ARCHIVED — Vol. 149, No. 10 — March 7, 2015

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Order Amending the Schedule to the Tobacco Act

Statutory authority

Tobacco Act

Sponsoring department

Department of Health

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Order.)

Executive summary

Issues: In 2009, the Government of Canada introduced the Cracking Down on Tobacco Marketing Aimed at Youth Act, which amended the Tobacco Act to limit the marketing of tobacco products to youth, especially flavoured little cigars that were appealing to youth. However, new cigar types — slightly larger than little cigars — were brought onto the Canadian market by tobacco manufacturers and importers after the 2009 amendment and sold in the same flavours targeted by that amendment. Many of these new products have physical characteristics, such as tipping paper, that make them resemble little cigars and cigarettes. Recent data indicate that youth continue to use flavoured tobacco products, including cigars (Youth Smoking Survey 2012–2013; Canadian Tobacco Use Monitoring Survey 2012). Preventing initiation of tobacco use by youth is one of the most effective means of reducing lifetime tobacco use. Further restricting flavours in cigars is expected to contribute to the protection of youth from the dangers of tobacco use. Therefore, the Department of Health is acting through the proposed Order Amending the Schedule to the Tobacco Act to further youth protection measures by strengthening flavour restrictions for certain types of flavoured cigars.

Description: The proposed Order Amending the Schedule to the Tobacco Act would restrict the use of additives, including flavouring agents, in certain types of cigars. Specifically, the proposed Order would place flavour restrictions on cigars weighing more than 1.4 g but not more than 6 g and on cigars having physical characteristics similar to those of cigarettes or little cigars, such as tipping paper or a wrapper with a straight seam. Cigars with a wrapper in spiral form that weigh above 1.4 g but not more than 6 g (excluding those with tipping paper and little cigars) would be allowed to contain wine, port, whisky and rum flavours to limit the impact of the proposed Order on adult choice. Menthol would not be prohibited in these cigar types, as it is not now prohibited for all other tobacco products including cigarettes, little cigars and blunt wraps. The existing restrictions on the use of additives in cigarettes, little cigars and blunt wraps would remain unchanged, subject to an additional exclusion for certain colouring agents in little cigars.

Cost-benefit statement: The benefits of the proposed Order are estimated at a present value of $178.2 million over a 10-year period. These benefits would accrue from the reduced morbidity and mortality effects resulting from an estimated 7 000 youth who would avoid becoming smokers as a result of experimenting with flavoured cigars. The costs of the proposed Order are estimated at $15.9 million over a 10-year period with government costs at about $240,274 and industry costs at about $15.7 million over the same period. The estimated benefits would exceed the estimated costs by a factor of 11.

“One-for-One” Rule and small business lens: The “One-for-One” Rule does not apply to this proposal, as there would be no change in the administrative burden to business. The small business lens applies as small businesses would be affected by the proposed Order.

Domestic and international coordination and cooperation: Several Canadian provinces have established regulatory authorities to prohibit or restrict the use of flavours in tobacco products. The proposed Order would impose a minimum set of restrictions on selected types of flavoured cigars on the market across the country. Canada would be in step with international actions towards addressing the appeal of flavoured tobacco products. The proposed Order would also be in line with the Partial Guidelines on the implementation of Articles 9 and 10 of the World Health Organization Framework Convention on Tobacco Control, which deal with the disclosure and regulation of the contents and emissions of tobacco products.

Background

The Government of Canada addresses the public health problem of tobacco use through its Federal Tobacco Control Strategy (FTCS). Built on the pillars of prevention, protection, cessation and product regulation, the FTCS aims to reduce tobacco-related death and disease among Canadians. A fundamental component of the FTCS is the Tobacco Act (TA), whose purpose includes the protection of young persons from inducements to use tobacco products. Preventing initiation of tobacco use by youth is one of the most effective means of reducing lifetime tobacco use.

In the 2000s, small flavoured cigars, similar in size to cigarettes, became increasingly popular among youth. The sales of cigars increased threefold from 200 million units in 2001 to about 649 million units in 2009. Over the same period, the sale of flavoured cigars increased rapidly while the sale of traditional cigars remained stable at around 180 million units, as reported to the Department of Health (“the Department”) by the tobacco industry, pursuant to the Tobacco Reporting Regulations (TRR). As well, results from the 2008 Canadian Tobacco Use Monitoring Survey (CTUMS) showed that 23% of youth aged 15 to 17 years reported having tried smoking a little cigar or cigarillo.

In 2009, the federal government responded by introducing the Cracking Down on Tobacco Marketing Aimed at Youth Act (which amended the Tobacco Act and is referred to here as “the 2009 amendment”) to limit the marketing of tobacco products to youth. A key measure of the 2009 amendment was to prohibit the addition of flavours (other than menthol) and other additives to little cigars, cigarettes and blunt wraps. This was achieved through the addition of a Schedule of prohibited additives (“the Schedule”) [http://laws-lois.justice.gc.ca/eng/acts/T-11.5/page-16.html] to the Tobacco Act. The Schedule identifies the tobacco products for which selected additives are prohibited, and then lists these selected additives: those with flavouring properties, sweeteners, colouring agents and several others that can be used to increase the appeal of tobacco products.

Little cigars, defined as cigars weighing less than 1.4 g or having a cigarette filter, are already subject to the 2009 amendment whereby flavouring additives, with the exception of menthol, are prohibited. These cigars are also required to be sold in packages of at least 20 units and, since 2012, the packages must display health warnings pursuant to the Tobacco Products Labelling Regulations (Cigarettes and Little Cigars).

CTUMS data indicate that the rate of past-30-day use of little cigars or cigarillos among youth aged 15 to 19 years declined from 8% in 2009 to 5% in 2012. In addition, according to data submitted pursuant to the TRR, cigar sales in Canada declined by 31%, from 649 million units sold in 2009 to 445 million units sold in 2012. Although it is not possible to attribute these reductions in prevalence and sales directly to the 2009 amendment without further analysis, given various other tobacco control measures aimed at youth prevention, it is reasonable to postulate that the 2009 amendment contributed to these declines.

Shortly after the implementation date of the 2009 amendment, the Prime Minister stated that the Government would monitor and enforce compliance with the amendment — including monitoring adherence to the spirit of the legislation. The Prime Minister also stated that, if necessary, the legislation would be revisited.

As part of the 2009 amendment, Parliament added section 7.1 to the TA, thereby providing the Governor in Council with the authority to amend the Schedule through an order.

Situation in Canadian provinces and foreign jurisdictions

In 2009, Canada became the first country in the world to pass legislation to prohibit the use of flavouring additives that contribute to making cigarettes, little cigars and blunt wraps more appealing to youth. Among the provinces, Alberta has passed legislation on flavoured tobacco products; it comes into effect on June 1, 2015. The legislation will prohibit characterizing flavours, excluding menthol, in smokeless tobacco, bidis, kreteks and cigars weighing up to 5 g, or that have a retail price of more than $4.00 per unit. In June 2014, Manitoba amended the Non-Smokers Health Protection Act to prohibit the supply of flavoured tobacco products, except for smokeless tobacco, chewing tobacco, pipe tobacco or a menthol tobacco product; the amendment has not yet been proclaimed into force. Ontario recently introduced legislation that would prohibit the sale of flavoured tobacco products, while Nova Scotia has indicated that it plans to introduce measures on flavoured tobacco in the spring of 2015. British Columbia, New Brunswick, Quebec and Saskatchewan already have legislative authority to restrict or ban flavours in tobacco products.

Internationally, Brazil, the European Union and the United States have taken action on flavoured tobacco products. Brazil has the most comprehensive legislation in place that bans all flavour additives, including menthol, in tobacco products. The European Union and the United States have also banned most characterizing flavours in cigarettes, although the European Union measure has not yet been implemented.

