Mommy, Where Does E-Liquid Come From?
Mommy, Where does E-Liquid come from?
Is something you’ll probably never here, but makes for a good article nonetheless, as people seem to have pretty wild and varying ideas on the subject. Most people assume the big brands have big labs and the small companies have small labs or no labs at all. I frequently wander into Facebook threads that argue the merits of the word “premium”, arguing that there are certain manufacturing standards that warrant the title and others that don’t. Part of this debate is amusing, but the other part illustrates a pretty valid point in our industry today – that there is a bit of a veil that exists between what you see on the shelf and how it got there. This isn’t necessary a bad thing or even an uncommon thing. Most industries evolve into complex supply chains and ours is no different. But to help the casual vaper out I thought it would be worth it to take a look at how that bottle ended up in your hands:
It all starts with the flavour companies who produce the concentrated flavours that are in every e-liquid that you know and love. Most of these companies are medium to large sized businesses that started off in food flavouring and inadvertently caught the vaping wave. Some of these companies, like Flavour Art and a handful of others have seized on the opportunity and started gearing flavours and processes towards the vapor market while others are still passively taking the business that comes to them without really investing in the industry. What’s interesting about this is that these guys are really the driving force behind the flavour trends we see in finished e-liquids. When a new base flavour hits the market, you’ll quickly see hundreds of e-liquids coming out to try and capture that new opportunity. Yogurts, Cereals, Donuts…all started with flavour companies putting out a new base flavour. The moral of the story is if you want to know what’s coming out 60 or 90 days from now in the vape industry, get on the mailing list of the flavour companies.
This used to be synonymous with the brand owner with the assumption being that if you owned the brand you made the liquid. That’s not really the case anymore, and for a variety of different reasons. My company, Vape Brands International, operates in this space as well as a distributor and brand owner. It comes down to economics basically. Instead of each brand investing in an ISO clean room, equipment and staff, it became cheaper to outsource this type of work to companies that could provide a finished product faster and cheaper thanks to the sheer scale at which they operate. In the US, there are some very large contract manufacturers that make most of the big brands you see on the market today. For example, brands like Cuttwood, Mr. Good Vape, Frisco and Von Vape all come from the same manufacturer. By allowing a manufacturer to handle this part of the process, the brand is free to do what they do best and market the product. This also allows for international distribution to take place more seamlessly, as the cost of shipping VG is actually higher than the VG itself. My company does this for a lot of US and European brands in Canada. Rather than shipping finished product to us, we manufacture the product locally to the brands specifications. This greatly increases a brand’s reach while also simplifying their supply chain. Recently we also moved into Private Label Manufacturing, meaning we’re now creating brands from the ground up for individuals, stores and aspiring e-liquid companies. To be honest, if these services existed in 2013 when I started Moshi E-Liquids, I probably would have made it to market 9-12 months quicker than I did and the impact of that is huge.
Distributors handle the messy business of getting a finished product onto the shelves of your local B&M. The expertise here is in sales and account management, which is no easy task in a marketplace that has over 4000 competing brands. Distributors provide a ton of value to both stores and brands. For stores, it’s the benefit of curation and a centralized order process. Most stores carry hundreds, if not thousands of SKU’s and trying to place orders with each company individually is not feasible. Good distributors provide the added benefit of actually vetting products making the selection process easier for stores. We do this as well in Canada, having created a portal for stores to purchase all the brands that we manufacture. We also provide the sales and account management services that allow for an easy entry to the market. For brands, the big benefit is not having to find stores to sell to. The cost of acquiring a new customer is often bigger than a start up brand has anticipated and they can quickly find themselves struggling to find space in the market without a plan for this.
