[00:00:07] Speaker 02:
Rocky Patel Premium Cigars versus Bonta 25-8060.

[00:00:08] Speaker 04:
Each side has 20 minutes.

[00:00:45] Speaker 02:
Good morning.

[00:00:46] Speaker 01:
Good morning, Judge Callahan. Your honors may please the court. My name is Michael Edney. I represent Rocky Petal Premium Cigars Incorporated, the other premium cigar company appellants, as well as the trade associations challenging the California statute. I'd like to reserve, with the court's permission, four minutes for rebuttal.

[00:01:07] Speaker 01:
Thank you.

[00:01:09] Speaker 01:
Your Honors, the California unflavored tobacco list law unnecessarily crushes handmade premium cigars. They are made from natural tobacco by artisans and family businesses. Under federal law, they cannot be flavored. But because of their small volume varieties, they constitute by far the largest volume of applications that have to go through the California premarket review process.

[00:01:30] Speaker 04:
So is it the cost that is crushing?

[00:01:33] Speaker 01:
It is, Your Honor. So that's what the litigation is all about? In many ways it is. There's a significant fee per application, so there's tens of thousands of these premium cigar varieties, and many of them have had to be pulled from the market as a result. There's also the cost of assembling the application. You mean the tobacco that's used in the... That's right. I mean, unlike cigarettes that kind of roll off the assembly line by the billions for one type, premium cigars come in a lot of different varieties because they come from the best tobacco from any given harvest.

[00:02:06] Speaker 01:
So there's tens of thousands of varieties of premium cigars. You need one application for each, you need one fee for each, and each application costs many thousand dollars to put together. So it's that cost that the record shows comes into the tens if not hundreds of millions of dollars for the premium cigar industry.

[00:02:25] Speaker 01:
And in fact, this law wasn't really meant to go after cigars, much less premium cigars. the problem that was trying to be addressed was the problem of youth use of flavored vapes.

[00:02:39] Speaker 01:
But the record also shows that even the state projected that of the 9,000 applications they expected to get, 7,500 of them or so would come from premium cigars. I think that number is going to prove to be much larger.

[00:02:52] Speaker 02:
So if you want to say that it's preempted, looking at the text of the savings clause, what is your best argument that the text of the savings clause is limited to restriction on point-of-sale regulations?

[00:03:07] Speaker 01:
Well, Your Honor...

[00:03:10] Speaker 01:
So the savings clause exempts requirements related to sales. Sales requirements are like the one that this court addressed in the 2022 R.J. Reynolds v. County of Los Angeles decision. They identify the physical characteristics of tobacco products and they impose obligations on retailers not to sell them. This law, by contrast, acts directly on manufacturers, placing no fewer than a dozen obligations on them. The manufacturers are the ones that need to apply.

[00:03:41] Speaker 01:
This is section B1 of 1404559.1 of the California Health and Safety Code. The manufacturers are the ones that have to pay fees. This is subsection K. The manufacturers are the ones that have to submit to California jurisdiction. This is subsections I and J. The manufacturers are the ones that are ordered to answer questions. This is sections B2 and B3.

[00:04:03] Speaker 01:
And the manufacturer's speech is the one that attaches.

[00:04:08] Speaker 04:
But there's nothing here that sort of touches on the way in which the premium cigar is put together.

[00:04:18] Speaker 01:
Well, no. It asks a bunch of questions about how it is put together.

[00:04:22] Speaker 04:
But there's nothing here that says you must include X percent or whatever of a particular tobacco.

[00:04:32] Speaker 01:
That's right, Your Honor. Not in the way that the court's R.J. Reynolds opinion talked about. It doesn't micromanage the manufacturing process, but it does go to the manufacturing stage.

[00:04:43] Speaker 04:
Or how tightly they're rolled and all that. Exactly, Your Honor.

[00:04:46] Speaker 01:
None of that. But it does go to the manufacturing stage because the burdens and the requirements are on the manufacturers.

[00:04:54] Speaker 04:
The term manufacturer appears... That sounds like post-manufacturing to me.

[00:04:58] Speaker 01:
Well...

[00:05:00] Speaker 01:
No, I don't think so. Why not? I mean, what this court said is the federal government's domain is right up until the actual point of sale. And this is acting before that because this is taking participants in the process much earlier, the manufacturers, and placing obligations directly on them.

[00:05:21] Speaker 03:
But doesn't any sales prohibition have an effect? have impact on the manufacturer. If California bans flavored tobacco, the manufacturer can no longer manufacture flavored tobacco.

[00:05:33] Speaker 01:
What's the difference? Well, sure, Your Honor. I mean, and I think that the Second Circuit's decision in the U.S. smokeless case is very instructive. This is a case that came before this court's R.J. Reynolds case. It was heavily relied upon by the court in this case. And what the U.S. smokeless case said was, look, we have a situation here where where a restriction on retail sale, a ban on what the retailers may sell, is creating incentives or motivations about what the manufacturers do.

