On February 20, 2025, New York Attorney General Letitia James sued the makers, distributors and retailers of illegal flavored e-cigarettes for hundreds of millions of dollars.

“For too long, these companies have disregarded our laws in order to profit off of our young people,” James said in a statement.

It was the latest example of states attempting to tackle what the U.S. Food and Drug Administration (FDA) has failed to do: tamper down the flourishing illegal flavored vape market in the United States.

“The vapor market is in complete disarray,” said Anna Ready Blom of NACS. “There is an influx of illicit vapes coming into the United States, many from China, that are being sold in vape shops and other stores around the country.”

It’s not that the FDA hasn’t tried. A joint task force with the Department of Justice has conducted several highly publicized seizures, including a $76 million seizure last July.

While $76 million sounds impressive, the data shows it’s just a drop in the bucket. Market research firm Circana estimates the illegal vapor market had $2.4 billion in sales in 2024, roughly 35% of all U.S. vapor sales. And that data doesn’t include online sales, or those made at independent retailers or vape shops.

Not surprisingly, seizures and warning letters have done little to deter distributors and retailers from entering the space—as addressed in Altria’s Q4 2024 earnings call.

“Illicit product manufacturers, distributors and retailers have yet to experience any material consequences for violating federal laws and regulations,” said Altria CEO William F. Gifford, Jr.

“At NACS, we remain frustrated with the inaction from the regulatory agency,” added Blom. “Our members are legal sellers doing the right thing and we are watching the playing field get completely unleveled.”

Here’s a breakdown of how we got here, the scope of the issue and what—if anything—can be done to relevel the playing field created by the illicit vapor market.

A BOOMING ILLICIT MARKET: HOW IT HAPPENED

Most would agree the thriving flavor black market was created by not one, but two, failures at the federal level: an initial loophole that allowed flavored disposables to stay on the market and a frustratingly slow and opaque premarket tobacco product application (PMTA) process.

The FDA first sought to regulate vapor products with The Deeming Rule, published in 2016. This rule mandated that all electronic cigarette products that were on the market before August 2016 must submit a PMTA application by September 9, 2020, in order to stay on the market. Only products that filed PMTAs could be sold after that deadline.

In response to an increase in youth usage, the FDA later issued a February 2020 policy that effectively banned the sale of flavors other than tobacco or menthol. After that date, flavors could only be sold after that product received a marketing granted order (MGO) for its PMTA application.

The problem? Unlike the original deeming rule, this rule only applied to cartridge and pod-based vaping devices.

Flavored disposables and e-liquids were allowed to remain on the market.

Suddenly, the market was flooded with disposables, many of which were not on the market before the August 2016 date set by the deeming regulations and many that never bothered to submit a PMTA. To get around the PMTA requirement, flavored disposables became popular, claiming that the FDA only had authority over products using tobacco-derived nicotine.

The FDA has since extended deeming regulations to include synthetic nicotine and has ended the enforcement discretion that temporarily allowed disposable flavors to remain on the market. According to the agency, only vaping products that have received a MGO or have a PMTA currently under review are allowed to be sold.

Unfortunately, the agency is moving very slowly on those PMTAs.

“Since the FDA Center for Tobacco Products’ inception in 2009, applications for nearly 27 million next-generation

nicotine products have been filed,” said Matt Domingo, senior director of external relations for Reynolds American Inc. “Only 34 vapor products have received marketing granted orders. In the meantime, illicit disposable vapor products have flooded store shelves.”

Of those 34 approved vapor products, the FDA has only approved two menthol options … and zero other flavors. This fact is exceedingly frustrating for retailers losing sales to outlets selling illegal flavors.

“We wouldn’t be here if they were moving in an efficient, timely manner,” said Senior Category Manager for Yatco Energy, Anna Bettencourt. “I assure you if it took me this long to complete an important task at my job, I wouldn’t have one.”

HOW BIG IS THIS PROBLEM?

With so many of the illegal vapor products being sold in untracked channels—including online and vape shops—it’s nearly impossible to properly gauge the market. But most agree it’s significantly more than the $2.4 billion/35% of the market estimated by Circana. Altria’s CEO estimated illegal vapes to represent over 60% of the market during the company’s Q4 2024 earnings call. At the 2024 Capital Markets Day, representatives from British American Tobacco (parent company of Reynolds) estimated illegal products account for two-thirds of vapor sales.

The size of this problem isn’t just an issue for retailers who are losing sales to the illicit market, but for the consumers using these unapproved, unregulated products.

Last year, Altria commissioned independent labs to look at the top-selling illegal flavored brands and found the following:

• 9 of the 12 brands analyzed misrepresented their nicotine source (namely stating synthetic nicotine was used, when in fact, tobacco-derived nicotine was found).
• 10 of 12 brands misrepresented their nicotine concentration.
• 2 of 14 products that described themselves as being nicotine- free contained more than trace amounts of nicotine.

