When Oxford Dictionaries coins “vape” word of the year, you know the industry is blowing up mainstream culture—and maybe you're wondering you should start a business to get in on the action. Though it's recently become controversial, the numbers suggest that this isn’t a fad that’s going away anytime soon—by 2025, the vaping industry is projected to be worth $61.4 billion. It’d make sense for entrepreneurs, both new and established, to want a piece of this lucrative industry and be curious about how to open a vape shop.
And when an industry becomes this popular, the business world takes notice. In their 2016 research, Quartz found that there were about 2.7 vape shops for every bowling alley in the US, and they continue to be one of the fastest-growing business trends today. If learning how to open a vape shop is something that entices you, below are some of the earliest steps you should take to get the ball rolling on your new business.
How to open a vape shop in 6 steps
We’ll be straight with you: Starting any small business is no easy feat, but due to FDA regulations, taxes, and other crucial logistics, figuring out how to open a vape shop and then running one can be a particular challenge.
That said, in 2016 there were an estimated 35 million vapers worldwide, with the U.S. representing the largest market by far—and someone has to provide those enthusiasts with the supplies they demand. If you’re determined in starting a vape shop, keep the following steps—and their costs—in mind as you launch your vaping business.
Step 1: Write a business plan
Normally we would suggest your first order of business in starting a vape shop would be choosing the type of business you want to start, choosing a name, and choosing a business structure. While those are all important for figuring out how to open a vape shop, you should do some planning and research that goes along with writing a business plan before those other steps.
Starting a vape shop is a unique endeavor due to the fact that it's a highly popular industry, but one that is also constantly facing changing regulations and lately, bans in some states.
If you've decided to open a vape shop in your state, do some research first. Depending on where you live, super-high excise taxes on vaping products can make your brick-and-mortar location a non-starter. Although there’s no federal excise tax on vape products at the moment, certain states and municipalities do levy taxes on these products, either as a percentage of the product’s wholesale value or per unit or milliliter of liquid.
The tax values vary across these states and localities, but the highest rates (like Minnesota’s 95%, or D.C.’s 70%) can make starting a vape shop prohibitively expensive, as vape shop owners need to hike up their prices accordingly—and potentially lose business to lower-priced online sellers.
In your business plan, be sure to lay out all of the obstacles your business might face and how you plan to overcome them. Also, outline the competition in your area and do a market analysis to show that there's actual demand for vaping products that your business can help fill.
Even when you’re planning your marketing though, you'll need to make sure you’re complying with the FDA’s regulations on selling e-cigarettes—which, for instance, prohibit displaying advertisements for e-cigarettes without a health warning statement.
Once you've done this leg work, you can then come up with a business name and choose a business entity for your business and add that to the business plan. For your business name, you can check the Secretary of State's website for your state to make sure the name you want is actually available. They should have an online database that provides a quick and simple search function to check the names already in use.
Choosing a business entity for your vape shop business might be easy, in part because whether or not you have business partners can impact the structure you choose. You might choose a limited liability company to protect you from liability, or a sole proprietorship if you're running your business alone. LLCs, S-corps, and C-corps all include limited liability protections, so they might be your best bet. There are many business entity options to choose from.
Step 2: Register your business, get any licenses or permits
If you’ve decided that you can swing your state or city’s vape tax (if that's applicable), and made a business plan, your next step to starting a vape shop is to register the business on the federal, state, and local levels and obtain any licenses you need to comply with the laws of each. This is probably one of the hardest parts of learning how to open a vape shop.
As of 2016, the FDA considers e-cigarettes to be tobacco, so you’ll need to comply with the government's specific regulations about selling vape products (which now includes labeling all packages and advertisements for covered tobacco products with a health hazard warning). And if you also “mix e-liquids, make or modify vaporizers, or mix loose tobacco,” you’ll actually need to comply with the FDA’s tobacco retailer and manufacturer regulations.
Depending on your state, county, or city, you might need to acquire additional licenses and permits to legally open and operate a vape shop; fees for your permits and licenses will vary according to your location, too. It's probably best to consult a lawyer about the requirements for vape shops in your area, as well as check in with the county clerk's office for local regulations.
Then, just like any other business, you’ll need to set yourself up as the business entity that you chose when creating your business plan. Once again, the costs of registering a business vary from state to state. You'll likely find this information on the Secretary of State's webpage for your state.
Step 3: Account for essential startup costs
No matter what industry they’re in, every soon-to-be small business owner needs to take a few steps before launching their brick-and-mortar locations. Opening a business bank account, scouting and securing a location, agreeing on a supplier, purchasing a point of sale and accounting software, launching a marketing campaign, and hiring and training staff are just a few of those vital first steps. You’ll need to account for your startup costs throughout the whole process.
Don’t underestimate the costs of stocking your inventory, too, when learning how to open a vape shop. To start out with, it’s suggested that you stock your vape shop with at least the following products:
It’s a good idea to purchase your inventory through a wholesale supplier, so you can essentially buy double the stock at half the price. Just do your research to make sure you’re not sacrificing quality for quantity.
So, how much does it cost to open a vape store? In a 2013 report, Jon Merton, founder of Vapor Craze in Long Beach, CA estimates that running a vape shop costs anywhere between $7,420 to $10,020 minimum monthly, but that’s not including product. The report also recommends having $50,000 to start a vape shop, and that you have enough to cover six months’ worth of expenses.
