Ten Questions About Vaping: Devil or Angel?

How long can the e-cigarette on the tuyere burn?

In 2018, global sales of new cigarettes reached US$27.74 billion, of which atomized e-cigarettes accounted for US$16 billion. The popular e-cigarettes, known as the first entrepreneurial outlet in 2019, have once become a focus area of common concern in the tobacco and venture capital circles.

However, due to gaps in national laws and regulations, industry norms to be established, and there is a potential risk of inducing teenagers to become addicted, e-cigarettes have become a controversial topic. Is e-cigarettes a good business for investors and entrepreneurs? For users, what are the original intention and bottom line of e-cigarettes? For the government, where will industry supervision go?

In response to these issues, on August 14, lawyers, tobacco control experts, analysts, investors, and entrepreneurs gathered at the Burning Dimension Salon held by Burning Finance and Economics to conduct in-depth discussions on the e-cigarette industry from multiple perspectives.

Sharing guests for this event included Zhang Jianshu, President of Beijing City Smoking Control Association, Zhang Dong, an administrative law expert and senior partner of Dacheng Law Firm, Wang Sheng, partner of Yingnuo Angel Fund, Jiang Menghan, senior analyst of Tianfeng Securities Research Institute, and Qiu Yiwu, founder and CEO of Whale Light Cigarette, Zhong Yufei, founder of TAKI Xike and CEO of Konjac Technology, and Fang Hui, partner and CMO of Boulder Platinum.

Based on the discussion content of the guests, Ran Caijing compiled the ten questions on the soul of e-cigarettes that you care about most, so that you can understand the industry at once.

Hazard: The hazards of e-cigarettes and what are the hazards of second-hand e-cigarettes?

This year's March 15 party's e-cigarette survey asked: Is it really healthy to smoke e-cigarettes? rdquo; as the theme, we conducted a survey on e-cigarettes from multiple dimensions, and finally reached the following conclusions.

Nicotine is a substance that induces addiction, which increases the probability of non-smoking teenagers turning into smokers; e-cigarette liquids on the market have irregular labeling, which can easily mislead consumers, including incorrect units or content deviations, and blurred boundaries; The smoke generated by sampled e-cigarette liquids contains vaporized components such as formaldehyde, propylene glycol, and glycerol. If inhaled too much, it will cause serious harm to the human body.

Zhang Jianshu, president of the Beijing City Smoking Control Association, explained the current production process of atomized e-cigarettes on the market in his speech. ldquo; This e-cigarette also uses tobacco extracts. By heating, the solution is atomized and then smoked. In order to improve the taste, a variety of spices are added, which is very attractive to teenagers.& rdquo;
  Zhang Jianshu, President of Beijing City Smoking Control Association
Such e-cigarettes also contain nicotine and are harmful to the body; second-hand e-cigarettes are also harmful to the health of pregnant women, fetuses, etc.

He made an analogy at the scene,"Do you want to be hit by a car or a motorcycle?" The answer he gave was none. The expectation of non-smokers is not to reduce the risk of second-hand smoke, but to have no risk in the air they breathe.

“I am here to pour cold water on e-cigarettes. He suggested that e-cigarettes be included in the scope of no advertising, and that the sale of e-cigarettes to minors should be strictly prohibited to protect the next generation who is smoke-free.

At present, some areas have begun to remove self-service vending machines made by e-cigarette companies in batches, because it is impossible to control the purchasing behavior of teenagers, which may be a good start. To this end, some leading e-cigarette companies are adding Face Recognition functions to self-service vending machines, trying to use big data technology to perform Face Recognition during sales by accessing Alipay and WeChat interfaces, thereby preventing minors from purchasing e-cigarettes.

User: For whom are e-cigarettes made?

The special feature of e-cigarettes is that from the perspective of product form, it belongs to electronic consumer goods; from the perspective of functional uses, it belongs to tobacco. In fact, up to now, there is still no regulation that clearly defines and restricts e-cigarettes. This also means that exactly for whom e-cigarettes are produced is still an open question.

