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Sunday, 12 October 2014 22:00

Up In Smoke? E-cigarette firms resist bill to regulate tobacco-free products the same as traditional smokes

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Dan Lawitzke, right, of Mister-E-Liquid in Grand Rapids says his firm sells tobacco-free electronic cigarettes and vapor liquid and therefore should not be taxed like companies that sell tobacco-based products. Electronic cigarettes convert flavored liquids into nicotine vapor that users inhale without flame or ash. Proponents believe the method is effective for people looking to quit smoking and less harmful than combustible cigarettes. Dan Lawitzke, right, of Mister-E-Liquid in Grand Rapids says his firm sells tobacco-free electronic cigarettes and vapor liquid and therefore should not be taxed like companies that sell tobacco-based products. Electronic cigarettes convert flavored liquids into nicotine vapor that users inhale without flame or ash. Proponents believe the method is effective for people looking to quit smoking and less harmful than combustible cigarettes. PHOTO: KATY BATDORFF

 A proposed bill in Lansing could force business to go up in smoke for a growing niche industry.

While operators such as Grand Rapids-based Mister-E-Liquid LLC sell no tobacco-based products, Senate Bill 1018 proposes to regulate them the same as stores peddling cigarettes, cigars or chewing tobacco.

Founded in 2010 by Dan Lawitzke, Mister-E-Liquid manufactures and sells a line of e-cigarettes and vapor products, part of a growing industry proponents say is a better alternative to smoking. The electronic products, known as e-cigarettes, convert flavored liquids containing nicotine into vapor that’s inhaled without flame or ash and without the negative side effects of a traditional combustible cigarette, they say.

After developing the one-man startup into a $10 million manufacturer, wholesaler and brick-and-mortar operation that now employs 49 people in Grand Rapids and Okemos, Lawitzke said his growing business could be snuffed out if the Michigan Legislature decides to tax and regulate it like a tobacco-based operation.

“(The bill) feels a little personal,” Lawitzke told MiBiz. “We wouldn’t be able to compete with that kind of tax in place.”
Introduced in July by Senate Majority Leader Randy Richardville, R-Monroe, S.B. 1018 would levy a 32-percent excise tax on non-tobacco-based electronic cigarette products — the same rate as traditional tobacco-based items.

“At that point, I’d probably close my doors,” said Lawitzke, referring to the bill’s passage.

Currently, the bill resides in the Senate Finance Committee, and it is not clear when it may be brought to the floor for a vote, said state Sen. Steve Bieda, D-Warren, a member of the committee. The Senate’s session is nearly done for the year, but Bieda said the bill could very well be brought up in the lame duck period before the legislature adjourns for the year.

“(E-cigarettes are) a niche market of the economy that is growing,” Bieda said. “People use these as tools to quit smoking. From that perspective, I think (this bill) may not the best place to go.”

With assistance from New Jersey-based industry group the American Vaping Association (AVA), Lawitzke and more than three dozen other vape shop owners across the state have formed the Independent Vapor Outlets of Michigan and have hired a lobbyist to help defeat the Michigan bill.

“We are proud to be a part of an industry that is separate from the cigarette and tobacco industries,” according to a statement signed by representatives from the companies. “Enactment of S.B. 1018 would destroy that division by requiring our businesses to obtain a tobacco license to sell our tobacco-free products. We would be mandated to purchase our products only through licensed tobacco wholesalers and distributors, a segment that is dominated by businesses whose primary clients are tobacco companies.”

Small business advocacy organizations in the state such as the Small Business Association of Michigan (SBAM) and the National Federation of Independent Businesses (NFIB) told MiBiz they had no official policy stance on this bill, and therefore declined to comment on the record. However, one spokesperson did say that proposed legislation is largely a case of technology getting ahead of regulators and now regulators are trying to catch up.


Mister-E-Liquid is just one part of the growing electronic cigarette industry. The space consists of both startup entrepreneurs like Lawitzke as well as multinational corporations.