[00:06:06] Speaker 01:
Well, if you can't sell something that has this ingredient, well, you probably shouldn't be making things like that or trying to insert them into New York City or into Los Angeles County or into California.

[00:06:20] Speaker 01:
it was about that indirect effect. And the U.S. Smokers Court and this court said there is a point at which that indirect effect could become significant enough to bring it into the manufacturing realm. Here, the legal operation of the scheme is directly upon manufacturers. So it's not... It's not an indirect incentive. It's not a motivation. It is a direct requirement for manufacturers. The term manufacturer appears in the unflavored tobacco list law 32 times.

[00:06:51] Speaker 03:
So, I mean, what's the line that you're asking us to draw, then?

[00:06:58] Speaker 01:
One of the lines I'm asking the court to draw is that Under the savings clause, perhaps states can place mandates on retailers that might incentivize some manufacturer conduct. But what they cannot do is bring the manufacturer into the state and say, you have to do this, you have to do that, you have to answer our questions now. You have to run through a pre-market review application process. That crosses the line into the manufacturing stage.

[00:07:29] Speaker 02:
But it seems like premium cigars, by definition, lack a characterizing flavor. Isn't it true, you say this is really burdensome, that certifying that your product is a premium cigar, isn't that sufficient to guarantee placement on the unflavored tobacco list despite the speech presumption? If this is true, how does the UTLS restrict your speech more than necessary to meet the state's interest?

[00:07:57] Speaker 02:
It seems like you said it was millions and millions of dollars, but I'm sort of looking at it, and it seems like all you have to do is certify in the application that your product is a premium cigar for it to be placed on the unflavored tobacco list. How does that law put a negative consequence on you?

[00:08:16] Speaker 01:
Jumping ahead to the First Amendment argument, Your Honor, I mean, I think this would be a different case under the First Amendment and a different case in our state law challenge against the arbitrariness of these regulations if that's all the law did. If the law said, give us a list of your products, tell us that they're a federally regulated premium cigar and then you're finished, this would be a very different lawsuit. probably wouldn't be a lawsuit that exists at the moment. But instead, the regulations don't give premium cigar manufacturers that option.

[00:08:48] Speaker 01:
They require premium cigar manufacturers, like every other tobacco manufacturer, to submit voluminous applications to the Attorney General that include information about all our labeling materials, our packaging, our marketing materials, a sample of the product in the largest box that is made. So it's turning the Attorney General's office into the world's largest humidor. It's probably a great place to go sample these products if you want. It's an extremely burdensome process. So the process Your Honor describes would have been a more palatable one for us, but it's not the world that the Attorney General created.

[00:09:26] Speaker 03:
But on the speech part, though... I mean, as soon as you certify that you're a premium cigar, then whatever you say, the speech is totally irrelevant, correct?

[00:09:37] Speaker 01:
Well, they say that now. That's not what the regulations of the law say. I mean, I hope that's the way it's going to work out. But the First Amendment has never required the regulated entities to kind of hope that the government will take it easy on them, right? What the First Amendment is concerned about is the terms of the legislation and the possibility that it will chill speech, that you will stop saying things because it will subject you to a bureaucratic penalty lap.

[00:10:08] Speaker 01:
And I think that is the concern that's driving the First Amendment analysis.

[00:10:12] Speaker 02:
It's commercial speech, right?

[00:10:13] Speaker 01:
It is commercial speech, yes.

[00:10:15] Speaker 03:
So the idea that once you certify that you're a premium cigar and so therefore you're unflavored, it's not anywhere in the regulations. Was that just in their litigation?

[00:10:27] Speaker 01:
That's just in their litigation. I mean, it was an enormous pivot that they came to in the litigation. I mean, down in the district court, they really tried to say, hey, listen, all these products have to go through. There can't be any exceptions. You know, your alternative, the premium cigars should be exempted from the presumption of illegality or the process. That's not a viable alternative, right, that we had to consider in the First Amendment analysis. Now they're saying, oh, don't worry about the presumption of illegality because once we see you're a federally regulated premium cigar, you're out of it. Well, then put that into the law, right?

[00:10:58] Speaker 01:
Put that into the law.

[00:10:59] Speaker 03:
Is there anything else that would give you that status, like an attorney general opinion or something like that? Do they do that to give you that kind of safety net that you're asking for?

[00:11:07] Speaker 01:
Well, I mean, if that had happened, this might be a different case, but it hasn't happened. I mean, it's just in. the ipsy-dixit litigating papers of the Attorney General, and that's not enough to provide First Amendment covered. As a matter of fact, it makes my case for me, right, because my primary case is that, and the district court held that it has to go through central health analysis, my primary case is that the Attorney General and the legislature did not consider other alternatives that would restrict less speech or no speech at all.

[00:11:37] Speaker 01:
kind of exempting premium cigars with this box-checking exercise from this process would have been an alternative that restricted less speech. They're now conceding it's very viable. It should be in the law, and it demonstrates that the law as written, the regulations as written, are unconstitutional. Let me take you back just a little bit.

[00:11:54] Speaker 04:
What do you have to do?