Qiu Yiwu, founder of Whale Light Cigarette, believes that e-cigarettes should be regarded as a fast-moving consumer product. To this end, attention should be paid to the repurchase rate of users. Enterprises should provide good taste and good experience. ldquo; There will be diversion in the future. For old smokers, they will not feel anything after smoking. They will just be used as a toy and thrown away after smoking. For those users who are more fashionable, once e-cigarettes are in need, there will be a repurchase.& rdquo;#p#pagination title #e#
  Qiu Yiwu, founder and CEO of Whale Tobacco
But can e-cigarettes really be regarded as fast-moving consumer goods? After all, most e-cigarettes currently on the market contain nicotine and other ingredients, which is the essential difference between e-cigarettes and other FMCG products.

As an industry participant, Zhong Yufei, founder of TAKI Sike and CEO of Konjac Technology, believes that the original intention of e-cigarettes was to meet the needs of smoking groups and even become a smoking cessation tool for smokers. However, the current e-cigarette products deviate a bit from the original intention of their creation. ldquo; Most current e-cigarettes are made in a good-looking and beautiful direction, providing different flavors, etc. The purpose is to attract young people and tap new users, but not many truly meet the needs of traditional smokers." rdquo;
  Zhong Yufei, founder of TAKI Sike and CEO of Konjac Technology
Zhong Yufei said that the core issue of e-cigarettes is whether it can solve users 'pain points. If the pain points cannot be truly solved, the industry will surely slowly shrink regardless of the policy level. ldquo; At present, many e-cigarette brands want to expand female users and some non-smoking users. The reason is that it is difficult for old smokers to switch to e-cigarettes. In the final analysis, the products do not meet their needs. rdquo;

“If we don't base ourselves on the original starting point, it won't be long before all e-cigarettes will have to be hung up.& rdquo; Zhong Yufei said.

Business: Are e-cigarettes a huge profit?

Tobacco is a trillion-dollar market. E-cigarettes are regarded by the industry as the next big outlet worth chasing.

According to data from Tianfeng Securities's new tobacco special report, during the five years from 2013 to 2018, the scale of the new tobacco market continued to grow rapidly, with a compound average annual growth rate of 45.91%. Especially by 2018, global sales of new tobacco reached US$27.74 billion, a year-on-year increase of 60.6%. Among them, heated and non-combustible types accounted for US$12 billion, and atomized e-cigarettes accounted for US$16 billion.

It is estimated that in 2019, the scale of new tobacco globally will grow to US$37 billion.

With the rise of the industry, cross-border Internet celebrities have joined e-cigarettes, which makes people feel that this business is profitable. Previously, Ran Financial compiled and found that there have been more than 26 financings in the e-cigarette field in the past year, with the largest financing scale exceeding 300 million yuan. In the swarming market and radical industries, many people label e-cigarettes as huge profits.

At this salon, Zhong Yufei said that many people think that e-cigarettes are huge profits, but it is actually a misunderstanding. If you really want to make products solidly and open up upstream and downstream, the profit margin of this industry will be about 30%. But many companies in the market just stick their cards, so that profits will increase.& rdquo;
  Fang Hui, Partner and CMO of Boulder (2 from right)
Qiu Yiwu and Fang Hui, partner and CMO of Boulder, both said that e-cigarettes are a good business.

“It does have unstable factors, or negative news and policy pressure, but there is no doubt that for now, it is a good opportunity to start a business." rdquo; Qiu Yiwu said.

However, this does not mean that e-cigarettes can make money now. ldquo; E-cigarettes have two ends that are controlled. One end is the cost of supply. Some large manufacturers have a strong supply chain and now even start prices on the ground; the same is true on the channel side. If you have so much capital, you should subsidize our channel." rdquo; In this situation, most brand companies may lose money.

Threshold: Is the core of e-cigarettes technology or marketing?

In the global new tobacco industry chain, Chinese enterprises are mainly concentrated in the upstream of the industrial chain.

According to Frost Sullivan's 2014 data, China is the world's largest e-cigarette product production base, and China manufacturers produce about 95% of e-cigarette products in the global market. As of June 2017, there were more than 1000 e-cigarette manufacturing companies in China, some of which were also parts suppliers for new tobacco products from international tobacco giants.