The Partial Guidelines for the implementation of Articles 9 and 10 of the World Health Organization Framework Convention on Tobacco Control, a treaty ratified by Canada in 2004, provide guidance to the Parties to this Convention on, among other things, the regulation of the contents of tobacco products to reduce their attractiveness. The 2009 amendment and the proposal presented here are both in line with these Guidelines.

Issues

The Department has observed that certain cigars (i.e. those over the 1.4 g weight limit set out for little cigars in the 2009 amendment, or those without a cigarette filter) have been introduced into the Canadian market in the same flavours targeted by the 2009 amendment; these flavoured cigars now amount to 66% of the total cigar market in Canada. Moreover, many of these new cigars have physical characteristics, such as the presence of tipping paper or of a wrapper with a straight seam, that give them a cigarette-like or little cigar-like appearance and make them appealing to youth.

Among Canadians who have ever smoked a cigarette, 82% did so by the age of 18 years, and it is estimated that more than three quarters of this group will go on to become lifetime smokers. Evidence also shows that youth and young adults are significantly more likely to report smoking a cigar brand that is flavoured. This preference for flavoured cigars decreases significantly with age. Youth who use flavoured tobacco products are at risk for developing established tobacco-use patterns that persist during their lifetime.

CTUMS findings show that in 2012, among youth aged 15–19 years who had smoked any type of cigar in the 30 days prior to being surveyed (i.e. past 30 days), 60% (representing about 59 608 youth) reported using only a flavoured product, compared to 71% (representing about 122 228 youth) in 2009. Furthermore, the Youth Smoking Survey 2012–2013 (which covers youth in grades 6 to 12, and youth in grade 6 to secondary V in Quebec) shows that among youth who reported having used at least one tobacco product in the past 30 days, two in five (40%) reported using a type of flavoured cigar. This represents approximately 126 000 young Canadians. These findings demonstrate that young persons continue to use flavoured tobacco products in significant numbers. Further action is therefore warranted to restrict the availability of flavoured cigars in the Canadian market by prohibiting additives, including flavours, that make these products more appealing to youth. The prevention of smoking initiation among young persons will help decrease smoking prevalence over the next decade.

Objectives

The objective of the proposed Order Amending the Schedule to the Tobacco Act (“the proposed Order”) is to protect young persons from inducements to use tobacco products by further limiting the availability of flavoured cigar types that are attractive to youth. The proposal would remove the ability of the tobacco industry to market most flavoured cigars in Canada.

Description

In order to achieve the objective outlined above, Health Canada is proposing the following three amendments to the Schedule:

1. Expand the prohibition of additives, including those that have flavouring properties or that enhance flavour, in

  • cigars with tipping paper;
  • cigars that have an outer wrapper that is not in spiral form; and
  • cigars that weigh over 1.4 g but no more than 6 g, excluding the weight of any mouthpiece or tip.

This modification would clearly specify that the above- mentioned cigars (referred to here as the “targeted cigars”) cannot contain any of the additives (including flavours) listed in the Schedule, excluding the additives mentioned below. It should be noted that the exceptions to the additives ban set out in the 2009 amendment, including for menthol additives, would be maintained for the targeted cigars, with some minor adjustments to allow limited use of colouring agents in mouthpieces or tips.

2. Provide exceptions for the use of traditional flavours in cigars weighing over 1.4 g but not more than 6 g that have a wrapper that is fitted in spiral form, do not have tipping paper and are not little cigars.

Through the addition of a new item to the Schedule (Item 1.1), specific exceptions would be provided for traditional alcohol flavours — specifically port, wine, rum and whisky — in these cigars, to limit the impact on adult choice. The selection of these flavours was based on a review of the most common cigar flavours that were used in traditional cigars prior to the rise in flavoured cigar sales in Canada. The exceptions would not apply to cigar with tipping paper or those with a wrapper that is not fitted in spiral form, irrespective of their weight.

3. Provide exceptions for the use of certain colouring agents.

Among additives that would be prohibited by the proposed Order are colouring agents used to render cigars visually attractive (e.g. coloured tipping papers and mouthpieces). Similar provisions were included in the 2009 amendment to prevent the use of colours to render little cigars, cigarettes and blunt wraps more attractive to youth.

Exceptions are proposed to be made for colouring agents needed to render the tipping paper brown or bronze, or to render mouth pieces or tips white or bronze, so manufacturers can maintain the ordinary look of these products.

Regulatory and non-regulatory options considered

Status quo

This option would maintain the existing legislative regime with respect to additive restrictions, including flavours in cigarettes, little cigars and blunt wraps.

Despite the 2009 amendment, the same flavours as those prohibited in little cigars are still available in other types of cigars that make them appealing to youth. These products are not captured by the definition of “little cigar” in the TA. Given this situation, the status quo would not address the continued use of additives, including flavours, in cigars that make them appealing to youth; consequently, it is not considered to be an appropriate option.

Market-based instruments

Evidence demonstrates that effective and sustainable tobacco tax policies can significantly contribute to reducing the consumption of tobacco products, particularly among youth. Market-based instruments, such as taxes or other levies, have been considered, in line with the World Health Organization Framework Convention on Tobacco Control guidelines. For example, a tax could be applied to make cigars less affordable to youth. If properly designed, the application of additional tax to cigars could create a disincentive to youth purchases, assuming the average youth does not have the income base from which to allocate spending on tobacco products. However, raising tobacco taxes would not make the targeted cigars less attractive to youth. It is important to note that the Government recently raised the excise duty on cigars by approximately 24% in February 2014 as part of the federal budget. For these reasons, using higher taxes to achieve the desired policy objective of preventing youth from using the targeted cigars is not considered a viable option.

Regulatory options
(a) Order to amend the Schedule to target all flavoured cigars

This option considered amending the Schedule to prohibit all additives, including all flavours (excluding menthol), in all cigars other than little cigars. All flavoured cigars, including the larger, more expensive, premium cigars, would be subject to the prohibition. This proposal was deemed to be too broad, considering the intent of the proposed amendment, as it would also apply to adult-oriented cigars. The Department’s intent with the proposed amendment is to specifically address the problematic flavoured cigar types introduced into the market after the 2009 amendment that continue to be attractive to youth.

(b) Recommended option: Order to amend the Schedule to specifically target certain types of flavoured cigars

Amending the Schedule to specifically target most flavoured cigars and cigars with cigarette-like features is considered the most appropriate option. Several of these products appeared recently on the Canadian market in the same appealing flavours as those prohibited in little cigars pursuant to the 2009 amendment. The proposed Order would specifically target additives, including flavours, in certain types of cigars. It would address the identified issues in the most effective manner, while allowing adults access to traditionally flavoured cigars. For these reasons, amending the Schedule to address certain types of flavoured cigars is the recommended option.

Benefits and costs

A cost-benefit analysis was carried out by the Department to quantify the anticipated costs and benefits of the proposed Order. (see footnote 1) The analysis is based on the assumption that the 2009 amendment contributed to declines in cigar sales and youth smoking prevalence. This section provides a brief summary of the results of the analysis.

The estimated costs and benefits of the proposed Order are shown in Table 1 (below), with a net health benefit at a present value of $162.3 million over a 10-year period. Estimated costs to industry and to the Government amount to a present value of $16.1 million, while estimated benefits amount to a present value of $178.2 million.

