Public Oversight Hearing

Chairperson McDuffie and Councilmembers,

My name is Michelle Minton, and I am a senior policy analyst with the Reason Foundation, a nonpartisan public policy think tank. I am grateful for the opportunity to provide public comment on the state of the District’s sports betting market and offer a suggestion on how the Council could make the market more competitive, attractive, and profitable for the city and its residents.

When the City Council overwhelmingly voted to legalize sports betting in 2018, it did so for many good reasons. The first, was the DC’s Council’s recognition that outlawing sports betting, like other prohibitions, was ineffective at preventing illegal sports wagering within the city, counterproductive, and costly. Legalizing, regulating, and taxing the activity was intended to give residents and visitors legal and safe options for sports betting, guard against problem gambling, and generate much-needed tax revenue for the city.  

Back in 2018, the Council was told to expect around $90 million in tax revenue during the first four years of legal sports betting in the city. Nearly three years in, however, the city has collected less than $4.5 million in taxes total, most of which has come from the live betting kiosks at Capitol One Arena.

The explanation for this poor performance is not complicated: DC’s sports betting market is simply and fundamentally unattractive to bettors. This rejection of DC’s legal sports betting market can be seen clearest in the handle collected by our licensed bookies, which, since its launch almost three years ago, has amounted to a grand total of less than $130 million in wagers.  

That is less than the handle accepted by Maryland’s seven mobile sportsbooks in January 2023 alone, which accepted a combined $440 million in bets and generated nearly $2 million in tax revenue for the state.

Online and mobile gambling are increasingly critical components of the gambling industry, comprising 20 percent of total gaming revenue in 2022. But, the online sector is even more critical for any sort of gambling market in DC since the city has no casinos and limited options for in-person betting. The performance of DC’s sports betting market was always going to depend on the performance of its mobile sports betting sector. Unfortunately, in 2019 the DC Council at the time chose to authorize just one company, Intralot, to operate a single betting app, GamBetDC, for mobile sports betting throughout the city.  

The decision to bypass the normal competitive bidding process and offer a no-bid five-year monopoly contract on mobile sports betting to a single entity might have initially seemed the quickest way to roll out legal sports betting in DC and seize the critical first-mover advantage ahead of its neighboring states like Maryland, Virginia, and West Virginia. Yet, neither that first-mover advantage nor the promised deluge of tax revenue came to fruition. In fact, during its first year of operation, GamBetDC actually cost DC $4 million.

There are many reasons why bettors dislike GamBetDC, including its troubled rollout, glitchy geolocation, service outages, and general user-unfriendliness. On top of that, however, it is also more expensive, offering worse odds and payouts than virtually any other private sportsbook, legal or otherwise. If GamBetDC were truly the only game in town, it might have generated more interest. But, it never was and never will be gamblers’ only option since they can always return to the unlicensed bookies and offshore websites they bet at before sports betting was legalized.  

Today, however, DC gamblers need not skirt the law or go far for better options; they can merely travel to the Virginia border to access one of that state’s 14 mobile sportsbooks from their phones. This problem will only worsen as the legal sports betting markets continue to open throughout the region and as lawmakers in other states adjust regulations to make those markets more competitive.  Luckily, the solution to the problem is nearly as simple as the cause: The Council should end the monopoly on mobile sports betting in DC. As proposed by former Councilmember Elissa Silverman, who introduced legislation last year, the city should create pathways for private companies to apply for mobile sports betting licenses.

Opening the market to competition would make those license holders more responsive to consumer needs, spur innovation, and reduce prices. Competition would help create a legal market that might appeal to bettors in and outside of DC and finally begin to generate the economic benefits the Council was originally promised, which other states are already reaping.

Sincerely,

Michelle Minton
Senior Policy Analyst, Reason Foundation

The post Testimony: Making DC’s sports gambling market more competitive, attractive and profitable appeared first on Reason Foundation.

Chairperson Griffith and members of the committee:

My name is Michelle Minton, and I am a senior policy scholar at the Reason Foundation, a 501(c)(3) nonprofit, nonpartisan public policy research organization. As an expert in public policy, a Maryland resident, and former smoker, I am grateful for the opportunity to submit my testimony regarding the proposed prohibition of flavored tobacco products.

The aim of the proposed prohibition to reduce adult smoking and discourage youth initiation of any tobacco or nicotine product is a laudable one. However, based on science and historical evidence, we fear this proposal will not achieve its goal, but rather lead to greater health disparities and criminal justice inequities while radically increasing the size and danger of the illicit tobacco market.  

There is no question that smoking is deadly, but guilt by association is a poor foundation for government policy. Lumping everything under the definition of “tobacco” doesn’t change the scientific fact that noncombustible sources of nicotine (such as patches, gums, e-cigarettes, and snus) are vastly less harmful than the combustible cigarettes that will continue to be freely available throughout our state. Treating products that pose less than five percent of the risk of smoking the same as deadly combustible cigarettes, which kill half their users, is simply bad health policy.  

This proposal would prohibit the sale of any flavored tobacco product, including non-combustible, and, therefore, less harmful substitutes for cigarettes. This would include the flavored versions of products, like snus, on which many adults in Maryland rely to stay smoke-free and the availability of which the U.S. Food and Drug Administration (FDA) has deemed to be in the best interests of public health. If this proposal is enacted, Maryland would outlaw, under criminal penalty, the sale of safer products that exist now or will exist in the future.  

Youth

As with nearly all prohibitions, SB 259 is predicated mainly on the need to protect youth. While concern over youth experimentation with or the use of nicotine-containing products is worthy of attention, lawmakers should recognize that most youths do not use any form of tobacco at all.  Recent data from the Centers for Disease Control and Prevention (CDC) indicates that less than two percent of youth currently smoke, and just over 14 percent use e-cigarettes. 

In 2021, the Maryland Youth Risk Behavior Survey found that just 11 percent of Maryland high schoolers reported the use of electronic cigarettes, with the highest prevalence among white students (15 percent compared to 5 percent among black students), a significant decline from 2018  when 23 percent of high school students in Maryland reported any past-month e-cigarette use. 

Outlawing legal sales of flavored e-cigarettes and other products is unlikely to make more progress for several reasons. First, the research continues to indicate that youth do not initiate vaping because of flavors. CDC surveys show the main reason youth cite for vaping is “curiosity,” followed by peer influence or family members. The results are similar for Maryland, with 39 percent of youth citing “curiosity” as their reason for using electronic cigarettes, followed by 19 percent who said they used them because a friend or family member does. Flavor availability was cited by just 9 percent of Maryland youth as the reason they use them.

Second, most youths do not acquire the tobacco products they use from licensed retailers, but rather from friends, family, or illicit sources. For example, of the 23 percent of Maryland youth who indicated current e-cigarette use in 2018, nearly half said they got them by borrowing them from a friend.

Given the current size of the illicit tobacco market and the massive increase we expect to occur in the wake of a menthol cigarette ban, the current proposal may unintentionally provide youth with greater access to flavored tobacco products through illicit dealers who typically do not verify the ages of their customers. Moreover, youth who do avail themselves of the illicit market may have greater access not just to tobacco, but other substances as well. For example, when the Department of Justice arrested two brothers in Baltimore for conspiracy to traffic $6.6 million worth of contraband cigarettes, they were also found to be dealing in illicit oxycodone.