[00:11:56] Speaker 04:
What do you have to submit to the feds?

[00:12:00] Speaker 01:
At this point, we don't. So if you were a tobacco product, you have to submit to the feds through the pre-market review process essentially exactly what we're submitting to the Attorney General.

[00:12:12] Speaker 04:
So why is it a burden? I mean, you just take the same application, you got the certification, and you submit it to the feds.

[00:12:18] Speaker 01:
Yeah, I mean, I hear what you're saying. I mean, Section 910B1 of the Tobacco Control Act lays this all out. So what they're asking from us is just like the federal pre-market review process. Premium cigars are exempt by federal regulation and court decision from the federal premarket review process. So we don't have to go through that right now. What we have to tell the feds is we have to demonstrate that we meet the federal definition of a premium cigar, right? And that's in the federal regulations.

[00:12:48] Speaker 01:
Their process is much more burdensome for us.

[00:12:50] Speaker 04:
Again... How is it much more burdensome?

[00:12:53] Speaker 01:
Well, again, we...

[00:12:55] Speaker 01:
This would be a different case if California said, look, just tell us the premium cigars you're making and show how they meet the definition. But instead, in this case, they are asking for the full application that they're asking from any cigarette manufacturer. or any vaping products. So this is a voluminous application, all our packaging materials, all our labeling materials, a series of representations, product samples in our largest box, and this is, the record demonstrates, it's pretty much undisputed, that this is an enormous financial burden for each and every variety that we put forward.

[00:13:30] Speaker 01:
And if we just had three or four of them, it wouldn't be that big of a deal, but we have tens of thousands. That's what the big burden is, and that is why this system is preempted, because it is an additional process on top of what the federal government requires through premarket review. And I mean, to go back to that question for a moment.

[00:13:48] Speaker 03:
I'm sorry, before you move back, on just the First Amendment question, if we were to rule that saying under the regime as represented in the litigation papers that once you certify that you're a premium cigar, that then any speech is irrelevant, that you're already on the flavored list, would that satisfy you? That if there's any alteration in that rule in application or in the future, then that's all bets are off. Would that be okay with you as far, would that protect your interest, your First Amendment interest?

[00:14:15] Speaker 01:
Your Honor, I think, I think the proper way to do this is to strike down their law and regulation as written because they have... Well, that's your first choice, but he's offering you a second choice. Well, I don't know... What are you saying? Like, if you...

[00:14:32] Speaker 01:
I know I'm not here to ask your honor questions.

[00:14:33] Speaker 03:
Under the regime as presented in the litigation papers that once you certify your federal, that your premium cigar, then your speech is irrelevant and you will be on the unflavored list.

[00:14:43] Speaker 01:
So it's pretty much automatic. It's automatic, correct. Once you check that box, if you just put in one application and say your premium cigar, here's why, and the application process is over and we don't have to worry about your speech anymore, yes, I think that would probably be constitutional. Thank you. To go back to the preemption case, because I think the preemption case is important. Again, this acts directly on manufacturers. I want to point the court also to Section 3, Per En 3 of the Act. This is the statement of purpose at Section 387, Note.

[00:15:15] Speaker 01:
That authorizes the FDA to set national standards controlling the manufacturer of tobacco products and the identity, public disclosure, and amount of ingredients used in such products. This law triggers all of those things for which there's supposed to be national standards where the states aren't supposed to come in. It tries to have the manufacturers disclose ingredients to the states, and it tries to place controls directly on the manufacturers.

[00:15:39] Speaker 04:
But on top of that, Your Honor... I asked you earlier, how does it place controls?

[00:15:45] Speaker 04:
in the manufacturing process, the California?

[00:15:48] Speaker 01:
Well, it places controls on the manufacturers themselves. Again, the...

[00:15:54] Speaker 01:
The distinction that this court drew in R.J. Reynolds is we're going to let state act on the point of sale, but we're not going to let them get into the manufacturing.

[00:16:03] Speaker 04:
I want to go back through what we went through earlier.

[00:16:05] Speaker 01:
So, I mean, you're asking, you know, how is it changing the assembly line? That was a particular issue with tobacco product standards, right? That was the preemption term at issue here. We're dealing with a different preemption term, and it's pre-market review. And let me just say something about that. The U.S. smokeless court, which was widely endorsed by this court's decision in RJR, said it's not going to be enough to, if you're going to start putting impositions on manufacturers, to just slap on the end of it.

[00:16:38] Speaker 01:
a condition that says compliance with this is necessary to be able to sell your products in the state. That's not going to get you out from preemption.

[00:16:47] Speaker 01:
I think that is a recognition of a key principle, and the key principle is that Congress and the two circuit courts that dealt with these preemption issues care about the mechanism of regulation, right, not just the objective, right? I mean, they may come here and tell you that we're just trying to enforce regulations a flavored product sales ban, but the law cares about how you enforce it. And let me pose a hypothetical. Another term in the preemption clause is against state regulations of labeling, right?