Table 1: Summary of estimated costs and benefits of the proposed Order

Cost-Benefit Statement Monetized Impacts (2012 $), Discounted at 7%
  Year 1 Annualized Average Year 10 Undiscounted Total Present Value
Benefits Reduced morbidity and mortality 25,369,272 25,369,272 25,369,272 253,692,720 178,183,150
Total benefits       253,692,720 178,183,150
Costs Industry Foregone profits 1,935,837 1,935,837 1,935,837 19,358,370 13,596,509
Recurring compliance costs 90,915 90,915 90,915 909,148 638,547
One-time compliance costs (value of unsold inventories) 1,445,071 205,746 1,445,071 1,445,071
Government Compliance and enforcement regime (one-time costs) 123,335 17,560 123,335 123,335
Recurring enforcement costs 16,650 16,650 16,650 166,495 116,939
Total costs   22,002,419 15,920,401
Net benefits   231,690,301 162,262,749
Qualitative impacts 
Stakeholder Impacts Description
Smokers Positive impacts Smokers who quit may benefit from improved quality of life and reduced disease-induced pain and suffering.
General public Positive impacts Health improvements associated with reduced tobacco use may reduce the overall demand on the health care system, freeing resources to address other health issues more effectively and efficiently.
Industry Negative impacts Manufacturers and importers may experience short-term operational disruptions during the transition.
Retailers Negative impacts Retailers may experience a reduction in sales.
Benefits

The analysis relied on studies of young smokers’ preferences for flavoured tobacco products and on observed trends in the manner in which Canadian youth smokers use flavoured cigars. The resulting estimate of impacts is expressed as the number of youth who would be prevented from becoming “typical” smokers (smokers who start smoking before age 18 years) as a result of the proposed Order.

It is expected that the proposed Order would remove inducements to tobacco use, which would result in a decrease in the number of youth experimenting with flavoured tobacco products. It is also anticipated that a decrease in experimentation with flavoured tobacco products would lead to a lower smoking initiation rate, therefore contributing to a reduction in the number of youth who transition into long-term tobacco users. Preventing sustained tobacco use would result in significant benefits in terms of disease prevention and lives saved.

Experimentation with smoking may involve the use of multiple tobacco products. A study of two U.S. national surveys concluded that little cigar/cigarillo use may promote initiation and maintenance of cigarette smoking, especially among younger smokers. CTUMS 2012 results show that among youth aged 15 to 19 years who smoked a cigarette in the 30 days preceding the survey, 32% also smoked a little cigar over the same period. The data show that dual use of little cigars and cigarettes in 2012 was relatively high among youth. For the purpose of modelling the benefits, it is assumed that a decrease in the number of youths who experiment with flavoured cigars when the proposed Order takes effect would lead to a reduction in the number of cigarette smokers in the future.

Baseline scenario and incremental impacts

The analysis focuses on youth aged 15 to 19 years who smoked cigarettes and cigars, or little cigars, in the 30 days preceding the survey. This group represents 72 322 individuals based on the 2012 CTUMS results and is the baseline for the current analysis. At the time of the 2009 amendment, this group represented 91 401 individuals according to 2009 CTUMS results. Although the decrease in young smokers from 2009 to 2012 cannot be directly linked to the 2009 amendment without further analysis, it is postulated that the amendment had some impact on the observed decline. The current analysis therefore anticipates that the proposed Order would have a similar impact on youth experimentation with cigars. The analysis estimates that the proposed Order would result in a 10% reduction in the baseline scenario, which would translate into approximately 7 000 fewer youths who would try cigars or little cigars and become cigarette smokers over a 10-year period.

Benefits due to reduced risk of premature death and illnesses

The bulk of the benefits of the proposed Order would likely result from reductions in the risk of premature death due to smoking and from a reduced economic burden of illnesses attributable to smoking. To estimate these benefits, the analysis takes advantage of a detailed accounting of the cost of smoking by Sloan et al. in their 2004 book entitled The Price of Smoking. Using the Sloan et al. estimates has the advantage that they are based on nationally representative samples and that their derivation is well documented. Furthermore, Sloan et al. use a life cycle approach in estimating their costs, capturing the impacts of smokers’ increased resource utilization during their lives and of their decreased survival. Life cycle estimates are more difficult to derive, but they have the advantage of creating a direct conceptual link between smoking initiation and its long-term costs (Miller, V. P., James, C. R., Ernst, C., and F. Collin. Smoking Attributable Medical Care Costs: Models and Results. Berkeley, CA: Berkeley Economic Research Associates; 1997). This link is especially important when looking at the benefits of programs focused on reducing smoking initiation.

Based on Sloan et al. estimates, the lifetime cost of smoking to society for a typical 24-year-old smoker is $148,446 in 2012 Canadian dollars. That is, if this typical smoker had not taken up smoking (or had quit smoking before his or her 24th birthday), society as a whole would have incurred $148,446 less in costs over his or her lifetime. It is worth noting that this estimate only includes costs to the smokers themselves as a result of future years of lost life, disability and lost earnings caused by smoking-related illnesses. Given the differences in U.S. and Canadian health care systems, this analysis excluded health care costs from the estimate developed by Sloan et al. These omissions would lead to a conservative estimate of the benefits and would likely underestimate the true social cost of a 24-year-old becoming a smoker.

The cost estimate derived by Sloan et al. represents the value of future years of lost life (i.e. the extra years a smoker would have lived had he or she never smoked) and were obtained by discounting the stream of costs up to the smoker’s 24th birthday. Because this analysis focuses on the cohort of 15- to 19-year-olds, this value was further discounted to each of the 15 to 19 age groups. Averaging these values across the 15 to 19 age groups, the analysis estimates that the savings to society from preventing the average 15- to 19-year-old from becoming a “typical” smoker has a present value of $120,806.

Because of difficulties in tracking the flow of smokers in the cohort of 15- to 19-year-olds throughout the 10-year period, the analysis assumes a yearly average value of 700 youth prevented from becoming regular smokers. For the purpose of this analysis, we then estimate that 30% of the 700 current smokers will transition into “typical” smokers (i.e. smokers who start smoking before the age of 18 and quit at some point during their life — Sloan et al.). It should be noted that this estimate is conservative given that studies have shown that 60% to 90% of smokers who start smoking in their youth become addicted and continue smoking into adulthood. Based on the conservative 30% estimate, it is anticipated that the proposed Order would result in 210 fewer “typical” smokers per year. This number is then multiplied by the cost of preventing an average 15- to 19-year-old from becoming a “typical” smoker. The benefits are calculated over the 10-year period, discounted to year one, and added to obtain the present value of benefits resulting from the proposed Order.

At an annual discount rate of 7%, the present value of these benefits amounts to $178.2 million over 10 years, which corresponds to an annualized average of $25.4 million.

Costs
Overview of the cigar industry in Canada

In 2013, according to data submitted pursuant to the TRR, the tobacco industry in Canada was worth about $5.9 billion (including federal excise tax) in terms of wholesale trade. Cigarette sales comprise about 93% of that value and the rest is attributed to other types of tobacco products such as cigars, kreteks, cigarette tobacco or loose tobacco, smokeless tobacco and pipe tobacco combined.

In the same year, the value of the cigar market was $193 million, representing 3.3% of the total tobacco market in Canada. Targeted cigars with flavours represented about 66% of the total cigar market in terms of unit sales, with a reported wholesale value estimated at $117 million, or approximately 2% of the entire tobacco industry in Canada.

In 2013, there were 25 businesses that imported or manufactured cigars in Canada, 8 of which sold targeted cigars with flavours. These 8 companies accounted for 98.4% of the value of total cigar sales. Cigars are either manufactured in Canada or imported for distribution from the United States, Latin America, the Caribbean, or Europe. Some of the importers/distributors are multinational companies with centres of operation and distribution in the United States or in Europe; some have diversified product and lines specialize in the sale of goods other than tobacco products.

The proposed Order would result in costs to the industry and to Government and may have some cost impact on consumers. The section below describes the methodology used to estimate costs and discusses the various costs that would be assumed by all stakeholders.

