Questions Remain Over Whether E-cigarette Standards Will Be Issued on Schedule

Recently, news about the imminent release of national standards for e-cigarettes has sparked attention within the industry. Although Blue Whale Finance contacted the National Tobacco Monopoly Administration and industry professionals, no definitive information was obtained. However, there is still a strong call within the industry for the introduction of e-cigarette standards.

Currently, the domestic e-cigarette market is in a "three no" state: no clear regulatory authority, no specific laws and regulations, and no quality standards or entry thresholds. For many years, experts in the field of tobacco control and industry associations have been calling for the introduction of relevant laws and regulations. Domestic e-cigarette leader RELX has stated: "We welcome the introduction of national standards for e-cigarettes. The new national standards will provide a 'bottom line' that industry participants must adhere to, driving the gradual standardization of the e-cigarette industry and ensuring consumer rights."

Are e-cigarette standards about to be released?

Where does the rumor about the imminent e-cigarette standards come from?

On September 22, Blue Whale Finance saw on the National Standard Information Public Service Platform that standards related to e-cigarettes are in the approval stage, with the project initiation date set for October 11, 2017, and a project cycle of 24 months. Based on this, it is estimated that the e-cigarette standards are planned to be released on October 11, 2019. Of course, it cannot be ruled out that the release of relevant standards may be delayed. Justin Li, Chief Product Officer of global e-cigarette giant Snow+, stated that he is unaware of the release of e-cigarette standards. RELX also indicated that they are not informed. Generally, before industry standards are released, there is communication with major enterprises in the industry, so it remains uncertain whether the e-cigarette standards will be released as planned.

It is reported that the national standards plan for "e-cigarettes" and "e-cigarette liquid nicotine, propylene glycol, and glycerol determination by gas chromatography" is under the jurisdiction of TC144 (National Tobacco Standardization Technical Committee) and is reported and executed by the National Tobacco Monopoly Administration. Among them, the main drafting units for the former include the Shanghai Institute of New Tobacco Products, Zhengzhou Tobacco Research Institute of China Tobacco Corporation, Yunnan Tobacco Science Research Institute, and the China Tobacco Standardization Research Center; the main drafting units for the latter are the Zhengzhou Tobacco Research Institute of China Tobacco Corporation and Guangdong Zhongyan Industrial Co., Ltd.


The background for the formulation of e-cigarette standards is the rapid expansion of the e-cigarette industry, especially in recent years, as the e-cigarette industry has developed into a significant industrial scale.

According to the World Health Organization (WHO), the global smoking population has been slowly and steadily decreasing over the past few decades, while the number of e-cigarette users has been growing at an annual rate of over 25%. The global e-cigarette market is rapidly expanding, with its size reaching $24.7 billion, compared to just $4.2 billion five years ago.

According to Statista data, the global new tobacco market (primarily e-cigarettes) was only $0.02 billion in 2008, but by 2017, it had reached approximately $12 billion, with a compound annual growth rate of 103.56%. According to Euromonitor International, the number of consumers of new tobacco products exceeded 40 million in 2018 and is expected to grow to 64 million by 2022, with sales of new tobacco products increasing by 45.8% year-on-year.

The "three no" dilemma awaits resolution

The rapid expansion of the e-cigarette market and the influx of numerous producers and sellers have also led to issues such as product quality discrepancies, risks of harmful substances in e-cigarettes, lack of industry standards, and unclear regulations.

Recently, the Governor of New York State announced that New York will take economic administrative measures to ban the sale of flavored e-cigarettes statewide. The Michigan state government announced on September 4 that it would prohibit the sale of flavored e-cigarettes within the state. This action may stem from multiple reports of lung disease cases released by the Centers for Disease Control and Prevention (CDC) in August. On August 23, the Illinois Department of Public Health announced a case of severe lung damage leading to death after using e-cigarettes, prompting the CDC to intervene in the investigation.

Similarly, in China, e-cigarettes are also in a "three no" state: no clear regulatory authority, no specific laws and regulations, and no quality standards or entry thresholds. Therefore, both upstream and downstream of the industry are calling for standards to be introduced quickly.

RELX stated: "RELX welcomes the introduction of national standards for e-cigarettes. The new standards will provide a 'bottom line' that industry participants must adhere to, undoubtedly driving the gradual standardization of the e-cigarette industry, taking on more social responsibility, and ensuring consumer rights, making consumers more assured and confident in e-cigarettes."
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Justin Li stated: "E-cigarettes are indeed a harm reduction product, but how to promote the healthy and orderly development of the e-cigarette industry is something that all parties need to pay attention to. We hope that more people will focus on this industry, and that relevant regulations will be improved, so that more opportunities can be created for better industry development. Additionally, e-cigarettes as a form of product have more possibilities and do not necessarily have to be used as a device for nicotine intake."

Currently, some e-cigarette companies have already established their own corporate standards, which have somewhat improved the quality of e-cigarette products. "RELX has been implementing what can be considered the world's strictest corporate standards. Regardless of what kind of regulatory requirements the national standards impose on the e-cigarette industry, RELX is confident in continuing to use standards far exceeding those of the national standards to create products that consumers can trust." The founder of RELX, Wang Ying, stated, "By the end of this year, RELX's domestic market share is expected to reach 70%, while the overseas market already accounts for a quarter of overall revenue."


The introduction of national standards will accelerate industry reshuffling, benefiting industry giants

The "three no" chaos in the e-cigarette industry has also given rise to a distorted industry model, namely the "five million to enter the industry" model. Fang Hui, CMO of Bode E-cigarettes, revealed to Blue Whale Finance that since the explosion in e-cigarette demand in 2018, there have been many speculators hoping to make quick money entering the industry, where an investment of just 5 million yuan can establish a new e-cigarette brand and profit significantly with certain channel advantages. Currently, there are no fewer than a thousand such brands on the market.

Fang Hui stated that the introduction of national standards will set certain entry barriers, making the history of "five million to enter the industry" difficult to repeat. The industry is expected to accelerate reshuffling, with the advantages of branding, scaling, and R&D capabilities becoming increasingly prominent among industry leaders.

The impact of the introduction of national standards goes beyond this. For the industry side, the explosive demand for e-cigarettes has also led to continuous expansion of production capacity, but the lack of unified product standards and effective regulatory assessments has resulted in a mixed bag in the e-cigarette industry, with many small and medium-sized enterprises engaged in low-value-added OEM export businesses. The introduction of national standards will undoubtedly significantly raise product manufacturing standards and production costs, leading low-value-added pure OEM small factories to exit the market, while industry giants like Myle are expected to expand their market share again.

Myle's recent substantial dividend payout seems to indicate optimism for the future. On the evening of September 18, Myle's largest shareholder, Yiwei Lithium Energy, announced that its subsidiary Myle plans to distribute a cash dividend of 115 yuan (including tax) for every 10 yuan of investment to all shareholders. As of August 31, the company's subscribed capital contribution to Myle was 23.769 million yuan, with an equity ratio of 37.55%, thus the company is expected to receive a cash dividend of 273 million yuan.

With the introduction of national standards for e-cigarettes, the industry is moving from disorder to order, and Blue Whale Finance will continue to monitor the dynamics of the e-cigarette industry.

This article is reprinted from the Blue Whale Finance public account.