Illicit suppliers may also choose to make their own flavored tobacco products instead of buying them where they are legal and transporting them to Maryland. With regard to menthol cigarettes,  this task would be exceedingly simple, requiring nothing more than a would-be trafficker to legally purchase unflavored cigarettes and add menthol-flavoring with flavor beads, eucalyptus oil, sprays, and numerous other methods, the safety of which depend entirely on what is used as a flavoring agent. If this prohibition is enacted, Maryland lawmakers should probably be prepared for another outbreak of “vaping-related” lung injuries as we saw in the illicit market for cannabis oil vaping cartridges during the summer of 2019.

Lastly, laudable as the desire to prevent youth tobacco use may be, research suggests that banning flavored tobacco products may result in the perverse outcome of increasing youth smoking. For example, Yale University’s Abigail Friedman found that after the city of San Francisco enacted its ban on all flavored tobacco products in 2018, youth in San Francisco were twice as likely to smoke compared to adolescents in similar jurisdictions without such bans.

Illicit Sales  

Supporters of this and similar prohibition proposals argue that outlawing products for which there is significant demand, particularly among Marylanders of color, will not lead to increased illicit tobacco trafficking nor cause increased interactions with law enforcement. But the experiences of other jurisdictions which have attempted similar bans, as well as Maryland’s own experience with drug prohibition, make such assertions hard to believe.  

The harm or benefit of any prohibition largely depends on how those living under it respond.  With regard to this proposal, some current users of flavored tobacco may respond by quitting tobacco use altogether, eliminating the risks to those individuals. However, according to the Food and Drug Administration’s own analysis of its proposed national menthol cigarette ban,  around half will simply switch to equally non-menthol cigarettes, conferring zero health benefits. Moreover, the federal government estimated that roughly half of the public health benefits anticipated by outlawing combustible menthol cigarettes would come as a result of smokers switching to flavored non-combustible products, which Maryland’s proposed prohibition would also outlaw.

In Maryland, menthol cigarettes account for about half of all cigarettes sold in the state. Even without including all of the other flavored tobacco products, this represents a significantly-sized market which, if this proposal is enacted, would be pushed into the arms of the unlicensed tobacco dealers already operating in our state. Rather than encouraging healthier behaviors from  Maryland residents, this could increase risks to their welfare, increase enforcement costs, and divert millions in tax revenue to other states and criminal operations.  

Case Study: Massachusetts 

Massachusetts implemented the country’s first state-wide ban on flavored tobacco products in  June 2020. My colleague Jacob Rich, a policy researcher for both Reason Foundation and the  Center for Evidence-Based Care Research at the Cleveland Clinic, analyzed the ban’s impact by comparing cigarette sales in Massachusetts before and after its implementation. His analysis of national cigarette sales data shows that in the year following the prohibition, sales of menthol and non-menthol cigarettes declined in Massachusetts. However, sales in bordering counties increased, leading to a net overall increase in cigarette sales within the region of approximately 7.2 million packs. This indicates that the ban in Massachusetts merely diverted current menthol smokers to equally harmful non-menthol cigarettes and pushed sales of both menthol and non-menthol cigarettes to neighboring states.  

The result was no decrease in overall tobacco use and $125 million lost tobacco tax revenue for  Massachusetts. In Maryland, tobacco trafficking is likely to be significantly worse than in Massachusetts, given our residents’ proximity and access to neighboring states which do not yet outlaw flavored tobacco.  

Public Health 

The FDA acknowledges a “continuum of risk” for the variety of tobacco and nicotine products currently on the market, with cigarettes being the most dangerous and non-combustible alternatives,  such as snus, e-cigarettes, heated tobacco, and nicotine pouches, being the least dangerous. The FDA  has already authorized some of these products, deeming their availability to be in the best interest of public health, and allowed some to even be marketed as reduced-risk substitutes for smoking.  

The proposal before this committee would unnecessarily strip adults in Maryland of access to these  FDA-authorized and potentially life-saving alternatives, now and in the future.  

According to a 2020 study by Yale School of Public Health researchers, e-cigarette flavors are positively associated with smoking cessation outcomes for adults but not associated with increased youth smoking. Moreover, the prestigious Cochrane Review concluded that e-cigarettes are more effective than traditional nicotine replacement therapies in helping smokers quit smoking cigarettes. Criminalizing the sale of flavored e-cigarettes in Maryland, which are overwhelmingly preferred by adult vapers, risks driving users of these alternatives back to smoking while also fueling illicit tobacco markets, causing net harm to our state’s public health, social welfare, and economic well-being.  

Nicotine is not risk-free and the interest in preventing youth uptake is understandable. We all want to see fewer people smoking and fewer youth experimenting with tobacco. But the desire to protect adolescents from all risks, even those that are relatively small, does not justify at-any-cost measures like the one currently under consideration. Regulators must show regard for the needs of other populations, including youth once they reach adulthood, and consider the harm such laws may have on their welfare.  

If Maryland’s state and local authorities are competent enough to regulate flavored alcohol and soon-to-be-legalized flavored cannabis in ways that preserve adults’ ability to purchase them safely and legally without encouraging youth use, they should be similarly capable of limiting the sale of flavored nicotine products to adults in Maryland, especially when they offer current and future smokers in the state a life-saving alternative to combustible cigarettes. 

The post Testimony: Maryland Senate Bill 259 would lead to greater health disparities and criminal justice inequities appeared first on Reason Foundation.

The problem largely boils down to the fact that D.C.’s sports betting market, particularly for mobile wagers, is fundamentally unattractive to bettors. And the reason for that is so simple it can be summed up in one word: monopoly.

After the U.S. Supreme Court cleared the way for states to legalize, regulate, and tax sports betting in 2018, Washington, D.C., was one of many jurisdictions to jump at the potential revenue windfall. But, while other states authorized a range of in-person and online bookies to compete for customers, D.C. gifted nearly its entire market to one company. 

That company, Intralot, was already running the city’s lottery and also happened to have established relationships with some councilmembers, particularly Jack Evans, who resigned over alleged ethics violations in 2019. Yet, amid concerns over potential cronyism and even an FBI probe into the matter, the city council approved a $215 million no-bid contract with Intralot in 2019, guaranteeing the company’s GambetDC app would be the only legal option for mobile sports betting available citywide.  

To nobody’s surprise, the utter lack of competitive pressure did not encourage the creation of a competitive product, with features, services, and prices enticing enough to draw bettors away from the casinos of Las Vegas and Atlantic City or the thousands of illegal sports betting websites operating off-shore. Intralot’s GambetDC was a disappointment from the first day of its rocky launch, with users reporting geolocation errors, glitching, and terrible gambling odds compared to others. The app hasn’t improved much since, with the iOS version crashing for the duration of last year’s Super Bowl, the biggest sports betting day of the year.

Bettors’ deep dissatisfaction with GambetDC can be seen clearest by looking at its average “handle,” which is the total amount of money wagered through a bookie during a given period. In the first full year of its operation, between June 2020 and June 2021, GambetDC took in an average handle of just $3 million a month. During that same period, the average handle of West Virginia’s sports betting market was $40 million while the average for FanDuel in Pennsylvania, just one of the state’s fourteen mobile sportsbooks, was $160 million per month.

Councilmembers should have known the Intralot monopoly was a bad bet from the beginning for at least two major reasons. First, the only way Intralot could promise the council such high rates of return was because the company planned to juice its profits by charging bettors more and paying winners less. This is a strategy that could only work if consumers liked the product enough or if it truly was their only option. 

