Is the Handmade Soap Industry Doomed?

Over the past several days, I've been tagged in a couple posts (like this one) declaring that the government (and big businesses like Johnson & Johnson, Proctor and Gamble, L'oreal, etc) are trying to squish handmade soap companies with the new Personal Care Products Safety Act.

I just attended a briefing call about this bill and am reporting based on my understanding of the contents of that call. I am not an expert and am open to being proven wrong on any of these points. The call was a collaboration between the Indie Business Network and the Coalition of Handcrafted Entrepreneurs. I am a member of both and recommend both to anyone in small business.

Updated to reflect clarification about soap and the FDA definition.

First, let's talk about what a bill is...

So Senator Dianne Feinstein and Senator Susan Collins have introduced a bill governing all cosmetics and personal products (more on what that means in a moment).

This bill has not gone to committee yet and it is not even in the queue to be in committee, so the "sky is falling" type posts are jumping the gun quite a lot.

However, there is still action to be taken. Click here to go to the "action" section of the Coalition for Handcrafted Entrepreneurs.

Why is this a bill?

As the cosmetics and personal product industry has expanded to include a huge and growing industry of handmade product entrepreneurs, the laws have not been updated. I think it's probably good that the growing industry has some regulation. The tricky part is adding some regulation without creating a ton of red tape and insurmountable governmental hurdles that very small-scale entrepreneurs must overcome.

So, it's a kind of a fine line.

Does this apply to handmade soap companies?

The FDA defines soap very narrowly, so if any claims are made about a soap's qualities (eg "moisturizing"), it qualifies as a cosmetic. Wha? Yeah. Here's the regulation itself.

So some handmade soap companies would be affected and some would not. And all lotion and cosmetic companies would be affected.

Click here to find out what action you can take

What will this bill do if enacted into law?

The bill as it is written currently will have zero impact on small businesses with less than $100k in gross revenue annually. None of the fees, regulations, registrations, ingredient statements, etc will have anything to do with those companies.

Fees

The biggest concern for most small business people is money. What fees can cosmetic companies expect to see from this bill?

1. For companies under $100k gross revenue / year, they are completely exempt from this law. This means most people making and selling soap as a hobby will not be affected at all.
2. For companies who make under $500k/year in gross revenue, they pay no fees.
3. For companies who make $500k/year - $2.5m/year in gross revenue, they pay $250/year.
4. For companies who make $2.5m/year - $20m/year in gross revenue, they pay $500/year.
5. For companies who make $20m/year+ in gross revenue, they pay significantly more.

The gross revenue per year figure is based on the average of the past three years. Since we've only been in business two years, we wouldn't even qualify for the lowest tier of this structure.

Registration

Every qualified company making more than $100k/year in gross revenue would need to register with the FDA annually using an online form. If the company is based from a home, they would be able to exclude their address from the public listing of all registered companies to protect their privacy.

GMP: Good Manufacturing Practices

Before we started Outlaw Soaps, we didn't even know what "GMP" stood for... gimps? gnome mutant protection? gracious mothering positions?

It stands for "Good Manufacturing Practices," which governs how we manufacture products no matter how big or small, no matter where we are. It means we know the source and ratios of the ingredients of each product based on batch numbers and record keeping.

Earlier this year, we took a course on GMP from Lucky Break Consulting and have worked tirelessly to become GMP compliant. This is important not only to ensure quality, but also to keep our liability insurance.

What? Liability insurance?

It's true. In order to sell to such retailers as ThinkGeek, UncommonGoods, and Whole Foods, we carry liability insurance.

Yes, our businesslikeness surprises even me sometimes.

This bill would require that all registered companies are GMP compliant. I consider this critically important anyways.

Cosmetic Ingredient Statements

Here's the trickiest part of the whole bill, imo.

Within 60 days of releasing a new product, companies would need to submit their ingredient lists to the FDA. They would also have to submit an annual ingredient statement.

For small businesses (as defined by the SBA), they would have longer than the 60 days, but this is all kind of fuzzy.

Adverse Event Reporting

If a consumer claims significant harm from a product (significant = permanent damage, death), this must be reported to the FDA.

Safety Substantiation

This is also a pretty tricky part of the bill.

Companies that would be compliant with this bill would need to substantiate the safety of their products. This could mean they are tested by a third party or could mean that they are manufacturing in compliance with safety standards set forth by the manufacturers of the ingredients.

Preemption

"There will be no legal Gods above the Federal Government" is how I would write this if I was issuing this like the 10 Commandments.

Basically, this says that no matter what individual states want to assert, the final word on product safety is up to the FDA. This only applies to future regulations, not current laws.

Currently, we are going to have to report every ingredient to some 2013 Consumer Products Safety Survey enacted in California. It kind of sucks, but they're helping us out since we're so small potatoes.

In summary...

This bill is the first attempt to regulate the cosmetic industry in a long time. It's hard to get this stuff perfect on the first time around, so sure, the bill isn't perfect.

Thanks to the hard work of the Coalition of Handcrafted Entrepreneurs and Indie Business Network, we are going to stay informed and active about this bill.

Click here to find out what you can do to help out handcrafted entrepreneurs