Marketing Vapor in a Highly Regulated

Environment

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E-Alternative Solutions & Me

• E-Alternative Solutions– Founded in 2015; President is Jacopo D’Alessandris

– Sister company of Swisher International, Inc.

– Markets e-liquid products and closed system, subohm

device

– Expanded launch of Cue Vapor System on February 26

• Chris Howard– General Counsel & CCO since July 2016

– Formerly General Counsel & CCO of Fontem Ventures

(blu eCigs)

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Agenda

• FDA Compliance– Age Restriction

– No Health and Cessation Claims

– No Modified Risk Claims

– Required Warnings

– Free Samples

– Vending Machines

– Other

• State and Local Regulations– Outlier States

– Handling Variability

• Instituting Best Practices– Developing Company Guidelines

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Disclaimer

The information presented is for informational purposes only and not for the

purpose of providing legal advice. You should contact your attorney to obtain

advice with respect to any particular issue or problem. Participation in this

presentation does not create an attorney-client relationship between the

presenter and you. The opinions expressed during this presentation are the

opinions of the individual author and may not reflect the opinions of EAS.

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FDA COMPLIANCE

Marketing and Advertising

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Age Restriction Rules Effective August 8, 2016

• Retailers may only sell e-cigarettes and other

ENDS to customers age 18 and older

• Must check photo ID of everyone under 27

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“FDA has determined that your ... e-liquid is misbranded….”

“FDA’s investigation of the website … revealed that you sold an e-liquid product to a minor. Specifically, during our investigation of [website}, a person younger than 18 purchased a[product] e-liquid from the website.”

– No exclusion for online retailers

– Several providers now offering this

service . . . with mixed results

• No vending machines or self-

service displays unless in an

adult-only facility

No Health and/or Cessation Claims

• FDA recognizes the potential for less harmful

tobacco products but more evidence is needed

• No modified risk descriptors (‘‘light,’’ ‘‘low,’’ and

‘‘mild’’) or claims without market order– August 8, 2016

• No modified risk claims in labeling, or advertising

without market order– “lower risk,” “less harmful,” or “contain a reduced level of a

substance” than another commercially marketed tobacco

product

– August 8, 2017 (manufacturing)

– September 7, 2017 (distribution)

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Examples of Prohibited and Permissible Language

• Prohibited– No tar

– No ash

– No smoke

– Low, light, mild

– Less risk

– Less exposure

– Contains a reduced level of….

– Helped me quit smoking

– Saved my life

• Permissible– Clothes don’t stink

– Cleaner car and home environment

– Reasonable cost comparison

– Consistent vape at any temperature

– Made in USA with domestic and imported ingredients

– Multiple flavors

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No Health and/or Cessation Claims – What You Should Consider

• Where should I avoid these statements?– All forms of traditional marketing

– Packaging

– Trade publications

– Social media

– Interviews

– Press releases

– Survey questions?

– Salespeople distributing articles & publications

– Other?

• What happens if I make the statements regardless?– FDA enforcement for misbranding (stop sale order)

– Some states deem this violative of consumer protection statutes

– Civil action by consumers

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Required Warnings on Packaging for Products Containing Nicotine

• Required language: “WARNING: This product contains nicotine. Nicotine is an

addictive chemical.”

• Manufacturers cannot manufacture product w/o required warnings after May 10, 2018

• See Deeming Regulation for size and placement requirements

• You need a strategy to:– Develop and produce compliant packaging

– Manufacture product with compliant packaging

– Sell out non-compliant product

– Distribute compliant packaging before compliance date

• Note: Retailers may continue to sell through inventory of products that do not bear the

required warnings without a date limitation (so long as that product was manufactured

prior to May 10, 2018)

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Required Warnings on Advertising Effective May 10, 2018

• Warnings must occupy at least 20% of the area of upper portion of the advertisement

• You need a strategy for:– Print advertising

– Television/radio

– Internet advertising (banner ads, websites, etc.)

– Social media

– Point of sale ads

– Point of sale furniture and fixtures

– Swag

• You need a strategy for compliance for campaigns with long tails…– Plan advertising campaigns to end/begin at appropriate points for compliance date

– Plan to refurbish point of sale furniture for compliance date

– Plan to rotate point of sale ads for compliance date

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No Free Samples – Effective August 8, 2016

• No free samples of e-cigarettes or other ENDS, including any components or parts

• Other than certain B2B relationships, FDA no exceptions for any of the following groups:

– Consumers

– Influencers

– Journalists

– Bloggers

– Celebrities

• January 2017 Draft Guidance - FDA does not intend to enforce prohibition on free samples with respect to businesses distributing free samples in a limited quantity (i.e., no more than necessary to achieve a business or marketing goal, such as awareness of and exposure to the product for the purposes of product or inventory selection) to another business as part of a genuine effort to sell or market a tobacco product to that business

