GAKYBM Chapter 1: The Easy Days Are Over.
Go away, kid. You bother me.
A vape shop owner's opinions and observations of an industry in its infancy.
Chapter 1
The Easy Days Are Over
As it was.
The only entities that were more upset about the end of prohibition than the Temperance League were the guy who had the still and the guy that ran the rum.
The guy with the still needed rudimentary knowledge, raw materials, vessels, and the tubing to start up production, along with a quiet, isolated space to set it up. The guy who was running the rum needed a fast car, intimate knowledge of the back roads, and which enforcement officers could be bought instead of avoided. Both required the mindset that they were going to do this in the face of a legal structure that said they should not.
This behaviour is not unlike the Canadian vaping industry before May of 2018. Before this date, Health Canada's only official statement regarding vaping was this notice:
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| 2009 Health Canada notice "To All Persons Interested in Importing, Advertising or Selling Electronic Smoking Products in Canada" |
So if you were inclined to disobey that declaration of legal status. Perhaps by noting Schedule F, which had the line "except in instances where the delivery is less than 4 mg per dosage unit" (paraphrased from memory because that schedule no longer exists) and then declaring that for a vaping device a dosage unit is one puff...
Well, if you had the temerity to do that, you found yourself in a grey zone where you could operate largely unfettered by regulation and corporate style competition. You ordered hardware direct from China. You brought in propylene glycol, vegetable glycerine, and food-grade flavouring components, all readily available commercially, and you found a source for nicotine base. You then made e-liquid wherever you had space to do so, and you went to work.
You also found a pretty enthusiastic consumer base who wanted your product, and you discovered that you could make a high return on investment by providing what they were looking for.
For some new businesses, it was almost the equivalent of tripping over your own feet and landing in a pile of money.
This lead to both a diversity in the early market players and a singular commonality that would later cause some existential crisis conflicts. The first vape shop owners were primarily people who had adopted the technology themselves as former smokers and wanted to make that product available to other current smokers. Some were on a crusade to "end big tobacco." Some were looking to establish standards and self-regulation, and some were libertarians and wanted complete autonomy to operate as they saw fit. Some had previous experience in business to some extent, either great or small, and some did not. Later entrants would share this diversity, but we also saw a new entrant, and that was the person who saw that the first group was making an excellent living.
Low barriers to entry. A ready consumer base in search of the product, and protection from the larger corporate entities that were not willing to challenge Health Canada and operate in a grey market.
All you had to do was flout the law in the eyes of Health Canada.
As it is.
You cannot control the distribution of a contraband product. You cannot mandate marketing standards for an illegal product. You cannot regulate the manufacture of an illicit product. You cannot enforce quality control measures on a prohibited product. You cannot tax a black (or grey) market product.
And so it was that on May 23rd of 2018, the Tobacco and Vaping Products Act was enacted by the federal government and the vaping industry received the right to legitimacy in the Canadian market place. As a result, three things happened almost immediately.
Governments, both federal and provincial, began to apply legislative and regulatory controls on the market. The first and primary restriction being to restrict sales to adults only. Promotion and display restrictions were applied. Cessation and health claims were prohibited, and it is a violation of law to compare a vaping product and its emissions to a tobacco product. It was this last restriction that did the most damage to the vaping category. The product was designed from the outset to be a less harmful form of nicotine consumption, and that is where its most significant potential lies. To be unable to convey that to the target consumer base (the current users of the more harmful delivery method) meant that business owners could only promote from an aesthetics and appeal standpoint. The government removed the ability to encourage the use of vaping products as a tool for smokers. All that remains is to advertise it as a novelty. This will be discussed further in the following chapter.
Prohibitionists stepped up their efforts significantly. Where previous efforts were based on the product being prohibited, they shifted focus to convincing the population that the legitimizing of the product by the government was the wrong path entirely. Using the same emotionally charged arguments they have always used. The press recognized this as a topic of opportunity and promptly turned it into a matter of concern. The vaping industry, effectively muzzled by federal law from pointing out the benefits of vaping to 4.9 million Canadian smokers, could say little in response. Very quickly, both the public conversation and the public perception of vaping became very one-sided. Governments are responding to this one-sided discussion by applying harsher restrictions on the industry. Whether these new restrictions are necessary is genuinely up for debate. However, you cannot have a public discussion when one side is prohibited, by law, from speaking publicly.
Competition entered the vaping product market. Not small-c competition, but large-C Corporate Competition. With well-established distribution channels, in house legal resources experienced in very restrictive regulatory environments, and money. A lot of money.
The independent vaping industry now finds itself in a crisis and under threat from several fronts. Libertarians and "don't tread on me" types find a regulated market a challenge to adapt to. Increased scrutiny from the prohibitionists and the press means that every mistake, every misstep, will be amplified by orders of magnitude to the public. On top of it all, there is a new player in town. With a distribution model that puts his product right where smokers are. Lawyers who tell him exactly how far he can go in promoting it without crossing the line, and the money to execute that promotion; or lay low and eat the losses for as long as it takes for the furor to die down.
It's a stressful time to be an independent vaping business owner.
As it shall be.
