Officials say the measure is a compromise between minimizing youths’ e-cigarette use and President Trump’s expressed desire to protect the industry and small-business owners. Photo: Tony Dejak/Associated Press

The Food and Drug Administration said it would bar the sale of fruit- and mint-flavored e-cigarette cartridges—dealing a severe blow to one of the industry’s biggest players and placing more pressure on manufacturers already facing a May 12 deadline for federal review of their products.

The FDA said on Thursday it would block the sale of fruit and mint flavors in cartridge-based e-cigarettes popular with young people, but wouldn’t apply the restriction to tank vaping systems commonly found at vape shops.

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E-cigarettes, most of them cartridge based, generate $6.4 billion in annual U.S. sales while tank vaping systems generate $2.6 billion, according to Wells Fargo. Cartridge-based vaporizers such as those made by Juul Labs Inc. are sold in gas stations and convenience stores as well as tobacco and vape shops. Tank-based systems and their accompanying nicotine liquids are sold primarily in vape shops, but are also available online and in some convenience stores. Major retail chains such as Walmart and Walgreens stopped selling all vaping products last year.

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Federal officials framed the decision as a compromise that addresses concerns about youth vaping while not putting vape shops out of business.

Health and Human Services Secretary Alex Azar said the move “seeks to strike the right public health balance by maintaining e-cigarettes as a potential off-ramp for adults using combustible tobacco while ensuring these products don’t provide an on-ramp to nicotine addiction for our youth.”

The FDA’s move was first reported by The Wall Street Journal Tuesday.

The action came under fire from some public-health groups and lawmakers, who said the action is inadequate to stop a surge of e-cigarette use by high-school and middle-school students.

“I’m deeply disturbed that industry lobbyists were able to get President Trump to gut the ban on flavors that the FDA was belatedly planning,” said Sen. Jeff Merkley (D., Ore.).

Vaping related illnesses are on the rise, and it appears to be related to a black market of THC vapes. WSJ’s Daniela Hernandez sat down with experts to understand what is happening.

The move is “a major missed opportunity that will still leave young people at risk for addiction,” said Sally Goza president of the American Academy of Pediatrics.

Mitch Zeller, director of the FDA Center for Tobacco Products, said the agency will closely monitor manufacturers and retailers to ensure the new regulations are sufficient to combat e-cigarette use by children. He said there will be penalties for companies that use labeling and advertising that is appealing to youngsters—or fail to monitor retailers’ compliance with the restrictions.

E-cigarette market leader Juul last fall voluntarily stopped its U.S. sales of all flavors other than tobacco and menthol—the only two flavors of e-cigarette pods that will be allowed on the market after the agency’s policy goes into effect in February.

But for NJOY Holdings Inc., which last year became the No. 2 e-cigarette maker with its Ace e-cigarettes, the ban will wipe products representing more than 75% of its sales from the market, according to Barclays analysts.

A person familiar with the company said that estimate didn’t take into account NJOY’s disposable e-cigarettes, which won’t be affected by the ban. The person added the restriction would apply to products representing about 60% of the company’s sales.

NJOY made gains last year by offering its Ace vaporizers for 99 cents and selling flavors like blueberry and watermelon after Juul had voluntarily pulled its fruit flavors from U.S. retail stores.

“I think in a world of just tobacco and menthol, Juul will win and NJOY market share gains will erode,” Gregg Smith, an investor in both companies, said Thursday.

When the FDA asserted regulatory authority over e-cigarettes in 2016, the agency allowed products already on the market to stay there during a grace period of several years so that manufacturers could prepare application materials before submitting them for agency review by a deadline recently set for May 12 of this year. All of those products since then have remained on the market at the agency’s discretion, but could be pulled off at any point.

Agency officials Thursday said they would selectively revoke the grace period, allowing tobacco- and menthol-favored e-cigarette cartridges to remain on store shelves while other flavors would have to come off.

FDA officials said the new policy would go into effect in early February, 30 days after the agency’s guidance is published. They said the guidance would be posted early next week.

Just a few months after the restriction is implemented, the May 12 deadline for e-cigarette manufacturers is expected to yet again throw the industry into turmoil.

By that date, manufacturers must submit for FDA review any vaping products they want to remain on the market beyond that point, even those that taste like menthol and tobacco. They can also apply to bring fruit-flavored items back on the market.

No vaping product—even the open tank systems that for the next few months have a reprieve—can remain on store shelves after May 12 if it hasn’t been submitted for review by the agency.

Reynolds American Inc., a subsidiary of tobacco giant British American Tobacco PLC, already has submitted applications for some of its Vuse e-cigarettes. Juul had been preparing application materials on four flavors—mint, menthol, mango and Virginia tobacco—but now plans only to submit applications for menthol and Virginia tobacco for the May deadline, according to people familiar with the matter.

NJOY plans to submit applications to the FDA by March, according to the person familiar with the company.

NJOY in 2007 introduced a pioneering disposable cigarette-shaped device. Early investors included billionaire venture capitalist Peter Thiel and Napster founder Sean Parker. But the company was eclipsed as its new version of the device flopped and bigger players entered the market. The company went into bankruptcy in 2016 and exited bankruptcy a year later. Its most recent funding round in December put the value of the company at $2.5 billion.

Reynolds called the FDA’s new policy “a positive step as it sets a level playing field for the entire U.S. industry.” Juul said it supports the new restriction.

Studies showing e-cigarettes generally safer than regular cigarettes are quite compelling, the National Academy of Sciences, Engineering and Medicine wrote in an extensive report two years ago.

That safety issue has been under a microscope through much of 2019, as thousands of people became sick and dozens died from a vaping-related lung illness. However, evidence thus far—while not exculpating e-cigarettes themselves—points to largely black-market products containing THC, the psychoactive ingredient in marijuana.

Write to Jennifer Maloney at jennifer.maloney@wsj.com and Thomas M. Burton at tom.burton@wsj.com

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