Second, all of the predictions about the District’s sports betting market, from both Intralot and city officials, relied on the assumption that D.C. would have a ‘first mover’ advantage, becoming the first jurisdiction in the region with legal sports betting. The city council hoped to secure an advantage by bypassing the normal competitive bidding process.  Neither a high rate of return nor a first-mover advantage came to fruition. 

In the world of sports betting, sportsbooks calculate the probability of all potential outcomes for any given wager and adjust the odds to encourage balanced betting. Odds basically function like a price tag, with bets on likely winners costing more than bets on likely losers, and by adjusting the odds up or down so that, if done perfectly, the money sportsbooks collect from losing bets is equal to the money they must payout to winners. Because bookies do not want just to break even though, they add a small fee within the odds known as a “vig” or “hold.” Typical sportsbooks set their odds so that this hold rate generally falls between 5 and 10 percent, high enough to generate a slim profit but not so high that their bettors turn to competitors with better pricing. When Intralot presented its initial proposal to the city council, it indicated a planned hold rate of between 20 and 30 percent.

As veteran sports gaming reporter David Purdum put it, placing wagers through the District’s GambetDC app is akin to “paying $2 for a gallon of gas, while other states are only charging $1.” For bettors, this means that placing a bet through D.C.’s mobile sports betting app costs more than placing that same bet at virtually any other sportsbook.  

Intralot apparently thought it could get away with charging bettors more money for an inferior product because, as a Lottery spokesperson told reporters in 2020, GambetDC was not designed “to attract high-stakes bettors and odds shoppers,” but rather as a form of “entertainment to casual bettors.”

Presumably, Intralot felt these casual bettors would not know enough to realize GambetDC is overcharging them, and even if they did, Intralot’s government-sanctioned monopoly gave bettors few alternative options. Unfortunately for Intralot, sports bettors in the District of Columbia proved more sophisticated than the company anticipated. 

By the time D.C.’s sports betting market actually opened in May 2020, GambetDC was hardly the only game in town. In addition to vibrant in-person sports betting markets, New Jersey, Pennsylvania, and West Virginia had launched their mobile sporting betting markets before D.C., with Virginia months behind and Maryland poised to follow soon after. Bettors in the D.C. region seemed more content to wait in around-the-corner lines to place bets at William Hill’s in-person sports book that opened in July 2020 and quickly outpaced GambetDC’s handle. Others continued the time-honored tradition of border jumping and traveled to states with more competitive gambling markets. By January 2021, this meant little more than driving, riding the metro, or even cycling just over the D.C. line into Virginia. 

From the beginning, Virginia’s sports betting market offered more variety than D.C., with four separate mobile sportsbooks. Today, Virginia boasts 14 mobile sportsbooks, including nationally-recognized brands, which, along with in-person sportsbooks, collectively generated nearly $60 million in taxes for the state in less than two years. Some of that revenue, perhaps a significant amount, could have gone to D.C. if the city had not so spectacularly fumbled the ball. 

Luckily, if the cause of D.C.’s sports betting woes is simple, the solution is even simpler. Councilwoman Elissa Silverman, one of the few who originally opposed the Intralot deal, introduced legislation in October that would let the city’s five-year contract with Intralot expire, end its monopoly on mobile sports betting, and allow D.C. to issue licenses to other competitors, ideally many. 

“Residents deserve an online app that works, taxpayers deserve a program that brings in money for the District, and we all deserve a system where we don’t hand huge contracts to a preferred company and its subcontractors without even looking at the competition,” Silverman said in a press release accompanying the legislation.  

Rarely are legislators faced with such an easy decision, but this one is a slam dunk. Moving away from the monopoly deal with one-well connected company and increasing the variety of participants in and competitiveness of D.C.’s mobile sports betting market would produce better products and prices for consumers. As a result, it would also attract more betting and generate more tax revenue for the District of Columbia.

The post Fix D.C.’s sports betting market by ending the monopoly appeared first on Reason Foundation.

I want to thank the expert panelists for including this public dialogue as part of their evaluation of the U.S. Food and Drug Administration (FDA). I would also like to make it clear that my interest in this conversation is not to advocate for or against any particular product or company. My interest is in people, the individual human beings whose lives can be drastically affected, for good or for bad, by the way government agencies approach regulation. It is people who are at the heart of the discussion about tobacco regulation and this investigation into how well the FDA is fulfilling its public mission. 

While there is no shortage of debate when it comes to how tobacco products should be regulated, there is widespread agreement that the current approach adopted by the FDA is not working. The enormous challenge facing the experts on the panel is to shed light on why that is the case and what can be done to fix it for the benefit of the public. To that end, I offer the following comments, and I hope they will bring some sober clarity to a controversial issue. 

The overarching message I would like to communicate is this: Unless there is a viable pathway for safer products to enter the market legally, there will be no innovation toward safer products, and we will continue to condemn the millions of current and future adults who enjoy the non-medical use of nicotine to one of two undesirable options—illicit market products or deadly combustible cigarettes. 

Challenge #1: A comprehensive approach to tobacco and nicotine regulation that is principles-based, reasonable, and implemented consistently across all programs

For nearly every other risky or potentially harmful behavior, we recognize that incentives matter. It is generally acknowledged that regulation cannot prevent risk, but it can encourage markets and people to be as safe as possible. Seatbelts, helmets, electric vehicles, contraception, pre- and post-exposure prophylaxis, ridesharing, opioid maintenance therapy, and Narcan are just a few examples of how the market, unhindered by regulation, has provided means to reduce the potential harm of risk-taking behaviors, both for the individuals engaging in that behavior and for those around them. 

Yet, when it comes to tobacco, the FDA, whether accidentally or not, has adopted an approach that maximizes, rather than minimizes, harm. Instead of promoting public health through a regulatory process that champions innovation, the agency has made it all but impossible for such innovation to occur or, at least, for the products of innovation to make it into consumers’ hands.

The result is that, unlike all other areas of our lives, FDA regulation has preserved and protected the most dangerous form of nicotine use, smoking combustible cigarettes, from extinction. 

This is, in part, because the regulatory framework was structured around cigarettes with the goal of suppression. Unfortunately and unsurprisingly, this framework has made it impossible for truly novel products to enter the market. Many see this blockade of new nicotine products as a positive outcome, but the perverse unintended effect is that it is still easier for combustible cigarettes to gain FDA authorization than the safer products that could displace them. Worse, it leaves consumers who already rely on less harmful forms of nicotine use frustrated and most of the public confused about the relative risks and benefits of various products.  

It doesn’t have to be this way and, for a moment in 2017, it seemed the FDA recognized the need to modernize its approach in response to the market’s rapid shift toward tobacco harm reduction. In that year, the agency announced its comprehensive plan for tobacco and nicotine regulation which recognized that tobacco products exist on a continuum of risk, that nicotine, while not risk-free, is not the main source of tobacco-related mortality or morbidity, and acknowledged that in the best interest of public health, the agency’s approach to reducing the harms caused by smoking required an equal effort to promote less harmful alternatives.  

This plan, had it been implemented, would have likely addressed many of the challenges the FDA now must address. Unfortunately, while the agency has taken steps to reduce the appeal of combustible cigarettes, it has apparently abandoned its promise to promote the development of and consumer access to safer nicotine alternatives. And the continued failure of the FDA to adhere to any sort of comprehensive approach could have disastrous consequences. Take, for example, the FDA’s proposed prohibition on menthol as a characterizing flavor in combustible cigarettes and cigars. 

