AURORA | A few local vape shops in Aurora are raising eyebrows, and not just from the clouds of flavored smoke.
While digging into zoning issues surrounding the city’s convenience stores and smoke shops, Aurora officials stumbled across something they say doesn’t add up: a suspiciously high number of “grocery” sales in places that mostly sell vapes, tobacco and rolling papers.
“I did see a smoke shop where they were reporting the majority of their sales to us as groceries,” said Treavor Vaughn, Aurora’s manager of licensing and finance. “Interestingly enough, there’s a big EBT sign on the window. I went in there and they had some sodas and some snacks, but for the most part, it was a smoke shop.”
That sales report was just the beginning. Vaughn said what really caught his attention was a pattern of a few vape shops claiming grocery-level sales despite only stocking a handful of snacks and sodas.
At first, he thought it might just be a sneaky move to dodge Aurora’s sales tax on groceries, which the city doesn’t collect anyway, but the math didn’t make sense. That’s when he and his team suspected something bigger, possibly fraud involving EBT (Electronic Benefits Transfer) and SNAP (Supplemental Nutrition Assistance Program) benefits.
“We were positive we’d seen it occurring at a couple of smoke shops,” Vaughn said.
Using the federal SNAP locator, his team was able to pinpoint which businesses were actually accepting food stamps, and they matched them up with stores that were reporting unusually high grocery sales.
According to the U.S. Department of Agriculture, households cannot use SNAP benefits to buy beer, wine, liquor, cigarettes, tobacco or food and drinks that contain controlled substances such as cannabis/marijuana and CBD.
While some big-name convenience stores like 7-Eleven accept EBT for a wide array of groceries, Vaughn said the numbers coming out of some vape shops were far too high for what little food they actually offered.
Vaughn said he reported the suspected fraud to federal food benefit officials, and now those shops are no longer listed on the locator website.
Vaughn did not reveal the shops.
Some of those kinds of shops still remain on the locator website on the Denver side of Colfax Avenue, though.
“From a city standpoint, not only are those items basically earmarked for a specific purpose,” Vaughn said. “It kind of comes down to some of these businesses targeting the poor communities, and I think it correlates with that when you see them also accepting EBT.”
Cities do not enforce EBT compliance, but they do enforce rules that promote the health and safety of their residents, Vaughn said. During the research into this topic, city officials found a chain of gray market activity while looking into the sales at some vape shops, and they are now working on enforcing better compliance for some of these issues, like banning under-regulated psychoactive products in these stores.
What Vaughn and his team were able to find was that some of these vape and tobacco stores were drop shipping or purchasing more highly regulated or banned products from out of state, such as Delta 9, with THC levels higher than what Colorado law permits. While some of these businesses are buying out-of-state products, they are also buying their tobacco products from out-of-state distributors to avoid Colorado’s high tobacco taxes. Then they are miscategorizing the grocery purchases to cover up the out-of-state purchases, he said.
They may mix legitimate and illegitimate product sources to create a cover story, using fake or incomplete invoices and obscure distributors, Vaughn said.
“One example I had, the reason we were able to kind of track it was that they were using a drop shipping location in Aurora,” Vaughn said. He said it was a supposed distribution company called Five Star Distribution that he was unfamiliar with, and that he eventually reported to the state.
Cigarettes are easier to track due to tax stamps, he said, but other tobacco products are harder to monitor, and since the state has limited enforcement resources, it makes it easy for retailers to exploit the system.
“I think there’s a fair amount of products that it’s kind of difficult to figure out how exactly they got their hands on it,” Vaughn said. “And they’re not exactly being that transparent about it, because I’m trying to get invoices from the one vape store, and they don’t seem to want to give them to me.”