Step 4: Get business insurance
When thinking about how to start a vape shop you definitely need to think about what kind of business insurance policy you'll need—and factor high insurance fees into your startup budget.
According to internal data, Insureon says that vape shops pay much more for insurance than other retail shops. Where the average annual cost for small business owners holding the company’s general liability insurance policy was $591.13, vape shops’ coverage for the same policy cost an average of $711.11 annually. But the exact cost of your insurance policy will depend on risk factors like your projected revenue, the value of your property and equipment, and the value, type, and amount of products you stock.
Although you can purchase your insurance through general insurance companies, know that there are also niche insurance brokers with policies geared specifically toward covering vape shop property and products. E-juices, health hazard and defective products, your brick-and-mortar location—there’s an insurance policy for all of the above.
Step 5: Get a business credit card, business checking account
You'll want to be sure to keep your business finances separate from your personal finances, especially in a business where the product you're selling is fairly regulated. A business checking account is a good way to do this, and should be a top priority when you're starting a vape shop. You'll need a place to keep the money that's coming into the business and you'll want a bank account to be able to pay employees and bills from as well.
Having a business credit card can be another important step for you, since it will serve as a means to an end when it comes to getting funding. It's also great for building your business credit score. You'll want to help boost that credit score as much as you can in the beginning and your business credit card can help you do that. Pay it off on time, if not early, and reach out to suppliers who you're paying on time to see if they can vouch for you to the three credit bureaus to help boost your score, it could pay off later down the line.
Although card issuers do ask for your industry and amount of time in business on your application, it’s highly unlikely that they’ll turn you down on the basis of either stats. Really, card issuers mostly care about your personal creditworthiness and your ability to pay back the credit you use.
So, expect the card issuer to make a hard credit inquiry when you apply for your card, and that they’ll ask about your business’s financials. Don’t worry if your vape shop doesn’t yet have an annual revenue; as the primary cardholder, you’ll provide your personal income and outstanding debt, too.
Of course, credit cards can become expensive if you carry a balance month to month. But assuming you pay your bills in-full every month (which is simply a best practice of card ownership, anyway)—and you choose a no-fee business credit card—plastic might be your most affordable option to cover some of your initial expenses while you're figuring out how to open a vape shop. It’ll certainly be one of your most accessible right now.
Step 6: Get funding
Aside from preparing for high up-front costs, vape shop owners should also know that it’s hard to secure financing in this business. Despite its high profitability, banks put your industry in the riskiest category, so you’ll have a hard time gaining approval from the biggest financial institutions in your area.
Even beyond the industry-risk factor, banks generally won’t fund startups, period. Brand-new ventures don’t have the credentials—like time in business, strong revenue, and profitability—to prove to these institutions that they can repay what they owe.
Although certain online lenders are open to funding vape shops, even they often won’t issue loans to startups, either. Instead, the newest vape shops might want to look for alternative sources of funding to get their ventures off the ground. Crowdsourcing, bootstrapping, friends and family loans, and personal loans for business are all popular, and attainable, funding options for brand-new businesses.
If you’re determined to secure a true business loan—and separate your personal and business finances and build business credit from the get-go—you can start using a business credit card, which we discussed above, to pay for business expenses. But, you'll have to be careful to pay back your card regularly and in-full to build the kind of credit that will convince lenders you'll be a good investment.
Down the line, once you’ve built up your credit score and business’s finances, you can turn to a vape shop-friendly alternative lender for a bigger business loan.
How to start a vape shop online
Some of the steps we listed above have to do specifically with opening a brick-and-mortar vape shop with a physical location. If you're opening a vape shop online or an ecommerce business, you still have to deal with the regulations in your state but you'll also need to be sure you're complying with the rules and regulations where you're shipping your products to.
Additionally, you'll need to create an ecommerce website to sell your products on, which will add a whole extra layer of work for you when it comes to setting up your business. Luckily, there is a host of ecommerce websites and templates that can help you get the job done, though because of your product, there might be restrictions to which platforms you can use. Once you have that, you'll have to market your online shop, while still complying with laws around marketing vape products. You'll probably have to install some requirements on your site, too, like an age verification widget.
Starting your vape shop online might pose other problems as well due to the competition online and the difficulty of setting yourself apart from other shops. It's probably a lot of extra work when you're just learning how to open a vape shop, but with the right know-how, it could be a profit-growing move. We'd recommend talking to a business lawyer that specializes in vape shops to get a better idea of how feasible this is for you.
The bottom line
If you’re determined in starting a vape shop, we definitely encourage you to go ahead and do it, but know that you’ll encounter challenges at many turns—prohibitive excise taxes, strict FDA regulations, competition from online sellers and traditional nicotine vendors, and trouble securing funding can all put your vaping startup at risk.
But armed with a ton of research, a well-crafted business plan, and the advice of experts, we're sure you can navigate these roadblocks. If you can keep your doors open as the FDA rolls out more e-cigarette regulations in 2022, you and your local vaping community will be happy to own a slice of this $5.5 billion industry.
This article originally appeared on JustBusiness, a subsidiary of NerdWallet.