Illegal Counterfeit and Compatible Electronic Nicotine Delivery Systems (ENDS) Products: Public Health and

Safety Challenges

Parker David Kasmer, Senior Director, Regulatory Integration, JUUL LabsKevin RJ Schroth, Associate Professor, Department of Health Behavior, Society and Policy, Rutgers Center for Tobacco Studies, Rutgers School of Public Health

Moderated by Mark J. Vaders, Counsel, Womble Bond Dickinson (US) LLP

Parker D. Kasmer

FDLI Enforcement, Litigation, and Compliance Conference || December 11, 2019

Illegal Counterfeit and Compatible ENDS: Public Health and Safety

Challenges

3

Roadmap

1 | Counterfeit versus Compatible Products and Public Health Implications

2 | Influx of Counterfeit Products Manufactured Outside of U.S.

3 | Proliferation of Compatible Products in U.S. Market

4 | Enforcement Solutions among Stakeholders

4

Different products, similar concerns for public health

Increasing commercial viability of e-vapor products as alternative to combustibles has re-invigorated illicit

tobacco trade

• In 2018, e-vapor market was worth approximately $11 billion; by 2024, projected to reach approximately $18

billion

Illicit trade taking two forms of product types – counterfeits and compatibles

• Counterfeit products – illicit products marketed and sold under authentic brands and packaging

• Compatible products – illicit products designed and/or marketed to be used with branded e-vapor products

Counterfeit and compatible manufacturers playing “short game” that jeopardizes category and may present

significant public-health issues

• Made in facilities under unknown quality controls and manufacturing standards

• Made with unknown ingredients and limited to no disclosures and testing, including toxicological and HPHC analysis

Net effect is reviving illicit tobacco trade from cigarette years

5

Global influx of counterfeit products across channels

Ex-U.S. Manufacturers(China)

U.S. Commerce(Wholesale/Retail)

Cross-Border Import

Raid of Chinese warehouse Detained at U.S. CBP facility Seizure at GA retail store

6

Anti-counterfeit enforcement – seizures, investigations, and training

Devices( 540 )

Chargers( 4,541 )

Refill Kits( 1,477 )

Starter Kits( 1,166 )

Product Seizures

Investigative Support Trainings

(146)

Law Enforcement Officers(377)

Enforcement and Investigators Trained Globally

Q3: July – September 2019

$163,906

Total Estimated Value Seized

961

Total Law Enforcement Officers Trained

7

Anti-counterfeit enforcement – customs and border support

$117,511

Total Estimated Value Seized

Q3: July – September 2019

Device Kits(202)

Refill Kits (2,919)

Starter Kits(754)

Chargers(22)

Total Product Seized through Enforcement Actions

E.g., CBP seizure

8

Proliferation of illegal compatible products

Insert

“Compatible” products designed and marketed to be

used with authentic, legally marketed products

Since 2018, significant uptick in “JUUL-compatible

products” in which third-party, unlicensed

manufacturers are marketing cartridges as

“compatible” with JUUL line of products

Timing of marketing raises serious questions on

compliance with FDA policy for deemed products

Compatibles often sold in variety of flavors and

packaging presentations, with unknown and untested

ingredients

99

Brand NTM Flavor Offerings TM Flavor Offerings Pod SizeNicotine

Strength(s)

JUULStop-shipment of NTM flavors in November 2018 Virginia Tobacco, Classic Tobacco,

