Entrepreneurs in the fast-growing vaping business are scrambling ahead of a proposed 25 percent U.S. tariff on vaporizers and batteries, among a host of other tech imports in the escalating trade battle between the U.S. and China.
"The proposed tariffs are creating a tremendous amount of turmoil," says Aaron LoCascio, founder and CEO of Greenlane, the largest distributor of vaporizers in the U.S. "This could be ugly."
Business owners in the vaporizer industry say they are planning to pass along the costs, which will eventually end with consumers paying more. Some companies are also looking at whether they can source the devices from other countries not subjected to the tariff.
The proposed tariff "would decimate this young and burgeoning U.S. industry," Brittani Cushman, president of the Vapor Technology Association, told the U.S. International Trade Commission at a recent public hearing. The vaporizer industry is on track to reach $5.5 billion in sales in 2018, up from $3.5 million in 2015. The trade group represents 600 companies.
Between 70 and 90 percent of all vaporizer products are made in China, says LoCascio. China also "owns" the world's battery market, which is "the biggest concern of mine for the industry," he says. Without access to low-cost devices and batteries, many nicotine and cannabis vaporizer companies could be in trouble.
Organa Brands, one of the largest U.S. cannabis oil extractors, which also imports vaporizers from China, notified its distributors that it would pass on the 25 percent border tax, according to Jeremy Heidl, Organa's co-founder and president. "Eventually, the consumer will shoulder the cost," he says.
Depending on the type of vaporizer, a device could retail for as little as $20 up to $300 for high-end devices. A decision on the tax proposal is expected August 1, and the tax could go into effect later in the month.
LoCascio says that while his company has a stockpile of products in his warehouse, if tariffs are applied, he might order more products made in other countries. Vaporizers are also made in Canada, Germany, and India, although most of the best-selling devices are made in China.
Heidl says he's optimistic that the tariff, if applied to the industry, would be only short term. "We're remaining positive," he says. "We're in the cannabis industry. So when you take this in context of all the punches in the face we take, this is just a slap," he adds, citing the high taxes for the marijuana industry and strict state regulations, in addition to federal laws outlawing marijuana.
"Every state handles our products differently," explains LoCascio. Pennsylvania, California, and Minnesota, for example, already apply high taxes on vape devices. For vape sellers in those states, he says, "adding a 25 percent tariff could be disastrous."