Harsh regs sink Palm Beach Vapors
A tiki hut at a Palm Beach Vapors store.
Co-founder Chip Paul is snuffing out his electronic cigarette franchise, Palm Beach Vapors, citing new Food & Drug Administration regulations that he says torpedo the business model.
“Our cost in a bottle of juice went from a dollar and will go to about $6, so that kills the mom-and-pops,” he says, referring to the flavors, ranging from blueberry cheesecake to tobacco, that franchisees currently can add right in the store to the liquids that customers then vape.
“In the new world, the point of control on the juice will be at the manufacturer,” meaning by August 2018 all vaping liquid, including flavors, must come from a facility that meets ISO 9000 standards, as recently ruled by the FDA. A bottle of “juice,” which is liquid that can be laced with different levels of nicotine (or none at all), sells for $15.95 in a Palm Beach Vapors store. Many people use e-cigarettes as a way to stop smoking.
Paul says it’s just not worth it to bring in what he calls third-party juice. “We don’t have the most sophisticated owners in the world. With $50,000 and a wing and a prayer you could start a Palm Beach Vapors,” and one of the attractions was the “way, way” better profit margins a franchise could yield.
“We can’t overcome, basically, that margin difference. We always thought when regulations would come down they would be reasonable,” he says. “It was far harsher than we ever anticipated.”
The FDA finalized its rules regulating all tobacco products on August 8, 2016, calling it a “milestone in consumer protection.” In an FDA Voice blog post at the time, Mitch Zeller, director of FDA’s Center for Tobacco Products, wrote, “while there has been a significant decline in the use of traditional cigarettes among youth over the past decade, their use of other tobacco products continues to climb—putting a new generation of kids at risk of addiction. E-cigarette use, for example, skyrocketed from 1.5 percent in 2011 to 16 percent in 2015 (an over 900 percent increase).”
Palm Beach Vapors, based in Owasso, Oklahoma, had 21 units at its peak after starting to sell franchises in earnest in early 2014. About six months ago, Palm Beach Vapors started letting franchisees out of their contracts if they wished, something that Paul says isn’t commonly done. “I think they’re surprised,” he says about franchisees. “Generally most things don’t go this way. Most companies will ride it to the end and wait until they get sued eight times and wait it out. We didn’t think that was the right thing to do.”
“I’ve done a bunch of weird stuff. I’m a weird guy,” says Chip Paul, above, who is closing his Palm Beach Vapors franchise and starting Gnu Pharma, an herbal supplements company.
Starting a new venture
Paul and his wife, Cindy, who is a co-founder of Palm Beach Vapors, are working on a new company called Gnu Pharma, which is developing herbal supplements that Paul says interact with the body’s ECS, or endocannabinoid system. “The ECS sits atop the central nervous system and directly affects messaging for all brain function,” according to gnupharma.com. “Gnu Pharma products safely assist in providing natural resources to a healthy body, which … allows your ECS to heal and control a multitude of healthy brain, organ and body interaction.”
Paul has signed Gnu Pharma’s first deal with a distributor and expects more to come shortly, but he decidedly will not franchise the new company. Why not? “Oh god,” he says. “Franchising is a difficult business. I think you have to have the right disposition to be a franchisor, and neither Cindy nor I have that disposition.
“You have to be a good business person and you have to be fair, but you also have to be kind of an ass, and you have to just be a rigorous policeman on that agreement” with the franchisees.
With Gnu Pharma, Paul, a mathematician by formal training, is wading into a new and promising area of research, he says. He has a patent pending on the company’s process to rapidly engineer formulations, and he is working with researchers at the University of Mississippi, which was the first university to be federally charted to study cannabis, in 1968, Paul says.
“All of these PhDs are uber-interested” in his work on the ECS system, he says, but first he had to convince them he had done extensive research on his own. “This is a very perhaps unique thing and I’m a guy coming out of the garage. That’s what I spent a year doing. I needed to up my game. I’m happy to go toe to toe” with anyone on the subject today, he says.
It’s just one more twist for Paul, who was in IT in his corporate life, then worked on a media extra-net project for a communications company. “From there I started an entrepreneurial career, and I wrote some patents in the electrical energy space,” he says. After he and his wife, plus a third business partner, quit smoking by using electronic cigarettes, he started Palm Beach Vapors. “I’ve done a bunch of weird stuff. I’m a weird guy.”