Lastly, we have the brand itself. In the old days (like, 2 years ago) the brand would have been responsible for 3 of 4 processes in this post, but now its really about the concept and flavour design. In fact, even these can be outsourced now quite easily, but lets just assume that’s what the brand does today. A well thought out brand, with the right number and types of flavours and a great marketing package will still separate itself from the pack. It is getting harder though. One of the big downsides (or upsides, depending on your point of view) of this supply chain expansion is the ease at which a brand can be created and brought to market. I remember when I started Moshi having to make calls to China sourcing bottles at midnight eastern time, then waking up to go into the lab to work on flavours and spend my afternoon making sales calls. Now, if you have a basic idea of what you want to do, you can come to a company like mine and the rest of the project is taken care of.
- Beju Lakhani
Co-manufacturing with Vape Brands International
- Beju Lakhani
The Advocacy Challenge
I run a reasonably sized business in Canada with about 30 employees and customers around the world. All kinds of challenges come up every day at VBI and there are many moments that leave frustrated and flabbergasted. I do, however, manage to leave these frustrations at work and I’ll never be losing sleep over an issue related to my business. There’s only one thing that truly keeps me up at night, and that’s my work as President of the Canadian Vaping Association (CVA). While its rewarding intrinsically to fight the good fight and feel that you have the moral high ground as you do it, the practical reality of being an advocate in this industry often leads me down the path of wanting to give up and find a rock to crawl under. In this piece, I’ll try my best to outline why I feel that way after 2 years of the daily advocacy grind.
I did my degree in political science and for some time I actually wanted to run for office, but the truth is I knew nothing about the job or the people doing the job until I took on this role. Over the last year I’ve met with dozens of political leaders and their staff face to face and I have some takeaways from those experiences. Firstly, they are all generally good, well-meaning people. I haven’t really met one person in Canada holding political office that I felt was out to get the industry outright. I did, however, find plenty of politicians that were rushing into legislation having done minimal levels of actual research. I remember one of the first meetings I had was with a policy advisor that had actually drafted the Act in question. He had never been to a vape shop. In fact he had never seen a mod or a tank. And yet here we were, debating the merits of a fairly thick document that had been drafted to decide the fate of the industry. I could not wrap my head around this and asked a friend of mine who is actually a sitting politician and he said that most of the time the politicians themselves are so burdened by their schedules and commitments that they rely on their Policy-Advisors (PA’s) to draft the positions and the laws that they end up bringing forward. Depending on the ministry and the budget for the ministry, these PA’s can be 20-something’s that came straight out school on their first real job. The thought of me in the same position scared the living shit out of me. Did I as a graduate of a pretty good school in Ontario have all the answers needed to weigh in on this issue without doing a boatload of research and verification? Absolutely not, but I certainly would have thought I did. That’s really what leads us down the path we end up in in most cases. Politicians under pressure to get something out push the work downhill and somebody spits back something that looks like it could work. In order to expedite this they often lean on groups they trust, which unfortunately in our case tend to be the health groups that have the actual agenda. Democracy at its scary best.
This is the one that really gets me, as it can often be nasty and personal. It’s dealing with other groups or individuals that jump into the fray and start spraying the world with their advocacy Gatling gun. The infighting can be naïve, petty, and misguided but its also typical of every industry that’s gone through growing pains as it aims to legitimize itself. It doesn’t stop it from stinging and driving me crazy though. There are certain rules that seem to bind a lot of these pop-up groups and individuals together though. They almost never look before they fire. I have a tendency to offer my direct phone number to all critics and new advocacy groups if they want to talk about their issues with what our organization has been up to. The number of times that phone has rung is exactly zero. And to be honest, I’m not surprised. The easiest way to build a coalition is to rail against the establishment. So many choose to go this route as a shortcut versus trying to explain what they specifically want to accomplish. Typically this happens right around the time some new piece of legislation gets introduced. All of a sudden these advocates hear the bell and rally the troops without first checking to see if anyone’s already on the battlefield. Its not that its coming from a bad place, its quite the opposite actually. People genuinely want to make a difference and feel that they can. And they should feel this way, it’s just that its often done with a complete disregard for the greater effort, and that tunnel vision has a tendency to hurt more than it helps. I’ve heard it from dozens of politicians that I’ve worked with over the years. If they have six different groups hitting them with six different messages the likely outcome is that all will be ignored. In the end, as cliché as this sounds, working together is by far the best and most efficient way to accomplish our goals.