Costs to industry

Data collected by the Department pursuant to the TRR show that a total of eight companies comprising both manufacturers and importers/distributors would be impacted by the proposed Order. Given that the manufacturing process of the targeted cigar types is not expected to be significantly different from that of other cigar types, manufacturing companies would not need to commit any additional capital investment to manufacture compliant products. The main costs to these companies would be related to switching production or importing compliant products. There would also be sunk costs associated with the disposal of targeted input materials and unsold products, to the extent that they cannot be returned to the original suppliers. The cost estimates in the analysis account for the tobacco industry’s capacity to innovate and to modify its cigar product lines to meet the new requirements. Manufacturers and importers/distributors are expected to assume the costs in the categories set out below.

a. Cost to manufacturers

Canadian manufacturers would incur costs by switching their production of targeted cigars with flavours to production of ones that would be permitted under the proposed Order. The availability of ingredients and packaging cost data submitted pursuant to the TRR makes it possible to determine the incremental per-unit costs to produce compliant cigars. It is important to note that incremental changes in the costs of ingredients and packaging only are considered for the calculation of compliance costs. These costs are estimated to be $638,547 in present value terms. A considerable portion of this amount consists of the incremental cost of permitted tobacco blends. Remaining materials such as wrappers and tipping paper could be used for other products. Furthermore, as a result of the proposed Order, both manufacturers and importers would experience a loss in expected profit of $13.6 million compared to the baseline over the 10-year period of analysis, with manufacturers bearing 3% of the loss. This loss is explained by foregone investment and revenues that would not be foregone in the absence of the proposed Order.

b. Cost to importers

It is expected that importers may face significant costs if they are not able to distribute or sell their imported products to retailers, despite the proposed six-month lead time before the implementation of the provisions of the proposed Order. This situation may arise as a result of retailers not being able to sell the products acquired from the importers in time. If importers are not able to return their excess inventory to suppliers, they will be burdened by the associated costs. Information reported by importers under the TRR indicates that for a given quarter, importers sell an average of $20 million of impacted products to retailers. Assuming that after the six months have elapsed these importers still have an inventory of products that cannot be returned, they would have to absorb the associated costs — including the cost of destroying the products in the event that they cannot be exported. These costs are estimated to be $1.4 million and would constitute an upper bound for the cost impacts imposed on importers. Importers would also assume about 97% of the estimated $13.6 million in loss of expected profit over the period of the analysis. The overall impact would be more significant for small businesses, as most of their business is in flavoured cigars. However, it is not expected that the affected small businesses would leave the market or go out of business as they are also involved in other activities or business lines.

c. Impacts on retailers

Retailers — consisting mainly of gas stations and convenience stores — are not expected to be materially impacted by the proposed Order or, at most, may face negligible impact. Although the sale of tobacco products is an important part of their business, it is not their main line of business and the sale of flavoured cigars is a small component of their overall sales of tobacco products. It is expected that, as per existing business arrangements, retailers would be able to return any unsold products to their suppliers, thereby negating any associated financial impact. At most, they would assume negligible opportunity costs. Given the expected minor potential impacts on retailers, these costs have not been included in the overall industry cost estimate.

Cost to consumers

It is possible that there would be a spillover effect on other categories of tobacco products not directly affected by the proposed Order, resulting in increased costs to consumers. It is assumed that, in an effort to recoup the incremental profit losses from discontinued products, manufacturers and importers/distributors could increase the prices of products in certain categories (e.g. cigars with the excepted flavours), which would be reflected in retail prices. The magnitude of the impact of this potential price increase on consumers is difficult to estimate. However, following the 2009 amendment that prohibited the use of additives, including flavouring additives, in cigarettes, little cigars and blunt wraps, no noticeable product price increases were observed, despite the reduction in sales of certain categories of products. Given this observation, and for the purpose of this cost-benefit analysis, it is assumed that any incremental product price increase would be negligible and would not significantly impact consumers. As a result, no cost to consumers is included in the quantitative estimates of the regulatory impacts.

Cost to Government

The Government would incur costs for the implementation and administration of the proposed Order. These costs would stem from compliance promotion and enforcement activities associated with the prohibitions. Estimates for these costs are described below.

Compliance promotion: Promotional materials would be developed to raise stakeholder awareness of the prohibitions. The materials would be distributed to stakeholders during inspections. In addition, outreach activities may be conducted during the first two years of implementation. The costs associated with these activities are estimated to have a present value of $123,335.

Compliance monitoring and enforcement: Incremental compliance monitoring and enforcement costs are expected to be incurred by the Government for training inspectors, ongoing site inspections and related travel, sampling tobacco products and analysis, investigations to verify compliance and measures to deal with cases of non-compliance. These activities are estimated to have a present value of $116,939.

The total cost to Government for the compliance and enforcement regime is estimated at $240,274 in present value terms over 10 years.

Summary of costs and benefits

The cost-benefit analysis estimates that the costs of the proposed Order are $15.9 million over a 10-year period, that government costs are $240,274 over 10 years, and that industry costs total $15.7 million.

The analysis estimates that the benefits of the proposed Order would have a present value of $178.2 million over a 10-year period. These benefits would accrue from the reduced morbidity and mortality effects resulting from a lower number of youth who will become smokers. The estimated benefits of the proposed Order would exceed the estimated costs by a factor of 11.

Sensitivity analysis

The results of this analysis are based on key parameter estimates, which could be higher or lower than indicated by available evidence. Given this uncertainty, alternate estimates of monetized costs, quantified benefits and discount rate have been considered. A wider range of uncertainty was considered for alternate benefit estimates, since there is a higher degree of uncertainty about the benefit modelling estimates than there is about the cost estimates. A worst-case scenario of both higher costs and lower benefits was also considered. An alternate discount rate of 3% was also considered, as per Treasury Board Secretariat (TBS) guidance. The worst-case scenario (as shown in row 4 of Table 2, below) of 25% higher costs and 50% lower benefits yields net benefits of $69.2 million, with benefits outweighing costs by a factor of four; this suggests that the results are robust.

Table 2: Sensitivity analysis for alternate estimates of costs, benefits and discount rate (2012 dollars discounted to present value using a 7% discount rate unless otherwise indicated)

Alternate Impact Analysis Estimates Net Benefits ($)
1. Central case 162,262,749
2. Costs 25% higher than estimated 158,282,649
3. Benefits 50% lower than estimated 73,171,174
4. Costs 25% higher and benefits 50% lower 69,191,073
5. Costs and benefits discounted at 3% per year 197,406,002

“One-for-One” Rule

The “One-for-One” Rule does not apply to this proposal. The proposed Order would amend the existing Schedule and would not impose any new requirements of an administrative nature on regulatees.

Small business lens

There are currently fewer than three small businesses (importers/distributors) that would be affected by the proposed Order.

The potentially affected small businesses are importers/distributors of targeted cigars. The Department estimates that a six-month delay in implementing the proposed Order would allow these businesses to realign their operations and, should they so choose, switch to other cigar products that are not affected by the proposed Order. A six-month delay also allows Canada to meet its obligations under the World Trade Organization’s Technical Barriers to Trade Agreement.

Flexible option

In developing the proposed Order, the Department considered options that would balance minimizing the regulatory burden on business with protecting youth from inducements to use tobacco products. The proposal as it is presented would allow cigar manufacturers/importers a transition period of six months. Providing an implementation period of more than six months for these businesses to alleviate compliance costs was deemed to be counter-effective to the protection of youth. Allowing youth-appealing flavoured cigars from small businesses to remain on the Canadian market any longer than this period would undermine the purpose of this proposal. Delaying implementation past six months from the publication date is not considered to be part of an effective approach, given that the total costs to all stakeholders would exceed the costs assumed under the flexible option.

