Shopify to bar vapes as U.S. authorities crack down on illegal industry

A person poses for a photograph as they vape in Melbourne, March 23, 2023. (Diego Fedele/AAP Image via AP)

LONDON -- Shopify Inc will ban all vapes from its platform as soon as this week following pressure from a group of U.S. state attorneys general aiming to curb sales of illegal e-cigarettes online, according to two sources familiar with its plans.

The Ottawa-based company provides the underlying infrastructure that lets millions of merchants operate and scale e-commerce channels. It has been in talks since last year with a bipartisan coalition of 25 state attorneys general, who have been pushing Shopify to do more to clamp down on a booming market for vapes that lack the legally required license for U.S. sales, or violate other laws.

Unlicensed vapes, usually made in China, are widely available in the U.S. both online and in vape shops, convenience stores or gas stations despite being illegal to import or sell.

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The expected Shopify ban, first reported by Reuters, would mark the most significant win yet for the state law enforcement officials, who have been targeting the industry’s infrastructure over concerns that illegal vapes put public health at risk.

“We’ve always prohibited illegal activity and take action when we become aware of merchants violating our policies,” a Shopify spokesperson said in a statement, adding such internal decisions take into account global legal frameworks and are not based on feedback from any one group.

“We adjust our enforcement approach when legal changes call for it,” the spokesperson said.

The expected ban could disrupt e-commerce sales and have a “chilling effect” on sellers, one of the sources said.

The illegal U.S. market for vapes is currently worth some US$9 billion, according to British American Tobacco, whose U.S. business has been hit hard by their proliferation.

BAT did not respond immediately to a request for comment.

The U.S. Food and Drug Administration has to date granted marketing authorization to just 45 e-cigarette products, mostly tobacco-flavored -- an approach that big tobacco companies such as BAT argue has stifled the legal market and fueled illegal sales.

Illegal vapes depend on e-commerce

It was not immediately clear whether the ban would apply beyond the United States. Shopify did not answer a question on its geographic scope.

Other countries like India have banned vape sales altogether, while in Australia they can only be sold in pharmacies.

In the U.S., the Shopify ban will apply to all vapes regardless of whether they have required FDA authorisation, the two sources said.

A relatively small portion of authorized vape sales in the U.S. occur online, which should mean a limited effect on licensed players such as BAT or e-cigarette maker Juul, one of the sources said. E-commerce is a more important channel for illegal vapes, though they are also mostly sold in brick-and-mortar stores.

Separately, credit-card issuer Mastercard warned partners responsible for adding merchants to its network that unlicensed vape sales violate its standards, according to a global notice issued to partners in May and obtained by Reuters.

The state attorneys general in an April letter pushed Mastercard and other major card networks or payment processors to take stronger action to prevent their networks from being used to facilitate illegal vape sales.

Those partners, also known as acquirers, are financial institutions that act as a go-between to complete credit-card transactions.

Mastercard’s notice said when acquirers register a merchant they are “attesting that all appropriate controls are in place” to make sure their activities don’t violate the law. It recommended those companies implement controls involving reviewing and approving a merchant’s product inventories, along with transaction and invoice monitoring.

Mastercard said it would launch investigations if stores selling illegal vapes used its services, potentially targeting both retailers and acquirers, with the risk of fines if they do not comply with their standards. “We have zero tolerance for unlawful activity on our network,” Mastercard said.

(Reporting by Emma Rumney; Additional reporting by Manya Saini and Deborah Sophia in Bengaluru; Editing by Lisa Jucca and David Gaffen)