Media and the Scientific Community
This was an eye-opener for me when I got into this. I had, for the longest time, believed that what I read in the news was accurate or at least fact-checked before it ended up in my hands. I also held the belief that science was science, and if something showed up in a peer-reviewed journal that there must be some validity to it. Jumping into this role was a crash course in my depth of my own naivety. I’m utterly amazed at how easily the mainstream media can take a story and run with it, despite all of its inaccuracies. I’m even more appalled at the way science if often manipulated to serve the very specific purposes of its creators. I actually think this is perhaps the most unnerving part of this experience. When you have a group like the UCSF, led by Stanton Glantz, who continually churns out junk science strictly to produce sensational headlines it always feels like you’re fighting uphill. The relationship between the media and groups like Glantz’s is toxic and I’m not sure there is a way to fight against it effectively. Every time we receive news like the endorsement from the Royal College of Physicians we get hit with some other fabricated study about the gateway theory and the reality is that these do cancel each other out in the eyes of the general public. The irony is that guys like Glantz are, in their minds at least, fighting against big tobacco and as a result walk away thinking that the ends justify the means. The fact that they may end up handing the industry to big tobacco through the regulations they push forward seems to be complete lost on them.
In a nutshell, advocacy is grind. I knew this when I got into it but I have to tell you it’s a lot more taxing professionally and personally than I could have imagined. Having said that, its incredibly important that good people stay in the fight. We’re up against pretty incredible odds but we can move the needle if we stay focused and fight together.
- Beju Lakhani
The Joys of Starting a Business in an Unregulated Industry
I can’t tell you the number of times I’ve heard someone say, “oh you own a juice company, you must be rolling in it” or something to that effect. They must picture me sitting at home on my gold plated couch, sipping gold plated champagne or something like that. As much as I wish that were true (sort of), it’s not an accurate reflection of the reality of being a start up in an unregulated industry, and it certainly doesn’t capture my experience.
Moshi is a successful company, don’t get me wrong. By all standard measures, our performance over our first year and a bit of existence would exceed even the staunchest “Shark Tank” criteria. But it’s also a far cry from the way we thought it would be. In this brief post I’ll cover off a few of the headaches that we’ve experienced and hopefully pass on some insight on what we’ve learned growing an e-liquid company into an international brand.
Competition – There are pros and cons to entering an unregulated space, and one of the biggest cons is that there is quite literally no barrier to entry. There are presently no government manufacturing or safety standards, so just about anybody can start a company tomorrow in their living room and chip away at your business. You also can’t spend money on traditional advertising as the media companies view the product as tobacco, which eliminates the ability to use your size to your advantage and communicate what makes you different. All in all, it makes for the environment you see at every vape show in North America now – about 200-400 e-liquid companies with almost nothing to tell them apart. I firmly believe that competition is a good thing and it serves to make all companies more efficient and better, but its not so good when one company has manufacturing and safety standards and another doesn’t and the consumer can’t tell which is which. I suspect that regulation and consolidation will sort this out to some degree, but getting there is going to take time and in the meantime the market will continue to get more and more saturated and tougher to navigate.
Financing – One of the big projects we had this year was automating our facility and building out a very large ISO clean room. We’ve always had strong manufacturing practices but we felt the investment was necessary to stay ahead of the above-mentioned regulation. So we did what any normal business would do. We issued RFP’s, selected vendors, and then went to sort out how to pay for this massive investment. In a traditional business, this wouldn’t be much of an issue. Show the banks your financials and obtain a capital equipment loan or negotiate terms with your vendors. Not so with an unregulated business. Arranging this type of financing without having to pay through the nose is very difficult because banks are wary of an industry that still doesn’t have a permanent home. The moral is that if you want to make big investments, be prepared to work for no pay and self-finance them. Then there’s the merchant account issue. Want to take credit cards? You’ll need one of these and they aren’t easy to obtain and you’ll almost never pay what you thought you were. I remember our first US merchant account provider told us that we were on the hook for 2.5% and it ended up being closer to 10% after they took all their fees. These kinds of shenanigans happen everywhere largely because you can’t deal with the banks directly and the next tier of guys make their living off of misleading you about what you’re actually going to pay. I can’t give you an exact number, but I can tell you that being unregulated creates a “tax” of sorts where you do end up paying a pretty hefty premium just for being in business.