Table 3: Flexibility analysis

  Initial Option Flexible Option
Short description Six-month delay for implementation Twelve-month delay for implementation
Number of businesses impacted 8 8
  Annualized Average ($) Present Value ($) Annualized Average ($) Present Value ($)
Compliance costs (see reference *) 2,141,583 15,041,580 1,807,043 12,691,912
Administrative costs 0 0 0 0
Total costs (all businesses) 2,141,583 15,041,580 1,807,043 12,691,912
Average cost per business 267,698 1,880,198 225,880 1,586,489
Total costs (all small businesses) 21,062 147,932 17,772 124,823
Considerations Small businesses are at a higher risk for decreased profits due to the inability to clear inventories and a shorter operating period. Small business costs have been estimated to be $23,000 (2012 $) greater with a 6-month delay compared with a 12-month delay. The extension of the delay in implementation from 6 to 12 months would increase the risk of youth in Canada becoming lifelong smokers. This would compromise the health of Canadians at a cost valued at $11.8 million (2012 $).

The compliance costs in Table 3 do not include recurring costs (see Table 1) due to the manufacturers’ ability to change production in fewer than six months. These costs would therefore not be relevant in the calculation of either of the implementation delay options.

The initial option value combines foregone profits and one-time compliance costs. The reason for including the one-time costs in the initial option but not in the flexible option is that businesses may not have enough time to clear their inventories in 6 months, but would likely manage to sell them within one year. Foregone profits were included in the calculation of both options because of the lower level of sales, the only difference being that in the 12-month-delay option, businesses would carry half the amount of the first year foregone profits (they would have 6 more months to sell flavoured targeted cigars).

Although the flexible option is the lower-cost option for small business in terms of compliance costs, it is not the lower-cost option for all stakeholders. An increase in the transition period to 12 months would reduce the estimated benefits by half in the first year as there would be 6 more months for youth to try flavoured targeted cigars. The reduction in benefits, estimated at $11.8 million, would outweigh the gain by businesses.

Consultation

The Department published a notice entitled Notice of proposed order to amend the schedule to the Tobacco Act (http://www.gazette.gc.ca/rp-pr/p1/2014/2014-10-11/html/notice-avis-eng.php) in the Canada Gazette, Part I, on October 11, 2014, providing interested stakeholders with a 30-day period to comment on the proposal. A total of 45 stakeholders provided comments to the Department from the following sectors (with the number of responses given for each): local, regional, provincial and territorial health authorities (11); non-governmental organizations (NGOs) [11]; cigar manufacturers and importers (5); cigarette manufacturers and importers (3); retailer associations (2); associations of health professionals (2); academia (1); and individual members of the general public (10). The comments are summarized below by sector, followed by the Department’s response to key issues and themes raised in the submissions.

Summary of comments from stakeholders
Local, regional, provincial and territorial health authorities

Comments from 11 local, regional, provincial and territorial health authorities demonstrated support for the proposed amendments; at the same time, these stakeholders suggested that the scope of the proposal be broader and more comprehensive, and that it capture all flavours in all tobacco products in order to be effective in protecting youth from the marketing tactics of the tobacco industry. They all called for a total ban on all flavoured tobacco products, including menthol products.

One provincial authority highlighted that several Canadian provinces are moving to amend their respective tobacco control legislation to address the issue of flavourings and, given this, that the most efficient and effective approach would be to have federal legislation that would apply consistently across the country.

Non-governmental organizations

Overall, the NGOs expressed support for the proposal; at the same time, all 11 that commented called upon the Department to broaden the scope of the flavour prohibition to cover all flavours (including menthol) in all tobacco products. Three NGOs argued against the exception of adult-oriented flavours in cigars weighing over 1.4 g but no more than 6 g, stating that such exclusions would encourage youth to try or use these products, on the basis that all flavours mask the harsh taste of tobacco. Another NGO suggested that if rum, wine, port and whisky flavours were allowed, the measure would need to prevent their combination with other flavours (e.g. rum and cola flavour) to prevent possible abuse.

Cigar manufacturers and importers

Several of the companies that made submissions argued that the basis of the proposal is misguided and that there is no evidence to suggest that youth are using or experimenting with the flavoured cigars targeted by the proposal. Comments from this sector are presented by theme below.

  • Job losses and market competition: Two stakeholders indicated that the proposal will put their companies out of business and hurt other businesses across the country. Two stated that the proposal is advantageous to a particular multinational company at the expense of Canadian businesses and that the proposal would undermine competition in the Canadian cigar industry. Two cigar importers pointed out that the cigarette industry would benefit from this ban.
  • Flavour exception: One company suggested that flavours be permitted in “all natural” cigars (i.e. those with no homogenized components and cigars that have a wrapper fitted in spiral form and weighing more than 1.4 g but no more than 6 g). Another suggested that additives that do not impart a distinctive or characteristic aroma or flavour of general appeal to youth should be allowed. One company requested that certain aromas such as sweet, vanilla, cherry and grape should be allowed in traditional cigars with a wrapper in spiral form.
  • Cigars weighing more than 1.4 g but not more than 6 g: One stakeholder suggested decreasing the upper weight limit from 6 g to 2.9 g.
  • Menthol: Three of the five cigar companies stated that menthol should also be prohibited.
  • Rum, wine, port and whisky flavour exception: Two companies proposed widening the range of exceptions to include other alcohol flavours such as cognac, amaretto and Kahlua or other flavours (such as coffee, tobacco-base flavouring, cherry and vanilla) or including an exception for additives that impart “generally recognized adult alcoholic beverages.” “Coffee” was proposed for exemption on the basis that it is deemed to be an adult-oriented beverage.
  • Colouring agents: One company suggested that colouring agents be allowed in the wrappers of traditional spiral-wrapped cigars weighing more than 1.4 g but no more than 6 g (usually made with homogenized tobacco leaf), provided the colours are similar to those in natural leaves and cured natural leaves.
  • Other additives: Suggestions were made to except certain classes of additives such as sugars and sweeteners in traditional cigars and to allow “additives that perform a functional role” in the manufacturing of tobacco products.
  • Transition period: One company asked that a two- to three-year transition period be given in order for suppliers and retailers to sell down inventory.
Cigarette manufacturers and importers

Of the three companies that provided comments, two stated that they do not manufacture or sell flavoured cigars and both supported the proposed measures (including not prohibiting menthol use). They also commented that the federal government should address the more serious issues of contraband tobacco and youth access, as they undermine tobacco control measures.

One of the companies stated that the proposal captures several traditional tobacco products that are used only by adult smokers. The company requested that the Department give manufacturers, retailers and distributors 12 months to manage existing inventories and to adapt to the regulations, so that there continues to be competition in the industry and to ensure that illicit products do not fill the void created once these products are banned.

Retailer associations

Two retailer associations stated that the proposal would impact the bottom line of their small business owners, who only sell these products to adults in a highly regulated environment. They stated that eliminating the availability of legal tobacco products from retailers’ shelves would not address the demand for these products and that the void would be filled by illegal tobacco products indiscriminately sold to youth in an unregulated market. Both stakeholders suggested that a better alternative would be the introduction of penalties for youth who are found in possession of tobacco products.

Associations of health professionals

Both associations supported the proposed Order and both commented that it needs to be strengthened by banning all flavours, including menthol, in all tobacco products.

Academia

The stakeholder offered evidence and conclusions based on an analysis of the Youth Smoking Survey 2012–2013 and called for a complete ban on all flavours, including menthol, in all tobacco products.

General public

All but one of the 10 members of the general public who commented on the proposed Order called upon the Department to ban all flavours, including menthol, in all tobacco products. One member of the general public strongly disagreed with the proposal on the basis that his liberties as an adult to access flavoured tobacco products would be taken away.

