1. Enforcement Litigation and Compliance Washington, DC December 9-10, 2015 Tobacco: No-Tobacco-Sale Orders and State Tobacco Enforcement William Woodlee, Partner, Kleinfeld, Kaplan & Becker, LLP Jonathan Havens, Associate, Venable LLP Michael Hering, Project Director and Chief Counsel, National Association of Attorneys General Tobacco Project Moderated by Stacey Gagosian, Director, Government Affairs, Truth Initiative

2. FDA CTP Retailer Inspection Program December 9, 2015 Will Woodlee Kleinfeld, Kaplan & Becker LLP wwoodlee@kkblaw.com 202-223-5120 2

3. First inspection of retail establishment either Undercover Buy (UB) or Advertising and Labeling (A&L) inspection UB inspections generally conducted without notice A&L inspections conducted without minors and generally with FDA Notice of Inspection (Form FDA 482) Compliance follow-up assignment includes both types of inspections, usually on different days Basic Concepts 3

4. Sale to minor/failure to check identification for customer under 27 (21 C.F.R. § 1140.14(a), (b)) Unlawful sampling (21 C.F.R. § 1140.16(d)) Use of prohibited self-service display or vending machine (21 C.F.R. § 1140.16(c)) Sale of product in quantity smaller than smallest manufacturer-distributed package (21 C.F.R. §§ 1140.14(d), 1140.16(b)) Sale of cigarettes/components with prohibited characterizing flavors (21 U.S.C. § 387g(a)(1)(A) MRTP violations (21 U.S.C. § 387k) Common Violations Alleged 4

5. Civil Money Penalties: FDA Charging Schedule 5 Number of Violations by Establishment Civil Money Penalty (CMP) 1*$0.00 with Warning Letter 2 within 12-month period$250 3 within 24-month period$500 4 within 24-month period$2,000 5 within 36-month period**$5,000 6 within 48-month period$11,000 *FDA counts only one violation from first inspection **Threshold for No-Tobacco-Sale Order (covered in next presentation)

6. Regulatory procedures at 21 C.F.R. part 17 Opportunity for settlement based on defenses and mitigating factors Potential hearing before Administrative Law Judge for contested complaints Appeal rights to HHS Departmental Appeals Board and appropriate U.S. Court of Appeals CMPs: Administrative Process 6

7. Nature, circumstances, extent, and gravity of violation(s) Ability to pay and effect on ability to continue to do business Any history of prior violations Degree of culpability Amount of any penalties paid by retailer to State for same violation Retailer’s implementation of employee training program Other relevant matters Mitigating Factors for Settlements and ALJs 7 (21 U.S.C. § 333(f)(5)(B))

8. As of 10/31/2015:  480,365 conducted with “no violations observed”  36,770 retailer warning letters issued  5,674 complaints for CMPs issued  8 complaints for No-Tobacco-Sale Order issued $172,981,598.89 in contracts awarded to date By the Numbers 8

9. Will Woodlee Kleinfeld, Kaplan & Becker LLP wwoodlee@kkblaw.com 202-223-5120 Questions? 9

10. No-Tobacco-Sale Orders and Not Substantially Equivalent (“NSE”) Orders Jonathan Havens Venable LLP FDLI Enforcement, Litigation, and Compliance Conference December 9, 2015

11. No-Tobacco Sale Orders A No-Tobacco-Sale Order (“NTSO”) complaint is used to initiate an administrative legal action against a retailer that can result in the prohibition of the sale of tobacco products at a retail outlet indefinitely or for a specified period of time. FDA issues NTSO complaints to tobacco retailers when five (5) repeated violations have been observed during compliance check inspections over a 36-month period. –Each of the five (5) violations will represent the second or subsequent violation of a particular requirement of the Federal Food, Drug, and Cosmetic Act (“FD&C Act”), as amended by the Family Smoking Prevention and Tobacco Control Act (“Tobacco Control Act”).