[00:17:20] Speaker 01:
So let's just say the state said, We have a flavor product ban, and one of the ways we're going to enforce this is we're going to have manufacturers put on their label a disclosure of flavor additives or ingredients.

[00:17:36] Speaker 01:
That would be clearly preempted, right? They do that here? They did not do that here, but instead of picking up the term labeling in the preemption clause, they picked up another term, which is pre-market review, right? And they said the way we're going to enforce the flavored tobacco ban is we're going to make the manufacturers come in and make these applications that are pretty much like the ones that we put in the federal system.

[00:18:00] Speaker 01:
And then we're going to make a judgment about each project before it gets on the market.

[00:18:06] Speaker 03:
With that argument, though, I think pre-market review in that context means the FDA pre-market review, right? And they're not making any requirements.

[00:18:15] Speaker 01:
I don't think it does. I mean, I hear that argument, Your Honor, but there's at least three reasons why that is not the proper reading of the preemption clause. First of all, the preemption clause talked about requirements in addition to the federal one, right? That's the prepositional phrase that precedes what follows. Second, the district court and the state is hanging a lot of weight on six words under the provisions of this chapter, right?

[00:18:45] Speaker 01:
So requirement under the provisions of this chapter relating to premarket review or labeling or registration. They say, ah-ha. It's just the federal process. But imagine a different point, right? The federal process has requirements with respect to the label, what must go on the labeling of tobacco products. If the state said, no, I'm not – you have your federal label. That's great. Just somewhere else on the product you need to put our label, our warnings. That would be clearly preempted, and the six words under the provisions of this chapter wouldn't save that.

[00:19:20] Speaker 01:
What Congress was trying to say is there are certain mechanisms of regulation that are for the feds only. One is to slap warning labels on products, right? That's up to us. The other is to drag the manufacturers in and have them pre-apply to put their products on the market. That's up to us. I do, Your Honor, and I'll sit down at this point. Yes, thank you, Your Honor.

[00:19:43] Speaker 02:
I'll give you three minutes for rebuttal since we asked you a lot of questions.

[00:19:47] Speaker 01:
I'm very grateful for that, Your Honor. Thank you, Your Honor.

[00:19:55] Speaker 02:
Good morning.

[00:19:55] Speaker 00:
Good morning, Your Honors. Natalie Torres on behalf of the Attorney General of California, Rob Bonta.

[00:20:06] Speaker 00:
May it please the court, the district court properly found that the unflavored tobacco list is not preempted by the Tobacco Control Act and does not violate the First Amendment. I'd like to focus on two general points.

[00:20:19] Speaker 00:
First, the UTL is not preempted because the TCA expressly preserves state's authority over tobacco sales. Relevant here is that the UTL creates a complete public list of the unflavored tobacco products that are compliant with the state's tobacco flavor ban.

[00:20:36] Speaker 02:
So if we agreed with you that the savings clause allows you to do this, what's the point of making this really onerous here since everyone agrees that premier cigars are not flavored?

[00:20:54] Speaker 00:
So the purpose of the unflavored tobacco list is to have a single public list that lists every individual product that is lawful for sale in California. And California has had a tobacco flavor ban.

[00:21:06] Speaker 02:
I mean, I'd like it if no one could ever smoke. Trust me.

[00:21:10] Speaker 02:
that if I were queen of the world, but that's not the case. So here, and I would like to never see another cigar, but that being the case, he basically says they're not flavored, so why do they have to go through the same thing that everyone else does? And he's listed a parade of horribles about how much it costs and that there's a whole lot of different premium cigars, and so...

[00:21:37] Speaker 02:
At some point, doesn't it become so onerous? Why can't they just automatically show you that they're not flavored and then they go on the list?

[00:21:46] Speaker 00:
Well, it's a little bit more than automatic, but it's pretty much a single list of everything that's lawful for sale. I think another way to look at it is if you'd like to sell an unflavored, a lawful, unflavored tobacco product in California, you have to be on the list. And the list is there because we've had a sales ban for several years, and folks got very creative. Instead of clearly labeling the product that has a flavor or not, now we have this thing called concept flavors. So instead of telling us there's blueberry on a tobacco product,

[00:22:14] Speaker 02:
It could be something like- Well, do you doubt that a premier cigar, as defined, if they make it at the federal level, do you have reason to doubt that that would be, they could automatically be on your list?

[00:22:26] Speaker 00:
At this time, we don't doubt that what plaintiffs are saying, that their products aren't flavored and they meet the federal standard, that it's nothing more than 100% tobacco.

[00:22:35] Speaker 03:
But the point of the list is to have a complete list of what is- We understand the point of the list, but why do you need all the burdensome stuff if they just certify that they meet the federal definition?

[00:22:44] Speaker 00:
So the list is not burdensome. It is a one-page online.

[00:22:47] Speaker 03:
But why do you need all that stuff then?

[00:22:49] Speaker 00:
We need it for enforcement and retail and consumers to be able to know what is lawful for sale or not in the state.

[00:22:55] Speaker 02:
You said it's a one-page application. He says they have to put samples, they have to put labels, they have to put this, they have to put that. And there's not just one. It's not like they have to do it once. They have a whole bunch of different. Then they have to submit samples.