Menthol*

0.7 mL 3.0% / 5.0%

Eon Smoke

Blueberry, Caffe Latte, Citrus Burst, Grape, Lush Ice, Mango,

Pineapple Crush, Pink Lemonade, Silky Strawberry, Sour

Apple, Watermelon, Variety Packs

Tobacco, Virginia Tobacco, Menthol,

Cool Mint

1.0 mL 6.0% / 7.0%

4X Pods

Blue Raspberry, Blue Blackberry, Grape, Kiwi Strawberry,

Mango Peach Pineapple, Mango Pineapple Guava,

Raspberry Mint Lemonade, Sour Berry Belts, Sour Gummy,

Grape Ice, Green Apple, Peach Madness, Variety Packs

Empty Refillable 1.0 mL 6.5% / 6.8%

ZiiP Pods

Cappuccino, Mango, Strawberry Milk, Watermelon , Iced

Blueberry, Iced Mango, Iced Orange, Iced Pina Colada, Iced

Strawberry, Iced Watermelon, Iced Pineapple, Cheesecake,

Froopy, Cinnamon Roll, Lemon Macaroon, Strawberry

Lemonade

Mint, Tobacco 1.0 mL 5.0%

AirbenderBlue Razz, Paladin, Gypsy Tantrum, High Wire, Pitaya on Ice,

Pinkie, Cucumber Mint, Harrassmint, Strawberry, Variety Pack

New Shorts (Classic Menthol Tobacco) 1.0 mL 5.0%

SEApods

Mango, Blueberry, Blueberry Menthol, Raspberry, Raspberry

Menthol, Pineapple Lemonade, Watermelon, Strawberry,

Strawberry Menthol, Pink Lemonade, Variety Packs

Mint 1.0 mL 5.0%

MNGOBlueberry Mango, Mango, Mango Melon, Pink Lemonade,

Strawberry Mango, Strawberry Mint

1.0 mL 6.0%

More than 70 JUUL-compatible products across flavors and nicotine strengths

1010

0

1

2

3

4

5

6

7

8

7-Jan-18 11-Mar-18 13-May-18 15-Jul-18 16-Sep-18 18-Nov-18 20-Jan-19 24-Mar-19 26-May-19 28-Jul-19

Pod E

qui

vale

nt (

M)

Variety Cucumber Crème Fruit MangoRetail Flavor Exit

↓M

0

100

200

300

400

500

600

7-Jan-18 11-Mar-18 13-May-18 15-Jul-18 16-Sep-18 18-Nov-18 20-Jan-19 24-Mar-19 26-May-19 28-Jul-19

Pod E

qui

vale

nt (

000)

Blueberry Pineapple Watermelon Strawberry Pink Lemonade Grape

Citrus Burst Lush Ice Mango Caffe Latte Guava Nectar Assorted

Retail Flavor Exit

Eonsmoke “Compatible” Pods by NTM Flavor

Market impact of voluntary flavor pull

JUULpods by NTM Flavor

11

Active enforcement against illegal compatible products is critical

On October 24, 2019, FDA issued Warning Letter to Eonsmoke

for illegally marketing nearly 100 flavored ENDS products

• Eonsmoke, based in NJ, manufacturers and sells ENDS products;

many of which were marketed as compatible with JUUL products

• Agency previously requested additional information on whether

products were in compliance with TCA and FDA policy

Majority of illegal products were “pods” and marketed as

compatible with JUUL device

• Flavors included “Pink Lemonade,” “Silky Strawberry,” “Sour

Gummy,” “Peach Rings,” and “Green Apple”

• Nicotine strengths ranged from 4 – 7%

Other violations included failure to submit ingredient listings for

illegal products

12

But solutions needed from all stakeholders

Industry• Adoption of global brand-protection units to identify sources and

facilitate enforcement, including against IP

• Information- and resource-sharing with enforcement agencies

Federal• Increased funding and resources for border and regulatory

enforcement

• Coordination and training with state and local law enforcement

State and Local• Implementation of state-level product registries for legally marketed

products

• Expanded enforcement against violative wholesalers and retailers

Public Health• Research and testing of counterfeit and compatible products

• Additional focus on marketing tactics, e.g., social media, and illegal

online sales

Illicit Tobacco Markets and ECIGS: Public Health and Safety Challenges

Kevin RJ Schroth, Esq.Rutgers Center for Tobacco Studies

Rutgers School of Public HealthDecember 11, 2019

Cigarettes & Illicit Trade• Tobacco taxes and tax evasion are

public health issues• Price elasticity of demand• For every 10% increase in price of

cigarettes, consumption decreases predictably

– Adult consumption decreases 4% – Youth consumption decreases 7% – 50% is from smoking less – 50% is from quitting

• Tobacco taxes are popular– Generate revenue– Can fund health related issues

US Cigarette prices and sales, 1970-2011

Price Disparities Fuel Illicit Trade• Fluid distribution patterns• Net importers are high tax

states (NY, MA, IL)• Net exporters include:

– Low tax states (VA)– Low tax states without a tax

stamp (NC, SC)– Native American Indian

reservations– International sources

Strategies to Combat Illicit Trade• Tax stamps

– Can be counterfeited

• High tech tax stamps– Can be ignored– Retailers hide contraband

• Retailers are complicit; it’s profitable• Targeting retailers is like whack-a-

mole• Law enforcement tries to target

distribution networks to maximize impact

• Targeting shippers can cripple some distribution systems

Hiding space for contraband under counter

VA & GA tax stamps

Fluid Distribution Patterns• Littered pack data collected in 2011 and 2015• Properly stamped packs declined