Three things can be said with confidence.
Prohibitionists are not going to pack up their toys and go home. That is just not in their nature. "Quit or die" has been their chant for decades. It's simple, and it's straightforward. They see themselves as righteous in their moral cause. "Less Harmful" is still "Harmful." There are no shades of grey on their paint palette. There is black, and there is white. There are monsters to hunt. Dragons that must be slain, and here we are, newly hatched, with our cute little hunched back, tiny fangs, and soft scales.
Every flavour ban, every nicotine cap, every tax applied. Every one of these things is a skirmish won in a campaign to eliminate the category. In the prohibitionist's eyes, they are winning.
Corporate competition isn't going anywhere either. There is a reason the phrase "Kodak moment" shifted from one of brand recognition to one of failure to recognize an evolutionary change in an industry. No corporate entity will ever again dismiss technological change off-hand and carry on as usual. The academic data to date shows that the new technology has a significantly lower risk profile than the old technology, and the grey market showed that there is consumer demand for less harmful nicotine delivery systems. While the margins may not be the same, a nicotine consumer who does not get ill or lives longer will purchase more nicotine products.
Corporate entities might not be quick to move to the new technology, but they will shift. The cat is out of the bag when it comes to cleaner nicotine delivery systems, and the only way it goes back in the bag and stays there is if the prohibitionists succeed in convincing governments to kill it. In every world jurisdiction.
Government regulations are just getting started, and over the last 2 years, they could, mostly, be readily interpreted as "light touch." You cannot sell to minors. You cannot promote specific categories of flavours in a manner contrary to regulation, and labels on nicotine-bearing products must be formulated in a particular way.
On January 1st of 2021, child-resistant enclosures will be required on all containers that hold vaping liquids in Canada. Not just the refill bottles, but the vessels on the devices too. This can be accomplished in three ways:
- The container is not designed nor intended to be opened by anybody.
- The container must be constructed so that it can be opened only by operating, puncturing, or removing one of its functional parts using a tool that is not supplied with the container.
- The container must meet the child test protocol requirements of one of the following standards or a standard that is at least equivalent:
- The Canadian Standards Association Standard CAN/CSA Z76.1-16. Reclosable child-resistant packages.
- The International Organization for Standardization Standard ISO 8317:2015 Child-resistant packaging - Requirements and testing procedures for reclosable packages.
- United States Code of Federal Regulations, Title 16: Commercial Practices, section 1700.20, "Testing procedure for special packaging."
Engineering a new product. Retooling production facilities. Scheduling testing. Starting all over because an overly bright six-year-old bypassed your fancy refill mechanism and instead, unscrewed the base of the tank. Distribution of the compliant product and moving out the older product. These things all take time.
It does not end on January 1st of 2021.
To date, every piece of legislation has been solely focussed on the topics of the moment; youth and nicotine.
- No federal or provincial legislation has been created around electrical or battery safety.
- No enforceable standards have been set around the manufacture of liquids.
- Quality control testing hasn't been discussed.
- Ingredients have not been addressed beyond the 9 that are prohibited in schedule 2 of the Tobacco and Vaping Products Act.
No, we are not done with the creation of regulations for this industry.
Whither the vape shop owner?
The days of spray painting "vape shop" on the side of a shed and going into business are done. Going forward, the vape shop growth model is going to look more and more like any other specialty retail business. A hell of a lot of work, and 2-3 years before you are out of the red.
That does not necessarily mean the end of vape shops. It does mean that there will be a change in the industry.
The industry is going to see a thinning and some consolidation going forward. The "easy money" folks are going to move on. Those who truly cannot adapt to a regulated market due to their steadfast "I do what I want" ideology will either be driven out or become so irritated with it all, that they too move on.
The passionate will fight harder. If they either possess or can develop, the business skills to operate efficiently in a regulated market with corporate competition on every corner they will get through this. Not all of them will make it through this phase, but they will fight hard, and those that do, will be formidable in their resolve. Most survivors will earn a living, raise their families, and be happy with their lot. Some will reach a higher standard of success.
The empire builders who developed a significant resource base prior to 2018 should survive. Their growth rates will likely be impacted, some may even go through some internal consolidation and shrinkage, but they will be able to weather the rougher waters and make it through to the other side. Their earlier focus on "future-proofing" their models through manufacturing and operating standards, and re-investing in the business made for smaller gaps that need to be bridged to attain compliance with new regulations.
For 9 years the Canadian vaping products industry was protected by the fact that it was borderline illicit. No one could tell us what to do, because we were not supposed to exist at all. No "Big Corporate" entity would step on our turf, because they could not afford to sully their corporate image by dabbling in the grey market. We had the bus all to ourselves, our choice of seats, and we drove wherever we damned well pleased.
Regulators are now driving the bus.
There are a whole lot more people on the bus.
You need to find your place on the bus, or you are going to wind up on the side of the road watching the bus move on without you.
There will be no going back to grey market operations. Schedule F, the clause that gave birth to an illegitimate Canadian industry, was eliminated with the coming into force of the Tobacco and Vaping Products Act.
The easy days are over. However, that does not mean that it is the end of days.
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