[00:23:09] Speaker 00:
They do. There is a sample requirement because we have to confirm that the product is in fact in flavor.

[00:23:13] Speaker 02:
Okay. So you're not really, it's not really just a one page then.

[00:23:17] Speaker 00:
It is a series of questions to confirm the product is in flavor for the purposes of plaintiffs who have.

[00:23:23] Speaker 02:
But then you don't believe them. You make them still have it tested.

[00:23:27] Speaker 00:
We don't actually test the product. Why do they have to submit? So that we can confirm what the product looks like.

[00:23:33] Speaker 03:
If you don't test it, then?

[00:23:36] Speaker 00:
There is the option to test if there was an additional question. For plaintiffs, because their premium cigars are certified that they meet the federal standard, the comprehensive view of how their application would go is that they would provide us all the details of their brand style. So if I have a single cigar, like this is a single cigar, We'd have to know the length, the size, a couple other things, colors, what the packaging looked like at the retail level. So if an enforcement official goes into a tobacco shop, they could say, okay, this is the same barcode.

[00:24:06] Speaker 00:
This one's okay. This one isn't. So that information is there. And then they would check off a list of whether they have FDA authorization information. And for plaintiffs, they're exempt from filing the federal pre-market review application because they are unflavored tobacco products. Now, I will note that right now the federal definition has unflavored tobacco as one of the Prerequisites to be considered a premium cigar, but that definition is not set in stone.

[00:24:36] Speaker 00:
It's subject to litigation We understand that there's some briefs in the DC Circuit where there is a desire to remove the unflavored requirement to that definition so right now The process would be relatively simple for plaintiffs, but the state of California is very clear that the product that is going to be sold in California needs to be unflavored, and we require the manufacturers and importers, the folks that bring in the products.

[00:25:03] Speaker 02:
But if the feds say it's unflavored, if that's what their requirement is?

[00:25:09] Speaker 02:
Why can California say, well, I don't trust you, and your idea of unflavored isn't the same as my idea of unflavored? And so is there – we seem to say that it's so automatic, but I'm hearing that there's a chance that what the feds say will – you'll say it's still flavored. MS.

[00:25:34] Speaker 00:
For plaintiff cigars, that's very unlikely because they're saying and they're certifying.

[00:25:38] Speaker 02:
Well, very unlikely, but you want to retain that, but you want to retain the ability to decide it's unflavored, even though the feds have already said it is.

[00:25:49] Speaker 00:
If there were something in the application that required an additional closer look, like let's say they're certifying that it meets the federal definition of premium cigars, but there's some language in there that talks about blueberry or something. It allows the Attorney General to just take a closer look and confirm. But I will say the manufacturers and importers, when they're bringing in their product for submission on the UTL, they're also certifying that the product is unflavored. Now, we could get into whether someone lies or not, but in general, they are confirming, and that's why we're putting the onus on the manufacturers and importers.

[00:26:24] Speaker 03:
So it seems like you are, California's just setting up another pre-market review.

[00:26:28] Speaker 00:
It is not a pre-market review. Pre-market review under the FDA has very specific requirements, and that's going to be in 21 U.S.C. 387J. It's a whole list of things they have to do, including scientific review. They do a marketing analysis to see if it attracts you.

[00:26:44] Speaker 02:
Well, if California was setting up another pre-market review, is that a problem for you?

[00:26:49] Speaker 00:
It is.

[00:26:52] Speaker 02:
Would that be a problem to prevail in this case?

[00:26:55] Speaker 00:
We say that this is not a pre-market review. This is an administration of our sales ban. It is a list of what's lawful. So you can't really say, hey, all these products are not lawful.

[00:27:04] Speaker 03:
But you're asking for samples to do testing and then verification. That sounds very much like pre-market review.

[00:27:11] Speaker 00:
All the verification is on the front end. The samples are...

[00:27:14] Speaker 03:
Pre-market, right?

[00:27:15] Speaker 00:
Well, I think we're using the term pre-market as before it comes into market, but pre-market review is a term of art that is used in the FDA for their specific process, and the purpose of that process is to confirm the product is safe and lawful for sale across the United States.

[00:27:31] Speaker 03:
Isn't that what you're doing?

[00:27:32] Speaker 00:
No, we're just confirming that the product is unflavored.

[00:27:35] Speaker 03:
Well, it's because California presumed that unflavored products is unsafe for children, right?

[00:27:40] Speaker 00:
I think it's a little bit more than just that. I mean, flavored products historically have been used as a gateway for folks to be able to smoke.

[00:27:47] Speaker 03:
Yeah, so it's a safety review.

[00:27:48] Speaker 00:
Yeah, and that's where we get into the government interest, that we're interested in regulating flavored products. We do it through this unflavored tobacco list. It's a single list. Anyone can now go online.