However, well-known brands of new tobacco products in China are rarely seen in the international and domestic new tobacco markets. In this case, what are the core barriers to my country's e-cigarette companies?# p#pagination title #e#

Despite the existence of production methods such as OEM, Wang Sheng, a partner of Yingno Angel Fund, does not believe that e-cigarettes have no technical content. Instead, he believes that e-cigarettes are a high-tech industry and a comprehensive industry, including electronics, chemicals, medical care, algorithms, and artificial intelligence. etc. The e-cigarettes we see today are completely different from the big cigarettes five years ago, and the e-cigarettes three years later will be completely different from what they are now. rdquo;

This view is agreed by e-cigarette entrepreneurs. However, the technology of this industry is more in the hands of a few leading companies, who determine the technical level of the entire industry. Downstream companies compete more in marketing and channels, and have no initiative to improve product technology.& rdquo; Fang Hui said.
  Jiang Menghan, senior analyst at Tianfeng Securities Research Institute
In other words, many small and medium-sized e-cigarette companies can only establish barriers in marketing and marketing. ldquo; We need offline channels to educate users. rdquo; As a researcher in the industry, Jiang Menghan, a senior analyst at Tianfeng Securities Research Institute, knows that the general public is unfamiliar with e-cigarettes. They actually have no concept of this product. They have no concept of what it is, what it contains, and how to use it. rdquo; This requires the laying and efforts of offline channels to educate users.

Competition: Will e-cigarettes become the next shared bicycle?

The traditional cigarette market is monopolized, eliminating industry competition and creating huge profit margins for products. E-cigarettes are located in a fully competitive market.

In order to compete, some e-cigarette brands cut off all profits and provide terminal subsidies after obtaining financing. Ran Caijing previously reported on this: Users who purchase two boxes of cigarette bombs can be given a cigarette rod for free, and the cigarette rods can be replaced for free for half a year. However, the high proportion of return rates and high after-sales costs make the brand unbearable.

In fact, many e-cigarette companies may choose to distribute goods for free like shared bicycles, but if product quality and operational sales do not keep up, they will be like unmanned shelves, with chicken feathers falling on the ground.

An industry that seemed to be making huge profits has been turned into a loss-making business. People are concerned about whether e-cigarettes, which have just embarked on the fast lane of capital, will become the next shared bicycle.
 
“We see that new e-cigarettes are the cigarettes of the future. In this irreversible consumption trend, there must be a protracted war of industrial upgrading and consumption upgrading. rdquo; Qiu Yiwu said.

Although it seems that e-cigarettes are a major trend this year, Qiu Yiwu believes that e-cigarettes are an industry that will continue to iterate and upgrade in five or ten years. Now most brands are making preparations for whether they can be included in the Double 11 list. I estimate that some corporate capital chains may break before Double 11.& rdquo;

“After the birth of the new national standard, people may continue to enter and withdraw next year, and there will be a round of reshuffle. rdquo; Qiu Yiwu said.

Capital: Is the influx of hot money good or bad for e-cigarettes?

Many industry insiders told Fuel Finance that China's e-cigarette market is still in a very early stage. For a long time in the past, the penetration rate of domestic e-cigarettes was less than 1%. The penetration rate in the United States has reached 13%. From 1% to 13%, it is very likely that a company with a market value of tens of billions of dollars will be born.

As a result, capital entered crazily. In June 2018, Yue Ke took the source code capital and IDG's 38 million yuan investment to launch the first shot of the e-cigarette war. A year has passed, and capital's enthusiasm for e-cigarette tracks has not diminished at all. According to public information statistics, as of July this year, 26 financing incidents had occurred in the domestic e-cigarette field, with a total financing amount exceeding 1.3 billion yuan. Among them, the highest single financing amount reached 300 million yuan. Among the announced amounts of financing, the minimum amount reached 10 million yuan in a single amount.

Wang Sheng, who was present, also invested in Shanlan, an e-cigarette company. He believed that capital is profit-seeking, and in the process of profit-seeking, it will definitely create a bubble. When an industry attracts a large amount of capital, it may push a false proposition that is completely untenable. Pushing onto a bigger bubble, this bubble will definitely burst, and after it is burst, there will be nothing left. rdquo;#p#pagination title #e#
  Wang Sheng (middle), partner of Yingnuo Angel Fund
But on the other hand, the injection of capital will also increase the value of the enterprise and the market, making the entire market and the corresponding enterprises within it healthier and more positive.

“The benchmarking of e-cigarettes is actually very simple, it is the upgrade of traditional tobacco. The influx of capital will certainly cause bubbles and waste of funds, but it will also help this track quickly become a relatively mature track. It is actually not a bad thing." rdquo; Wang Sheng said.