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Some Coupons and Promotions Still Permissible

• Coupons and Discounts– Free sample ban doesn’t prohibit

• sale of tobacco products at a discount

• accepting coupons to purchase products at a discount

– Promotions that offer consumers a free tobacco product in a separate transaction that is not a tobacco product sales transaction are prohibited where they would allow consumers to obtain a free tobacco product sample and also evade the minimum age and ID requirements

• Membership and Reward Programs– Membership and rewards programs that provide discounts to

tobacco product purchasers are also not prohibited by the free sample ban as long as they do not result in distribution of tobacco products outside of a tobacco product sales transaction subject to minimum age and ID requirements

– Reward must be distributed as part of a tobacco product sales transaction that requires monetary payment

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But Beware…

• FDCA Section 201(rr)(4) prohibits

marketing a tobacco product in

combination with another article or product

regulated under the FDCA

• This includes foods, drugs, cosmetics,

energy drinks etc.

• This means no

– Ads

– Coupons

– Co-Packaging

EAS Proprietary and Confidential Information 14

FDA believes the following activities are not included within the scope of section 201(rr)(4) of the FDCA and, therefore, are not prohibited under that section:

A tobacco product and a non-tobacco product regulated under the FDCA are advertised on the same store sign or in the same store circular.

For example: Cigarettes and mouthwash are advertised on the same sign in a store window or in the same store advertising circular.

A tobacco product and a non-tobacco product regulated under the FDCA are sold in the same retail establishment or advertised in the same place.

For example: Cigarettes and mouthwash are sold in the same store or are advertised in the same magazine.

Two or more tobacco products are packaged together in a single package or as a unit. For example: A pack of cigarettes is sold in a box, bag, or other container with a package of pipe tobacco.

STATE AND LOCAL REGULATIONS

Marketing and Advertising

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Significant Variability Amongst Geographies

• No sales to minors

• No purchases by minors

• Coupon restrictions

• Flavored product restrictions

• Sampling restrictions

• No vaping in bars/public places

• Licensing/permitting requirements

• Numerous laws currently pending!

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No Sales and/or Purchases By Minors

• Federal age restriction for sales is 18

• But states and localities have variable rules

ranging from 18 to 21

• Considerations:– Variable age verification for online sales (use zip codes?)

– Warning language you voluntarily include on packaging

– Some have implemented a 21+ policy across the board

– Where to conduct sampling events (reminder: not “free”)

– “We card” and similar programs

– Contracting with channel partners to ensure compliance

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Flavored Product and Coupon Restrictions

• Some states and localities prohibit the sale of flavored ENDS products (and

permit only tobacco and menthol)

• Others prohibit certain forms of coupons

• Considerations:– Ensuring certain flavors are not available where prohibited

• Controls built in to websites for online sales

– Ensuring coupons are not available where prohibited

• No coupons in all packaging

– Deciding where to focus marketing efforts

– Working with wholesalers to segment inventory by geography

• The key with respect to all variable laws is to implement strategies which

permit flexibility based on geography . . . which may be easier said than done

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California (CA Business and Professions Code 22963)

• Some states can impact multiple parts of your business

• In 2016, California legislature modified Business and Professions code to address remote sales of tobacco products including ENDS products

• Code requires remote sales to:– Be only to individuals over 21

– Age verify through an appropriate government databases (and match the billing address matches that in the database)

– If this fails, require consumers to provide an “age verification kit”

– Not accept cash or money orders

– Cause credit card companies to print “tobacco product” in the purchaser’s credit card statement

– Make a telephone call, in person or automated, after 5 p.m. to the customer confirming that a tobacco product is being shipped prior to shipment

– Deliver only to the customers billing address

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Oregon Indoor Clean Air Act

• The policies of some states can affect your entire

national strategy

• Oregon’s ICAA (which was previously a cigarette

law) now includes “inhalant delivery systems”

• Oregon prohibits display of food and beverages on

packaging (including outer package or label on

outer package, or inner package or label on inner

package) for tobacco products

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Implementing a Strategy to Manage Variability

• Familiarize yourself with existing laws

• Stay abreast of pending and forthcoming laws– Vapor Technology Association has resources dedicated to managing state issues

• Take steps to make sure your voice and voices of your customers are heard

when new legislation is looming

• Utilize customizable online tools

• Focused geographical advertising

• Limit use of broad claims (e.g., “Vape it anywhere”)

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BEST PRACTICES

Marketing and Advertising

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A Case for Best Practices Guidelines

