Has Vaping Disrupted the Traditional Tobacco Industry?

Has vaping disrupted the traditional tobacco industry? On September 24, U.S. federal prosecutors in California are conducting a criminal investigation into vaping giant Juul Labs, which is currently in its preliminary stages. Not only in the U.S., but on the 18th of this month, India also announced a complete ban on e-cigarettes to prevent them from becoming an "epidemic" among young people. Previously, Brazil, Australia, Singapore, and 27 other countries and regions have also implemented similar bans. On Weibo, several topics such as #GlobalCrackdownOnE-Cigarettes# and #NationalStandardsForE-CigarettesComingSoon# have emerged simultaneously, with a huge impact.

Last year, American cigarette company Altria acquired a 35% stake in Juul Labs for $12.8 billion, and industry insiders optimistically estimated that the e-cigarette market sales would reach $20 billion. Why has the e-cigarette market's situation turned sharply downward? Why are countries so intent on regulation?

It must be mentioned that tobacco is a giant market with low costs and high profits, yielding huge returns. Cigarette manufacturers pay very low prices for tobacco leaves. Because planting, production, manufacturing, import and export, sales, and storage are all regulated, tobacco leaves can only circulate to cigarette manufacturers, making the oligopoly market susceptible to price suppression.

The tobacco industry is heavily taxed. The tax rate for Class A cigarettes (with a transfer price of 70 yuan (excluding VAT) per carton or more (including 70 yuan)) is 56% plus 0.003 yuan per stick, while the tax rate for the wholesale stage is 11% plus 0.005 yuan per stick. Coupled with distributor, transportation, and storage costs, only a small portion of the cigarette prices we bear is the cost value.
 

The tobacco industry actually contributes significantly to society. To quote a somewhat inappropriate example: in the British drama "Yes Prime Minister," it is said that smokers contribute greatly; on one hand, smoking is harmful to health and shortens lifespan, which saves expenditures on pensions and social security, and inappropriately speaking, dying early saves money for the country. The costs for treating smoking-related diseases are far less than the corresponding national welfare expenditures. On the other hand, heavy taxation on tobacco generates revenue for the country, which is used for national development and also drives widespread employment. Additionally, smoking brings mental comfort and serves as a way to relieve social pressure, which also promotes social stability; in my experience, smoking-related disturbances are rare.

The introduction of e-cigarettes may disrupt the existing tobacco landscape in various countries. In the initial stage, there was no direct regulation; e-cigarettes, as ordinary commodities, could be advertised externally and had a wide audience. At the same time, there were no separate prohibitions for minors, which could easily lead to misdirection.

Let's take a look at the comparison between e-cigarettes and traditional cigarettes. E-cigarettes resemble regular cigarettes in appearance but have relatively rich flavors. The main function of e-cigarettes is to heat and vaporize the nicotine liquid, flavoring (such as strawberry and mango), and solvents in the "pods" for users to inhale.

---- Therefore, e-cigarettes produce a vapor similar to water, while regular cigarettes produce smoke from combustion.

E-cigarettes mainly have three promotional points: 1. They do not contain tar and are less harmful to the body; 2. E-cigarettes do not produce secondhand smoke; 3. E-cigarettes can help smokers quit. The author has attempted to verify these points, and the first two are not problematic: tar can indeed be omitted; the amount of secondhand smoke from e-cigarettes is also relatively small and dissipates quickly. However, the actual effectiveness of the third point still needs verification.

E-cigarettes also have drawbacks: the quality of devices varies widely, with claims in the industry that a 5 million investment in an e-cigarette factory does not guarantee product quality standards; the additives in "pods" lack unified standards, which may lead to harmful components being added due to quirky additives.

It is speculated that the upcoming national standards will include necessary clauses:

1. Restrictions on product advertising. Significant restrictions or even bans on outdoor and media advertising; prohibition of use by minors, etc.

2. Regulation of sales channels. Separately selling devices and pods; avoiding sales in places frequented by minors; preventing uncontrolled products from entering the market, etc.

3. Standardization of product quality: quality, materials, and durability of devices; composition and content standards for pod additives, etc.

4. Implementing different tax rates for devices and pods. Significantly increasing tax rates for pods based on dosage and ingredient content; implementing relatively small taxes for devices, etc.