A report in early October by Wells Fargo estimated that sales in the United States of refillable electronic cigarettes will reach $1.5 billion in 2014.

Another local player in the industry is Nunica-based Electronic Cigarette International Group Ltd., which filed in May for a $150 million public stock offering. Founded in April 2012, Electronic Cigarette International is attempting a consolidation play in the highly fragmented e-cigarette niche, having made a string of acquisitions in the first four months of 2014.

The company, which manufactures, markets and distributes vaping products in several global markets, also completed several rounds of financing, including a recent $22 million private placement to accredited investors led by Chicago-based Millennium Park Capital Management. In July, the company also received a $60 million equity investment from Man FinCo Ltd., the investment arm of the Mansour Group, one of the largest companies in Africa and the Middle East.

In recent months, big tobacco companies such as RJ Reynolds and Philip Morris have introduced their own disposable brands of electronic cigarettes, typically purchased at gas stations and convenience stores.

While retail sales and wholesale distribution to nearly 400 stores are a large component of Mister-E-Liquid’s business, the company manufactures the actual e-cigarettes as well as the vapor liquid product, which go by names ranging from “Banana Dream” and “Cups O’ Peanut Butter” to “Gran-E’s Apple Pie” and “Moist Mango.” Those products are made in its ISO-certified clean room, Lawitzke said.

He believes the quality of his products has contributed to the success of his steadily growing business.

“For a startup, we couldn’t be happier,” Lawitzke told MiBiz. “We spend a ton of our income growing our business and expanding our brand. We hope to add two retail stores by the end of the year.”

Generally, e-cigarettes and the vapor they use are far cheaper through any number of online retailers, Lawitzke said. However, he claims the products are not the same quality as those made by Mister-E-Liquid.

The tax, he said, would make it very difficult to continue manufacturing with the same level of quality.

“If these taxes were to come in, we would effectively have to lower our prices because we’d have to stay competitive to the global market,” he said, noting many of his customers would likely move to buying vaping products from online retailers, “and who knows what they are getting.”


Michigan is not the first state to consider legislation to impose taxes on e-cigarettes. In 2013, Oklahoma introduced a bill similar to the one proposed in Michigan, but that legislation wound up being defeated.
Amber McCann, a spokesperson for Richardville, who is term-limited this year, said the proposal comes as “part of an ongoing discussion” of new regulations “as new and innovative technologies emerge in the tobacco industry.”

The goal in introducing the legislation was “to create a consistent and uniform tax policy for tobacco products, vapor products and any new products that come to the market,” she said in an email to MiBiz.

“Concerns about how tobacco products and non-traditional products are taxed and regulated has [sic] existed for some time,” McCann stated. “(I)t’s important to consider prudent regulation of any tobacco-like product that may appeal to young people.”

But the consortium of e-cigarette retailers and manufacturers alleges that the bill is just another way for Big Tobacco to try to influence state policy.

Richardville, the bill’s lone sponsor, received a total of $2,000 in campaign contributions from MI Altria Group PAC, a political action committee affiliated with the parent company of tobacco giant Philip Morris, from 2011 to 2012, according to the Michigan campaign finance disclosure database.

“We don’t want Big Tobacco setting tax policy in our state,” Lawitzke said.

Business owners like Lawitzke are unsure how many supporters in the legislature they may have, and they also don’t know when the bill may come to a vote. However, he said with the help of organizations such as the AVA, they are prepared help send the bill to defeat.

AVA President Greg Conley told MiBiz that the consortium plans to pack the Michigan Legislature the day the bill is brought to a vote. Lawitzke said he plans to shut down his business on that day so he and his employees can attend the session.

McCann said there was no specific timeline for the committee or the Senate as a whole to consider the bill.

“We feel optimistic but at the same time, it’s a scary situation,” Lawitzke said. “We are dealing with huge money that no one can really fight with. However, we are ready at the drop of a hat to go and fight this in the state capitol.”

Read 6365 times Last modified on Monday, 13 October 2014 09:29

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