Buzz Kill: (Marijuana) Vape Companies Feel the Burn of Trump Tariffs

The vapor hardware industry has greatly benefitted from both state-by-state cannabis legalization and the increasing popularity of e-cigarettes. But the vaping industry is right now in the crosshairs of a 25 percent tariff on products imported from China, from which pretty much all vaping hardware originates.

The first two waves of President Trump’s proposed tariffs against China covered about $50 billion worth of Chinese products but failed to include any vaping products. After China retaliated by enacting its own tariffs on an estimated $50 billion worth of U.S. products imported into China, President Trump proposed a much bigger list to cover an additional $200 billion in imports from China. This list directly targets vaping devices, vaping parts, and batteries from China. Because my law firm’s cannabis and China lawyers represent so many companies involved in the vaping industry, we are hearing an earful about how these tariffs will “decimate” this nascent industry despite the number of cannabis consumers shifting from joints and smoking to oil and vaping.

The U.S. vaping industry is highly vulnerable to these tariffs. Though much of the e-liquid used for vaping is made in the United States, nearly all vaping hardware is made in and imported from China. We are hearing from both vape manufacturers and cannabis retail shops that many consumers are not likely going to be willing to pay greatly increased prices for their vape products and the U.S. vape industry is going to be very badly hurt by these tariffs.

Fortunately, there is still time for vaping companies to seek a tariff exemption for certain vaping products. The U.S. Trade Representative (“USTR”) will accept comments until September 6 on whether entire categories of products listed on the $200 billion tariff list should be exempted from that list.

There likely will be a chance to make more product-specific exclusion requests later in the fall. For an exclusion request to have any realistic chance at being granted, marijuana and related vaping companies should address the following factors:

• A description of the physical characteristics (dimensions, material composition, etc.) of the particular vaping products and the 10-digit subheading of the HTSUS tariff category applicable to those products.
• Whether the particular vaping product is available only from China. In addressing this factor, requesters should address specifically whether the particular vaping product and/or a comparable product is available from sources in the United States and/or from countries other than China.
• Whether imposition of additional duties on the particular vaping product would cause severe economic harm to the requester or other U.S. interests.
• Whether the particular vaping product is strategically important or related to “Made in China 2025” or other Chinese industrial programs.
• Requesters must provide the annual quantity and value of the Chinese-origin product the requester purchased in each of the last three years. If precise annual quantity and value information are not available, USTR will accept an estimate with justification.
• Requesters may also provide any other information or data they consider relevant to evaluating their request.

Since cannabis is still federally illegal, mentioning cannabis to any federal agency may be problematic, but fortunately, many vape products have dual uses. The process for reviewing and deciding on these exclusion requests will not result in any immediate decision but the hope is that a favorable decision eventually will allow for refunding the tariffs paid.

The goal is to have the USTR review the comments and grant exclusions, particularly for products that can only be sourced from China. The last time similar tariffs were applied on steel products back in the early 2000s, many exclusions were granted that helped ease the impact of the tariffs on downstream users. So, there’s still a chance for the vape industry here.

There have already been many opposing comments and exclusion requests submitted for the first two waves of proposed China tariffs. Many of the opposing comments noted how the proposed tariffs on the Chinese products have nothing to do with China stealing or extorting intellectual property from U.S companies, which are the main reasons claimed for invoking the China tariffs in the first place. Many have also objected to how these tariffs are not likely to change how China respects intellectual property rights and how the tariffs will have a catastrophic effect on certain American companies instead.

The booming U.S. vaping industry now faces going bust due to the proposed tariffs. If you are in the vaping industry, now is the time to do what you can to prevent this.

Editor’s Note: This post was written with the extensive assistance of Adams Lee, one of my firm’s international trade attorneys.

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Hilary Bricken is an attorney at Harris Bricken, PLLC in Los Angeles and she chairs the firm’s Canna Law Group. Her practice consists of representing marijuana businesses of all sizes in multiple states on matters relating to licensing, corporate formation and contracts, commercial litigation, and intellectual property. Named one of the 100 most influential people in the cannabis industry in 2014, Hilary is also lead editor of the Canna Law Blog. You can reach her by email at [email protected].