On November 26, the State Council issued a decision to revise the "Regulations on the Implementation of the Tobacco Monopoly Law of the People's Republic of China", clarifying that e-cigarettes will be implemented in accordance with the relevant provisions of cigarettes and will

Reporter | Xu Shiqi

An announcement of less than 30 words caused a storm in the e-cigarette industry.

This means that the e-cigarette industry has been pending with the "who will manage" issue has finally been settled. In conjunction with the recent draft meeting for soliciting opinions on the national standard of e-cigarettes, the formulation of e-cigarette product quality standard is also accelerating.

The capital market responded quickly. Opening on Monday, Rex's parent company Wuxin Technology (RLX) fell in response, and then rose slightly after the market, up 0.38%. Smoore International also fell today, falling 5.34% as of press time. Both the

brand and industry associations responded. Brands such as Rex, Ono, and Bode said that they will support the amendment of the regulations and implement relevant regulatory policies for e-cigarettes. The China Electronics Chamber of Commerce’s E-cigarette Industry Committee also quickly issued a statement saying that it will actively guide all members to cooperate with relevant departments to do relevant work.

Optimistic voices in the market believe that: if the legal identity of e-cigarettes is implemented, the industry entry threshold will be raised, which is conducive to standardization and long-term development. But on the other hand, the pessimistic view is that e-cigarettes may be managed by "one-size-fits-all" and the market will be hit hard. The details of

have not yet been clarified, and taxation and channels are facing uncertainty

The revision of the regulations has been completed, allowing e-cigarettes to have a legal identity, and it is clear that e-cigarettes are the "new type of tobacco" and are under the management of Tobacco Bureau . However, the regulations have not issued any detailed rules for the specific "how to manage".

E-cigarette industry committee secretary-general Ao Weinuo told interface news that the details generally include mandatory standards, production and sales licenses, consumption tax collection, etc. He expects the specific details to be issued one after another next year.

An e-cigarette industry insider told Interface News that the impact of this regulation on the industry mainly lies in "tax, channel model and controllability." This is also in line with the industry's overall estimate.

In terms of channel, according to the " Tobacco Monopoly Law ", the domestic cigarette production and sales process is roughly: the Tobacco Bureau uniformly plans to plant and acquire tobacco leaves , and then distributes the tobacco leaves to the tobacco factory to issue a production plan. The finished products produced are purchased by the Tobacco Bureau and then distributed to wholesale companies or retailers. Most of these links are only allowed to flow in one direction, and both producers and wholesale sellers must hold a certificate, otherwise it will be illegal.

Look at e-cigarettes again. After the online ban on sales at the end of 2019, offline physical stores of e-cigarettes occupied the streets and alleys at a speed visible to the naked eye. Days Eye Check data shows that there are more than 128,000 e-cigarette-related companies in my country, of which more than 80% have registered capital below 2 million. Data from the first quarter of 2021 shows that Rex alone has more than 15,000 specialty stores in China.

The most pessimistic expectation in the market is that e-cigarettes, like cigarettes, are priced and designated by the Tobacco Bureau, which will undoubtedly bring a major blow to the rapidly developing e-cigarette industry.

But more people believe that e-cigarettes may usher in "tailored" supervision.

Ao Weinuo emphasized that the "reference" in the regulations is not "according". He said: "It cannot be understood that e-cigarettes are regulated in the manner that cigarettes are sold by the state. I am optimistic about the policy, and strengthening supervision of e-cigarettes with the rule of law is a global trend. We must not only respect that e-cigarettes are emerging industries that are technologically innovative, but also have regulations on protecting minors, quality and safety, and taxes."

Zhejiang Securities believes that tailor-made regulatory models are expected to be applied to atomized e-cigarettes, such as the approval methods of business licenses, business licenses and approval processes may be different from those of traditional cigarette retail outlets. It is also believed that this move may be the preparation for the subsequent introduction of e-cigarette channel management rules.

In terms of taxation, the current comprehensive tax burden of cigarettes exceeds 60%, while e-cigarettes are only levied as ordinary consumer goods with a value-added tax of 13%. Huaan Securities believes that referring to Japan, my country's e-cigarette tax rate may be increased to 80% of cigarettes.

In addition, referring to the United States' policy of banning the sale of fruits and mint-flavored e-cigarettes to prevent teenagers from smoking, Huaan Securities believes that my country may also limit the taste of e-cigarettes.

Overall, this regulation has raised the threshold for the domestic e-cigarette industry. Most securities firms' research reports believe that it is beneficial to the leading upstream and downstream enterprises; at the same time, it has further established a market elimination mechanism, and small enterprises are at risk of being cleared.

Turn your eyes overseas?

A small e-cigarette brand manager told Interface News that after the policy is imposed, the company will respond to the policy and make compliant products, and on the other hand, it will increase investment in overseas channels.

China is the global production and manufacturing center of electronic cigarettes, and it produces OEM for a large number of overseas brands. In a statement released on the evening of the 26th, the E-cigarette Industry Committee mentioned that e-cigarette exports have grown rapidly in recent years, and are expected to reach a new high of RMB 100 billion in 2021, and have directly and indirectly driven nearly 3 million people to find jobs.

The above statement proposes that for the export-oriented e-cigarette industry, the issuance of regulatory rules involving exports, should be simplified and convenient under the conditions of complying with international regulatory requirements and my country's customs supervision of , encourage and support enterprises to export and earn foreign exchange, which is conducive to maintaining the global competitiveness of my country's e-cigarette industry and the long-term development of the e-cigarette industry.

At present, all countries are accelerating the introduction of regulatory measures for e-cigarettes, clarifying the regulatory entities, product nature and increasing tax rates. Taking the United States as an example, this is the world's largest e-cigarette market. FDA has become the regulatory body for new tobacco products since 2016. Since then, it has increased its efforts to curb the use of e-cigarettes for teenagers, ban the sale of fruit and mint-flavored e-cigarettes, and add e-cigarettes to the PMTA program (requiring companies to provide production, R&D and other materials to prove that their products are reliable). It was not until October this year that the first e-cigarette brand applied for PMTA.

East Asian neighbors also have reference value: Japan regards heating-free electronic cigarettes (HNB) as a healthier cigarette substitute and can be sold with a Japanese Ministry of Finance license; South Korea strictly controls smoking and imposes extremely high tax rates on electronic cigarettes, which is almost equivalent to ordinary tobacco.

International large tobacco companies are targeting the e-cigarette market. Marlboro manufacturer and tobacco giant Philip Morris International set a goal of transforming to "smoke-free" in 2016: by 2025, the company expects that about 40 million users will be new tobacco users, and the proportion of new tobacco shipments will reach more than 30%.

China Tobacco in China has also embarked on the road to going overseas. For example, Sichuan China Tobacco's HNB product has been launched in the Spanish market in August this year.

According to this, Chinese e-cigarette manufacturers, which are mainly export-oriented, will not be affected too much. For example, Smoore International, 80% of its products are sold overseas, the United States is its main market, and British American Tobacco, the world's second largest tobacco group, is its major customer. BYD Electronics, which has invested heavily in electronic cigarette OEM, also targets China Tobacco HNB and overseas customers.

But the life of a brand may not be so easy. Overseas e-cigarette market giants are entrenched, and the market penetration rate is high. For Chinese brands, adapting to new market rules, laying channels, etc. is not easy.