In December 2022, President Joe Biden signed the Modernization of Cosmetics Regulation Act (MoCRA) into law as part of the Consolidated Appropriations Act, 2023. This was the first piece of cosmetic-regulatory legislation since the Federal Food, Drug, and Cosmetic (FD&C) Act of 1938. MoCRA significantly enhanced the control of the US Food and Drug Administration (FDA) over the cosmetic industry, allowing it to regulate the manufacturing and marketing of cosmetic products as well as be more vigilant of their effects on consumers.
The cosmetic industry is one of the largest and most influential sectors globally, contributing significantly to the economies of regions such as the United States, the United Kingdom and the European Union. While the industry has historically operated with relatively few regulations, recent changes, particularly the introduction of MoCRA in the U.S. have significantly altered the regulatory landscape. These regulatory shifts, designed to improve consumer safety, have had important financial implications for medium and large companies, with costs rising as they navigate complex compliance requirements.
One year after the passing of MoCRA, we examine the impact it has had on businesses in the United States and the challenges it could pose for the cosmetics industry moving forward.
MoCRA in Effect
MoCRA significantly enhanced the control of the US Food and Drug Administration (FDA) over the cosmetic industry, allowing it to regulate the manufacturing and marketing of cosmetic products as well as be more vigilant of their effects on consumers.
The act called for regulations to be imposed on several criteria including
Exemptions are made for small businesses- defined as businesses whose average gross annual sale of cosmetic products in the US has been less than $1 Million over the previous three years - but only from certain criteria, including registration, product listing and GMPs.
Keeping in mind the effects of brand-new legislation on manufacturing and business operations, The FDA put out a staggered timeline for companies to comply with the above guidelines following the signing of the act in 2022. In November 2023, the body issued a notice that it would accept registration and listing information by the statutory deadline of December 29, 2023. However, this would not be enforced until July 1, 2024 to give companies time to comply with the requirements. Additionally, the FDA introduced Cosmetics Direct, an electronic registration and listing portal along with provisions for a paper submission as an alternative submission tool.
Impact on Businesses
In the U.S., the cosmetics industry has historically been one of the least regulated sectors. However, the passage of MoCRA in December 2022 marked a significant shift in this landscape. As explained above, it required cosmetic manufacturers to substantiate product safety, update manufacturing practices, and register facilities with the FDA.
The cost of bringing a product into the market
This overhaul has led to significant compliance costs, with large companies like L’Oréal, Unilever, and Procter & Gamble facing millions of dollars in additional expenses. While these changes are necessary for improving consumer safety, they may slow innovation, as companies must navigate these regulations before launching new products.
Bringing a cosmetic product to market involves a complex and resource-intensive journey. It starts with formulation, stability testing, and safety assessments to meet FDA regulations, including proper labeling and ingredient transparency. Under MoCRA, the process has become more stringent, adding compliance steps that increase both complexity and cost. Key expenses include raw materials, packaging, labor, and marketing efforts. Companies also invest heavily in innovative designs to differentiate their products. As MoCRA enforces stricter safety and transparency standards, manufacturers face additional financial and operational challenges to meet these requirements.
With the act coming into effect, this will change and add more steps – and expense – to the cosmetic manufacturing process, an expensive process to begin with.
Cost Category | Description | Estimated Costs in USD |
Raw Materials | Ingredients such as essential oils, chemicals, natural extracts | $30,000 to $200,000 annually |
Labor Costs | Wages for skilled labor, including production and quality control staff | $20,000 to $150,000 annually |
Manufacturing Overhead | Utilities, rent, equipment maintenance | $15,000 to $100,000 annually |
Packaging Costs | Containers, labels, outer cartons | $10,000 to $75,000 annually |
Quality Control Expenses | Ensuring product quality, testing, certifications | $5,000 to $50,000 annually |
Marketing and Advertising Costs | Brand visibility, consumer engagement, advertising campaigns | $10,000 to $100,000 annually |
Logistics and Shipping Costs | Distribution, shipping, handling | $5,000 to $50,000 annually |
Vertical bar graph
The cosmetic industry contributes approximately $308.7 billion into the U.S. gross domestic product (GDP). Considering that the U.S. GDP stood around $25.5 trillion in 2023, this equates to a contribution of roughly 1.2% to the overall economy. A more detailed breakdown is provided in the figure below.
