The FDA has revised its schedule of fines imposed on retailers that violate the agency’s federal tobacco regulations, including the sale of cigarettes, roll-your-own tobacco, or smokeless tobacco to a minor. Under the Tobacco Control Act, there are six levels of violations and respective FDA fines. Recently, the FDA increased the fine for a sixth violation as allowed by the Federal Civil Penalties Inflation Adjustment Act, a federal law that allows a federal agency to increase fines based on the inflation rate with a maximum 10% increase in a fine.
The current fine structure used by the FDA for retail violations is as follows:
- First Violation: No fine, but a warning letter is issued.
- Second Violation within a 12-month period: $250 fine.
- Third Violation within a 24-month period: $500 fine.
- Fourth Violation within a 24-month period: $2,000 fine.
- Fifth Violation within a 36-month period: $5,000 fine.
- Sixth Violation within a 48-month period: $11,000 fine (originally $10,000, but raised $1,000).
The FDA uses the schedule above to determine the amount of the fine that the FDA will seek to impose on a retailer that violates the federal tobacco regulations. On a first inspection, regardless of the number of violations, the FDA issues awarning letter to the retailer detailing the violations, but does not assess a fine. There can be more than one violation per inspection. For example, if a retailer sells a tobacco product to an undercover minor and does not request and check a proper photo identification, this equals two violations.
For additional inspections, the FDA counts only one violation from the first inspection and then adds on each violation from a second or subsequent inspection to determine the level of fine to seek. For example, if a retailer receives a warning letter from a first inspection during which two violations occurred (e.g., failure to check ID and a sale to a minor), and on a second inspection the same retail store is cited with two more violations (e.g., failure to check ID and a sale to a minor), the FDA’s policy is to count one violation from the first inspection and two violations from the second inspection for a total of three violations. This would result in the FDA seeking a $500 fine from the retailer according to the schedule listed above.
The fact that the amount of FDA fines can increase significantly for additional violations by a retailer at the same location demonstrates the need for retailers to regularly train their store personnel to properly request and check photo IDs and prevent the sale of tobacco products to an underage youth.
Over the past year, the Department of Justice has initiated a wide-ranging investigation of banks and payment processors, known informally as “Operation Choke Point.” The goal of the investigation is to combat mass-market consumer fraud by foreclosing access to payment systems by those who attempt to commit fraud. In other words, the operation involves closing the bank accounts of certain businesses.
However, according to a Staff Report prepared for the U.S. House of Representatives and dated May 29, 2014, there is evidence that the apparent goal of Operation Choke Point is to target industries deemed “high-risk” or otherwise objectionable by the Obama Administration. Following the launch of Operation Choke Point in spring 2013, a wide variety of lawful businesses received notices that their bank accounts were being abruptly terminated. The terminations were often attributed to “regulatory trends” or “heightened scrutiny,” and expressly disclaimed any negative assessment of the accountholder’s financial risk. Several tobacco stores have recently received these bank account termination notices.
A NATO retail member that receives such a bank notice should contact NATO at 866-869-8888 so that the matter can be brought to the attention of the appropriate U.S. Senators and U.S. Representative that represent the district in which the store is located.
Missouri: The Missouri legislature voted to override Governor Jay Nixon’s veto of Senate Bill 841 that (1) prohibits the sale of e-cigarettes to minors and (2) provides that e-cigarettes shall not be taxed as tobacco products. This means that Missouri law now prohibits the sale of e-cigarettes to anyone under the age of 18.
Pennsylvania: This week, the Pennsylvania legislature passed and Governor Tom Corbett signed into law House Bill 1177 that authorizes cities of the first class to approve a 10-cent per cigarette local excise tax to fund school district operations. Philadelphia is the only first class city in Pennsylvania. Pursuant to this new taxing authority, the City of Philadelphia enacted a local ordinance to assess the 10-cent per cigarette tax to partially fund the Philadelphia school district operations. The Pennsylvania Department of Revenue has informed NATO that the 10-cent per cigarette or $2.00 per pack local cigarette tax for Philadelphia will go into effect on October 1, 2014. There is a floor stocks tax being assessed on retailers and vending machine operators. The floor stocks tax needs to be paid by each retail store on or before October 1, 2014.
A letter is being mailed to all retailers by the Pennsylvania Department of Revenue explaining the new Philadelphia local cigarette tax and the floor stocks tax. Each retail store needs to conduct an inventory of cigarettes on hand on October 1, 2014 and pay the floor stocks tax with aseparate check for each store. The floor stocks tax needs to be paid to the Pennsylvania Department of Revenue by October 31, 2014.
On July 22, 2014, a federal district court judge issued a decision in a lawsuit brought by R.J. Reynolds Tobacco Company and Lorillard Tobacco Company against the Food and Drug Administration requiring the agency to appoint three new members to the Tobacco Product Scientific Advisory Committee (TPSAC) and prohibiting the agency from using the TPSAC report on the impact of menthol in cigarettes. The judge determined that three TPSAC members had conflicts of interest because they served as expert witnesses against tobacco companies in tobacco litigation and they wee paid consulting fees paid by pharmaceutical companies in connection with smoking cessation products such as nicotine replacement therapy products.
Last week, the FDA filed a notice to appeal the federal district court ruling to the U.S. Circuit Court of Appeals for the District of Columbia. This means that the parties to the lawsuit will need to file briefs with the Circuit Court of Appeals and participate in an oral argument before the appeals court. There is no specific timeline for this appeal to be concluded, but an appeal to a Circuit Court of Appeals can take up to a year or more before a decision is issued.
The FDA has announced a series of three public workshops to gather scientific information and provide a forum for discussion of e-cigarettes and the public health. These workshops will include presentations and panel discussions about the current state of scientific studies on e-cigarettes. The first workshop will be held December 10-11, 2014 in Washington, DC and the agenda will include e-cigarette scientific studies, packaging, labeling of components and ingredients, and environmental impacts. The second and third workshops will cover the topics of the health effects of e-cigarettes on individuals and on the population as a whole.
The FDA indicates that the scientific information obtained through the workshops will not be utilized as a part of the process to finalize the agency’s proposed deeming regulations since the public comment period for the deeming regulations ended on August 8th. Rather, the FDA intends to use the scientific information obtained through the workshops to carry out its authority to regulate e-cigarettes with potential additional regulations at some time in the future. Accompanying this bulletin is a full copy of the FDA’s notice about these workshops. In the notice, the FDA outlines the e-cigarette topic areas for discussion during the workshops and lists questions about e-cigarettes that it seeks to answer.
The public can attend the workshop in person or via live webcast. If you want to attend the workshop in person or by webcast, you must register by submitting a request no later than November 25, 2014 on https://www.surveymonkey.com/s/CTP-December-Workshop.