Illicit disposable vapes in the U.S. - who and where are the suppliers?
The profliferation of illicit disposable vapes has been a consistent headwind haunting the tobacco industry since 2022. The current market leading brands of this segment are believed to be Elf Bar and Lost Mary, which are both owned by iMiracle Shenzhen Technology. While major tobacco companies have requested the U.S. FDA to strengthen its enforcement against illicit disposable vapes, there has been limited success thus far. This article is to discuss why enforcement is so difficult. It has to start with two questions.
Who are the suppliers?
Where are the suppliers?
While many people believe the answer to the first question is simply “iMiracle Shenzhen Technology”, the reality is far more complicated than that. If you think the answer to the second question is simply “China”, well, yes and no.
I have struggled to find comprehensive analysis of this topic from any reputable media in the U.S., but an article from Fortune provides some basic facts about the situation, which are extracted below for your reference.
The newer vaping devices bear a different name, EBCreate, and list different Chinese manufacturers than those targeted by the FDA.
Public records show how quickly Elf Bar was able to rebrand itself when the FDA announced its import ban in May.
Two weeks later, a request to trademark EBCreate was filed with the U.S. Patent and Trademark Office. The filing was made by the same patent attorney who submitted Elf Bar’s previous applications. But unlike those filings, the paperwork doesn’t mention Elf Bar’s parent company, iMiracle Shenzhen Technology. Instead the application lists a Hong Kong company, Nevera HK Limited, the same company listed on new EBCreate e-cigarette packages.
The new products bear the same QR code previously found on Elf Bar packages to help customers verify their authenticity, as well as the same licensing code assigned by Chinese tobacco authorities.
Even when companies don’t rename their products, experts point to the challenge customs officials face in intercepting banned products among the tens of thousands of shipments arriving daily at U.S. ports.
“These items may come in under other deceptive practices. They are mislabeled or bundled together with other items in a container,” said Rob Handfield, who studies global supply chains at North Carolina State University. “Customs and Border Patrol aren’t going to go and inspect the contents of every shipping container.”
While the Fortune articles offers insights into this issue from the U.S. perspective, let’s take a look at another article from 蓝鲸财经 to provide a more holistic view. The article is in Chinese, but you can still use auto-translate function of your web browser to view it in English. I have extracted some key highlights below.
iMiracle cooperates with multiple manufacturers. Among them, Fuli Intelligent Factory located in Dongguan is a leader in intelligent manufacturing in the e-cigarette industry. Fuli Intelligent produces tens of millions of ELFBAR and LOST MARY electronic cigarettes every year. Fuli Intelligent's new smart production line, which will be put into production in May 2023, will shorten the product delivery cycle. The delivery cycle of traditional production lines is 15 days, while the intelligent production line shortens it to 5-7 days, and orders can be placed directly online and produced on demand. The supply chain of Chinese e-cigarette companies is concentrated in the Pearl River Delta. In addition to Shenzhen Baoan, many e-cigarette factories have also spread to Huizhou, Jiangmen, Dongguan, Foshan and other places.
In June 2023, the FDA issued warning letters to 189 retailers, requiring them to stop selling ELFBAR disposable e-cigarettes. ELFBAR has officially suspended sales in the US market. However, U.S. Customs still seizes illegal e-cigarettes from abroad from time to time, including ELFBAR.
Super important. Please read this
An iMiracle employee responded to Blue Whale Finance that there are indeed some ELFBAR products on the U.S. market, but they are not from iMiracle’s official channels, and iMiracle’s official sales channels will never sell them to the United States. “Many ELFBAR products in the U.S. market are for fake products, scanning the anti-counterfeiting code above can even lead to our official website.”
"In 2022, we cooperated with domestic regulators to crack down on counterfeiting, and hundreds of counterfeiting factories were shut down. But these factories immediately moved to Vietnam and other countries in Southeast Asia, and now we have to crack down on counterfeiting across borders again," said this Miracle employee.
A domestic e-cigarette practitioner said that he has seen factories making ELFBAR imitations, "which are exactly the same as it (ELFBAR), and there are so many of them." The shipping price of large-volume models is only 20 yuan each.
I think these two articles don’t contradict each other but provide valuable insights to get us closer to the reality. Here are the possible scenarios:
Elf Bar products that are available in the U.S. could be produced by manufacturers who had cooperated with iMiracle, but the products currently in production could be counterfeit products without proper authorisation by iMiracle. The production of which could be commissioned by other exporters in China, or importers outside of China.
Elf Bar products that are available in the U.S. could be produced by manufacturers who had cooperated with iMiracle, but the products currently in production could be commissioned by certain entities closely affiliated to iMiracle or acting as iMiracle’s syndicates / proxy.
Elf Bar products that are available in the U.S. could be produced by former employees of manufacturers who had cooperated with iMiracle, who then set up factories in China or in Southeast Asian countries including Vietnam for production of disposable vape products.
Elf Bar products that are available in the U.S. could be produced by manufacturers who had cooperated with iMiracle for export to countries other than the U.S.. Then the products are subsequently imported by traders in the U.S. from these countries. i.e. these are not counterfeit products, but contraband instead.
The list of possible scenarios can go on and on. The reality could be a combination of these scenarios. I guess an anlogy I would use is the production and sales of Coca Cola. Although Coca Cola manages the bottling, production and distribution of the product in certain geographies, they are indeed done by various local partners in international market. For exapmle, it is exclusively done by Swire Beverages Holdings Limited in Hong Kong, which people living outside of Hong Kong may not have heard of. And occassionally Coca Cola products sold in certain mum and pop shops in Hong Kong may not be produced by Swire Beverages, but instead imported from other neighbouring countries with lower cost.
As you may see from the above, the supply chain that contributes to production of “Elf Bar” is incredibly flexible. Going after iMiracle Technology will be meaningless. They don’t own the factory anyway. Going after the factories also will be meaningless. People working in the factories can relocate the tools and equipments and then start working again elsewhere. Thanks to the trade war between U.S. and China, the manufacturing industry in China has well adapted to this and has established massive footprint in friendly nations in Southeast Asia.
Even if the U.S. government gains support from China and Southeast Asian governments to shut down all factories that produce Elf Bar products, it is impossible to take away people’s desire to make a living off producing a product that has been proven hugely profitable. Where there’s opportunity to make a living, people will figure out solutions to survive. That’s the nature of all human beings on earth.
Prohibition is never a solution to limit tobacco usage.
And what is the U.S. FDA doing to curb illicit disposable vapes? Issuing warning letters and civil money penalty to companies in the U.S.. Haha that’s cute :)