Response of the Department of Health to key stakeholder concerns
Prohibiting menthol and other flavours

While the Department is concerned about the use of flavours, including menthol, in cigars as well as other tobacco products, it has chosen at this time to focus its attention on reducing the appeal of certain types of flavoured cigars to counter industry innovation since the 2009 amendment. The Department plans to continue to monitor the use and sales of flavoured tobacco products, including those with menthol.

Exempting flavours other than port, wine, whisky and rum

The current proposal limits the flavour additive exceptions in certain cigar types that weigh more than 1.4 g but no more than 6 g to port, wine, whisky and rum. These four flavours were on the Canadian market prior to the recent youth interest in flavoured cigars; their use would be allowed to lessen the impact of the proposed Order on the choices that are available to adults. Additional exceptions to permit the use of other alcohol flavours or other potentially adult-oriented flavours would be counter to the intent of the proposed Order to limit the ability of the tobacco industry to use flavouring additives to market tobacco products to youth.

Increase in contraband products

The Government has introduced a number of measures to combat the illicit trade in tobacco. As part of its strengthened anticontraband enforcement strategy, the Government announced the establishment of the Royal Canadian Mounted Police Anti-Contraband Force in March 2013. In 2014, Parliament amended the Criminal Code (Tackling Contraband Tobacco Act) to create a new offence for trafficking in contraband tobacco and to provide for minimum penalties of imprisonment for repeat offenders. To further strengthen efforts to address contraband tobacco, the 2014 federal budget provided $91.7 million over five years for the Royal Canadian Mounted Police to enhance its efforts to combat contraband, and for the deployment of new technology at the Canada–United States border to target cross-border smuggling and related criminal activities.

Penalizing youth for possession of tobacco products

There is no conclusive evidence that youth possession laws are effective in preventing youth from starting to smoke. During the development of the Tobacco Sales to Young Persons Act in the 1990s (now part of the TA), Parliament decided that the most effective approach was to concentrate on prohibiting the furnishing of tobacco products to youth, on the assumption that retailers catering to adults would be better able to cope with the responsibility of not selling tobacco to young persons. For this reason, the TA contains provisions restricting youth access to tobacco products, such as prohibiting the furnishing of tobacco products to a person under the age of 18 years.

Regulatory cooperation

Although the proposed Order is not being introduced to achieve alignment with tobacco control measures that exist in other jurisdictions, Canada would be in step with international actions aimed at addressing the appeal of flavoured tobacco products. The proposed Order would also be in line with the Partial Guidelines for implementation of Articles 9 and 10 of the World Health Organization Framework Convention on Tobacco Control.

Rationale

In 2009, the Government introduced the Cracking Down on Tobacco Marketing Aimed at Youth Act, thereby amending the Tobacco Act to limit the marketing of tobacco products, especially little cigars, to youth. However, new cigar types weighing slightly more than little cigars were brought onto the Canadian market by tobacco manufacturers and importers and were sold in the same flavours as those of the cigars targeted by the 2009 amendment. Data from the Youth Smoking Survey 2012–2013 indicate that youth continue to use flavoured tobacco products, including cigars.

To address this issue, a number of options were considered and analyzed. Amending the Schedule to include only the flavoured cigars with cigarette-like features and flavoured cigars weighing more than 1.4 g, but not more than 6 g, fitted with a wrapper in spiral form (with the exception of cigars that have traditional adult-oriented flavours) was considered to be the most effective option, for two reasons: only the problematic cigar types that appeal to youth would be targeted, and the impact on cigar choices for adults would be minimized since traditional adult-oriented flavours (rum, wine, port and whisky flavours) would be allowed. It is expected that by further restricting the availability of flavoured cigars in the Canadian market, the proposed Order would help reduce youth inducements to experiment and use tobacco products.

Stakeholders, in particular cigar manufacturers and importers who would be impacted by the proposed Order, have raised a number of concerns — especially regarding the economic impact of the proposed Order. The Department took these concerns into consideration; however, given that preventing initiation of tobacco use by youth is one of the most effective means of reducing lifetime tobacco use, the Department determined that amending the Schedule was the best course of action for protecting Canadian youth from the dangers of tobacco use. It is estimated that the proposed Order would result in net benefits to society with a present value of $162.3 million over a 10-year period.

To comply with the proposed Order, cigar manufacturers and importers would carry costs resulting from (i) the disposal of unused inventories and unsold products, (ii) incremental costs associated with the manufacture of cigars with excepted flavours or of unflavoured cigars, and (iii) foregone profits resulting from the discontinued sales under the recommended regulatory scenario. These costs are estimated at a present value of $15.7 million over 10 years at a 7% discount rate. The costs may be passed on to consumers in the form of incremental increases in the price of other tobacco products; however, the incremental price increases are expected to be negligible (i.e. less than two cents per cigar).

The proposed Order would be consistent with actions underway and/or being considered in other Canadian jurisdictions with respect to addressing flavoured tobacco products that are attractive to youth. Canada would also be in line internationally with recent efforts taken by other countries to curb tobacco product attractiveness.

Implementation, enforcement and service standards

Coming into force

The proposed Order would come into force six months after the day of its final publication in the Canada Gazette, Part II. This transition period would provide time for an orderly transition in the marketplace and would also help mitigate profit losses.

Compliance promotion and outreach activities

Compliance promotion activities aimed at informing manufacturers, importers/distributors and retailers of the affected tobacco products would be conducted in order to increase their level of awareness to the proposed Order and to assist them in achieving compliance. These activities would include developing and distributing information materials (e.g. fact sheets, copies of the amended Schedule) during routine inspections, and/or conducting information sessions to describe the amendments to the Schedule.

Enforcement

Compliance monitoring and enforcement activities targeting the affected products would be undertaken by tobacco inspectors in the Department’s Regions and Programs Bureau under the authority of the TA. The Department would actively monitor compliance along the supply chain, including manufacturers, importers, distributors and retailers. Compliance and enforcement strategies would be consistent with the current overall approach to other prohibitions set out in the Tobacco Act or its regulations.

Service standards

Responses to enquiries regarding the proposed Order will be provided in a timely manner.

Contact

Mathew Cook
Manager
Regulations Division
Tobacco Products Regulatory Office
Controlled Substances and Tobacco Directorate
Health Canada
Address Locator: 0301A
150 Tunney’s Pasture Driveway
Ottawa, Ontario
K1A 0K9
Fax: 613-948-8495
Email: pregs@hc-sc.gc.ca

Small Business Lens Checklist

1. Name of the sponsoring regulatory organization:

Health Canada

2. Title of the regulatory proposal:

Order Amending the Schedule to the Tobacco Act

3. Is the checklist submitted with a RIAS for the Canada Gazette, Part I or Part II?

Checked checkbox. Canada Gazette, Part I Unchecked check box. Canada Gazette, Part II

A. Small business regulatory design

I Communication and transparency Yes No N/A
1. Are the proposed regulations or requirements easily understandable in everyday language? Checked checkbox. Unchecked check box. Unchecked check box.
The current Schedule of Prohibited Additives has been in place since 2009 and lists certain additives, including most flavouring additives other than menthol, that are prohibited from use in the manufacture of cigarettes, little cigars and blunt wraps. This proposal modifies the Schedule to prohibit the use of the same additives (with some exceptions) in other types of cigars: cigars weighing more than 1.4 g but not more than 6.0 g with a spiral wrapper, cigars with tipping paper and cigars with a wrapper that is not fitted in spiral form. Manufacturers and importers of tobacco products are familiar with the terms used in the proposed Order.
2. Is there a clear connection between the requirements and the purpose (or intent) of the proposed regulations? Checked checkbox. Unchecked check box. Unchecked check box.
The intent of the proposed Order Amending the Schedule to the Tobacco Act (proposed Order) is to further restrict the use of additives, including flavouring additives that are used to market cigars that appeal to youth. The proposed Order will prohibit the use of most flavours and selected additives in additional types of cigars that are likely appealing to youth. The targeted cigars are those that weigh more than 1.4 g but no more than 6.0 g, or those that have a similar physical appearance to cigarettes or little cigars.
3. Will there be an implementation plan that includes communications and compliance promotion activities, that informs small businesses of a regulatory change and guides them on how to comply with it (e.g. information sessions, sample assessments, toolkits, Web sites)? Checked checkbox. Unchecked check box. Unchecked check box.

