The U.S. Food and Drug Administration issued draft guidance on January 17, 2017 as it pertains to free samples of tobacco products. In the guidance, the FDA confirmed that the free sample ban applies to all tobacco products subject to its authority over tobacco products. The Deeming Rule which went into effect on August 8, 2016 extended this ban to cigars.
The guidance reaffirmed the FDA’s position on banning samples to what it perceives as an on-going problem with youth having access to tobacco. The premium handmade cigar industry has long argued that it does not aim or market to youth.
For the most part this prohibits distributors, and retailers from unconditionally giving out free samples of a tobacco product. There are some cases where this is allowed and the FDA set guidance in four scenarios: 1) Discounts and Coupons; 2) Membership and Rewards Programs; 3) Contests; and 4) Business to Business Exchanges.
The first three areas have a common denominator. These types of free promotions are only allowed for tobacco products provided they are tied to a monetary transaction and the person receiving the promotion provides valid age and ID requirements. The fourth area (Business to Business) seems subject to more interpretation and questions.
1.Discounts and Coupons
Discounts cover two scenarios. In both cases, these must be tied with a monetary transaction.
- Percentage Discount: This covers a scenario such as “Save 20% on this tobacco product”. The FDA has stated this is allowed. It is implied that a 100% discount could not be given.
- Buy X, Get Y Free: This covers a scenario such as “Buy 2, Get 1 Free”. The FDA has also stated this is allowed as it is tied to a monetary transaction.
An example of a coupon is “Buy Two, Get a Coupon redeemable for One”. These work a little different than discounts. If the coupon is used at the time of purchase it is allowed. If it is used later, the seller (manufacturer, distributor, or retailer) must have a way of both age and ID verification that the person redeeming the coupon is the original purchaser. The FDA states these rules for coupons are in place to avoid minors circumventing the age requirement rules.
2. Membership and Rewards Programs
Similar to discounts and coupons, the FDA allows Membership and Rewards Programs to take place. However it also must be tied to a product sales transaction and the person receiving the promotion is subject must meet the FDA’s minimum age and ID requirements.
An example of one is the Punch Card Rewards program. This is done over a series of transactions that when completed allows a consumer to get a free tobacco product. An example of this is “get your tenth purchase for free”. This is often implemented by giving the consumer a card and it punches a hole (or assumably could be electronic). In this example the tenth purchase is for free.
In the example above; at the time the consumer gets the free product, it must either be tied to a monetary transaction for the ninth or the eleventh (subsequent purchase). If it is done standalone (meaning the consumer comes in to just take credit for the free tenth product), the seller who have to use age and ID requirements to verify this is the same person who made the other purchases.
The FDA has stated that a contest (i.e. raffle, drawing, game of chance) may not be a tobacco product unless it is distributed as part of a monetary payment and is subject to minimum age and ID requirements.
One example is that if a prize of a tobacco product or discount coupon is awarded, it must be used at the time of a tobacco purchase. The tobacco product prize may not be given outside of a product purchase. The recipient (winner) would also be subject to minimum age and ID requirements.
4. Business to Business Exchanges
For this rule, the FDA has stated it will not enforce this regulation in respect to a business to business exchanges.
According to the FDA, they define a business to business exchange as “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 purpose of product or inventory selection) to another business as part of a genuine effort to sell or market a tobacco product to that business.
While not explicitly stated, on the surface, it appears that this would allow scenarios such as:
- Manufacturers and Brand Owners distributing samples to retailers
- Manufacturers and Brand Owners distributing cigars at a trade show such as IPCPR where the attendees are retailers.
On the IPCPR Trade Show, IPCPR issued a statement stating: “While the term ‘limited quantity’ could be open to interpretation, this should allow for sampling to continue at business oriented events, such as from a distributor to a retailer, and at IPCPR’s trade show.”
A big question is whether media members receiving free samples would be considered a “business as a part of a genuine effort to sell or market a product to that business.
As with all draft guidance, the FDA is accepting comments regarding this draft guidance. It may be submitted within 60 days of publication in the Federal Register of the notice announcing the availability of this draft guidance.
An interesting point is that the charitable contributions were not explicitly listed in the draft guidance. However, the FDA has stated that manufacturers, brand owners, and distributors could not make tobacco product donations to charity (including the troops).
It is also worth noting that in the lawsuit filed by the Cigar Association of America (CAA), Cigar Rights of America (CRA), and International Premium Cigar and Pipe Retailers (IPCPR), the FDA’s ruling on free samples is not being challenged.
Update: Added link and quote from IPCPR communication