FDA BEGINS INSPECTING CONVENIENCE STORES. Agency Seeking to Ensure Compliance with Tobacco Regulations

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1 Background FDA BEGINS INSPECTING CONVENIENCE STORES Agency Seeking to Ensure Compliance with Tobacco Regulations Although President Obama signed the Family Smoking Prevention and Tobacco Control Act almost two years ago, the FDA has only recently begun inspecting retail outlets to ensure compliance. For the time being, these inspections will cover: Prohibition on underage sales Retailers may not sell tobacco to anyone under 18 years of age; Age verification requirement Retailers must verify the age of purchasers under the age of 27; Free samples of tobacco products Retailers may not offer free samples of cigarettes or smokeless tobacco; Gifts/Discounted Items Retailers are prohibited from offering any free cigarette or smokeless tobacco products. Further, retailers are prohibited from offering any benefit to a customer in return for purchasing cigarettes or smokeless tobacco (except for free matches) unless that benefit is discounted cigarettes or smokeless tobacco. At the same time, retailers may not offer discounted cigarettes or smokeless tobacco in return for any non-tobacco purchase (such as gasoline). FDA has indicated to NACS, however, that customers may redeem loyalty points by buying cigarettes or smokeless tobacco, but retailers may not count purchases of cigarettes or smokeless tobacco as points in such a loyalty or affinity program; Self-service displays Retailers must remove any self-service display of cigarettes or smokeless tobacco (including vending machines) unless only customers over the age of 18 are permitted to enter the premises; Tobacco Brand Names Retailers are prohibited from selling any item other than cigarettes, smokeless tobacco, or roll-your-own paper, which bears the brand name, logo, symbol, or any other indicia of product identification identifiable with those used for any brand of cigarettes or smokeless tobacco; The FDA recently published an updated draft guidance intended to help industry comply with these requirements. The updated Draft Guidance is available at ation/ucm pdf. Once ongoing litigation regarding certain advertising restrictions is resolved, and the graphic warning requirements for packages and

2 advertisements take effect (estimated September 2012), FDA will inspect for compliance with these requirements as well. Basic Compliance Retail outlets that sell tobacco may be inspected at any time. FDA will not announce inspections ahead of time. In fact, retailers will not know if their store has been inspected until after the inspection occurs and FDA staff has a chance to review the inspector s report. Further, inspections are likely to include undercover youths posing as tobacco purchasers to test retailers compliance with age and identification requirements. In order to comply with some of the basic requirements of the law, NACS members must: 1) Always ensure that store clerks check identification for any customer who may potentially be younger than 27; 2) Never sell tobacco products to customers younger than 18; 3) Refrain from selling flavored cigarettes; 4) Refrain from selling individual cigarettes and cigarette packages containing fewer than 20 cigarettes; and 5) Remove all tobacco self-service displays (unless minors are not admitted into the retail location at all). Training and Compliance Programs Retailers are also advised to implement training programs based on FDA s announced criteria for such programs. This will help in two ways: First, it inevitably increases the likelihood that stores will be in compliance should FDA conduct an inspection. Second, retailers are subject to less severe penalties (e.g., lower fines) when they commit a violation if they have an adequate training program in place. Third, the presence of an effective training program may help a retailer avoid a prohibition against selling tobacco if multiple violations occur. Complete details pertaining to retailer training programs can be found on the NACS website ( dance_retailertrainingprograms.pdf), but such programs should generally include: Adopting and enforcing a written policy against sales to minors; Informing employees of all applicable laws; Establishing disciplinary sanctions for employee noncompliance;

