How to Start a Vape Business
By Norm Bour
The vape space has been a confusing, tangled, unorganized mess since it took off about a decade ago. Novices opened retail shops, liquid companies, online and brick and mortar distribution outlets and created other niches. Since we’ve been the largest vape consultancy since 2013 and have helped over 40 business worldwide, this information is updated from our earlier reports and reflects the new world in 2018 and beyond.
Starting an e-liquid line
Just one word: don’t. Followed by “probably can’t.”
Once available to even the most naïve or inexperienced, starting a liquid line is impractical along with illegal.
On August 8, 2016, the FDA passed a 500-page tome called “the deeming regulations,” which changed the industry in one day. Prior to that date anyone could and did enter the vape space and many created new liquid lines. Some were done properly, but most were not. The “bathtub” liquids that were joked about were quite real, so the deeming regulations attempted to stop that, but have not been effective.
The line in the sand stipulated that no “new products” could be introduced after that date although many have gotten around that restriction.
There are ways of getting around the FDA and may include purchasing a line of liquids that were sold prior to that August 8, 2016 date. There was initial controversy about whether you could change labels and flavor names and after seeking clarification from the FDA it has been concluded that a new label does not constitute a new product.
Today we have a few market leaders followed by thousands of products that never see the inside of a retail sales shelf. No one knows the exact number, but estimates range from 8,000-10,000 flavor names which comprise thousands of brand manufacturers.
Some brand owners make their own e-liquids in their own facility and many source it out to third part contractors. Some of those contractors in turn make flavors for many lines of liquid.
The bottom line:
Starting a liquid line makes no sense unless you have a large budget and experience in this industry. A strong social media following is also a huge asset.
Open a vape shop
Is it too late? Has the proverbial ship left the harbor? The answer is no, and there are many opportunities left in the aftermath of regulations, closures and ever-tightening restrictions.
The face of vape shops have morphed over the years and many shops sell tobacco products along with paraphernalia and glassware. The line between smoke/ tobacco shops and vape shops have blurred and is now made more complex with new products including CBD and possibly cannabis products in certain states. Like e-liquids, no one knows the exact number of retail shops, but the numbers are in the similar 8,000-10,000 range that are dedicated vape shops. The largest chain in the nation has over 100 locations and recently got a huge cash infusion from a major tobacco company. Many of the large chains are franchises, but the single location/ single owner model is the most common.
The good news is that someone else’s failure may be your opportunity and the option of buying an existing shop is very real. That shop might sell for the cost (or less) of inventory plus taking over a current lease. When VapeMentors started advising new shops on how to launch a new shop, the number one question asked was “How much do I need?” For many years the suggested budget was $30,000 plus. Today it may take more since the customer’s expectations are much higher and no one wants to frequent a shop with no product, ambiance or a poor location.
The bottom line:
Opening a vape shop is a viable business, but you must be familiar with the regulations at every level. The FDA/ federal government now considers any vaping product a “tobacco product” and the rules are specific and limiting.
State laws can also be unwieldy along with heavy state taxation. Local laws, once a limiting factor, are more lenient than in years passed.
Starting an online e-commerce site
If you have tech skills and a bit of capital, this is probably an easy entry to the vape industry. An e-commerce store can be set up in a few days and there are templates galore through Shopify and other modules. The good news is that anyone can do it, but the bad news is that anyone can do it. But how do you gain access to products? And how do you get yourself found in this cluttered space? There are lots of wholesalers and distributors and like any other industry, here are good, better and very bad to weed through. Many will not open an account with new companies, but others are more lenient. Getting products direct from China (for hardware) is not necessary any more and there are hundreds of major distributors that will sell you products.
There is no hard rule, but most distributors will sell at about 30 percent off retail prices. From there you can either go direct to consumers (B2C) or direct to businesses (B2B).
The Future says…
The vaping industry generated about $5B in 2017, which is up over 300 percent since 2013 when it was estimated at $1.5B according to Wells Fargo Securities analysts. The “wild, wild west” days are long gone, and the industry is as risky as many others. Proper business practices are required, along with proper licensing, vape insurance and training of staff. There is money to be made in vaping and the future projections still show that in the next ten years it may equal the tobacco industry- which is shrinking. “Big Tobacco” is involved with the vape industry and the opportunities for vapreneurs is vast.
Do you have questions about mastering the vape industry? If so, send them on to norm@VapeMentors.com and we’ll address them in future columns.
Norm Bour is the founder of VapeMentors – a vape industry consulting company for vape shops, eCommerce sites and e-liquid brands. He’s also the host of Vape Radio, the largest vape business podcast in the world with more than 1.3 M downloads.
As a founding partner in the Vape Industry Business Exchange (VIBE) Norm is committed to supporting the vape space into this Brave New World.
Contact him at norm@VapeMentors.com.