[00:28:00] Speaker 03:
Go ahead. If I could just do this. I wanted to go on the free speech area. So, I mean, it is true that we weren't able to find it anywhere in paper that once they check that they're premium cigar under the federal definition, that they're automatically on the list and the presumption of flavored is off the table, right? That's not in any regulation or –

[00:28:22] Speaker 02:
No, the presumption is there during the UTL application process, so the AG can go in, and if there's some language in there that is questionable... Well, you give them a rebuttable presumption is what you give them, but that's not the same as basically he was asking you, is it say anywhere once you've passed the federal certification, or is it a straight line to go? And it's not. It's not.

[00:28:51] Speaker 00:
It's...

[00:28:53] Speaker 00:
I would say no just because you still have to pay the administration fee, right? So it's $300 per product. So assuming everything else is there, then you are eligible to be on the list.

[00:29:04] Speaker 03:
Unrebuttably, and your speech is irrelevant, even if you say that this is the best coffee-flavored cigar.

[00:29:10] Speaker 00:
For the purposes of plaintiffs, which are the facts of this specific case, that's true.

[00:29:16] Speaker 03:
But that's not in any regulation or anything, right?

[00:29:19] Speaker 00:
It's not. It's how it's been applied.

[00:29:21] Speaker 02:
That's what's making them nervous.

[00:29:25] Speaker 00:
It sounds like it. And I would say this.

[00:29:27] Speaker 02:
And maybe understandably because you're kind of going, there's a little fudging here going on.

[00:29:35] Speaker 00:
The state law requires AEG to presume that, or the rebuttable presumption works in that, during the application process, if there's an additional language there, it requires AEG to take another look. And so when plaintiffs come in and submit their applications, they will check off the list that they are exempt from FDA review And the act of submitting that information to us and certifying that that's true and correct is the presumption doesn't come into play.

[00:30:01] Speaker 03:
So looking at it another way, if the presumption... Has it ever been... It's been around for a couple of years. Has that ever been taken back?

[00:30:12] Speaker 00:
Well, the UTL has only been in effect about four months.

[00:30:14] Speaker 03:
Oh, is it?

[00:30:16] Speaker 00:
But the flavor ban has been in effect for several years. But to date, many of plaintiff's cigars, and I believe any of the folks who have qualified for premium cigars, have all been eligible and made it on the list.

[00:30:27] Speaker 03:
So you would have no problem with us if we were to rule on the First Amendment ground based only off of your representation that once they certify that they're a federal premium cigar...

[00:30:37] Speaker 03:
that any speeches, the presumption is already rebutted indefinitely, and that, therefore, would not be First Amendment. But any other regime would have different implications.

[00:30:50] Speaker 00:
So long as they're meeting all the other requirements of the list, and obviously if there's a change in the federal definition of premium cigar, that would be a different question, right? But essentially that would be okay, but I would say this I'm not sure you're really saying that I mean because it seems like you still want to have the full ability to check and make them rebut the presumption Well, the presumption wouldn't apply if they are just checking the box and saying that they're exempt under the you know That they are premium cigars and by definition are unflavored a hundred percent tobacco What would what would lead you what would lead state to reject an application?

[00:31:26] Speaker 00:
Well, a couple of reasons. One, if they were denied FDA authorization, that means they're... No, I'm assuming that they submitted an application.

[00:31:33] Speaker 04:
They said we're certified by the feds. So what more would the state... What would lead the state to reject an application?

[00:31:41] Speaker 00:
For premium cigars or generally?

[00:31:43] Speaker 04:
Premium cigars. We only hear about premium cigars.

[00:31:45] Speaker 00:
If premium cigars are, in fact, meeting that federal definition 100%, there's no reason why they wouldn't be eligible to be in the list.

[00:31:52] Speaker 04:
No, you just said eligible, but my question was... What would lead you to reject it?

[00:31:59] Speaker 00:
There wouldn't be any reason to reject it. So why do you need to check it? Because we have a complete list of what is lawful for sale. So if they want to sell in California, they need to be on the list.

[00:32:10] Speaker 04:
But I don't understand.

[00:32:13] Speaker 04:
What is it you're checking for beyond the certifications?

[00:32:16] Speaker 00:
We are confirming that they meet all the requirements of the product. You're making sure that the federal governments did it correctly? No, we're making sure that they're providing all the complete information so that anyone can go into a retail store.

[00:32:29] Speaker 04:
So what piece of information that they may not have provided, they omitted, would lead you to reject the application? I'm trying to figure out. It sounds like what you're saying is that every application gets approved.

[00:32:45] Speaker 00:
If everything's complete.

[00:32:46] Speaker 04:
Well, now I'm trying to figure out what is it that would lead the state to reject an application.

[00:32:52] Speaker 02:
It costs $200, right?

[00:32:53] Speaker 00:
I'm sorry?

[00:32:54] Speaker 02:
Every application gets approved, but it's still... Not every application.

[00:32:58] Speaker 00:
So I want to say the complete things. We still need to know what is the individual product. And my friend on the other side has described that they have thousands of products, various size or whatnot. We want to know every individual product that is going to be eligible for sale in California because...