The goal of the proposed menthol ban is to reduce the appeal of combustible cigarettes, used disproportionately by people of color. According to the FDA’s calculations, the ban would result in less initiation of cigarettes by youth, increase smoking cessation among adults, and lead to better health outcomes in many populations.

Those calculations, however, were based on certain assumptions about how consumers might respond to such a ban, given the other options available to them. Surprisingly, a great amount of the health benefits the FDA expects a menthol ban to produce, upwards of half, come from consumers replacing combustible menthol cigarettes with mentholated versions of noncombustible e-cigarettes. The problem with this is that few menthol smokers will have this option as the FDA has so far not authorized a single mentholated e-cigarette and has given little reason to believe they ever intend to do so. 

Recommendations for FDA: 

• Issue an updated comprehensive approach to tobacco and nicotine that is principles-based, reasonable, and implemented consistently across FDA programs to guide regulation and research. In addition to the 2017 plan, we suggest they refer to the Institute of Medicine’s 2001 Clearing the Smoke report. 

Challenge #2: Compliance standards that are clear, transparent, and predictable

In the first public meeting the Reagan-Udall Foundation held on this topic, one of the stakeholders expressed his belief that tobacco manufacturers, including those of lower-risk nicotine products, have no interest in being regulated and have intentionally submitted deficient pre-market tobacco applications in order to slow down enforcement by the agency. 

But within the nicotine alternatives market are thousands of small businesses who desperately want to understand what the FDA wants from them in order to approve their products for legal sale and reasonable regulations that would protect their companies, as well as the entire market, from bad actors. 

The problem is not that the industry doesn’t want to comply with FDA regulations, the problem is that they cannot. By constructing an opaque and seemingly arbitrary pre-market authorization process and by failing to set reasonable standards, the FDA has created regulatory hurdles too high for all but the largest tobacco makers to surmount. 

Recommendations for FDA: 

• Set clear and consistent standards, requirements, and thresholds.
• Provide detailed definitions for critical terms like “appropriate for the protection of public health” and disclose how those definitions are calculated or determined.
• Be more transparent, cooperative, and flexible; convening meetings for public discourse, workshops, and unbiased explanations for its decisions and conclusions.

Challenge #3: A more appropriate balance between innovation, risk, and the needs of various populations

The FDA’s interest in preventing potentially harmful products from entering the market is understandable. However, aversion to this risk must not come at the expense of squashing innovation that could have a positive net benefit to public health. Nor should the agency’s aversion to the small potential risks presented by new products blind the FDA to the potential risks caused by a market that is too tightly regulated that it spurs the proliferation of illicit markets or denies consumers potentially life-saving alternatives.

Similarly, the FDA’s concern about youth experimentation and initiation with novel nicotine products is reasonable. But that concern should not lead to decisions made at the expense of current and future adult smokers. The FDA certainly has a role to play in addressing the population-level risks associated with novel tobacco products, but unlike matters such as those relating to product safety, these concerns do not justify the existing bottleneck created by the FDA’s onerous pre-market approval regime.

Challenge #4: More efficient pathways to the authorization of lower-risk products

Many of the challenges faced by the FDA’s Center for Tobacco Products (CTP) in recent years stem less from resource limitations than they do from choices regarding implementation and priority-setting.

The FDA has thus far given marketing orders to just a handful of noncombustible products, the vast majority of which are owned by large tobacco firms. This will continue to be the case so long as the approval process remains onerous, slow, and wasteful. Other nations have structured regulations based on standards and thresholds, which make compliance and, more importantly for the FDA, verification a far easier and less resource-intensive task.

The results of this standards-based approval regime are vibrant markets, with devices and flavors that meet consumers’ needs, without the problems of youth experimentation that have so vexed U.S. health authorities. Adopting a similar standards-based approach, with streamlined pathways, categories for products and components, and a substantial equivalence for novel lower-risk products would allow companies (as well as the FDA staff) to conduct more efficient reviews, ensuring that the rules encourage compliance, protect the public, and leave nobody behind. 

Recommendations for FDA

• Use rulemaking power to establish streamlined Premarket Tobacco Product Application (PMTA) pathways for non-combustible products rather than forcing those products likely to be significantly less harmful than smoking to an outdated pathway even more onerous than for combustible cigarettes.
• Create a standards-based regime, with a small number of reasonable criteria for products the FDA would approve, similar to how regulation occurs in France and the United Kingdom.
• Create a substantial equivalence pathway for novel lower-risk products. This could be accomplished by “deeming” all those products which have or will receive marketing orders by the FDA as “predicate” on a rolling basis.
• Create a definition for “minor” changes as opposed to “significant” changes and created a streamlined approval process for minor changes (such as those relating to packaging, container size, and other modifications not expected to increase the potential risk of the product).
• Conduct periodic performance reviews to assess how well FDA regulation is working for consumers of reduced-risk products, based on turnaround for applicants, number of approvals for sufficient applications, and market dynamism.
• Hold public meetings with small industry participants to inform such performance reviews.

The post Testimony: FDA regulation has preserved and protected the most dangerous form of nicotine use—smoking combustible cigarettes appeared first on Reason Foundation.

California’s Proposition 27 on the November 2022 ballot would authorize online and mobile sports betting throughout the state operated by tribal authorities or non-tribal businesses that partner with tribes. Revenue generated from the taxes and fees related to online sports betting would primarily go to fund programs to address homelessness and mental health, with a smaller portion distributed to all tribes in the state.  

Fiscal Impact

Proposition 27 would tax sports betting revenue from online and mobile platforms at 10 percent, which the California Legislative Analyst’s Office (LAO) estimates would increase state tax revenue by up to $500 million annually.

After enforcement costs, which LAO estimates could reach up to “the mid-tens of millions of dollars a year,” 85 percent of the tax revenue generated under Prop. 27 would go to the newly-created California Solutions to Homelessness and Mental Health Support Account to create long-term housing for those in need. The remaining 15 percent of tax revenue from the proposition would go into a fund for distribution to tribes in the state that do not participate in gambling activities. 

Arguments in Favor

Proponents of Prop. 27 include three of the state’s smaller tribes, national gambling companies like DraftKings and BetMGM, homelessness groups, local elected officials, and community leaders. Their coalition in support of Prop. 27 asserts the measure would create a competitive and safe online sports betting market in California and provide significant funding to help address homelessness in the state. They argue Prop. 27 is the only measure on the ballot that would guarantee a large and stable source of funding, an estimated $300 million annually, for homelessness, mental health, and addiction services. They also say that Prop. 27 would benefit the state’s tribal population by allocating 15 percent of the tax revenue from sports betting to non-gaming tribes. 

Arguments Against

Opponents of Prop. 27 include some of the state’s tribes, faith-based groups, political organizations, including the California Democratic Party, several elected officials, and other groups. Some of the arguments are that online and mobile wagering would put the state’s youth at risk, exacerbate problem gambling, and threaten tribal economies. Additionally, some opponents say that Prop. 27 would give large, out-of-state online gambling businesses too much control over California’s sports betting market and would put those tribes who wish to offer online sports betting on their own at a competitive disadvantage against well-recognized national brands. 

Discussion 

Since the U.S. Supreme Court overturned the federal prohibition on sports gambling in 2018, more than 30 states have legalized the activity in some form, generating more than $142 billion in wagers and over $1.5 billion in tax revenue. California, with its nearly 40 million residents, could be the largest and most lucrative sports betting market in the country, yielding operators between $350 million and $3 billion in profits and the state up to $300 million in new tax revenue, depending on the way it is regulated. 