Company Size | Revenue Range (In USD) | Estimated Number of Companies |
Small | Less than $250 million | Approximately 3,800 |
Medium | $250 million to $1 billion | Around 300 |
Large | More than $1 billion | About 72 |
(information from Fortune business insights)
The U.S. cosmetics industry, comprising over a thousand products, has historically been regulated lightly, with the last major legislation dating back over 80 years. However, under MoCRA, companies must now ensure compliance with stringent regulations, including facility registration, ingredient transparency, and safety assessments. This added regulatory burden results in increased costs across manufacturing, labelling, and documentation, along with the need to hire regulatory professionals for compliance.
Large companies like L’Oréal, Unilever, and Procter & Gamble face significant financial impacts from MoCRA, with estimated cost increases ranging from 4% to 12% due to added safety testing, facility registrations, and GMP compliance. Small and mid-sized companies, such as e.l.f. Beauty and Anastasia Beverly Hills, also experience heightened costs—often around 10%—from increased compliance requirements, including product listing, safety testing, and manufacturing updates.
These financial pressures are reflected in the cost breakdowns, with large companies seeing millions in increased costs and smaller companies facing significant operational strain as they meet MoCRA’s mandates.
The monetary impact of the above is illustrated below
Company | Annual Revenue | Current Cost of Manufacture | Estimated Cost of Manufacture Post-MoCRA | Increase in Costs | Percentage Increase |
e.l.f. Beauty Inc. | $400 million | $200 million | $220 million | $20 million | 10% |
Beauty 21 Cosmetics, Inc. | $300 million | $150 million | $165 million | $15 million | 10% |
Anastasia Beverly Hills | $340 million | $170 million | $187 million | $17 million | 10% |
Tatcha | $300 million | $150 million | $165 million | $15 million | 10% |
Beautycounter | $500 million | $250 million | $275 million | $25 million | 10% |
(tabulated with references from elfcompany.com; Fast Company magazine, Pitchbook and incfact.com)
The Cost of Compliance
From the financial strain of compliance to operational disruptions, MoCRA’s stringent mandates risk stalling innovation, burdening smaller businesses, and ultimately slowing the sector’s expansion.
Compliance Deadlines and Operational Strain
MoCRA’s staggered timeline, beginning with the December 29, 2023, deadline for registration and product listing, created immense pressure on businesses to act quickly. For many companies, particularly smaller ones with limited resources, the need to gather documentation, update labelling, and align manufacturing processes within this timeframe lead to rushed, costly adjustments.
Although the FDA’s enforcement delay until July 1, 2024, provided a buffer, it also fostered uncertainty. Companies were either underprepared, risking non-compliance, or overcommitted resources, diverting attention from other critical areas such as market expansion or product development. This delicate balancing act can leave businesses focusing on regulatory adherence at the expense of growth opportunities.
Mounting Costs and Financial Barriers
Reformulation Expenses
Reformulating products to eliminate restricted ingredients is a costly and time-consuming process, with R&D investments ranging from $100,000 to $500,000 per product. Smaller companies often lack the financial cushion to absorb these costs, leading to reduced product lines or, in some cases, business closures.
Infrastructure Overhaul
The need to hire regulatory specialists, implement compliance management software, and train staff adds a recurring annual cost of $150,000 to $550,000 for medium to large firms. Smaller enterprises, operating on tighter margins, face disproportionate financial burdens that could limit their ability to compete.
Sustainability Costs
Shifting to eco-friendly packaging and responsibly sourced ingredients, while aligned with consumer preferences, imposes initial costs of $50,000 to $300,000. These expenses, compounded by MoCRA's mandates, strain budgets further, making it difficult for companies to invest in other growth-oriented initiatives.
Innovation at Risk
MoCRA’s focus on compliance often diverts resources from product innovation, a cornerstone of industry growth. Companies preoccupied with meeting regulatory requirements may deprioritize research and development, resulting in fewer new product launches and a slower response to emerging consumer trends.
This stagnation in innovation disproportionately impacts larger brands that thrive on introducing trend-setting products and smaller companies that rely on niche, cutting-edge formulations to establish market presence. Over time, the industry's overall competitiveness and appeal may decline, both domestically and globally.
Unintended Consequences of Delayed Enforcement
The FDA’s delayed enforcement until July 2024 created a false sense of security for some companies, leading to procrastination and rushed last-minute efforts. This reactive approach not only increases the likelihood of non-compliance but also exacerbates resource strain, diverting attention from strategic growth initiatives.
Meanwhile, businesses that invest early in compliance may bear higher short-term costs without immediate returns, forcing them to scale back on marketing, product launches, or expansion efforts.