An implementation plan for the Order will be prepared that will include communication and outreach activities.

Tobacco inspectors in the Department’s Regions and Programs Branch will conduct compliance promotion activities to inform manufacturers and importers of the Order Amending the Schedule to the Tobacco Act in relation to prohibited additives and of its implications. Tobacco inspectors are available to answer questions with regard to the application of the Tobacco Act and its associated regulations.

4. If new forms, reports or processes are introduced, are they consistent in appearance and format with other relevant government forms, reports or processes? Unchecked check box. Unchecked check box. Checked checkbox.
There are no new forms, reports or processes introduced in this proposal. Manufacturers and importers of cigars would only have to comply with the prohibition on the use of certain additives in their products. There are no reporting requirements linked to this proposal.
II Simplification and streamlining Yes No N/A
1. Will streamlined processes be put in place (e.g. through BizPaL, Canada Border Services Agency single window) to collect information from small businesses where possible? Unchecked check box. Unchecked check box. Checked checkbox.
This proposal does not aim at collecting information from small businesses. All businesses, including small businesses, are already required to provide information on their company, their products and some of their activities under the Tobacco Reporting Regulations. The Department relies on information that is already submitted as per the requirements of the Tobacco Reporting Regulations to conduct its activities.
2. Have opportunities to align with other obligations imposed on businesses by federal, provincial, municipal or international or multinational regulatory bodies been assessed? Unchecked check box. Checked checkbox. Unchecked check box.

Several Canadian provinces have legislation or have introduced bills to establish regulatory authorities to prohibit or restrict the use of flavours in tobacco products. Alberta has passed legislation (to take effect on June 1, 2015) that prohibits characterizing flavours, but not menthol, in smokeless tobacco, bidis, kreteks and cigars weighing up to 5 g or with a retail value of less than $4.00 per unit. The proposed Order is complementary to the amendments made to the Tobacco Act in 2009 in order to limit the marketing of flavoured products to youth.

While the proposed Order is not being introduced to achieve alignment with existing tobacco control measures in other jurisdictions, Canada would be part of an international convergence of actions towards addressing the appeal of flavoured tobacco products. The proposed Order would also be in line with the Partial Guidelines on implementation of Articles 9 and 10 of the World Health Organization Framework Convention on Tobacco Control (WHO FCTC).

3. Has the impact of the proposed regulations on international or interprovincial trade been assessed? Checked checkbox. Unchecked check box. Unchecked check box.
The proposal would impact only cigars that are sold in Canada, regardless of origin, and would apply to all Canadian jurisdictions. Alberta has introduced legislation that will ban flavours, excluding menthol, in cigars weighing under 5 g (see response to II[2]). Although the targeted products would no longer be available for sale in Canada, this would not constitute a trade barrier for tobacco products between Canada and trade partners. Member countries of the World Trade Organization have been notified of this proposal as per the WTO – Technical Barrier to Trade Agreement requirement.
4. If the data or information, other than personal information, required to comply with the proposed regulations is already collected by another department or jurisdiction, will this information be obtained from that department or jurisdiction instead of requesting the same information from small businesses or other stakeholders? (The collection, retention, use, disclosure and disposal of personal information are all subject to the requirements of the Privacy Act. Any questions with respect to compliance with the Privacy Act should be referred to the department’s or agency’s ATIP office or legal services unit.) Unchecked check box. Unchecked check box. Checked checkbox.
There are no new requirements for submitting data or information to comply with the proposed regulations. As stated in II(1), the Department already has access to information on tobacco products sold in Canada and on Canadian tobacco manufacturers and importers.
5. Will forms be pre-populated with information or data already available to the department to reduce the time and cost necessary to complete them? (Example: When a business completes an online application for a licence, upon entering an identifier or a name, the system pre-populates the application with the applicant’s personal particulars such as contact information, date, etc. when that information is already available to the department.) Unchecked check box. Unchecked check box. Checked checkbox.
There are no forms that businesses would be required to submit to the Department as a result of this proposal.
6. Will electronic reporting and data collection be used, including electronic validation and confirmation of receipt of reports where appropriate? Unchecked check box. Unchecked check box. Checked checkbox.
This proposal does not entail any reporting of information to the Department. The Department already has access to information on tobacco products and on manufacturers and importers and their activities under the Tobacco Reporting Regulations.
7. Will reporting, if required by the proposed regulations, be aligned with generally used business processes or international standards if possible? Unchecked check box. Unchecked check box. Checked checkbox.
No reporting will be required under this proposal.
8. If additional forms are required, can they be streamlined with existing forms that must be completed for other government information requirements? Unchecked check box. Unchecked check box. Checked checkbox.
No forms will be required to be filled under this proposal.
III Implementation, compliance and service standards Yes No N/A
1. Has consideration been given to small businesses in remote areas, with special consideration to those that do not have access to high-speed (broadband) Internet? Unchecked check box. Checked checkbox. Unchecked check box.
No small businesses that would be affected by this proposal are located in a remote area. All businesses that would be affected already submit information required under the Tobacco Reporting Regulations electronically to Health Canada.
2. If regulatory authorizations (e.g. licences, permits or certifications) are introduced, will service standards addressing timeliness of decision making be developed that are inclusive of complaints about poor service? Unchecked check box. Unchecked check box. Checked checkbox.
No regulatory authorizations will be introduced in this proposal.
3. Is there a clearly identified contact point or help desk for small businesses and other stakeholders? Checked checkbox. Unchecked check box. Unchecked check box.
Tobacco inspectors in the Department’s Regions and Programs Branch are in contact with all businesses, including small businesses, that are involved in the sale and manufacture of tobacco products in Canada. They remain the main point of contact whereby all businesses direct all their queries with regard to the requirements of the Tobacco Act and its associated regulations.

B. Regulatory flexibility analysis and reverse onus

IV Regulatory flexibility analysis Yes No N/A
1. Does the RIAS identify at least one flexible option that has lower compliance or administrative costs for small businesses in the small business lens section? Examples of flexible options to minimize costs are as follows:
  • Longer time periods to comply with the requirements, longer transition periods or temporary exemptions;
  • Performance-based standards;
  • Partial or complete exemptions from compliance, especially for firms that have good track records (legal advice should be sought when considering such an option);
  • Reduced compliance costs;
  • Reduced fees or other charges or penalties;
  • Use of market incentives;
  • A range of options to comply with requirements, including lower-cost options;
  • Simplified and less frequent reporting obligations and inspections; and
  • Licences granted on a permanent basis or renewed less frequently.
Checked checkbox. Unchecked check box. Unchecked check box.
A flexible option was identified for small businesses in the RIAS. The proposal as it is presented would allow cigar manufacturers/importers a transition period of six months. A flexible option providing an implementation period of more than six months was considered for these businesses to alleviate compliance costs. However, allowing youth-appealing flavoured cigars from small businesses to remain on the Canadian market any longer than this period would undermine the purpose of this proposal. In addition, delaying implementation past six months from the publication date is not considered to be part of an effective approach, given that the total costs to all stakeholders would exceed the costs assumed under the flexible option.
2. Does the RIAS include, as part of the Regulatory Flexibility Analysis Statement, quantified and monetized compliance and administrative costs for small businesses associated with the initial option assessed, as well as the flexible, lower-cost option?
  • Use the Regulatory Cost Calculator to quantify and monetize administrative and compliance costs and include the completed calculator in your submission to TBS-RAS.
Checked checkbox. Unchecked check box. Unchecked check box.
The RIAS includes a statement about why a flexible option could not be provided to small businesses and includes the quantified and monetized compliance costs for small businesses associated with both options.
3. Does the RIAS include, as part of the Regulatory Flexibility Analysis Statement, a consideration of the risks associated with the flexible option? (Minimizing administrative or compliance costs for small business cannot be at the expense of greater health, security or safety or create environmental risks for Canadians.) Checked checkbox. Unchecked check box. Unchecked check box.
As stated in (1), allowing a flexible option for the small businesses that would be affected by the proposal was not provided as minimizing compliance costs for small businesses cannot be at the expense of greater health protection for Canadian youth.
4. Does the RIAS include a summary of feedback provided by small business during consultations? Checked checkbox. Unchecked check box. Unchecked check box.
A consultation on the proposal was launched on October 11, 2014, in the Canada Gazette, Part I, by the publication of a notice. A 30-day period was given to all stakeholders to comment on the proposal. A summary of the comments, including those from small businesses from the consultation, was included in the RIAS.
V Reverse onus Yes No N/A
1. If the recommended option is not the lower-cost option for small business in terms of administrative or compliance costs, is a reasonable justification provided in the RIAS? Checked checkbox. Unchecked check box. Unchecked check box.
Yes, as per responses to Part IV above.