California’s gaming tribes currently enjoy a state-granted monopoly over slot machines and casino-style games, which nets them around $8 billion in revenue each year. That money is vital for tribal economic welfare as well as tribal political power. Tribes have used that power to deftly defend their control over gambling in the state, expanding the types of games tribes can offer while blocking attempts at encroachment by competitors. Legalizing sports betting represents a significant opportunity to increase foot traffic and revenue for tribal casinos. It is also a threat should the new market bolster its competitors’ profits and influence in state politics. 

That is among the reasons many of California’s gaming tribes, 26 at last count, have thrown their support behind Proposition 26, which would restrict legal sports betting to in-person bets at tribal casinos and the state’s four licensed horse racetracks. Along with those tribes and racetracks, some chambers of commerce, faith-based organizations, and social justice-oriented groups have also backed Prop. 26. Some, but not all of these Prop. 26 supporters have also joined the ballot measure committee in opposition to Prop. 27, which would allow non-tribal entities to offer online and mobile sports betting if they strike a deal with one of the state’s gaming tribes.

Those supporting Prop. 26 argue that limiting sports betting to in-person bets at tribal casinos will mitigate the risks of underage and problem gambling, prevent profits from leaving the state, and bolster tribal sovereignty and self-sufficiency. 

Prop. 26 supporters point to the 20-year history of responsible gaming operated by tribal casinos, arguing that they are better equipped to prevent underage bets than online or mobile businesses, while Prop. 27 offers no such protections. Using the rhetoric long-used by land-based casinos opposed to online gambling, Prop. 27 opponents argue it would turn “every cellphone, laptop, tablet, and even video game console into a gambling device, opening up online gambling to anyone, anywhere, anytime.” However, it is worth noting that at least some of the tribes opposed to Prop. 27 are open to authorizing online and mobile sports betting so long as the tribes control it, with some already lending support to a 2024 ballot initiative that would do just that.

Supporters of Prop. 27 claim allegations about online gaming spurring youth betting are little more than fear-mongering and highlight the successful prevention of youth online betting in other countries that have legalized online gambling, as well as the seven U.S. states with legal online poker, the 20 states with legal online sports betting, and the 45 states with legal daily fantasy sports betting online. In the near-decade since legal online gambling has been authorized, dire prophecies about online youth gambling have failed to materialize, with online operators rarely receiving fines for underage gambling. Furthermore, technology makes it possible for online platforms to be at least as capable of verifying their customers’ age, identity, and location as land-based casinos, which rely almost exclusively on a visual scan of identification cards. In addition to scanning IDs, online gambling platforms typically ask for additional details, which, depending on state regulations, may include Social Security numbers and answering questions about personal history, such as previous addresses at which they lived. Those details are then checked against government databases to verify customer identity. They are also stored so that, if there are doubts about an operator’s compliance with state laws, regulators can follow a digital trail of evidence to prove such violations occurred, fine operators, or shut them down. 

Another fear raised by the ‘yes on Prop. 26’ and ‘no on Prop. 27″ campaigns are that online sports betting would exacerbate problem gambling or “gambling addiction.” Such concerns are an inevitable part of any debate over expanding access to gambling but based on data and real-world experience, these fears are largely unjustified. Despite extraordinary increases in access to gambling, problem gambling continues to be rare, and its prevalence has been remarkably stable in the U.S. since the 1970s. This is not to say that problem gambling should be ignored, only that the risks should not be overblown. 

As with age and identity verification, online platforms can employ technological solutions that can address problem gambling, such as pattern-recognition software, responsible gaming “speedbumps,” which force players to set limits on their spending, and the ability to self-exclude themselves from access to gambling websites. Moreover, whether land-based or online, the risks of problem gambling are better addressed when the gambling occurs in a legal, regulated market, as opposed to illicit markets. And on that note, it is worth pointing out that the absence of legal sports betting has not stopped the activity, with experts estimating that Californians already place an estimated $15 billion in illegal sports bets each year. Most of that money is sent to overseas illicit operators, and those operators do little, if anything, to stop underage or problem gambling. 

Another central argument made by supporters of Prop. 26 is that restricting sports betting to tribal casinos would be more beneficial for tribal economies and welfare. Indeed, a near-monopoly on sports betting would be in gaming tribes’ financial interest. But, supporters of Prop. 27 have controversially argued that Prop. 26 mainly benefits the wealthiest tribes with large casinos while Prop. 27 would spread the wealth more evenly, earmarking 15 percent of the tax revenue it would generate (an estimated $45 million annually) to be split among the state’s non-gaming tribes. 

Prop. 26 and Prop. 27 also impact other industries and communities. Cardrooms in the state, along with many workers’ unions, local elected officials, social justice organizations, and animal welfare groups have joined a coalition against Prop. 26 because they say it would create an unfair advantage for tribal casinos, siphoning customers away from other gambling businesses in the state and putting at risk the entire cardroom industry, along with the 32,000 jobs it supports and the $5.5 billion in economic activity it generates, which could “devastate other communities of color in California.”   

Another argument made by Prop. 27 proponents is that their measure would provide significant funding to address the state’s homelessness problem, earmarking 85 percent of the tax revenue—potentially $250 million annually—to programs aimed at creating long-term housing for those in need, a figure that could total more than  

Proponents of Prop. 26 concede that Prop. 27 would generate far more revenue by allowing large national brands, like DraftKings and BetMGM, to participate in California’s market. Those operators would be subject to taxes, unlike tribal casinos. However, Prop. 27 opponents argue that this would be bad for California and tribal casinos because it would primarily benefit out-of-state businesses and “wall street investors funding Prop 27.” While Prop. 26 would generate less revenue, supporters argue it would keep all that money in the state. 

Prop. 27 would create a more robust and competitive sports betting market than Prop. 26 by allowing online and mobile betting, generating billions in revenue for the state, gaming tribes, and operators under agreement with those tribes. Still, it could divert some revenue from in-person betting at tribal casinos. It might also put those tribes who wish to enter the online sports betting market but do not want to partner with national brands at a disadvantage in the market.

Proposition 26 would benefit the state’s gaming tribes and block out-of-state gambling companies from California’s market. But, the benefits generated by Prop. 26 may come at the cost of Californians having competitive choices of where to gamble and would mean forgoing hundreds of millions in tax revenue Proposition 27 would have generated for other communities, non-gaming tribes, and housing programs.

Voters’ guides for other propositions on California’s 2022 ballot.

The post California Proposition 27 (2022): Legalizes online sports betting, funds homelessness and mental health programs appeared first on Reason Foundation.

California’s Proposition 26 would authorize Indian tribal casinos and four-horse racetracks in the state to offer in-person sports wagering on college sports, amateur athletics, and other competitions. Still, it would prohibit wagering on high school sports and events involving California-based college teams. The measure would also authorize gaming tribes in the states to offer roulette and dice games, like craps. Revenue generated from sports betting would go to the state’s general fund, enforcement costs, and programs aimed at addressing problem gambling. 

Fiscal Impact

The measure would tax sports betting at racetracks at 10 percent. The state’s four licensed horse racetracks would be the only ones to pay that tax since tribes as sovereign entities are tax-exempt. But, gaming tribes contribute funds to the state in other ways, such as fees stipulated in tribal-state compacts that each tribe would strike with the state before offering sports betting. Altogether, Prop. 26 is expected to increase state revenue by tens of millions of dollars annually, according to the California Legislative Analyst’s Office (LAO), with 70 percent going into the general fund. The remaining 30 percent would be divided equally between paying for enforcement costs (LAO estimates in the low tens of millions of dollars annually) and programs that address problem gaming. 

