FDA regulatory hurdles will go a long way in determining the future of vaping shares
Investors purchasing vaping stocks now in order to secure big gains later are in a precarious position. The market for vape products is full of potential and windfalls are clearly there for the taking.
However, the vaping market is squarely in the crosshairs of regulatory bodies and under intense scrutiny. Investors are acutely aware that vaping companies with the ability to navigate the regulatory roadblocks will be at a distinct advantage.
The stocks of vaping companies that can’t overcome these hurdles simply won’t last.
The FDA has allowed vape products to remain on the market but more oversight is on the way.
Prior legislation which stated manufacturers would be required to retroactively apply for FDA approval by May 12, 2020 has been pushed back to September 9. Manufacturers will have up to a year from that date to continue selling vape products.
By the end of that period companies will have to have become FDA compliant. Thus, market risk is high given the implications for vaping companies and their stock. There is a real possibility that the FDA imposes outright bans on multiple vaping brands. In that case, the stock of those affected brands will dramatically decline in value, if not collapse entirely.
Yet the choice remains clear: companies must submit their products to FDA regulatory scrutiny to have any chance of remaining on U.S. shelves. Companies that don’t will be removed from shelves.
Companies must provide proof that their products demonstrate a net benefit to public health. The crux of their argument will be simple: the benefit their products provide in switching cigarette smokers to healthier alternatives outweighs the downside represented to younger consumers.
FDA regulations are effectively going to eliminate smaller competitors in the vaping sector. Turning Point Brands (NYSE:TPB) has stated that it expects to spend $15-$18 million on the FDA’s PMTA (PreMarket Tobacco Product Applications) process.
Certain smaller companies will find this to be prohibitively expensive. Companies in that position are apt to go under. Thus, larger vaping companies seeking to gain significant U.S. market share will be at an advantage.
Despite the costs, 30 applications for FDA approval of vaping products are currently pending processing.
Alex Sirois – Investor Place – July 17, 2020.
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