Regulation: How should e-cigarette companies respond to regulation?

Only under a regular and orderly system can e-cigarette companies compete in an open and transparent environment. Looking around the world, foreign countries began to formulate new tobacco-related policies to regulate the market even earlier.

According to a report from the Tianfeng Securities Research Institute, the European Union has officially regulated e-cigarettes since 2012, and has issued a TPD bill, stipulating that new e-cigarettes must be listed six months in advance and approved by EU institutions.

The TPD Act stipulates specific regulations such as limiting the nicotine concentration of e-cigarette liquids to 20 mg/ml (2%), products must be child-resistant and tamper-resistant, and prohibiting advertising on television, radio, newspapers, magazines and other media.

Compared with the European Union, the United States has stricter management. In the United States, new tobacco products that want to be marketed must go through a PMTA tobacco pre-marketing application, which is reviewed by the U.S. Food and Drug Administration and FDA. Application fees range from US$117,000 to US$466,000. In practice, any different ingredients are regarded as independent products and require separate pre-application. For new tobacco products with rich flavors and diverse products, high application costs pose considerable challenges.

The policies of Asian countries are different from those of Europe and the United States. For example, in Japan, aerosol e-cigarettes are not allowed to be sold publicly if they contain nicotine. They are under drug-level supervision, and they must have a prescription from a pharmacist before they can be purchased.
 
At present, there is no policy document clearly regulating new tobacco in my country, which restricts the development speed of the industry to a certain extent. Domestic consumers can only purchase e-cigarette products that do not contain tobacco ingredients. Demand has led to criminal activities such as smuggling. Most of the smuggled products are heated and non-burning tobacco bombs.

There are already relevant plans for the national standards for e-cigarettes that are in the approval stage, namely "E-Cigarette" and "Determination of Nicotine, Propylene Glycol and Glycerol in E-Cigarette Liquid by Gas Chromatography". On July 22 this year, Mao Qun 'an, director of the Planning Department of the National Health Commission, said: The National Health Commission is currently working with relevant departments to conduct research on the supervision of e-cigarettes and plans to supervise e-cigarettes through legislation. rdquo;

Qiu Yiwu believes that since entrepreneurs have chosen this track, they must first consciously obey supervision and abide by standards. Fang Hui also believes that 315 is not a bad thing for the industry, which shows that the central government is paying attention to this industry. The formulation of the new national standard is also conducive to the standardized development of the industry. It is equivalent to issuing us an ID card. Entrepreneurs should embrace change and actively respond.

Law: How should the e-cigarette industry formulate legal norms?

According to past experience, every time a new thing appears, the law lags behind.

Lawyer Zhang Dong, an expert in administrative law and senior partner of Dacheng Law Firm, believes that it is unrealistic and unreasonable for the state to not regulate or completely ban e-cigarettes. The key point is which category to regulate e-cigarettes.

“If e-cigarettes are regulated as drugs, it is a bit too strict; if they are regulated as medical devices, e-cigarette products do not have a supplementary effect on smoking cessation as advertised, which is not in line with the actual situation. The greatest possibility is to incorporate e-cigarettes into the mature traditional tobacco regulatory system, and the relevant tax policies are relatively complete. rdquo; Zhang Dong said.
  Lawyer Zhang Dong, an administrative law expert and senior partner of Dacheng Law Firm
He believes that self-discipline is very important for companies. Enterprises should have a full understanding of legal risks and promote e-cigarettes in a favorable direction. If they blindly make profits and abuse the industry, once negative incidents occur, it will have an unexpected impact on the industry. Everyone should have a consensus that the company's own behavior will determine the intensity of future supervision. If the company always does something outrageous and always wants to make quick money, the intensity of supervision will inevitably increase.# p#pagination title #e#

Although the law lags behind, it is by no means blank.

Regarding the most controversial issue of youth smoking, in 2018, the state issued the "Notice on Banning the Sale of E-Cigarettes to Minors" to protect it, clearly stipulating that e-cigarettes must not be sold to minors.

In addition, some legal regulations have also been introduced for not smoking e-cigarettes in specific places. On July 10, 2018, on the National Bank Flight CA106 from Hong Kong to Dalian, the co-pilot tried to turn off the circulation fan due to smoking e-cigarettes, but mistakenly turned off other components, resulting in insufficient oxygen supply in the cabin. The flight altitude dropped rapidly by 7000 meters. The Civil Aviation Administration has since issued the "Notice on Comprehensive Ban on Smoking in the Cockpit", which includes restrictions on general tobacco and e-cigarettes.