Argument in Favor

Proponents argue that giving California’s tribes and racetracks exclusive authority to offer sports betting would bolster tribal self-sufficiency, create jobs, and generate revenue for the state. They point out that sports gambling online is extensive and that Prop. 26 would keep much of that spending in California rather than going to out-of-state online gambling companies. They assert that limiting the activity to in-person betting operated by facilities with long track records of responsible gaming will prevent underage gambling and mitigate problem gambling. 

Arguments Against

Opponents of Prop. 26 argue that the measure is anti-competitive, unfairly granting tribes a near-monopoly on sports betting and an actual monopoly on roulette and craps, in addition to their existing monopoly on slot machines. They allege that the measure benefits a handful of wealthy tribes with large casinos at the expense of smaller tribes, California’s non-tribal gaming industry, and other communities of color in the state, costing them thousands of jobs and millions in revenue. Some also oppose the measure for propping up the horse racing industry and promoting animal abuse. And, as with any measure to expand gambling, some oppose Prop. 26 for concerns that such expansions threaten the integrity of youth sports and could increase problem gambling. 

Discussion 

Since the U.S. Supreme Court overturned the federal prohibition on sports gambling in 2018, more than 30 states have legalized the activity in some form, generating more than $142 billion in wagers and over $1.5 billion in tax revenue. California, with its nearly 40 million residents, could be the largest and most lucrative sports betting market in the country, yielding operators between $350 million and $3 billion in profits and the state up to $300 million in new tax revenue, depending on the way it is regulated. 

California’s gaming tribes currently enjoy a state-granted monopoly over slot machines and casino-style games, which nets them around $8 billion in revenue each year. That money is vital for tribal economic welfare as well as tribal political power. Tribes have used that power to deftly defend their control over gambling in the state, expanding the types of games tribes can offer while blocking attempts at encroachment by competitors. Legalizing sports betting represents a significant opportunity to increase foot traffic and revenue for tribal casinos. It is also a threat should the new market bolster its competitors’ profits and influence in state politics. 

That is among the reasons many of California’s gaming tribes, 26 at last count, have thrown their support behind Proposition 26, which would restrict legal sports betting to in-person bets at tribal casinos and the state’s four licensed horse racetracks. Along with those tribes and racetracks, some chambers of commerce, faith-based organizations, and social justice-oriented groups have also backed Prop. 26. Some, but not all of these Prop. 26 supporters have also joined the ballot measure committee in opposition to Proposition 27, which would allow non-tribal entities to offer online and mobile sports betting if they strike a deal with one of the state’s gaming tribes.

Those supporting Prop. 26 argue that limiting sports betting to in-person bets at tribal casinos would mitigate the risks of underage and problem gambling, prevent profits from leaving the state, and bolster tribal sovereignty and self-sufficiency. 

Prop. 26 supporters point to the 20-year history of responsible gaming operated by tribal casinos, arguing that they are better equipped to prevent underage bets than online or mobile businesses, while Prop. 27 offers no such protections. Using the rhetoric long-used employed by land-based casinos opposed to online gambling, Prop. 27 opponents argue it would turn “every cellphone, laptop, tablet, and even video game console into a gambling device, opening up online gambling to anyone, anywhere, anytime.” However, it is worth noting that at least some of the tribes opposed to Prop. 27 are open to authorizing online and mobile sports betting so long as the tribes control it, with some already lending support to a 2024 ballot initiative that would do just that.

Supporters of Prop. 27 claim allegations about online gaming spurring youth betting are little more than fear-mongering and highlight the successful prevention of youth online betting in other countries that have legalized online gambling, as well as the seven U.S. states with legal online poker, the 20 states with online legal sports betting, and the 45 states with legal daily fantasy sports betting online.

In the near-decade since legal online gambling has been authorized, dire prophecies about online youth gambling have failed to materialize, with online operators rarely receiving fines for underage gambling. Furthermore, technology makes it possible for online platforms to be at least as capable of verifying their customers’ age, identity, and location as land-based casinos, which rely almost exclusively on a visual scan of identification cards. In addition to scanning IDs, online gambling platforms typically ask for additional details, which, depending on state regulations, may include social security numbers and answering questions about personal history, such as previous addresses at which they lived. Those details are then checked against government databases to verify customer identity. They are also stored so that, if there are doubts about an operator’s compliance with state laws, regulators can follow a digital trail of evidence to prove such violations occurred, fine operators, or shut them down. 

Another fear raised by the ‘yes on Prop. 26’ and ‘no on Prop. 27’ campaigns are that online sports betting will exacerbate problem gambling or “gambling addictions.” Such concerns are an inevitable part of any debate over expanding access to gambling but based on data and real-world experience, these fears are largely unjustified. Despite extraordinary increases in access to gambling, problem gambling continues to be rare, and its prevalence has been remarkably stable in the U.S. since the 1970s. This is not to say that problem gambling should be ignored, only that the risks should not be overblown. 

As with age and identity verification, online platforms can employ technological solutions that can address problem gambling, such as pattern-recognition software, responsible gaming “speedbumps,” which force players to set limits on their spending, and the ability to self-exclude themselves from access to gambling websites. Moreover, whether land-based or online, the risks of problem gambling are better addressed when the gambling occurs in a legal, regulated market, as opposed to illicit markets. And on that note, it is worth pointing out that the absence of legal sports betting has not stopped the activity, with experts estimating that Californians already place an estimated $15 billion in illegal sports bets each year. Most of that money is sent to overseas illicit operators, and those operators do little, if anything, to stop underage or problem gambling. 

Another central argument made by supporters of Prop. 26 is that restricting sports betting to tribal casinos would be more beneficial for tribal economies and welfare. Indeed, a near-monopoly on sports betting would be in gaming tribes’ financial interest. But, supporters of Prop. 27 have argued that Prop. 26 mainly benefits the wealthiest tribes with large casinos while Prop. 27 would spread the wealth more evenly, earmarking 15 percent of the tax revenue it would generate (an estimated $45 million annually) to be split among the state’s non-gaming tribes. 

Prop. 26 and Prop. 27 also impact other industries and communities. Cardrooms in the state, along with a number of workers’ unions, local elected officials, social justice organizations, and animal welfare groups, have joined a coalition against Prop. 26 because they say it would create an unfair advantage for tribal casinos, siphoning customers away from other gambling businesses in the state and putting at risk the entire cardroom industry, along with the 32,000 jobs it supports and the $5.5 billion in economic activity it generates, which could”devastate other communities of color in California.”   

Another argument made by Prop. 27 proponents is that their measure would provide significant funding to address the state’s homelessness problem, earmarking 85 percent of the tax revenue—potentially $250 million annually—to programs aimed at creating long-term housing for those in need, a figure that could total more than  

Proponents of Prop. 26 concede that Prop. 27 would generate far more revenue by allowing large national brands, like DraftKings and BetMGM, to participate in California’s market. Those operators would be subject to taxes, unlike tribal casinos. However, Prop. 27 opponents argue that this would be bad for California and tribal casinos because it would primarily benefit out-of-state businesses and” wall street investors funding Prop 27″ While Prop. 26 would generate less revenue, supporters argue it would keep all that money in the state. 

Prop. 27 would create a more robust and competitive sports betting market than Prop. 26 by allowing online and mobile betting, generating billions in revenue for the state, gaming tribes, and operators under agreement with those tribes.

