The First Sales Ban Is Here—How Else Can the E-cigarette Industry Play?

The San Francisco City Supervisory Committee approved a proposal on Tuesday—

to ban the sale and distribution of e-cigarettes in the city until the U.S. Food and Drug Administration (FDA) completes its assessment of the public health impact. Furthermore, after a second vote by the same officials next week, this proposal will become formal law.
 
San Francisco will become the first city in the United States to impose a complete ban on e-cigarette sales.

This is clearly news that e-cigarette brands in the U.S. do not want to see. E-cigarette giant JUUL once stated in a statement that they have taken action to prevent teenagers from purchasing their products, but a complete ban on e-cigarettes would lead to more adults purchasing and smoking traditional cigarettes, which would be more harmful. However, they probably did not expect that the first city to issue a ban would be San Francisco, where JUUL's headquarters is located.

Overseas, a wake-up call

The U.S. e-cigarette market, which has been booming for nearly a decade longer than China, is facing an uncertain fate.

In the U.S., e-cigarettes have been brought under the FDA's regulatory scope. Data shows that every flavor of e-cigarette must undergo FDA's PMTA approval before it can be marketed. Although the FDA does not have actual enforcement power, it has the authority to push other departments for regulation. Currently, the FDA has absolute influence over the e-cigarette market in the U.S., and it can be said that the FDA holds the direction of the U.S. e-cigarette market.

At present, the FDA's regulation of the U.S. e-cigarette market is becoming increasingly strict.

In April of this year, FDA head Scott Gottlieb publicly criticized JUUL Labs in an interview, firmly placing the blame for nicotine addiction among American teenagers on this e-cigarette giant.

It is not difficult to understand that JUUL, which has been established for less than three years, now holds three-quarters of the U.S. e-cigarette market share and is valued at nearly $40 billion. Once named, JUUL will undoubtedly be the first to bear the brunt.

However, the FDA's attitude towards e-cigarettes is not a "one-size-fits-all" approach; the FDA has neither formally allowed nor completely banned e-cigarettes. Just this April, the FDA approved Philip Morris (PMI, the manufacturer of IQOS) to sell heated tobacco products in the U.S. The authorized products include IQOS heated tobacco devices and Marlboro, Marlboro Smooth Mint, and Marlboro Fresh Mint pods. It is worth noting that IQOS is a heated tobacco type of e-cigarette that primarily uses tobacco leaves, unlike JUUL, which contains no tobacco leaves and uses liquid nicotine.

Clearly, the FDA is most concerned about the increasing number of American teenagers using e-cigarettes.

Regarding the ban in San Francisco, the San Francisco City Supervisory Committee stated that the ban on e-cigarettes may not completely stop teenagers from using them, but they hope this will be a good start.

Public data shows that the FDA has investigated 35 cases of seizures after using e-cigarettes. Just in early April, FDA officials Lapko and Scott stated in a CBS interview that if the situation of teenagers using e-cigarettes continues to grow rapidly, the FDA will have to consider taking stricter regulatory measures, such as completely removing e-cigarettes from the market.

According to a U.S. government survey, in 2018, one-fifth of high school students had used e-cigarettes.

The phenomenon of teenagers using e-cigarettes will be an important factor for the FDA in determining whether to allow e-cigarettes to remain on the market.

Thus, the U.S. e-cigarette market is once again in turmoil. So what impact will this ban from San Francisco have on the U.S. e-cigarette market and domestic import and export trade?

An industry insider engaged in the e-cigarette supply chain told Huxiu that in his view, this ban will not have a significant impact on e-cigarette sales and domestic e-cigarette exports. Moreover, for domestic e-cigarette brands that export, the U.S. has become a market that does not require much effort; at this stage, the real growth in e-cigarettes is in Southeast Asian markets like Malaysia and Indonesia.

Some e-cigarette practitioners also analyze that once the PMTA approval is passed, sales should be reopened.

But in any case, the wake-up call brought by the ban has made many domestic players gasp. Looking back at the domestic situation, the introduction of national standards for e-cigarettes is also imminent.

In China, the death knell is ringing?

The national standard for e-cigarettes in China is coming soon. #p#分页标题#e#

There have been reports that China's e-cigarette standards may be introduced before October this year. The official website of the National Standardization Administration has also shown that the national standard formulation plan for "e-cigarettes" issued in October 2017 has entered the "under approval" stage, with about four months left until the official end of the project.

Some industry insiders have told Huxiu that the national standard is expected to be introduced around October.

Currently, there are only regulations from August 2018, when the State Administration for Market Regulation and the State Tobacco Monopoly Administration issued a notice prohibiting the sale of e-cigarettes to minors. In a few months, the regulatory vacuum that has lasted for over a decade for e-cigarettes will soon come to an end.

It can be basically determined that the upcoming national standard will redefine the circulation standards for e-cigarettes and will conduct more standardized management from production to sales to address quality issues that were highlighted during this year's "315" evening gala. Whether e-cigarettes will be classified as consumer goods, tobacco, or another category will determine the future fate of the e-cigarette market.

Some of the aforementioned industry insiders also analyze that it is still difficult to determine what the most direct impact of the national standard will be on the entire market, but it will certainly lead to a cleaning and screening of many small e-cigarette oil workshops and private label brands in Shenzhen.

The e-cigarette market, driven by capital, is currently in a phase of frantic growth, and before uncertainty becomes certainty, everyone hopes to gain a larger market share and more capital favor. The role of capital is crucial. It has been calculated that when Marlboro cigarette manufacturer Altria acquired 35% of JUUL's shares, it spent a staggering $12.8 billion, and considering the current valuation, the two founders of JUUL will become the first billionaires in this industry.

Every e-cigarette brand sitting across from investors hopes to become China's JUUL first, but before becoming JUUL and before the national standard is truly in front of them, how to ensure that product quality is as compliant as possible is the most important thing.

Currently, most of the countless e-cigarette brands and manufacturers are still offering substandard products, such as many unknown e-cigarette brands using metal materials to make vape rods, which can produce harmful aluminum oxide when heated. The product update cycle for e-cigarettes is very fast, and since no one has completely solved the oil leakage issue, in the future, the safety of electronic components and the flavor and quality of e-liquid will determine who can ultimately stay in the market.

During the recently concluded "618" shopping festival, e-cigarette brands experienced a sales frenzy, racing to accumulate sales before the national standard arrives. Therefore, moving a bit slower and using compliant products to welcome the national standard is definitely the right approach.