Article 77 of the Railway Safety Management Regulations also clearly stipulates that smoking on high-speed rail trains or smoking in non-smoking areas of other trains is an act that endangers railway safety. The public security organ will order it to make corrections and impose a fine of not less than 500 yuan but not more than 2000 yuan on the individual based on the circumstances of the violation.& rdquo; Although it is not clear whether e-cigarettes are smoking, the high-speed railway has repeatedly played a reminder not to use electronic aerosolized cigarettes in the carriage because the smoke will trigger the smoke alarm in the car and cause serious problems such as stopping the vehicle.

Bottom line: What should e-cigarette practitioners stick to?

Tobacco in China has always implemented a monopoly system, in part because it is known that smoking is harmful to health. For this reason, the country has even established a Tobacco Control Association to call on people to avoid smoking in public places.

However, the emergence of e-cigarettes has broken the monopoly of tobacco, and has even been regarded as a fashion by some young people and imitated it, inducing young people to smoke. As a result, e-cigarettes seem to contradict traditional values. What is the bottom line of e-cigarettes?

Wang Sheng claims to be a veteran smoker for many years and knows the smoking needs and pain points of smokers. He believes that e-cigarettes have their value. The harm caused to the health of traditional smokers and the burden on medical expenses of the whole society are increasing. When they switch to using e-cigarettes, they actually bring some benefits.
 
Zhong Yufei felt that the public had misunderstandings about the e-cigarette industry from the beginning. The reason for the misunderstanding is still that there is no legal framework and regulatory guidance. As long as the government draws a framework, enterprises do things within this framework to create profits for society and support employees. This is what enterprises should do. rdquo;

In his view, the original intention of e-cigarettes is for smokers. It is the responsibility of every company to keep young people away from e-cigarettes and provide better e-cigarette products.

Zhang Jianshu said that e-cigarette companies should have some corporate responsibilities and social responsibilities, but the bottom line is that they cannot advertise smoking to young people. ldquo; E-cigarettes can be studied and developed. Nowadays, the same goes for traditional cigarettes. We don't want others to produce them, we just say that you shouldn't smoke in public places or influence others. rdquo;

The endgame: Will e-cigarettes be winner-take-all?

Zhong Yufei recalled the past and present life of the entire e-cigarettes at the event site. The most famous e-cigarettes from 2005 to 2008 were eventually forgotten by the market because they did not really achieve the effect of quitting smoking; from 2009 to 2013, China's bionic e-cigarettes can be seen in the streets and alleys. Because of their very poor taste and experience, they disappeared after several years; from 2013 to 2015, the hottest ones were big cigarettes, which were purely in the player market and were destined to not become popular. From 2015 to the present, the invention of nicotine salt has made electronic fireworks.

However, the e-cigarette industry is far from reaching a watershed, and everything is full of variables.

The industry has poured into a large group of players, and a lot of capital has entered the game, but there are still many big capital that has not entered the game. Wang Sheng believes that on the one hand, everyone still has values to consider, on the other hand, they are actually waiting for the boots to finally land. After the new national standard is introduced, big capitalists may make new moves.
 
In Zhong Yufei's opinion, smoke this product, there is no three to ten years, can not see who is the first who is the second. A monthly sales volume of 100 million yuan was not considered very large in any industry. At this stage, the industry has no head, it must be multi-brand, non-standardized development. ldquo; Everyone has a chance as long as they survive. rdquo;#p#pagination title #e#

Qiu Yiwu cited himself as an example. For companies, they all want to occupy more market share or create a national brand. But in fact, there are still many real large-scale channels, large-scale brands or large-scale capitals that have not entered the market.& ldquo; If this is a marathon, we have only run a thousand meters now. rdquo; Don't overdraw your physical strength so early. It's better to combine the market and find some differentiated advantages and methods, such as focusing on sinking the market.

The growth of any category must undergo reshuffle, just like the battle of thousands of regiments. In the final analysis, it is still a matter of business models. Qiu Yiwu believes that if you just want to come in and make some money, the life cycle of the company will be extremely short. Building a brand persistently is more valuable than being an Internet celebrity brand.