Still, it could divert some revenue from in-person betting at tribal casinos. It might also put those tribes who wish to enter the online sports betting market but do not want to partner with national brands at a disadvantage in the market. Proposition 26 would benefit the state’s gaming tribes and block out-of-state gambling companies from California’s market. But, the benefits generated by Prop. 26 may come at the cost of Californians having competitive choices of where to gamble and would mean forgoing hundreds of millions in tax revenue Proposition 27 would have generated for other communities, non-gaming tribes, and housing programs.

Voters’ guides for other propositions on California’s 2022 ballot.

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Fiscal Impact

According to the Colorado Secretary of State’s analysis, Initiative 122 is likely to have no meaningful impact on the state’s net revenue or costs.  

Proponents’ Arguments For

As with another of the alcohol initiatives slated for the 2022 ballot, Initiative 122, is backed by an issue committee called Wine in Grocery Stores. This group is funded primarily by delivery companies like DoorDash and Instacart and is also supported by Safeway and Target. Proponents argue that the measure would modernize alcohol sales in Colorado and improve consumer convenience.

Opponents’ Arguments Against

Opposition to allowing third-party delivery of alcohol has been limited and has come mainly from the committee, Keeping Colorado Local. This group is also opposed to the other two alcohol-related measures on the 2022 ballot, and they portray these measures as a bid from “billion-dollar, out-of-state corporations who want to come in and put the mom-and-pop small business out of business.” They fear that allowing non-liquor stores to offer home delivery will further harm the ability of liquor stores to compete in the market.

Discussion

With memories of COVID-19 lockdowns still fresh in voters’ minds, it may be tough to convince them that there are many downsides to allowing the home delivery of alcohol. During those lockdowns, Colorado was among the many states to temporarily liberalize alcohol laws, allowing bars and restaurants to sell alcohol to-go and deliver alcohol along with customers’ food orders; a measure the state legislature recently extended to July 2026.

Instead of using their own staff to make home deliveries, Initiative 122 would simply allow businesses already licensed to sell retail alcohol to do through third-party delivery services. While specific regulation of alcohol delivery differs by state, at least 15 states and Washington, DC, currently allow some form of home alcohol delivery through third-party services, like Instacart and Drizly.

In addition to the benefits to consumers, access to these specialized services could benefit grocery stores, particularly smaller ones that may not have their own fleet of delivery people. This is especially true if voters approve Initiative 121, also on Colorado’s 2022 ballot, which would allow grocers to sell wine in addition to beer.

Initiative 122 could also benefit small liquor stores, as well, who might be able to increase their capacity for deliveries throughout the state.

Finally, the Initiative would certainly be beneficial to residents and visitors to Colorado, particularly those accustomed to the on-demand alcohol delivery available in other states. 

The post Colorado Initiative 122 (2022): Third-party delivery of alcohol beverages appeared first on Reason Foundation.

In 2016, Colorado passed a law that would incrementally phase in grocery store sales of full-strength beer, wine, and liquor, with all stores allowed to sell all alcoholic beverages by 2037. Currently, however, wine can only be purchased in licensed liquor stores. 

Colorado’s Initiative 121 on the November 2022 ballot would allow stores that are already licensed to sell retail beer to begin selling wine for off-premise consumption beginning in 2023. The measure would also allow these shops to submit an application to their local licensing authority in order to conduct wine tastings on-site. 

Fiscal Impact

Based on the analysis provided by the Colorado Secretary of State’s Office, Initiative 121 is not expected to meaningfully increase either state revenue or costs.  

Proponents’ Arguments For

Initiative 121 has been supported by third-party alcohol delivery companies, like DoorDash, and national grocery brands, like Target, organized under the issue committee Wine in Grocery Stores. They argue allowing grocery and convenience stores to sell wine, in addition to beer, would significantly increase convenience for shoppers who would no longer need to visit multiple locations to buy food, beer, and wine.  

Opponents’ Arguments Against

Local liquor shops, which lost their monopoly on retail sales of full-strength beer in 2016, claim that eliminating their monopoly on wine sales would cause up to 1,000 liquor stores around the state to close. As they argued prior to Colorado’s legalizing the sale of full-strength beer in grocery stores, opponents of the initiative claim that allowing grocery stores to sell wine would harm local wineries and favor large national brands. Others have raised concerns that allowing wine sales in local grocery stores might increase underage drinking. 

Discussion

Colorado’s experience with the legalization of the sale of full-strength beer in grocery stores has been largely positive. Though the move decreased liquor store beer sales volume, a 2020 study by the Research Institute at Colorado State University found that craft brewers benefited from the move, which stimulated interest in and demand for beer relative to other alcoholic beverages. Moreover, there is no evidence that allowing beer sales in grocery stores have had any meaningful effect on underage drinking.

Local liquor store owners’ fears are understandable. Removing their monopoly and allowing other shops to sell wine would potentially decrease their own sales. But, importantly, it would also significantly increase consumers’ choices and convenience, reducing the number of locations shoppers have to visit, and likely reducing the prices of the more popular brands due to increased competition. If this initiative passes and is enacted, liquor stores could respond in a variety of ways, including by competing with grocery stores by offering customers more knowledgeable staff to assist shoppers and by stocking the hyper-local and specialty brands their larger competitors may not offer.

The post Colorado Initiative 121 (2022): Sales of wine in grocery stores appeared first on Reason Foundation.

Colorado Initiative 96 on the November 2022 ballot would incrementally raise the number of retail liquor store licenses an individual may own or hold to be equal to the number of licenses for off-premise alcohol sales that could be owned or held by drug and grocery stores in the state.

Under Colorado’s current law, an individual may hold only three retail liquor store licenses across the state, increasing to a maximum of four after 2027. Liquor-licensed drug stores, on the other hand, can hold up to eight licenses, but that number will increase to 13 in 2027, 20 by 2032, and be unlimited after 2037.

Grocery stores, which are currently restricted to selling beer only, can have a maximum of 20 licenses for alcohol sales, until 2037 when the maximum number will be unlimited.

Initiative 96 seeks to create parity in licensing between businesses that sell alcohol. If approved, the measure would allow liquor stores to hold up to eight licenses immediately, rising to 13 in 2027, 20 in 2032, and an unlimited number after 2037.

Fiscal Impact

According to the Colorado Secretary of State, Initiative 96 is expected to only minimally impact state finances. Increased licenses would slightly increase revenue through application and renewal fees, as well as slightly increase compliance costs for the state.

Proponents’ Arguments in Favor

Proponents of Initiative 96 argue that the state’s archaic restrictions on liquor licenses have unfairly blocked large liquor store retailers from the state, denying Coloradans the convenience, choices, and prices such chains could offer.

They also argue that increasing the maximum number of licenses and locations would help local liquor stores better compete with grocery and drug store alcohol sales, particularly if voters approve Colorado Initiative 121, also on the 2022 ballot, which would allow non-liquor stores to sell wine, in addition to beer.

The committee backing the measure, the Coloradans for Consumer Choice and Retail Fairness, has been largely funded by David and Robert Trone, the founders of Total Wine and More, raising $2.2 million for the Initiative, most of which was spent collecting signatures to qualify for the ballot. 