• Best Practices Guidelines provide limits and guides to internal employees and external agencies for your company’s marketing practices

• Comprehensive guidelines aid in preventing bad outcomes in:– Regulatory inquires/investigations

– Product liability litigation

– Consumer protection litigation

– AG/DoJ inquiries/investigations

– Congressional inquiries/investigations

• Comprehensive guidelines aid in promoting:– Ethical/legal marketing activities

– Quick decision making for marketing activities

– Training company leadership and employees

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Developing Guidelines

• Overarching corporate principles for marketing

• Legal/Regulatory requirements

• Practical sense application to your marketing

• Consider:– Position on youth marketing

– Position on preventing youth access to tobacco products

• The Master Settlement Agreement between the State Attorneys General and

the Tobacco Industry along with the Tobacco Control Act and Deeming

Regulation are good starting points

• Periodic updates based on changed laws and practical application

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General Concepts

• Adhere to warning statement requirements

• Don’t make health/safety or cessation claims

• Don’t use cartoon characters or other imagery

particularly attractive to youth

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Best Practices Areas of Concentration

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Specific Media

• Print ads

• Trade ads

• Billboards

• Radio

• Internet/social media

• Web/mobile banner

• Coupons

• Television

• Sponsorships

• Sweepstakes/giveaways

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Print/Trade Ads

• Consider Readership– Place in circulars that have adult readership

– Good guide is 85% adult readership by

Mediamark Research or Simmons data

– Consider strategies for publications not audited

• Think About Your Ad– Do people in the ads appear to be of legal age?

25 years old is a good standard

– Does the imagery or language invoke implied

health or cessation claims?

– Does the imagery or language invoke implied

reduced exposure compared to other tobacco

product claims?

• Treat Trade Ads the Same

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Billboards

• Placement is Key – No Billboards Within 500

Feet of:– Schools

– Youth oriented facilities

– Child care facilities

• Otherwise Treat Like Print Ads for Content

• People/Governments Check– California STAKE Act has guidelines

– Public health investigators/writers

– Attorneys General/private attorneys

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Radio

• Radio Show Content Should Be Directed

to Adults– Howard Stern – OK

– Radio Disney – Bad

• Look to Arbitron Data for 85% Adult

Listeners

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Internet – Social Media – Web/Mobile Banner

• Internet – same rules apply – seek verified 85% adult visits to site

• Social Media– Restrict to adult only social media

– Restrict your pages to adult only social media

– Verify

– Consider how warnings will impact these sites

– Where comments are possible – you own those –make sure they are monitored and follow the rules

– Otherwise same rules apply

• Banner Ads– Link your banner ads to a webpage with required

legal language (e.g., warnings)

– If no links – add warnings and other information

– Same adult readership rules apply

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Coupons

• FDA rule is no free samples

• But coupons are still okay – these are buy downs of the product

• Coupons shouldn’t be constructively considered free samples– Real consideration for the product

– Would you do a 99.9% buy down?

• Coupons for free accessories are still permissible

• Remember to limit your exposure with coupons to numbers and promotional

dates

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Television

• Warnings will be required– No FDA guidance yet

– Consider 20% of the ad space or 20% of the ad

time

• 85% Adult Viewership– Use Nielsen data

• Talent/Spokespeople– Should be and appear to be 25

– Celebrities should have 85% adult following

• Compare: Rush Limbaugh vs. Ariana Grande

– Ensure scripts/ad-lib is reviewed for compliance

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Sponsorships

• 85% Adult participation – Compare: Burning Man Event to Disney on Ice

• Other Restrictions – like use of talent, coupons, free

samples, health claims still apply

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Sweepstakes/Give-Aways

• Key to sweepstakes are the prizes– Can’t be a tobacco product

– Can be accessories

• Think about other legal issues– Local/State laws

– Age verification

– Sweepstakes law

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Take a “Cue” from EAS

• PRIORITIZE COMPLIANCE

• EAS Compliance works closely with Cue Marketing Team to ensure a compliant and successful marketing plan– Provided the Marketing and Sales Guidelines to team and outside agencies

– Contracting with outside agencies to ensure compliance with Guidelines

– Full engagement with all key vendors

• Application of Guidelines to ALL forms of advertising– DRTV campaign

– Testimonials

– POS ads

– Trade publications

– Social media

• Assess campaign in light of constantly changing state and local landscape

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Contact Information – Chris Howard

• choward@ealternativesolutions.com

• Cell Phone - 336.392.3812

• Work Phone – 800.843.3731 Ext. 3499

• www.linkedin.com/in/chris-howard-EAS

EAS Proprietary and Confidential Information 37

QUESTIONS?

Marketing and Advertising

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