Government – Government regulation is both a great thing and a terrible thing. It’s great if they get it right, which is almost certainly not how it’s going to go. Ideally, regulations would provide standards and restrictions proportional to the product’s benefits and risks and we’d be on our merry way. In reality, governments seem to react out of fear and uncertainty and, whether intentional or not, end up further confusing the market as to the potential benefits of the product. The real mess here is as big as we grow our business, as many jobs as we create, as many smokers that we win over, we’re really only one flawed government decision away from being shut down.
Having said all of this, I still find this to be one of the most rewarding experiences of my life. It’s an incredible challenge and just when you think you’ve got a handle on things the industry changes and you have to adapt. I honestly wouldn’t have it any other way.
- Beju Lakhani
Being a Canadian Vaper
Being a Canadian Vaper presents its own unique set of challenges and opportunities, but also parallels a lot of what we’ve seen happening in the US. In this first blurb, I’ll share a little about myself, how I got into vaping and started Moshi, and what you can expect going forward.
So about me then…
I was a pack a day smoker for fifteen years before I discovered vaping, although what I discovered initially wasn’t vaping per se. I, like a lot of people I know, started out by dipping my toe in the cig-a-like water and buying a starter kit from green smoke. Despite the inferiority of those early products to what we have access to today, I knew from the very first drag that this thing was going to change my life. That was around 2012-2013 and I didn’t fully migrate to vaping for at least a year after that. The reason was simply that those products weren’t readily available, with the only source of product being a handful of online stores and weekend flea markets.
At the time, I was content to continue ordering my little underpowered cig-a-likes with their faux tobacco flavouring while I gradually cut down on smoking the real thing. That was until that fateful day that Health Canada decided to reach out and let me know that they didn’t approve of my efforts. The letter, in short, said that I needed to go see a doctor and buy a traditional Pharma NRT, because of that product’s resounding success I suppose.
It was at that moment that I decided I was going to start Moshi (it wasn’t called Moshi at the time, that came with the help of Google translate a bit later), and I immediately started looking at ways to produce high quality products in Canada. Keep in mind; at that time I still had no stores to sell to, I just knew that we needed better products to use in Canada, and I really had nowhere to get them. The idea of doing a liquid line was also out of necessity more than anything else. Health Canada didn’t have a problem with hardware - their problem was nicotine, so the obvious solution was to start producing nicotine-containing liquids in Canada and avoiding the border altogether. The flavour development process took up the better part of a year, with us finally going live as Moshi in the summer of 2014.
Since that time, we’ve grown substantially and now sell to over 200 stores in 5 countries. We’ve acquired a purpose built 4000 square foot facility with a staff of 20 awesome people to help us grow the business even further.
I’ve also had the opportunity to become heavily involved in advocacy and was recently elected as the President of the Canadian Vaping Association. The CVA is a national advocacy group representing retailers and manufacturers across the country. We’re currently fighting provincial regulation across the country and also dealing with looming federal regulation. While the political systems are different, many of the usual arguments are emerging and we’re finding a lot of parallels in what’s happening in the US. As a result, we’re also working hard to build relationships with our counterparts in the US and abroad to continue the fight and work towards common-sense regulation.
Going forward, I’m hoping to share with you some insights on what’s happening in the Great White North and also some of my personal thoughts on the industry, advocacy, and growing a business in an emerging market.
Cheers, and happy vaping!
- Beju Lakhani