[00:33:15] Speaker 00:
it's very difficult to compare cigars or different tobacco products and know, okay, this one's okay, but this one is not, because there are other types of products that wouldn't be eligible on the list.

[00:33:28] Speaker 04:
So on the one hand, you say, well, all they have to do is certify and they're going to get on the list.

[00:33:33] Speaker 04:
On the other hand, you say, well, we want to check to make sure the application is complete, and I want to know what it is you're looking for that would lead you to reject the applications.

[00:33:44] Speaker 00:
The application would be rejected. Assuming they provide all the detail that they're supposed to provide and they pay the fees, it would be rejected if, in fact, it is a flavored product. How would you determine that?

[00:33:56] Speaker 04:
You just sniff it?

[00:33:58] Speaker 00:
That's one way. So the California definition to look at a flavored product is whether the reasonable consumer gets a taste or sensation. of a non-tobacco constituent. So if you smell it, taste it, get the sensation that it is chocolate or other things. Now, it provides an exemption for the natural curing process of tobacco leaf. So that would be the situation here for plaintiffs.

[00:34:22] Speaker 00:
But it's going to be the two-prong. And then the second prong is whether there is a flavor constituent that is added in addition to the reason of a consumer. And that's where we get into other other ingredients that could be added into the product that can make it seem to the reasonable person that there is some flavor.

[00:34:43] Speaker 02:
But then it seems like you're second guessing what the feds did.

[00:34:48] Speaker 02:
So if the Fed said no taste, nothing there, then you say, well, you should have no problems. But you're still concerned that there still could be a problem.

[00:35:02] Speaker 00:
The federal government is not looking.

[00:35:05] Speaker 00:
The exemption that they have is that they don't have to submit anything to the FDA. So there is no check by the federal government as it relates to premium cigars. They're completely exempt.

[00:35:16] Speaker 03:
Right, that's why it feels like you're adding a requirement to the premarket review.

[00:35:21] Speaker 00:
But it's regulating something that's for the sale. So the tobacco sale component is still... Are they different than everyone else?

[00:35:30] Speaker 02:
All the other people, do any of the other people have the federal approval?

[00:35:37] Speaker 00:
Well, they're not approved by the federal government. They're exempt.

[00:35:40] Speaker 02:
I don't believe that, I mean, there's... So the other people, you're doing the initial review, right? Except for these premier cigars.

[00:35:48] Speaker 00:
It's the same application for every tobacco product that is unflavored that wants to sell in California. And I will note that California does have a premium cigar exception. It has to be unflavored, all the same principles that are in the federal definition, but it also has to be $12 wholesale. So there is a group of folks that don't have to apply to the UTL. That and loose leaf tobacco and Shisha, which is what they use in hookah.

[00:36:15] Speaker 00:
So there are some exemptions that are built in. It's just the premium cigar definition in California has that $12 threshold. And wholesale, which in retail means like, and I'm sure that my friend on this side can tell me exactly what that is, but it's more in the $20-some range, which makes it a very expensive product. But that's not the case here. There's premium cigars that are asking for an exception when everyone else has to apply to be on the UTL to sell lawful products.

[00:36:45] Speaker 03:
So you rely on the fact that it's a sale, but, I mean, your friend said it is true that if you had a laboring requirement to sell in California, that would violate the preemption clause, wouldn't you agree?

[00:36:58] Speaker 00:
Yes.

[00:36:59] Speaker 03:
What is the line, then, we should draw? Sometimes a sale could violate the preemption clause, correct? What's the line you think that we should draw?

[00:37:08] Speaker 00:
We should look at what is being regulated, not who is answering the question. Much was said that, oh, this is pre-market because it's requiring manufacturers and imports to do something. Well, we're asking them to tell us and confirm that the product is unflavored. They're in the best position. They're at the top of the... The whole sales scheme here, it goes then to distributors and retailers and customers. So they can tell us, because they're making the product, they're importing the product, whether it's flavored or not. And then they could just be eligible on the list.

[00:37:40] Speaker 00:
Then they can say whatever they want about their products. Really, I mean...

[00:37:44] Speaker 02:
But how much does it cost them on each cigar to do this?

[00:37:49] Speaker 00:
The initial application fee per brand style, meaning each individual product that is available for the customer or consumer, is $300. Is what?

[00:37:57] UNKNOWN:
$300.

[00:37:57] Speaker 00:
$300? Yes. And the regulations allow up to $1,000, I believe, for the AG to assess based on the cost of administrating the list. But we're at $300. It's $150 per product to reapply every year.

[00:38:15] Speaker 04:
I was just going to ask you, how long is the application good for?

[00:38:19] Speaker 00:
It's good for a year. Now we do also have a, that's just the overall application. If a product has packs of multiples, for example, Actually, proximal multiples might be confusing, but let's say there's a holiday edition of the exact same product. We consider that a variant, so you wouldn't have to pay $300 again. It would be $150 for that additional thing. Buy one, get one half off. You have to just do a sample of the general product. Once.

