LONDON (Reuters) - Some e-cigarette companies targeted by U.S. authorities have altered their business model or changed their corporate structure, including by transferring operations to offshore firms, according to a U.S. regulator and representatives of two companies.
Such tactics have complicated U.S. efforts to stem the flow of vapes lacking authorisation into the country, according to the U.S. Food and Drug Administration (FDA).
"The FDA is aware of, and closely monitoring, instances in which companies attempt to change the labeling of illegally marketed products, or the structure of their business, to avoid detection," it said in a statement to Reuters. The regulator did not comment on specific brands or companies.
Chinese vape giant Heaven Gifts transferred the ongoing U.S. operations of its brand Lost Mary, whose products are not authorised in the United States, to a British Virgin Islands (BVI) firm - Wonder Ladies Limited - after the FDA banned several companies spanning China, the U.S. and South Korea from importing its flagship label Elfbar in 2023, the company told Reuters. Lost Mary remains widely available in the United States.
A Texas-based e-cigarette firm, Ludicrous Distro, a trading name for American Vape Company, stopped selling its own unlicensed vapes under the brand name Esco Bars, and shifted instead to distributing a wider variety of unauthorised devices from third parties, its website shows.
Heaven Gifts spokesperson Jacques Li said the Chinese company had exited the U.S. market by transferring its U.S. Lost Mary operations to Wonder Ladies after the FDA ban on Elfbar and that it was "not sidestepping FDA regulations."
Asked why it was selling unauthorised devices via its website, Ludicrous Distro declined to give the reason for its change of approach but told Reuters it had consistently sought to comply with evolving FDA policies that had created confusion.
The agency, which regulates tobacco and alternative products, has denied licenses to some 26 million new nicotine devices since October 2020, FDA data show, especially to fruit and candy flavoured vapes it says appeal to teenagers.
Some unauthorised products, including Elfbar, Lost Mary, and Esco Bars, which are legal in other countries, have nonetheless been sold widely across the United States, the world's biggest market for smoking alternatives.
Shenzhen-based Heaven Gifts, founded by vape tycoon Zhang Shengwei, controlled over 9% of the U.S. e-cigarette market in the year to September 2023, Reuters reported in 2023, driven by Elfbar.
Lost Mary was the seventh most popular disposable vape device in 2024, data from market research firm Circana provided by an industry source and reviewed by Reuters show. Circana said it was unable to confirm or comment on non-public data.
Li declined to clarify the terms or timing of the transfer of operations to the BVI company.
Heaven Gifts still owns the U.S. trademark of Lost Mary via its Hong Kong unit, Imiracle (HK) Limited, according to the U.S. Patent and Trademark Office's (USPTO) register as of February 2025.
But Wonder Ladies' name and BVI address now appear on Lost Mary packaging in the United States, a device purchased by Reuters in December showed.
A Reuters review of company registries found an Imiracle (HK) Limited director, Tu Xiaoliang, was the authorised representative in Hong Kong for Wonder Ladies and three other BVI firms, which all share an office building there. Tu is one of three Imiracle (HK) Limited directors, alongside founder Zhang, the filings showed.
Wonder Ladies and the other three BVI firms either own the U.S. trademark or appear on the packaging for unauthorised vape brands Lost Mary, off-Stamp, RabBeats, Funky Lands and Quasar.
Tu did not respond to detailed Reuters questions mailed to her business addresses. All four BVI firms did not reply to letters seeking comment delivered to their Hong Kong office address.
Li said he was unaware of Tu's links to the BVI firms and couldn't explain them. He declined to outline Tu's role at Heaven Gifts, citing privacy considerations.
Richard Marianos, a former assistant director at the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives, said the BVI firms could serve to distance vaping brands from their makers and protect associated revenue from enforcement.
A former employee with direct knowledge of the issue also told Reuters that Heaven Gifts set up the BVI firms to distance itself from ongoing illegal U.S. sales of Lost Mary and the other unauthorised labels identified by Reuters.
The person, who was working for the Chinese vaping company when this strategy was implemented, asked not to be named for fear of legal reprisals. The source provided no documentary evidence. Reuters was unable to independently confirm the person's account.
Reuters could not determine who owns Wonder Ladies, whether the BVI firm earns income from U.S. Lost Mary sales or whether revenues flow from the BVI firm to Heaven Gifts.
CONFUSION?
Ludicrous Distro in recent years relied on Chinese manufacturers to produce Esco Bars, for which it owns the trademark, USPTO data shows.
But it stopped distributing Esco Bars, the sixth most popular flavoured disposable vape in the U.S. in the year to June 2022, after the FDA put it on its red list of banned imports in May 2023, Ludicrous Distro's lawyer told Reuters, adding Ludicrous Distro now solely acts as a distributor for third party e-cigarettes and a range of other products.
This transition "was made in a transparent and lawful manner" and Ludicrous Distro had been "forthcoming with FDA inspectors about its business operations", the lawyer also said.
A review of Ludicrous Distro's U.S. website showed the company was offering dozens of unauthorised devices, including seven labels flagged as illegal in FDA warning letters to retailers and in press releases, such as Geek Bar and Raz.
Ludicrous Distro said many unauthorised products, including from major tobacco companies, remained on the market unchallenged by the FDA, creating significant confusion around what is legal to sell.
The FDA's enforcement efforts have faced challenges, including a lack of funding, but any vape launched in recent years without authorisation was "completely illegal", said Mitch Zeller, a former director of the FDA's Center for Tobacco Products. Some FDA staff have been recently dismissed as part of U.S. President Donald Trump's effort to downsize the federal workforce.
The FDA has so far authorised just 34 tobacco- and menthol-flavoured vape products, all by big tobacco firms including British American Tobacco.
"RIDING ON GLOBAL AWARENESS"
The American Vapor Manufacturers, an industry association, says the FDA's reluctance to authorise flavoured devices deprives smokers of legal products that can help them quit. Three U.S. smokers told Reuters such devices helped them quit cigarettes.
In 2023 and 2024, BAT, which says illegal devices have eaten into its U.S. market share, launched two complaints with the U.S. International Trade Commission (ITC) targeting dozens of vape brand owners, manufacturers and distributors.
Among the companies BAT accused of patent infringements and unfair competition were iMiracle (Shenzhen) Technology Co., Ltd, another Heaven Gifts unit, and American Vape Company, the formal name of Ludicrous Distro. BAT filed to withdraw one complaint in January with a view to resubmitting a stronger case later, CEO Tadeu Marroco said on February 13.
The ongoing complaint named Wonder Ladies and the three other BVI Firms - Palma Terra Limited, Sailing South Limited and Marea Morada Limited - noting they appear on unauthorised vape packaging.
The four BVI firms all list Tu as their representative in Hong Kong and are listed at the same letter-box BVI address, Hong Kong company filings show.
BAT and its legal team declined to comment on the ITC cases.
Li said he had no knowledge of the BVI companies aside from Wonder Ladies, and Heaven Gifts was not associated with the vape brands aside from Lost Mary.
The phrase "powered by Lost Mary" appears on the packaging of one of the other brands associated with the BVI firms.
The label was likely infringing on the Lost Mary name to "ride on the brand's global awareness", Li said.
($1 = 0.8003 pounds)
(Reporting by Emma Rumney; Additional reporting by Queenie Garcia in Hong Kong and Vanessa O'Connell in New York; Editing by Lisa Jucca)