– 39.3% in 2011– 23.7% in 2015

• Increase in foreign or unknown stamps – 11.6% in 2011– 31.4% in 2015

• Most foreign packs were from Asia: Korea, China, Vietnam and Philippines

• Most known, non-local stamps were from Virginia (51.4%), a 7% increase

NYC Affirmative Litigation• NYS/NYC v. UPS

– $97 million judgment (decreased on appeal from $242M)

• NYS/NYC v. FedEx – $35 million settlement

• NYC v. LaserShip– $5 million settlement

• NYS/NYC v. Golden Feather– $10 million judgment

• NYC/CA v. US Postal Service – (EDNY) (pending) (case study)

NYC/CA v. US PostalPACT Act

• PACT Act prohibits USPS from delivering cigarettes and smokeless

• PACT Act was “unfunded mandate” • USPS resisted enforcing PACT Act

– instructed field personnel not to investigate: • shippers’ ads to see if they ship tobacco• AG’s noncompliant list

– Responsibility for investigating “reserved for specially designated personnel”

– USPS never designated anyone

NYC/CA v. US PostalInternational Shift

• International shippers less vulnerable to US-based law enforcement • Domestic companies started fulfilling orders through international

sources– Vietnam – China– Israel– Moldova– Ukraine– Kyrgystan

• “YourKentuckyResource.com” change its name to “European Supply Resource”

• After cigarettes entered US international mail facilities, USPS delivered them, often to NYC and CA

NYC/CA v. US PostalInvestigation• NYC and CA ordered cigarettes from

various websites– cheepcigaretteswholesaler.com – freeshippingcigarettes.com – USA001.com – DutyFreeDepot.com – Pro-Smokes.com

• Deliveries often contained: – counterfeit cigarettes – counterfeit tax stamps – no tax stamps

JFK Audit• NYC found

– 73,000 packs of cigarettes – 9 days– One location, JFK

• During similar time period, USPS found – 54,000 packs – 2 years– multiple facilities

NYC/CA v. US Postal

Return to Sender (“RTS”) Program

• Complaint alleges: RTS program obstructs enforcement and violates PACT Act

– USPS delivers tobacco to senders (against law)

– Shippers send them again (no disincentive)

– “Cat-and-mouse” game

• Many packs supposedly returned to sender were ultimately delivered

Relationship to Illicit ECIG Markets?

Supply & Demand

What drives demand for illicit ECIGS?

• Youth ECIG use

• Price opportunity

• Flavor restrictions

• Age restrictions

• THC

How Do Youth Access ECIGS?

What Are Illicit ECIGS?• No ECIGS have FDA authorization• Most JUUL copycats—nicotine salt ECIGS—are on the

market illegally • JUUL voluntarily stopped providing select flavors

– Retail/online distinction

Grandfather date

2/15/2007

Deeming Rule,

8/8/2016

Original PMTA

Deadline 8/8/2018

AAP decision, 7/12/2019

FDA Flavor Ban?

New PMTA Deadline,

May 12, 2020

FDA PMTA Orders

May 12, 2021

Where Do Illicit ECIGS Come From?

• Older purchasers

• Bootlegging

• International shipping

• Other(?)

Where Do Illicit ECIGS Come From?

How Many Youth ENDS Users Vape THC?

“One out of 11 students surveyed had vaped cannabis with an e-cig”

Various ECIG Devices Can Vaporize THC

Concerns

• High youth ECIG use

• Nicotine levels

• Lack of quality/consistency

• Higher toxicity

• THC use

• EVALI – (ECIG or Vaping Product Use-Associated Lung Injury)

Thank you!

Kevin RJ Schroth, Esq.Rutgers Center for Tobacco Studies

Rutgers School of Public Healthkevin.Schroth@Rutgers.edu

December 11, 2019

Illegal Counterfeit and Compatible Electronic Nicotine Delivery Systems (ENDS) Products: Public Health and

Safety Challenges

Parker David Kasmer, Senior Director, Regulatory Integration, JUUL LabsKevin RJ Schroth, Associate Professor, Department of Health Behavior, Society and Policy, Rutgers Center for Tobacco Studies, Rutgers School of Public Health

Moderated by Mark J. Vaders, Counsel, Womble Bond Dickinson (US) LLP