[00:38:50] Speaker 00:
Once, and that's it for the life of the product. The product being on the UTL and we look for an individual what the product is in the retail level So we're looking at a single cigar my pen but you have to do it every year not the sampling just the recertification And the recertification is $300 every year $150 150. Yes. Yeah, and that is based on the cost of administrating the list Where's the list located utl.ca.gov, I believe.

[00:39:21] Speaker 00:
It's on the Attorney General's website, and part of the law directs Attorney General to administer the list.

[00:39:29] Speaker 04:
Okay.

[00:39:31] Speaker 00:
All right, it looks like I have 25 seconds, so wrap it up. Yeah, I will conclude with stating that the controlling authority in R.J. Reynolds confirms that the states have been the primary regulators of tobacco sales, and the TCA clearly preserves that authority. The UTL is consistent with that framework and is properly focused on regulating the consumer market and prohibiting retail sales of flavored products.

[00:39:59] Speaker 00:
And with that we ask the court to affirm the district courts judgment and deny plaintiff's request for an injunction.

[00:40:04] Speaker 02:
Thank you.

[00:40:05] Speaker 01:
Thank you Thank you your honors The state should have exempted federally defined premium cigars from the review there's no point for this process for federally defined premium cigars and They are not flavored, but they didn't do that. They decided to make premium cigars submit the same application as the dangerous vaping products.

[00:40:38] Speaker 01:
as cigarette manufacturers, and it's not just a fee. It's the burden of putting the applications together. It's not just a piece of paper. It is all the marketing materials for every product, a picture of every side of every package in which the product is sold, a sample in the largest box available. So most of these things come in boxes of 20 cigars. They're going to need one of those. It's very expensive to put this together. It costs thousands of dollars per variety and is costing the industry tens if not hundreds of millions of dollars.

[00:41:14] Speaker 01:
I'm disputing the record.

[00:41:15] Speaker 04:
So after the law passed, is there sort of a regulatory process that took place?

[00:41:24] Speaker 04:
Here in California?

[00:41:26] Speaker 01:
Yes, after the law passed, there was a regulation that came out. They waited a year to put the regulation out, just three months before this law took effect, just six weeks before you had to submit the applications. And instead of going down the route of letting federally defined premium cigars out of this process, they subjected them to the full burdens and chose to require all the submission.

[00:41:50] Speaker 04:
Did the industry challenge the regulations in state court?

[00:41:53] Speaker 01:
Yes, Your Honor.

[00:41:53] Speaker 04:
Arbitrary and capricious or inconsistent with the statute?

[00:41:56] Speaker 01:
Yes, Your Honor, and that challenge is pending right now. Where is it now? It's both at Los Angeles County Superior Court and up at the Court of Appeal.

[00:42:05] Speaker 04:
What's in the Court of Appeal? Is it in the Court of Appeal for decision? Ours?

[00:42:08] Speaker 01:
Yes.

[00:42:08] Speaker 04:
In the Ninth Circuit?

[00:42:10] Speaker 01:
No, the State Court of Appeal. Oh, the State Court of Appeal. The trial court denied a preliminary injunction, and that has been appealed. I see. And it's coming up.

[00:42:19] Speaker 02:
So that would be the second DCA. It's in the second DCA.

[00:42:25] Speaker 01:
Yes, Your Honor. That's a challenge to the regulation itself. That's right. And I will say, they talk about federal cigars going through a box checking exercise. The federal definition of premium cigars is not mentioned once in those regulations, not mentioned once in the law, right? So this is all kind of post hoc litigation arguments. And if they want to exempt premium cigars through this process, they certainly should if we wouldn't be here right now. Let me go to preemption for just a moment.

[00:42:52] Speaker 02:
Wait.

[00:42:53] Speaker 01:
Your Honor.

[00:42:54] Speaker 02:
I've already been.

[00:42:55] Speaker 01:
I know you have been indulgent.

[00:42:56] Speaker 02:
Give an inch, take a mile.

[00:42:58] Speaker 01:
That's right, Your Honor. So go for it. 30 seconds. Your Honor, those words under the provisions of this chapter, that applies to every term in the preemption clause. And if you play that all the way through, it can't just be about the federal process. But beyond that, RJR said you have to interpret the savings clause and the preemption clause and give meaning to both, right? Our interpretation gives lots of room for the sales clause. You can do what states have done across the country and ban retail sales of finished products. All we're saying here is you cannot use the mechanism pulling the manufacturers in just like the federal government does and have them provide an application to put their product on the market first.

[00:43:38] Speaker 01:
Their interpretation that says it's only about the federal process and states injecting themselves into it Those are angels dancing on a head of a pen. They can't point to a single example of a state doing that, and there's no point to doing it. Probably be unconstitutional commandeering of the federal government. It's not what the preemption clause was about, and it doesn't reconcile how the other terms in the preemption clause work. With that, Your Honor, I urge the court to hold that the law is preempted and violates the First Amendment. Thank you, Your Honor.

[00:44:06] Speaker 02:
Thank you both for your argument in this matter. This case will stand submitted, and we're in recess until tomorrow at 9 a.m. Thank you.