly 1,000 jobs 15

Final Point of Sale Excise Tax Similar to sales tax Allows small businesses to pay taxes from sales revenue Can be Per Milliliter or Per Milligram 16

Per Milliliter Tax Taxes by volume of liquid Not a tax on nicotine or nicotine content Disproportionately affects open systems and vape shops Encourages use of pod systems like JUUL 17

Per Milligram Tax Tax based on nicotine content More equitable regardless of vaping product being used Encourages cessation and lower nicotine content 18

Vapor Taxes in Other States State Tax Policy California Equivalency Tax Connecticut Per ML/Wholesale Amount 65.08% of wholesale cost $.40 per ML on closed; 10% of wholesale on open; 10% on wholesale on all devices 60% of wholesale cost District of Columbia Delaware Illinois Kansas Louisiana Maine Minnesota Nevada New Jersey New Mexico Equivalency Tax Per Milliliter Wholesale Tax Per Milliliter Per Milliliter Wholesale Excise Tax Wholesale Excise Tax Wholesale Excise Tax Per Milliliter Per Pod/Final Point of Sale $0.05 per ML 15% of wholesale $0.05 per ML $0.05 per ML 43% of wholesale cost 95% of wholesale cost 30% of wholesale cost $0.10 per ML $.50 cents per pod/12.5% Final Point of Sale on Open System E-liquids 20% of retail sale $0.05 per ML 40% of wholesale cost $.27 per ML on closed; $.09 per ML on open New York North Carolina Pennsylvania Washington Final Point of Sale Per Milliliter Wholesale Excise Tax Per Milliliter Wisconsin West Virginia Vermont Per Milliliter Per Milliliter Wholesale Excise Tax $.05 per ML $0.075 per ML 92% of wholesale cost 19

VSFA Recommendation #1 No tax on vapor products, because: 1. Vapor products are a safer alternative to smoking 2. Virginia realizes significant health care savings from consumers who improve health outcomes by transitioning off of combustible tobacco 20