One of the biggest policy threats keeping retailers up at night is the looming ban on menthol cigarettes and flavored cigars. In October, the Food and Drug Administration sent the final rules that would put these bans into effect to the White House for review, the last stop before new rules are implemented. It was expected that the administration would move swiftly to finalize the rules, but at the end of the year, the White House said it needed more time for review. Staunchly opposed to the bans, NACS has pushed the White House to stop the bans altogether, arguing that they would lead to unintended consequences that would be detrimental to communities and dwarf any public health benefit.
Unintended Consequences
Prohibition doesn’t mean products disappear. Just look at the 1920s. With the prohibition of alcohol came an influx of bootlegging and criminals taking advantage of Americans who wanted to continue imbibing. The prohibition of these tobacco products will see similar criminal enterprising. Today, menthol cigarettes account for 30% of cigarette sales, while flavored cigars are 50% of cigar sales in convenience stores. With such an established market for these products, many current users will not quit the products or switch to other tobacco products. Instead, they will seek illicit sources for them.
There is a robust illicit tobacco market in the United States, and it is growing. An influx of goods crosses the border from Mexico, with product often made in China. According to some estimates, as much as 21% of the tobacco products sold in America are purchased through the illicit market. In fact, a recent study in California found that more than six months after a state flavor ban took effect, menthol cigarettes continued to make up more than 21% of the marketplace. Of the discarded packs found, 27.6% were non-domestic products. A portion of these were duty-free cigarettes, including the brand Sheriff, purchased with the intent of taking the cigarettes out of the United States—yet evidence shows they are making their way back into the hands of American consumers.
A federal ban on these products will only bolster the illicit market to the detriment of our communities. As legal products today, menthol cigarettes and flavored cigars are sold by legitimate businesses. Convenience retailers check more IDs a day than TSA. These retailers are investing millions to ensure their associates are conducting proper age verification and preventing minors from accessing these products. Illicit sellers don’t take age into consideration, but often prey on those who are underage, meaning more minors would be exposed to these products.
Convenience retailers only sell tobacco products that have undergone intense regulatory scrutiny by the FDA and are permitted to be on the market under the Tobacco Control Act. Counterfeit cigarettes avoid this scrutiny. The Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) states, “While all cigarettes are dangerous and are known to cause disease, counterfeit cigarettes often contain higher levels of tar, nicotine and carbon monoxide than genuine cigarettes, and may contain contaminants such as sand and packaging materials. Counterfeit cigarettes pose a greater health risk to consumers and cost taxpayers millions in lost revenue.” Those people who can no longer purchase these products legally and turn to the illicit market will be exposed to far greater health risks.
These bans would lead to severe economic losses for legal sellers. FDA’s proposals didn’t weigh the true economic impact on businesses selling these products, especially small businesses who aren’t as capable of diversifying. A single convenience store would lose on average an astounding $232,392 in sales annually without these products.
FDA’s proposals didn’t consider losses of sales of non-tobacco products that are purchased along with tobacco products. Retailers stand to lose sales of the entire basket, not just the tobacco products. NACS estimates a convenience store would lose $72,285 a year in non-tobacco sundry sales, representing close to 4% of inside sales, should the bans be implemented.
What’s Next
It is unclear when the White House will finalize these bans, but NACS is making every effort to get the administration to withdraw the rulemakings. NACS continues to vocalize its opposition to the White House, the FDA and Members of Congress. In addition, members of the industry can take action via the NACS Grassroots Portal at convenience.org.
If the administration moves forward with the bans, NACS will explore legal options on behalf of the convenience store industry.
The Status of the HFC Ban
With an industry as diverse and ever-changing as the convenience retailing industry, new issues pop up every day. That is especially true when it comes to environmental regulations. As part of the Biden Administration’s climate agenda, two agencies have been busy pursuing rulemakings related to energy efficiency standards and reducing hydrofluorocarbons (HFCs)—the EPA and the U.S. Department of Energy (DOE). HFCs are greenhouse gases used in a wide variety of cooling systems, including refrigerators, air conditioning units in buildings and automobiles, building installation and fire extinguishing systems. And a few of those rulemakings and regulatory efforts will have an impact on the convenience industry.
At the end of 2020, Congress passed the AIM Act, which authorizes the EPA to address HFCs by providing EPA new regulatory authority in three main areas:
• Phasing down the production and consumption of listed HFCs.
• Managing these HFCs and their substitutes.
• Assisting in the transition to next-generation technologies through sector-based restrictions.
In addition, the Inflation Reduction Act included increased funding to implement the AIM Act and created incentives for competitive grants for new technologies to address HFCs. Further, in 2022, the United States ratified the Kigali Amendment to the Montreal Protocol on Substances that Deplete the Ozone Layer, which phases down the production and consumption of HFCs by 80-85% by 2047.
Along with EPA’s efforts on HFCs, the DOE has been aggressively updating energy efficiency standards for a wide range of technologies and appliances for commercial use and residential use. In 2023 alone, EPA issued 30 proposed or final energy efficiency standards.
While these efforts to improve energy efficiency and the environment are on the whole necessary, as with many well-intentioned policies, it is difficult and complex to implement these proposals. Two key rulemakings from 2023 illustrate this challenge. In mid-2023, EPA announced a rulemaking on the Phasedown of Hydrofluorocarbons: Management of Certain Hydrofluorocarbons. DOE announced its rulemaking on Energy Conservation Standards for Commercial Refrigerators, Freezers, and Refrigerator-Freezers. Both of these regulatory proposals would have an important impact on convenience retailers, as the convenience industry relies on the use of food refrigeration, HVAC and fire-suppression systems. Any changes in requirements, replacement technologies and availability of equipment not only impact the manufacturers and distributors of these technologies, but also the end users, such as convenience store operators.
In EPA’s rulemaking, many retail groups and manufacturers expressed concerns over the increased costs and feasibility of many of the new requirements, along with concerns over timelines and logistics of some of these requirements, such as new training and certification requirements. NACS also submitted comments during the public comment period over concerns with increased costs and concerns over proposed leak detection requirements.
During the DOE public comment period, NACS joined the Food Industry Association to share concerns with the agency that its proposal on creating more stringent standards on commercial refrigeration units had not demonstrated that these new standards would result in significant conservation of energy, be technologically feasible or be cost effective. Many manufacturers have indicated that in many cases, the proposed standard would require new design elements and technology that is not economically justifiable or feasible. In addition, there were strong concerns shared that the compliance deadlines are unreasonable and do not take into account the efforts underway with EPA’s regulations on implementing the AIM Act.
More rulemakings, standards setting, implementation and compliance efforts are expected in 2024. NACS will continue to closely monitor and engage on these issues. Subscribe to the NACS Daily newsletter for latest news and updates.