3 Requiring employees to verify age via photographic identification or an electronic scanning device. As part of our efforts to help members comply with tobacco rules and regulations, NACS has a long-term relationship with We Card, a non-profit organization providing tobacco retailers with multi-level training and educational products and services. We Card is one of the most widely accepted retail training and education programs to help retailers prevent underage tobacco sales. It has trained over 200,000 retail owners, managers, and employees either online or in one of more than 2,100 classroom training sessions. Retailers who utilize We Card are able to prepare employees, establish best practices, set clear expectations, and provide continuous feedback in an effort to prevent underage access to tobacco. NACS has urged FDA to utilize We Card s expertise and stipulate that the We Card program is an effective training program warranting the lower schedule of penalties. Enforcement and Penalties FDA has a variety of enforcement options that they may utilize against retailers. Generally, the penalties will depend on: (a) Whether the violations involved selling to minors or failing to verify age FDA has indicated that it may impose harsher penalties for violations relating to minors. Violations relating to minors would include, for example, selling cigarettes to minors or failing to check identification for individuals younger than age 27. (There might also be other ways in which violations relate to minors, including advertisements blatantly targeting minors.) Harsher penalties include a fine in lieu of a Warning Letter, a steeper fine than would otherwise be levied, or even a no tobacco sale order in lieu of a fine. Note, however, that a no tobacco sale order can only be imposed after a retailer has committed repeated violations. (b) Whether the retailer has an adequate training program for employees As noted above, non-compliant retailers are subject to less severe penalties (e.g., lower fines) if they have an adequate training program in place. (c) How many previous violations occurred at a particular retail outlet Penalties grow increasingly harsh as retailers accumulate more violations. (NOTE: FDA will consider prior violations of state tobacco regulations in addition to federal regulations.) (d) The effect on the violator s ability to continue to do business FDA has said it will try not to impose fines that would require retailers to go out of business. The most lenient penalty is a Warning Letter, which FDA intends to be its principal means of achieving prompt voluntary compliance. These letters will request a retailer submit a corrective action plan to FDA, and the agency will then determine generally through a re-inspection of the facility whether the retailer has taken

4 appropriate corrective action. The FDA has indicated that it will generally issue Warning Letters in response to any first-time violations. FDA also is likely to have more followup inspections of retailers that receive a Warning Letter. Other possible penalties include civil fines for multiple violations at the same retail location, and no-tobacco-sale orders against retailers who repeatedly violate the Tobacco Control Act s requirements as they pertain to minors. Below is the penalty schedule required under the Act (note that the dollar figure represents the maximum possible penalty; FDA retains the authority to decrease a penalty s severity based on the factors noted above): What to do upon receiving a notice of a potential violation Upon receiving a Warning Letter, retailers will have fifteen days to submit a response to FDA. Such responses should include: (a) a plan for preventing future violations; (b) a timeline for implementing that plan; and (c) the retailer s current telephone number and address. Although FDA guidance does not provide a formal process for contesting the allegations in a Warning Letter, if there is any basis on which to contest the allegations, NACS recommends retailers request a hearing and appeals process similar to the process for contesting civil fines (described below).

5 The civil fine process involves FDA filing and serving an administrative complaint on the retailer. As the complaint will note, retailers have the right to retain counsel for the civil money penalty process, or represent themselves. Retailers can either (a) pay the penalty immediately, or (b) contest the Agency s allegations (either in whole or in part). Retailers must respond to FDA within 30 days of receiving a complaint or else pay the demanded fine. If the retailer responds within 30 days, he is entitled to a formal hearing to resolve the dispute. Prior to this hearing, retailers (and their attorneys) may engage in settlement negotiations with the FDA and offer mitigating evidence supporting a reduction of the proposed fine. Retailers will have the right to inspect relevant FDA documents during this process. If an agreement as to a new penalty amount is reached between the retailer and FDA, the case is concluded. If no settlement is reached, however, the case proceeds directly to an Administrative Law Judge (ALJ) who, after a hearing, will determine the outcome. At these hearings, both retailers and the FDA may submit evidence and call witnesses to testify. After the hearing, the ALJ will determine the outcome of the dispute based on a preponderance of the evidence presented at the hearing. Retailers dissatisfied with the result of a hearing may appeal to the Department of Health and Human Services Departmental Appeals Board (DAB). The DAB does not conduct a hearing, but instead analyzes the case based on briefs each side submits. Once it renders a decision, dissatisfied retailers may petition a federal district court to overturn it. FDA has recently finalized a guidance document detailing its current policies with respect to these enforcement options. This final guidance is available at r.aspx.