LONDON (Reuters) -The U.S. Postal Service has cracked down on distributors of unregulated vapes using its services for business shipments, letters reviewed by Reuters show, in a blow to a multi-billion dollar industry that has dented Big Tobacco's sales.

The letters, previously unreported, show that USPS wrote to major New York-based distributor Demand Vape, blocking it from using its services after New York City's Law Department, which represents the city's government and officials in legal matters, provided evidence that its shipments broke laws.

USPS' action stands to benefit tobacco giants including Altria and British American Tobacco, which have for years battled against unregulated vapes, mostly from China.

Unregulated vapes lack the authorisation from the U.S. Food and Drug Administration that is required for them to be legally sold in the United States, the world's largest market for smoking alternatives.

USPS revoked Demand Vape's mailing exception last month after it received evidence the company shipped vapes lacking FDA authorisation and that violated a local flavour ban, a letter from USPS to the company, dated July 15, showed.

"Your local Buffalo BME Office will not accept any packages from... Demand Vape that contain ENDS products," the letter read, referring to electronic nicotine delivery systems, another term for vapes.

Demand Vape said it complied with relevant laws and was contesting the revocation, adding the industry operates in a "regulatory grey zone" with only a small number of FDA-authorised products that do not meet consumer demand.

"We reject any characterisation that paints Demand Vape as anything other than a transparent, lawful and reputable business," it said in a statement.

USPS did not respond to a request for comment.

LIMITED EXCEPTIONS

So far, the U.S. Food and Drug Administration has authorised only 39 e-cigarette products.

But unauthorised devices are widely available as authorities struggle to contain them.

Under a 2021 law, USPS is restricted from mailing vapes directly to consumers, internationally and in most other circumstances.

The limited exceptions include domestic shipments between businesses, which need a "mailing exception" and their shipments must comply with relevant laws.

Some other large carriers, including FedEx, refuse to ship vapes. DHL only offers carriage for business shipments with prior approval.

USPS has provided NYC's Law Department with a list of other vape firms it has granted mailing exceptions so it can assess whether they should be challenged, in line with legal requirements, Eric Proshansky, deputy chief of the city's division of affirmative litigation, told Reuters.

This could further limit the number of carriers available to the unauthorised vape industry.

Other options, such as using smaller carriers or handling freight directly, tend to be more costly.

MOUNTING PRESSURE

BAT estimated the unauthorised vape market was worth around 6 billion pounds ($8.05 billion) last year. It is, however, increasingly under pressure. This year's U.S. import tariffs and seizures at ports have reduced unauthorised vape imports.

The FDA also wrote letters to 24 U.S.-based middlemen, including distributors that are crucial to the unauthorised vape market, as part of a crackdown in May.

This has led to empty shelves in vape stores, said Tony Abboud, executive director of the Vapor Technology Association, which represents firms including Demand Vape.

USPS revocations will further damage U.S. vape businesses, he said.

One of the largest U.S. e-cigarette distributors, Demand Vape sells to some 5,000 retailers in 49 states, according to 2024 filings in a NYC lawsuit against the company.

The evidence city attorneys provided to USPS included copies of invoices showing Demand Vape's sales of unauthorised e-cigarettes. Brands the FDA has specifically flagged as illegal to sell were among them, a separate letter reviewed by Reuters showed.

($1 = 0.7452 pounds)