“The U.S. is overrun by illegal, unregulated and untested vapor products smuggled into the country from China,” said Stefanie Miller, vice president of external affairs at Juul Labs. “Many of these products have not even attempted to comply with U.S. laws, with the vast majority not even submitting a premarket tobacco application with FDA.”

Because these products are being sold illegally, it’s also more likely that the retailers selling them will not enforce other laws—namely age restrictions.

“Americans, including minors, are using these illicit products with harmful chemicals made in China,” Blom said. “It’s a worst-case scenario.”

And while Circana data shows that the FDA’s efforts have been successful in getting popular illegal brands like Elf Bars and Esco Bars out of the top-tracked sales list, others have popped up in their place.

This leaves retailers who do follow the law—only offering the FDA-approved unflavored options—with a losing hand.

“It’s created an unlevel playing field as some retailers continue to choose to sell illicit products, while others are taking a more compliance-first approach by not doing so,” said Domingo. “As a result, their businesses are under

immense pressure in terms of the total market basket impact and shopper trips.”

HOW CAN IT BE FIXED?

States have been trying to tackle the issue, with New York’s lawsuit as one example, while other states have created vapor directory laws. Blom points out that a state-by-state approach makes operations complicated for multistate operators. In addition, even states have been unable to determine which vapor products are and aren’t legal to sell under FDA’s purview.

“We need a federal solution,” she said.

Specifically, NACS has advocated for three things from the Center for Tobacco Products: complete its review of PMTAs, publish a list of products that can and cannot be sold and take true enforcement action against those manufacturing, distributing and selling illicit products.

By its own reporting, the FDA is behind on the PMTA process: The original deadline to review the applications filed in September of 2020 was September 2021. Since then, the FDA has only committed to completing a review of “covered” applications (products that had submitted PMTAs by 2020 and that represent at least 2% of retail vapor sales per Nielsen), which was supposed to happen by July 2023. As of last July, the agency claimed it had completed 185 of 186 of the covered applications. It is also still reviewing thousands of synthetic nicotine vaping PMTAs, with no timeline on those decisions.

“There is an urgent need to revisit how new products are brought to market while maintaining a stringent and transparent regulatory review process,” Domingo said. “An impartial system that encourages, enables and supports responsible innovation is required to accomplish this.”

Transparency is also key to NACS’ second ask: a list of what products are legal to sell. While the FDA has provided a list of products with marketing granted orders, it has not been clear about products that originally had a marketing denial order that was rescinded (like Juul), those who managed to get the courts to overturn a rejected or denied PMTA or which products have a PMTA currently under review.

“We rely on the regulatory agencies to give us clarity and certainty,” Blom said. “We have asked CTP for a list of products that can be on the market and a list of the products which can’t, by a product level. That list still does not exist.” Bettencourt has first-hand experience with this problem, having brought in vapor products that she thought were legal only to later need to pull them from the shelves. “It’s absolutely part of the challenge,” she said.

Most importantly, there must be consequences for those breaking the law while simultaneously a legal market for consumers is created.

“It is imperative to prevent illegal vapes from entering the country and interstate commerce,” said Miller. “Preventing the importation and distribution of these products at their point-of-entry is critical to ending illegal products’ strangle- hold on the market. At the same time, Americans who smoke deserve access to an array of authorized, smoke-free prod- ucts in a variety of flavors. The FDA’s Center for Tobacco Products has the authority and technical expertise to create such a marketplace.”

“While the FDA has taken steps by issuing warning letters, the real issue lies in the lack of robust enforcement,” Domingo added. “Stronger enforcement is needed and remains long overdue.”

“Simply put, the FDA needs to do what they said they were going to do,” Bettencourt said.

IS ENFORCEMENT EVEN ENOUGH?

As the saying goes, the toothpaste is out of the tube. Flavored vapor products exist and, so long as the FDA refuses to consider allowing adult-oriented flavored products from responsible manufacturers, there will likely be a compelling black-market incentive for those willing to flaunt the law.

Begging the question: Can anything be done to fix this issue?

Responsible retailers are certainly feeling this frustration. “Our retailers are really frustrated that the agency’s inac- tion on applications and its lack of transparency, has created

this giant loophole that has led to illicit vapes coming into the market,” Blom said, noting that many NACS retailers have seen their customers go down the street to a vape shop that does offer illegal flavored vapes. “Frustrating might be a light way of saying it. It’s demoralizing.”

And it’s demoralized the industry’s view of the vapor category as a whole.

“I’m definitely not as bullish on vape as I was,” Bettencourt admits.

Only time will tell if the FDA can successfully fix what’s been broken.