Global Market Position and Diversification Challenges
While some companies may seek to offset domestic regulatory burdens by expanding into international markets, this strategy brings its own challenges. Adapting products to meet the standards of diverse regulatory environments requires additional R&D, with costs ranging from $100,000 to $500,000 per market. For many businesses, these expenses compounded the financial strain imposed by MoCRA, making diversification an unrealistic option.
Failure to compete globally could erode the U.S. cosmetics industry’s position as a market leader, allowing international competitors to gain an advantage.
Slowing Industry Growth
The cumulative impact of MoCRA’s requirements—rising costs, operational disruptions, and slowed innovation—poses a significant threat to the U.S. cosmetics industry’s growth. Smaller businesses are at particular risk of closure, while larger companies may scale back expansion plans to focus on compliance.
With fewer new entrants, limited innovation, and reduced competition, the industry risks stagnation. As businesses prioritize regulatory adherence overgrowth, consumers may face higher prices, reduced product diversity, and slower adoption of emerging trends.
What if they won’t do it?
While the cost of compliance is substantial, not complying could be equally hefty if not more, resulting in serious consequences for cosmetic companies. Apart from monetary penalties, the FDA may take enforcement actions such as issuing warning letters, fines, or legal action, and can mandate recalls if products are deemed unsafe. It also has the authority to suspend a facility’s registration, access manufacturer’s records and recall a product in the event of non-compliance. Furthermore, any adverse effects on consumers or health risks can result in the prevention of further distribution.
Non-compliance can also lead to adverse publicity, harming a company’s reputation and consumer trust, and causing operational disruptions from recalls or inspections. Ensuring compliance with MoCRA is essential to avoid these risks and ensure continued market access.
The exact cost of non-compliance is tabulated in the table below.
Impact Area | Description | Estimated Costs |
Fines and Penalties | FDA fines for non-compliance | $50,000 to $1 million per violation |
Legal Costs | Legal fees to address non-compliance issues and potential lawsuits | $100,000 to $500,000 annually |
Product Recalls | Costs associated with recalling non-compliant products | $500,000 to $5 million per recall |
Lost Revenue | Revenue loss due to halted sales and damaged brand reputation | $1 million to $10 million annually |
Production Halts | Financial losses due to production stoppages | $100,000 to $1 million annually |
Administrative Costs | Additional administrative costs for addressing compliance issues | $50,000 to $200,000 annually |
Brand Damage | Long-term revenue loss due to damaged brand reputation | $1 million to $10 million annually |
Consumer Trust | Decreased sales and customer loyalty due to loss of consumer trust | $500,000 to $5 million annually |
(Tabulated with information from the FDA, the National Law Review, Pharma Academia.com, CosmeticsDesign.com)
Closer Scrutiny
While financial costs are impacted by any new legislation, MoCRA also allows for closer scrutiny from the FDA itself, over and above the requirements of the act. This put companies at greater risk of being fined or suspended, which required strict adherence to all guidelines. This calls for more effort from companies themselves, a stark contrast to the light governance of the past.
Furthermore, it preempts state and local laws that may differ from the federal law on registration, product listing, good manufacturing practice, records, recalls, adverse event reporting or safety substantiation. Companies will have to be prepared for this increased scrutiny, something that can impact business operations significantly if the FDA feels so.
Greater transparency
External regulation aside, MoCRA requires that companies maintain greater levels of transparency from their own end, from ingredients used to labeling of the products and any adverse effects seen. Cosmetics manufacturers must list each product with the FDA, including its ingredients and where it is manufactured. Product labels will have to identify ingredients including each fragrance allergen in the product. MoCRA will bring the FDA’s regulation of the beauty and personal care industry more in line with other categories that it regulates.
Conclusion
While MoCRA aims to enhance consumer safety and industry transparency, its stringent requirements and associated costs create significant obstacles for the U.S. cosmetics industry. From stifling innovation to increasing entry barriers, the legislation could inadvertently hinder the sector’s growth and dynamism.
To ensure long-term viability, policymakers and industry stakeholders must collaborate to find a balance between regulatory compliance and fostering innovation. Streamlined processes, financial support for smaller businesses, and clear guidance from the FDA could mitigate these challenges, allowing the industry to thrive while meeting MoCRA’s safety goals. Without such measures, the U.S. cosmetics industry risks losing its competitive edge and slowing its trajectory of growth.
Cosmetic companies must act now to navigate these changes effectively. Consider evaluating your compliance strategies, investing in regulatory expertise, and engaging with industry groups to advocate for clear guidelines and support. You can safeguard your company’s growth and ensure a competitive edge in a rapidly evolving market. You can reach out to us here to proactively address MoCRA’s impact.
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