12. NTSOs- Applicability and Duration FDA’s current policy is to consider each retail location to be a separate retail outlet when determining if there are repeated violations that provide grounds for FDA to seek an NTSO (see, Guidance for Tobacco Retailers, Determination of the Period Covered by an NTSO and Compliance With an Order, Aug. 2015)Guidance for Tobacco Retailers, Determination of the Period Covered by an NTSO and Compliance With an Order In determining the period to be covered by an NTSO, FDA must take into account the nature, circumstances, extent, and gravity of the violations and, with respect to the violator, ability to pay, effect on ability to continue to do business, any history of prior such violations, the degree of culpability, and “such other matters as justice may require”.

13. NTSOs- Duration of the Order Number of NTSOs received by Retailer Maximum Period of Time for NTSO First NTSO30 Calendar Days Second NTSO6 Months Third (and subsequent) NTSOPermanent NTSO This table shows the maximum period of time FDA intends to seek when imposing an NTSO. Generally, FDA will file a complaint seeking the maximum time period. However, FDA may reduce the time period taking into consideration several factors (see next slide) and information regarding whether the retailer has taken effective steps to prevent selling tobacco products to minors.

14. NTSOs- Mitigating Factors In determining whether to impose the NTSO or reduce the period of time FDA seeks to impose in the NTSO, FDA will generally consider whether a retailer has taken effective steps to prevent the sale of tobacco products in violation of the minimum age requirements, including: –adopting and enforcing a written policy against sales to minors; –informing its employees of all applicable laws; –establishing disciplinary sanctions for employee noncompliance; and –requiring its employees to verify age by way of photographic identification or electronic scanning device.

15. NTSOs- Final Thoughts Similar penalties for tobacco sales violations are addressed at the State level (e.g., many states may suspend or revoke a retailer’s license after multiple violations). Before entry of an NTSO, a retailer is entitled to a hearing An NTSO that permanently prohibits an individual retail outlet from selling tobacco products must allow the retail outlet, after a specified period of time, to request that FDA compromise, modify, or terminate the order. On October 26, 2015, FDA filed complaints initiating the first-ever NTSOs against eight retailers, which sought to prohibit the retailers from selling tobacco products for 30 days. See http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm470073.htm http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm470073.htm

16. Substantial Equivalence Under the Tobacco Control Act, "new tobacco products" (i.e., products introduced to the U.S. market after February 15, 2007 or modified in certain ways after that date) must be approved under a premarket tobacco product application (PMTA), unless exempted. Manufacturers can obtain an exemption by submitting a Substantial Equivalence (“SE”) Report to FDA and obtaining an order finding that the new tobacco product is both substantially equivalent to a tobacco product commercially marketed in the U.S. as of February 15, 2007 (i.e., “predicate”), and in compliance with the requirements of the Tobacco Control Act.

17. Substantial Equivalence (continued) As explained earlier, SE is a pathway to seek permission to market a new tobacco product that involves comparing the new tobacco product to a legally marketed predicate product. A predicate product may be either: –A tobacco product commercially marketed (other than for test marketing) in the United States as of February 15, 2007; or –A tobacco product that FDA has previously determined to be substantially equivalent and in compliance with the requirements of the FD&C Act.

18. Substantial Equivalence (continued) Substantial equivalence refers to comparisons between a new tobacco product and a predicate product when the new tobacco product has: –The same characteristics as the predicate tobacco product; or –Different characteristics but the information submitted to the Agency, including clinical data if deemed necessary by FDA, which demonstrates that the product does not raise different questions of public health.

19. Not Substantially Equivalent (“NSE”) Orders FDA may find a new tobacco product to be NSE either because: –there is inadequate information submitted, or –because FDA finds that the new product has different characteristics than the predicate product and information demonstrates that it raises different questions of public health.

20. NSE Orders (continued) When FDA issues an NSE order, the new tobacco product in inventory, including at a retail location, becomes adulterated and misbranded. As a result, it would be illegal to sell or distribute the product in interstate commerce, or sell or distribute the product received from interstate commerce. If a firm receives an NSE Order from FDA, it of course has the option of submitting a PMTA under section 910 of the FD&C Act.

21. Questions?

22. State Actions December 9, 2015 Michael Hering Project Director and Chief Counsel National Association of Attorneys General – Tobacco Project 22