Why Can E-Cigarettes Be Seen as the Most Investable Industry in 2019?

Data shows that in the first half of 2019 alone, the e-cigarette industry raised over 35 rounds of financing, with known total amounts exceeding 1 billion yuan. Recently, despite the global backlash against e-cigarettes, two well-known e-cigarette brands secured tens of millions in financing. Even as we move into the second half of 2019, the e-cigarette industry is still viewed as the most investable sector in the venture capital circle.

However, many people do not understand why the domestic e-cigarette market remains so stable and continues to attract significant financing despite the global criticism. In fact, this can be understood, as there are at least three reasons that justify investors' interest:

1. Tobacco tax revenue is a major source of national fiscal income

For a long time, tobacco tax revenue has been a significant contributor to national finances. It is reported that tobacco taxes account for 59% of cigarette prices in China, meaning that for every 1 yuan spent by smokers, 0.59 yuan goes to taxes. In addition to taxes, tobacco companies also contribute a large portion of their profits to the state. If smokers generate 1 trillion yuan in tax revenue annually, this accounts for 6% of the total national fiscal income.

As a new type of tobacco, e-cigarettes have unique market advantages and local benefits in China. As of July 2019, there were a total of 25,979 e-cigarette patents globally, with 22,825 of them from China, accounting for 88% of the world's e-cigarette patents. Furthermore, data shows that the total number of smokers worldwide has exceeded 1.1 billion, with 350 million smokers in China, making up one-third of the global total, yet the penetration rate of e-cigarettes in China is less than 0.6%.

As e-cigarette brands began to develop the domestic market in recent years, the production of e-cigarettes in China surged from 1 billion to 2.2 billion units between 2016 and 2018, showcasing the remarkable market potential of the Chinese e-cigarette market.

Additionally, in early September, a research institution in the U.S. called P&S Market released predictions and analysis stating that with the continuous development of the e-cigarette industry, the market size for e-cigarettes could reach an annual sales figure of $48 billion (approximately 304.45 billion yuan) by 2023.

It is evident that the development potential of the e-cigarette market is indeed astonishing. Therefore, if national standards are implemented and e-cigarettes are regulated, allowing for standardized, transparent, and rapid development, e-cigarettes will undoubtedly become a significant contributor to national fiscal revenue.

2. The e-cigarette industry has created 30 million jobs

E-cigarettes were invented in China, with production concentrated in Shenzhen; China accounts for over 95% of the global production of e-cigarettes and their components, directly or indirectly creating 30 million jobs. These jobs span tobacco cultivation, processing, retail, advertising, and more, while also driving the growth of related industries such as teeth whitening, lighter production, and fire safety, effectively addressing employment issues and boosting domestic demand.

3. National standards are about to be introduced

If the first two points reflect a macro perspective beneficial to the country and the people, the following point represents a micro understanding for e-cigarette investors.

Currently, the absence of national standards has left the e-cigarette industry in a state of "no product standards, no quality supervision, and no safety evaluation," which has increased the resistance to the development of e-cigarettes in the domestic market.

However, once national standards are established, the e-cigarette industry will inevitably undergo a reshuffle and reorganization. At that time, the government will focus on major directions regarding safety, health, and taxation, and will begin to support high-tech enterprises and e-cigarette brands that possess research and development capabilities, standardized production facilities, comprehensive internet services, and innovative retail models. These e-cigarette brands, equipped with both soft and hard strengths, will undoubtedly receive strong market feedback.

Therefore, in the current venture capital circle, the e-cigarette industry still shows significant development trends; entering the e-cigarette industry before the national standards are implemented is the best opportunity to wait for the "ripe fruit to fall."