Opponents Arguments Against

Opposition to Initiative 96 has come primarily from the Colorado Licensed Beverage Association, a trade group representing independent liquor stores in the state, which formed a committee group named Keeping Colorado Local. This group is opposed to all three of the alcohol measures on Colorado’s 2022 ballot. They oppose Initiative 96 because it would open the state’s doors to large national chain brands, like Total Wine, potentially making it harder for local liquor stores to compete. 

Discussion

The competition faced by local liquor shops in Colorado is going to increase in the near future, no matter what voters decide this November, with current law set to vastly increase the number of chain grocery and liquor stores selling alcohol.

Though small liquor store owners are understandably worried about opening the state’s doors to larger, nationally-recognized retailers, like Total Wine, the smaller stores could find underserved markets and compete in areas like customer service, such as offering more knowledgeable employees to assist customers and stocking products larger chains may not. The iniative would also likely benefit consumers, increasing the variety of products available and reducing prices due to the increased competition.

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Based on its own number crunching, the FDA claims the move will save around half a million lives over the next 40 years and reduce health disparities. Supporters of the ban argue that this can be accomplished without triggering the devastating consequences caused by every other drug prohibition in history. The problem, however, is that the FDA’s math is wrong. For millions of adults, communities around the nation, and public health at large, this could prove a deadly miscalculation. 

Like all federal agencies, the FDA is required to provide some justification for major rules, showing why it expects the benefits of that rule to outweigh its costs to society. In the case of banning menthol cigarettes, that justification centers primarily on the lives it is expected to save, which the FDA estimates at between 324,000 to 654,000 by the year 2060. To come up with that number, the agency relied on a series of studies that used predictive modeling to guess how menthol cigarette smokers, now and in the future, might behave in the wake of such a ban.  

These models predict that, while around 56 percent of current and future menthol smokers would respond in ways that do not improve health (such as switching to equally-harmful non-menthol cigarettes or relying on illicit markets), a significant portion—45 percent—would alter their behavior in ways that promote better health. According to these models, however, nearly half of the public health benefits would come from smokers switching to mentholated versions of lower-risk nicotine products, like e-cigarettes. The issue with this in the real world is that smokers may not have that option thanks to the FDA’s own irrational policies. 

Nicotine, though a habit-forming substance, is not what makes smoking dangerous. The danger comes from combustion; the chemicals created by burning tobacco and paper. Despite nearly all evidence indicating that non-combustible sources of nicotine, like e-cigarettes, are safe and effective substitutes for smoking, the FDA continues to do everything in its power (and arguably beyond it) to eliminate the e-cigarette market. Only a handful of options have been approved for sale and the FDA has refused to approve any in menthol flavor (indicating it never will). Smokers already have limited access to any sort of FDA-sanctioned e-cigarette, let alone the type and flavor they might find an acceptable replacement for their cigarettes. As the FDA continues to pull e-cigarettes off the market, including the most popular and effective brands, and as cities and states implement their own e-cigarette bans, issues with limited access will grow. 

If nearly half of the public health benefits the FDA expects from a menthol cigarette ban come from the expectation that many smokers will switch to e-cigarettes, what will happen when the agency’s own policies prevent this from happening? It is possible that more smokers will choose to quit tobacco and nicotine use altogether, making a menthol cigarette ban even more beneficial for public health than the FDA currently predicts. But, evidence suggests smokers will instead choose to switch to non-menthol cigarettes, gaining zero health benefits, or turn to illicit markets, where their risks might actually be increased.

To make matters worse, the FDA’s math also suffers from incorrect assumptions about how illicit markets would respond to a menthol cigarette ban. Though menthol cigarettes make up over a third of all cigarette sales, generate more than $21 billion in revenue, and are used by an estimated 19 million Americans, the FDA claims a ban won’t lead to increases in illicit cigarette sales. But this is yet another miscalculation. 

The already-booming illegal cigarette market in America has traditionally operated via domestic bootlegging, with primarily “mom and pop” enterprises legally purchasing cigarettes in low-tax jurisdictions, such as Virginia, and selling them in high-tax jurisdictions, like New York. Since the scheme involves a product that is legal everywhere in the country, the risks illicit operators face for this sort of smuggling are relatively low. For the same reason, the potential profits smugglers can make are also relatively low, since illicit cigarette dealers must keep the prices they charge for smuggled cigarettes lower than what their customers would pay for legal cigarettes where they live. Because a nationwide ban on menthol cigarettes would prevent would-be menthol cigarette dealers from simply hopping state lines to supply their trade, the FDA assumes they would not even bother. But this is a dangerous underestimation of the resourcefulness of illicit supply chains. 

A national prohibition, whether for menthol cigarettes or anything else, certainly increases the risks for those hoping to profit by selling illicit goods. But, it also vastly increases the rewards for those who do so successfully. Unlike the current market for illicit tobacco which hinges on offering customers cheaper cigarettes, a national prohibition would make illicit sources the only option for menthol smokers. As such, those customers might be willing to pay as much or even more for illicitly supplied menthols as they would have paid when they were legal. By increasing both the demand for and the profitability of illicit menthol cigarettes, a ban may have the unintended effect of attracting international drug cartels into the racket. And given the skill with which these cartels continue to evade authorities, it is not clear why the FDA thinks a cigarette ban would be more successful than any other drug prohibition.

Even if U.S. authorities could stop the flow of illicit cigarettes over our national borders, there is little they could do to stop domestic producers from supplying the market with counterfeit menthols. This task would involve little more than purchasing still-legal non-menthol cigarettes and adding menthol flavoring. The government could do even less about individuals who might make their own supply of menthol cigarettes the same way. 

Far from making menthol cigarettes unavailable, as the FDA assumes, a menthol ban could have the perverse effect of making them far more available, particularly for minors, since illegal dealers aren’t exactly sticklers for age verification. Even more perversely, the ban could harm the very group—people of color—it supposedly seeks to help most. 

While there is no credible evidence that menthol cigarettes are more toxic, harder to quit, or more attractive to youth than non-menthol cigarettes, it is true that they are overwhelmingly preferred by people of color with around 85 percent of black smokers choosing menthols compared to just 30 percent of white smokers. The FDA claims this means that black people would benefit most from a menthol cigarette ban since they will be more motivated to quit smoking. But, it also means that many of the smokers who do not quit and instead turn to illicit markets to get the menthol cigarettes they prefer will be people of color. And, as it is with any drug war, it will be people and communities of color that bear the brunt when local authorities attempt to crack down on illicit activity. 

If the FDA is truly interested in promoting smoking cessation and saving lives, there are more effective and certainly less destructive ways to do this than a prohibition. Another approach would be for the FDA to adopt policies grounded in harm reduction, to encourage smokers who cannot or will not quit using nicotine to switch to less harmful options, such as the already FDA-endorsed (but largely ineffective) nicotine patch, gum, and lozenge, as well as e-cigarettes, snus, and heated tobacco. But, for this to work those products must be at least as accessible, affordable, and palatable to smokers as the cigarettes they are used to. Whether the FDA wants to admit it or not, that means allowing them in flavors smokers want, including menthol. 

In other countries, like the United Kingdom and Japan, tobacco harm reduction has been widely embraced and hugely successful. America has already adopted a similar approach to other substance use issues, such as legalizing cannabis, offering clean needles to people who use intravenous drugs, opioid replacement therapy, and naloxone for overdose prevention. There is no reason that tobacco harm reduction would not be similarly successful if the FDA abandoned its unscientific opposition to nicotine and got out of the way of innovation. Such a harm reduction approach may anger prohibitionists in the anti-tobacco industry and Congress, but unlike the current approach, it might actually save lives. 

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