PROPOSED REGULATORY TEXT

Notice is given that the Governor in Council, pursuant to subsection 7.1(1) (see footnote a) of the Tobacco Act (see footnote b), proposes to make the annexed Order Amending the Schedule to the Tobacco Act.

Interested persons may make representations concerning the proposed Order within 30 days after the date of publication of this notice. All such representations must cite the Canada Gazette, Part I, and the date of publication of this notice, and be addressed to Mathew Cook, Manager, Regulations Division, Tobacco Products Regulatory Office, Controlled Substances and Tobacco Directorate, Healthy Environments and Consumer Safety Branch, Health Canada, 150 Tunney’s Pasture Driveway, Ottawa, Ontario K1A 0K9 (fax: 613-948-8495; email: pregs@hc-sc.gc.ca).

Ottawa, February 26, 2015

JURICA ČAPKUN
Assistant Clerk of the Privy Council

ORDER AMENDING THE SCHEDULE TO THE TOBACCO ACT

AMENDMENTS

1. The portion of item 1 of the schedule to the Tobacco Act (see footnote 2) in column 2 is replaced by the following:

Item Column 2

Tobacco Product
1.
  • (1) Cigarettes
  • (2) Cigars with a wrapper that is not fitted in spiral form, cigars with tipping paper and little cigars
  • (3) Blunt wraps

2. The schedule to the Act is amended by adding the following after item 1:

Item Column 1

Additive
Column 2

Tobacco Product
1.1 The prohibited additives referred to in item 1, excluding those that impart an aroma that is generally attributed to port, wine, rum or whisky Cigars that have a wrapper fitted in spiral form and that weigh more than 1.4 g but not more than 6 g, excluding the weight of any mouthpiece or tip, other than those referred to in item 1

3. The portion of items 2 and 3 of the schedule to the Act in column 2 is replaced by the following:

Item Column 2

Tobacco Product
2.
  • (1) Cigarettes
  • (2) Little cigars
  • (3) All other cigars, except those that weigh more than 6 g excluding the weight of any mouthpiece or tip, have a wrapper fitted in spiral form and do not have tipping paper
  • (4) Blunt wraps
3.
  • (1) Cigarettes
  • (2) Little cigars
  • (3) All other cigars, except those that weigh more than 6 g excluding the weight of any mouthpiece or tip, have a wrapper fitted in spiral form and do not have tipping paper
  • (4) Blunt wraps

4. Items 4.1 and 4.2 of the schedule to the Act are replaced by the following:

Item Column 1

Additive
Column 2

Tobacco Product
4.1 Colouring agents Blunt wraps
4.2 Colouring agents, excluding those used to render mouthpieces or tips white or bronze

Cigars, except

  • (1) little cigars
  • (2) cigars that have tipping paper, and
  • (3) cigars that weigh more than 6 g excluding the weight of any mouthpiece or tip, have a wrapper fitted in spiral form and do not have tipping paper
4.3 Colouring agents, excluding those used to whiten plug wrap paper, to render tipping paper brown or bronze, to imitate a cork pattern on tipping paper or to render mouthpieces or tips white or bronze Little cigars
4.4 Colouring agents, excluding those used to render tipping paper brown or bronze or to render mouthpieces or tips white or bronze Cigars with tipping paper, other than little cigars

5. The portion of items 5 to 13 of the schedule to the Act in column 2 is replaced by the following:

Item Column 2

Tobacco Product
5.
  • (1) Cigarettes
  • (2) Little cigars
  • (3) All other cigars, except those that weigh more than 6 g excluding the weight of any mouthpiece or tip, have a wrapper fitted in spiral form and do not have tipping paper
  • (4) Blunt wraps
6.
  • (1) Cigarettes
  • (2) Little cigars
  • (3) All other cigars, except those that weigh more than 6 g excluding the weight of any mouthpiece or tip, have a wrapper fitted in spiral form and do not have tipping paper
  • (4) Blunt wraps
7.
  • (1) Cigarettes
  • (2) Little cigars
  • (3) All other cigars, except those that weigh more than 6 g excluding the weight of any mouthpiece or tip, have a wrapper fitted in spiral form and do not have tipping paper
  • (4) Blunt wraps
8.
  • (1) Cigarettes
  • (2) Little cigars
  • (3) All other cigars, except those that weigh more than 6 g excluding the weight of any mouthpiece or tip, have a wrapper fitted in spiral form and do not have tipping paper
  • (4) Blunt wraps
9.
  • (1) Cigarettes
  • (2) Little cigars
  • (3) All other cigars, except those that weigh more than 6 g excluding the weight of any mouthpiece or tip, have a wrapper fitted in spiral form and do not have tipping paper
  • (4) Blunt wraps
10.
  • (1) Cigarettes
  • (2) Little cigars
  • (3) All other cigars, except those that weigh more than 6 g excluding the weight of any mouthpiece or tip, have a wrapper fitted in spiral form and do not have tipping paper
  • (4) Blunt wraps
11.
  • (1) Cigarettes
  • (2) Little cigars
  • (3) All other cigars, except those that weigh more than 6 g excluding the weight of any mouthpiece or tip, have a wrapper fitted in spiral form and do not have tipping paper
  • (4) Blunt wraps
12.
  • (1) Cigarettes
  • (2) Little cigars
  • (3) All other cigars, except those that weigh more than 6 g excluding the weight of any mouthpiece or tip, have a wrapper fitted in spiral form and do not have tipping paper
  • (4) Blunt wraps
13.
  • (1) Cigarettes
  • (2) Little cigars
  • (3) All other cigars, except those that weigh more than 6 g excluding the weight of any mouthpiece or tip, have a wrapper fitted in spiral form and do not have tipping paper
  • (4) Blunt wraps

6. The note to the schedule to the Act is renumbered as Note 1.

7. The schedule to the Act is amended by adding the following after Note 1:

Note 2: In column 2, “wrapper fitted in spiral form” means a wrapper of a cigar that is fitted with an acute angle of at least 30° to the longitudinal axis of the cigar.

COMING INTO FORCE

8. This Order comes into force 180 days after the day on which it is published in the Canada Gazette, Part II.

[10-1-o]

  • Footnote 1
    The cost-benefit analysis is available upon request from the contact mentioned at the end of this document.
  • Footnote a
    S.C. 2009, c. 27, s. 9
  • Footnote b
    S.C. 1997, c. 13
  • Footnote 2
    S.C. 1997, c. 13