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February 15, 2016

As vaping industry grows so does gov't oversight

PHOTO | Pablo Robles Nick Ricciardi, owner of Smooth Vaporz, stands in front of a liquid nicotine display at his store in Waterbury.
PHOTO | Pablo Robles The smoking area of Smooth Vaporz in Waterbury.

If you build it, the state will regulate it. And that's exactly what's happening with Connecticut's nascent vaping industry, which comes under increased scrutiny March 1, when retailers and manufacturers of electronic cigarettes must begin registering with the Department of Consumer Protection, coughing up a one-time $75 fee and annual fee of $400.

Normally, the heightened oversight would draw the ire of businesses, but vaping industry representatives say they aren't opposed to increased scrutiny of e-cigarettes as they seek legitimacy, hoping to branch out with new stores and state and federal validation of the products they sell.

E-cigarettes and the practice of smoking them (referred to as vaping) have gained popularity in recent years as an alternative to cigarettes. Vaping uses an electronic nicotine delivery system to simulate smoking. Products include electronic cigarettes, cigars, cigarillos, pipes or hookahs that are sold by vaping retailers.

“We want to get rid of misconceived notions [of e-cigarettes and the vaping industry],” said Nicholas Ricciardi, the founder of Smooth Vaporz, who owns four e-cigarette stores in western Connecticut. Along with his brother George Ricciardi, he is hoping to franchise Mist Essentials and open stores starting first in Connecticut and then beyond.

Ricciardi said he is actively involved in the Smoke Free Alternative Trade Association (SFATA), which has 15 to 18 active store members in Connecticut, whose mission is to educate the public about vaping. The industry has argued vaping is safer than smoking cigarettes and a useful aid in helping smokers kick the habit. The American Lung Association, among other groups and individuals, has raised concerns about the health consequences of e-cigarettes, particularly their inclusion of nicotine and use among minors.

Responsible store owners, Ricciardi said, are in favor of regulations like childproof caps and a minimum age of 18 for the purchase of e-cigarettes.

Favor some restrictions

They favor other restrictions as well like the product only being sold from retail locations and banning e-cigarette use in public places, which went into effect in Connecticut last October.

But he doesn't want it restricted to the point where vaping is only allowed on the street. “It should be up to the individual owner of restaurants,” and other private businesses as to whether vaping should be permitted, he said.

On the federal level vaping laws are also being enacted. Recently, President Obama signed into law the Child Nicotine Poisoning Prevention Act, which requires child safety packaging on liquid nicotine containers. It was co-sponsored by Connecticut's U.S. Rep. Elizabeth Esty and U.S. Sen. Richard Blumenthal. Esty said in a statement, “Even a small bottle of liquid nicotine may contain enough nicotine to kill four small children. With the rise in popularity of e-cigarettes, thousands of children are exposed to liquid nicotine.”

CT's new regulations

Connecticut's latest industry regulation kicks in March 1, when vaping retailers and manufacturers will have to register with the Department of Consumer Protection License Services Division. Division Director Michael Elliott said an applicant has to have a location and be in compliance with local zoning and public safety ordinances and codes.

“This can't be done out of the back of your van,” Elliott said. Also, you can't be a convicted felon or be guilty of tax or cigarette violations.

The 18 staffers in his division aren't going to be conducting background checks, Elliott said. It's an honor system. Consumer Protection will review all the supporting paperwork submitted with the application before approving a retailer for a permit.

The potential is there for hundreds of permits, Elliott said, based on the number of lottery retailers in Connecticut. There is a presumption, he said, of a crossover. So far, though, as of Feb. 9, only 24 retailers have applied. It's a process that is fairly quick, provided all the relevant local approvals are submitted with the state application. Elliott said it can be done in a day or two. Just don't expect a quick turnaround at the end of February.

Different than tobacco

Just as the vaping industry likes to clearly distinguish itself from tobacco products, so does state law differ between e-cigarettes and their tobacco equivalents. Two distinct permits are required with tobacco under the oversight of the Department of Revenue Services.

Lora Rae Anderson, director of communications at Consumer Protection, said her agency got the nod to oversee the vaping industry because liquid nicotine, the key ingredient of e-cigarettes, is considered a drug. “We have a diverse array of responsibilities,” she said.

Another state agency with its hand in the vaping business is the Department of Banking, which is responsible for granting permission to franchise a business in Connecticut.

Market opportunities

Among Ricciardi's four stores, which are open seven days a week, he has 12 full-time employees and some part-timers.

He wouldn't disclose annual revenue numbers, but said it's not a low-risk, high-return industry.

A national report released in December said U.S. brick-and-mortar vape shops generate annual non-online sales of more than $300,000 per store, according to the 2015 Vape Shop Index, released by ECigIntelligence, Roebling Research, E-Cigarette Forum, and SFATA.

The index also found that more than two-thirds of respondents (69 percent) were single-store owners, while 16 percent owned two shops, and 15 percent had three or more stores.

Ricciardi said the number of people vaping is growing, which is why he wants to franchise his business.

“It's just now become more mainstream,” said Ricciardi, a self-described “serial entrepreneur” who has worked in restaurants, bars, mortgages and landscaping.

No unique challenges

Marc Romanow of Plainville is acting as the franchising development specialist for the Mist Essentials chain as it seeks to expand. There have been no unique challenges for franchising a business that sells a controlled substance, he said.

As long as a franchisee complies with local and state laws they won't have legal issues, Romanow said, citing California, Illinois and New York as difficult states for franchisors.

Also, he added, setting up the franchise in Connecticut ran counter to what some might expect. “Connecticut is actually a delight when it comes to franchisors and franchisees. I'm speaking from the perspective of having to work with other states,” Romanow said.

Mist Essentials has had inquiries from New Jersey and other states. “We want to branch out first locally before pushing out to other states,” Ricciardi said. “We're not trying to sell 10 franchises a month. We still have a store to run. We're slowly going to build the brand. It's a long-term play.”

Inventory and startup costs, including the franchise fee, are $60,000 to $120,000, Ricciardi said. There is also a 6.5 percent royalty fee.

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