Elf Bar and other e-cigarette makers dodged US customs and taxes after China’s ban on vaping flavors

December 19, 2023  -WASHINGTON (AP) — In only two years, a small, colorful vaping device called Elf Bar has become the most popular disposable e-cigarette in the world, generating billions in sales and quickly emerging as the overwhelming favorite of underage U.S. teens who vape.

Last week, U.S. authorities publicly announced the first seizure of some of the company’s products, part of an operation confiscating 1.4 million illegal, flavored e-cigarettes from China. Officials pegged the value of the items at $18 million, including brands other than Elf Bar.

But the makers of Elf Bar and other Chinese e-cigarettes have imported products worth hundreds of millions of dollars while repeatedly dodging customs and avoiding taxes and import fees, according to public records and court documents reviewed by The Associated Press.

Records show the makers of disposable vapes routinely mislabel their shipments as “battery chargers,” “flashlights” and other items, hampering efforts to block products that are driving teen vaping in the U.S.

“The steps toward regulating disposables have been very weak and that has enabled this problem to get bigger and bigger,” said Eric Lindblom, a former Food and Drug Administration official.

Fruit-and-candy-flavored disposables began pouring into the U.S. shortly before Chinese regulators banned vaping flavors last year. Officials there said they were acting to protect children’s health, but vaping executives and health experts note the ban came only after e-cigarettes began threatening sales of traditional cigarettes, which generate $200 billion annually for China’s state-run tobacco monopoly.

Disposable e-cigarettes may soon become the victim of their own success. From Australia to England, governments are moving toward banning the single-use products, citing underage use and environmental impact.

The global backlash could lead vaping entrepreneurs to focus even more on the U.S., where loopholes and lax enforcement make it easy to disguise e-cigarettes among the thousands of daily shipments arriving by sea and air.

‘DISCREET’ SHIPPING

Elf Bar is the lead product of Shenzhen iMiracle, a privately held company based in Shenzhen, the sprawling Chinese manufacturing hub that produces more than 95% of the world’s e-cigarettes.

Elf Bar, Lost Mary and several other iMiracle brands are expected to generate $3.5 billion to $4 billion globally this year, according to industry analyst ECigIntelligence.

In the U.S., iMiracle recently abandoned the Elf Bar name due to a trademark dispute and efforts by regulators to seize its imports. Instead, its products are sold as EB Create in flavors like watermelon ice and frozen creamsicle.

A spokesman for iMiracle said the company stopped shipping Elf Bar to U.S. earlier this year and is trying to comply with regulators.

“All the Elf Bar-branded products you see in the U.S. are counterfeit, I’m pretty sure about this,” said Jacques Xiang Li, who added that he’d only worked for iMiracle for three months and was still learning about its business.

When asked about EB Create e-cigarettes he said: “I can’t tell you anything about that.”

Details on the company’s U.S. sales and activities are beginning to emerge in court documents.

Earlier this year, iMiracle was forced to drop the Elf Bar name after losing a trademark case to a smaller company that already sold its own products as Elf vapes.

At a 2022 court hearing in the case, U.S. distributors described skyrocketing sales.

Jon Glauser, of Demand Vape in Buffalo, N.Y., told a federal judge his company had sold more than $132 million worth of Elf Bar products, accounting for a third of its yearly profits.

“We were selling it faster than we could get it in,” Glauser said, according to the court transcript.

Glauser attributed Elf Bar’s quick rise to its profit margin. Sellers make about a 30% profit, double that of other disposable e-cigarettes, he said.

IMiracle’s parent company, Heaven Gifts, previously described how it could help customers evade import fees and taxes. Heaven Gifts’ website advertised “discreet” shipping methods to buyers, including not mentioning e-cigarettes or its company name “anywhere on the package.” Instead, the company said contents would be labeled as “atomizer, coil, tube, etc.”

“We also mark a lower value to avoid tax,” the website stated, adding that customers could suggest their own value for the shipment.

In June, Heaven Gifts announced on it would “go offline,” shortly after the FDA directed customs officials to begin seizing shipments from the company.

Despite the update, the company’s spokesman indicated Heaven Gifts remains in business and staffers continue using email accounts bearing its name. The spokesman did not respond to numerous follow-up questions about the company’s business.

Neither Heaven Gifts nor iMiracle appear in customs data reviewed by the AP and compiled by ImportGenius, a global trade analytics company.

The seizure announced last week suggests part of the answer: The shipments arrived at Los Angeles International Airport, and air carriers are not required to disclose the same details about their cargo as ocean vessels. The e-cigarettes were mislabeled as toys, shoes and other items.

Ships docking in the U.S., which account for most Chinese imports, must provide information on suppliers, recipients and types of cargo they are carrying. But importers can obscure their identities and products.

For example, U.S. recipient information is listed as “not available” for roughly 45 of over 100 shipments of e-cigarettes from China this year, according ImportGenius data. U.S. companies can avoid disclosure by using third-party shippers, called freight forwarders, who handle foreign goods on behalf of importers.

“All of this suggests that these companies are incredibly sophisticated, they know how to game this system and they are intentionally doing so,” said William George, research director for ImportGenius.

It’s likely most disposable e-cigarettes coming into the U.S. aren’t even declared as vaping products.

Esco Bars, one of Elf Bar’s chief U.S. rivals, imported 30 shipments from China this year labeled “atomizers,” a generic type of hardware that turns a liquid into a spray. The Texas-based company received the shipments, weighing about 25,000 pounds each, under its shipping arm, Affiliated Imports LLC. The shipments stopped in May, after the FDA placed Esco Bars on a list of banned imports.

Another disposable maker, Magellan Technology, routinely labeled its imports as “battery chargers,” records show.

Neither company responded to AP’s inquiries.

U.S. Customs and Border Protection did not make officials available for interviews, but pointed to the agency’s recent operation in Los Angeles with the FDA.

“The rise in illicit e-commerce demands that our agencies remain vigilant in intercepting shipments that could pose serious health risks to the public,” Troy Miller, a senior official with the border agency, said in a release.

FDA Commissioner Robert Califf said that agency is “committed to continuing to stem the flow of illegal e-cigarettes into the United States.”

U.S. tobacco companies say their e-cigarettes — which undergo FDA review and don’t come in fruity flavors — can’t compete with lower-priced disposables. In recent weeks both Reynolds American and Altria filed separate legal actions against iMiracle, Esco Bars and other disposable makers.

Documents filed by Reynolds with the U.S. International Trade Commission describe elaborate techniques for smuggling disposables into the country.

In a sworn affidavit, a former FDA investigator now working for Reynolds describes vape exhibitors at a recent conference removing hidden e-cigarettes from flashlights, “which is consistent with the fraudulent practice of Chinese manufacturers declaring the product as flashlights.”

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