Nick DeNuccio was 18 when he co-founded vaping business Propaganda E-Liquid.
“I didn’t even know how to pay my taxes,” he said. “I didn’t know sales, accounting, marketing, manufacturing.”
Five years later, he and co-founder Nick Bull expect $12 million in 2019 annual sales, up from $7 million in 2018. Propaganda employs 24 at its Irvine factory near the intersection of Red Hill Avenue and MacArthur Boulevard.
They’ve learned plenty about all aspects of small business since the launch.
“It was definitely a lot of ups and downs,” DeNuccio said.
Propaganda is part of a locally growing mom-and-pop industry that includes Cosmic Fog Vapors in Costa Mesa, Space Jam Juice in San Clemente, Cuttwood LLC and California Grown E-Liquids, both in Irvine.
The industry has also attracted investors.
In December, tobacco giant Altria Group Inc. said it would invest $12.8 billion in Juul, valuing the San Francisco-based e-cigarette maker at $38 billion. Juul, which controls an estimated 75% of the vaping industry, plans to give each of its 1,500 workers a bonus averaging $1.3 million, CNBC reported at the time.
“If Big Tobacco finds it interesting to invest, this industry will be here longer than people think,” said DeNuccio, who said he hasn’t been approached by private equity.
DeNuccio doesn’t consider Juul a competitor because they target different customers and provide different products, and while Juul may look like a monopoly, he said the industry is easy to enter.
“Just the same way I started with nothing, anybody can start with nothing,” DeNuccio said. “It’s a gold rush.”
Teen Spirits
The vaping industry is also loaded with controversy: the product being sold can be addictive since it contains nicotine, and there are allegations of targeting teens—too young to legally vape—with sweet-tasting flavors like apple and berry.
About 3.6 million middle and high school students used electronic cigarettes in 2018, up from 2.1 million in 2017, according to the Centers for Disease Control and Prevention. Food and Drug Administration Commissioner Scott Gottlieb last year called vaping “an epidemic.”
A big black and white banner—“WARNING: This product contains nicotine. Nicotine is an addictive chemical”—never disappears from Propaganda’s website.
Vaping’s defenders say it can be a way to wean off traditional cigarettes and that vaping products have less nicotine.
DeNuccio is well aware of the criticism and is ensuring company marketing doesn’t aim at teens.
“We want to make sure we stayed completely away from that category,” he said.
Government scrutiny may help provide a moat for the mostly unregulated industry. The company recently hosted a regulatory official from the FDA, which is gathering information on the industry.
“They will be implementing a regulatory process in the next three years. They’re just acquiring information now.”
Mother Approved
DeNuccio said his primary customers are between 25 and 35, “hobbyists” who buy from smoke shops—stores focused on vaping and other smoking-related products. Teens typically buy vaping products at convenience stores where clerks often aren’t as vigilant at checking drivers’ licenses to make sure they are 21, the legal age for vaping in California, he said.
What did DeNuccio’s parents think when he and Bull began offering Propaganda products?
“I tried to get him to give it up,” said his mother, Alison Hill, who’s worked in SoCal press relations for years.
But, “when he took the initiative, I did some research; even the CDC said it’s healthier than smoking cigarettes so it’s a step in the right direction,” she said. “I was cautiously optimistic.”
She helps with company marketing and DeNuccio’s parents loaned him $5,000 as a startup.
“This is his business,” Hill said. “Nick’s always been an entrepreneur.”
She said college isn’t needed. Nick has a semester’s worth, and learned about business watching YouTube videos, reading how-to articles on the internet; and talking to advisers, including accountants and attorneys he hired.
“If you want to learn something, you can go and do it,” he said. “You can learn and you can do anything.”
General Warnings
DeNuccio started vaping when he was 18.
“I quickly became a hobbyist,” he said, and began working at a local vape shop.
He saw people his age coming in to sell “boxes and boxes of vaping products” and thought, “if these people can do it and they’re my age and they don’t look like they have anything special, maybe we can do it too.”
DeNuccio and Bull lined up a sales deal before they had products. They quit their jobs in March 2014. DeNuccio took the chief executive role while Bull, four years older, became chief financial officer.
They did a lot of wordplay to find a good name and settled on Propaganda as a spoof on government warnings about the dangers of smoking.
They moved into a 10,000-square-foot facility under the John Wayne Airport flight path in 2017.
They learned manufacturing through trial and error and hired a chemist to test ingredients, many of which, such as honey, are used in the food industry. They began to learn what worked for individual offerings.
Batches are prepared in pressurized drums made to ISO standards; every product is run through third-party lab testing.
There used to be a night shift at Propaganda, but upgraded machinery enabled fewer employees.
Propaganda makes 20 to 30 batches, filling 12,000 bottles on a typical day, DeNuccio said.
Colorful Results
Products on the company’s website have names like “Blue Slushee” that “tastes like a blue raspberry drink” and “Vape Pink” that come in flavors like “sweet oatmeal cookie butter, a chewy pink candy and a creamy rainbow sherbet.”
Products sell for $30 to $40 each. DeNuccio declined to disclose their profit margin, saying only, “it’s very healthy.”
His mother added that business is so good her son was able to buy a house in Irvine.
Propaganda sells to stores and distributors and has done well in countries like Spain, Italy and China.
DeNuccio and Bull are considering offering a product based on cannabidiol, also known as CBD, which is said to help with anxiety as opposed to cannabis’ THC that causes people to get high.
Propaganda is attuned to social media: it has about 56,000 followers on Instagram and 11,000 on Facebook. It works with social media influencers. DeNuccio pointed out that actor Leonardo DiCaprio “is a poster boy for vaping.”
