Selling vape devices and liquids online is both tempting and terrifying to merchants. The market demand is growing rapidly, but so are the regulations. Any time there is uncertainty about a business’s stability and sustainability, it’s typically classified as “high risk” by financial firms.
Owners of ecommerce businesses in high risk industries often struggle to find a payment processor who will work with them without charging insanely high fees. Besides finding fair rates, ecommerce merchants also need to partner with payment processors who understand the requirements of their particular business and offer the services and technology to support the particular needs of online vape shops.
This article details the opportunities and regulatory risks – on both the state and federal level – in this space and what an ecommerce merchant who offers vape supplies needs to know about complying with the law and doing business online.
The Online Vape Marketplace
Globally, the number of people who vape continues to rise steadily. The World Health Organization states that there were 35 million adults vaping in 2016, and market research group Euromonitor expects that number to grow by almost 55 million by 2021.
The market is currently at $22.6bn globally, and is poised to grow dramatically. Wells Fargo believes that the American market alone will grow to five and a half billion dollars by 2021. The biggest markets for vaping products are the United States, Japan and the UK.
Vape users buy devices, accessories and liquids from dedicated shops online, as well as brick-and-mortar shops that carry a broad variety of merchandise. People who are new to vaping tend to prefer physical locations, so they can get assistance in figuring out what to buy and how to use it. More experienced vapers are comfortable with purchasing products online.
Risks and Regulations
Despite the market’s promising numbers, merchants selling vaping supplies online face specific risks, in particular complying with evolving, and sometimes complex, federal and state regulatory requirements.
Recently, the U.S. Food and Drug Administration (FDA) announced that teenage use of electronic cigarettes has reached “an epidemic proportion,” and told manufacturers of the most popular vaping devices that they have 60 days to prove they can keep their devices away from minors. If they can’t, the FDA may immediately ban flavored vaping liquids from the market.
Additionally, the FDA stated that it might press civil or criminal charges if companies are allowing bulk sales through their websites.
The FDA also said, in a statement, that it is sending warning letters to 1,100 retailers including 7-Eleven stores, Walgreens, Circle K convenience shops and Shell gas stations — and issuing fines, ranging from $279 to $11,182, for selling e-cigarettes to minors.
Owners of online vape shops need to watch this issue closely. They need to have solid age verification processes and ensure that they understand the age restrictions for each state they do business in. In many cases in the U.S. that age is 18, but some states have set the age limit higher:
Alabama – 19
California – 21
Maine – 21
Massachusetts – 21
New Jersey- 21
Oregon – 21
Additionally, Utah bans online sales of vaping products to anyone, no matter how old they are. And Pennsylvania has a 40% tax on all vaping products. Merchants need to ensure that they understand how tax laws work and what they need to do to comply with them. Since this varies according to where you do business, your best bet is to check with a financial expert with expertise in taxation and online businesses.
If Merchants sell products to consumers outside of the U.S., they must to be familiar with the laws regarding vaping in each country they are shipping to. Vaping or sales of vaping products is banned or restricted in Brazil, Israel, Mexico, Panama, Thailand, Norway, Saudi Arabia, Turkey and France. But laws change, and restrictions vary – merchants must check the current regulations in any country prior to selling product for specifics.
Most shopping cart platforms should allow you to filter and block sales from states and countries that you can’t or currently don’t do business in. And while age verification currently puts the obligation on the consumer to verify that he or she is of legal age in their state/country of residence, the requirements may change soon.
The FDA is also looking at bulk sales of vaping products. Right now, the focus is on sales through specific manufacturer’s websites, but merchants should start thinking about how to prepare for bulk sales going forward.
About half of the companies targeted by the FDA in their first enforcement action are online merchants. It is safe to assume that the FDA is testing vaping websites to see how age verification is handled. It’s unlikely that the typical pop-up asking for a user to self-identify as legally able to purchase vaping products will be sufficient for much longer. Merchants may want to look into age verification services, which check online data bases to verify the age of residents at a specific address.
Merchants should also routinely self-check their age verification processes to ensure they are functioning properly.
Check the state laws as well. Some states, at the moment, have stricter laws regarding age verification than the FDA requires. For example, in some states merchants may need to capture and store an image of the buyer’s photo ID. Merchants can do their own research on this, or invest a little time and money to consult an attorney.
Merchants should also ensure that their site displays all applicable disclaimers, along with this notice: WARNING: This product contains nicotine. Nicotine is an addictive chemical.
Payment Processing for Online Vape Sales
Many financial service providers don’t like doing business with industries that are in the midst of heightened regulatory activity. They fear that sudden changes to the law will increase the risk of chargebacks and fraud. New vape shop ecommerce business are likely to have a difficult time getting approved for merchant accounts, and even established businesses may find that their accounts are frozen or cancelled.
Now is the time to look for a Payment Processor, such as T1 Payments, who specializes in delivering solutions for online vape stores and other high-risk businesses. Merchants should look for Payment Processor that offers:
Flexible underwriting: This is the vetting procedure financial services firms use to determine a merchant’s risk level. Merchants should look for a Payment Processor who specifically works with high-risk accounts, as their underwriting process will be better able to determine your vape store’s real business risks and potentials.
Fraud protection: online payments are inherently riskier no matter what type of goods or services you sell. In store, an ID can be checked and consumers will probably use a chip-enabled payment card. Online sales offer limited protections. Thankfully, there are fraud protection solutions specifically designed for ecommerce which utilize “fraud scrubbing” and filtering to spot and screen suspicious transactions.
Chargeback reduction: Tech solutions can’t prevent all chargebacks, but can significantly reduce them by monitoring for transaction errors, fraudulent patterns, and other issues that often result in chargebacks and regulatory concerns.
Complete solutions: A Payment Processor should provide access to a comprehensive service offering so you don’t have to piece together a solution. You should be able to access your account data securely online, and ideally without having to purchase additional software.
T1 Payments specializes in meeting the needs of high-risk merchants, providing a full suite of Payment Processing and Payment Gateway services that integrate with over 175 different shopping carts. To find out more about our customizable global payment solutions for high-risk merchants please visit t1payments.com or call 866-518-2216.