What changes will the industry see after detailed vape regulations are introduced?

First, the tax rate on e-cigarettes will definitely align more closely with that of traditional cigarettes.

Analysts believe that if the tax rate on e-cigarettes in our country rises to about 80% of the traditional cigarette tax rate, the e-cigarette industry will shift from a high-profit industry to a model of high profit with high sales.

Second, there may also be restrictions on packaging and flavors.

To prevent e-cigarettes from misleading teenagers, flavor bans have already appeared in the European and American markets. In 2020, the U.S. Food and Drug Administration (FDA) banned the sale of most flavored e-cigarettes, including fruit and candy flavors, leaving only tobacco and menthol flavors available for sale. This flavor ban has led to a noticeable decline in e-cigarette sales in Europe and America. Additionally, the increase of prominent health warnings on e-cigarette packaging will dampen the spirits of those e-cigarette users who convince themselves they are “quitting smoking.”

Third, opportunities for rapid advancement may arise.

From the technical characteristics of e-cigarettes, the low technical threshold and high brand effect will, on one hand, accelerate the resources towards the original leading companies, while on the other hand, provide new entrants with opportunities for rapid advancement.

China is the world's largest e-cigarette producer, with Shenzhen alone contributing 90% of global e-cigarette production capacity. Previously, many small brands could meet market demand simply by obtaining goods and rebranding. The entire process of molding, logo creation, sourcing, and marketing could cost less than one million yuan to establish an e-cigarette brand.

However, during the pandemic in 2020, the supply chain suddenly tightened, and this portion of small manufacturers, which accounted for 90% of the brand count, was quickly swept away. The arrival of regulation may lead the remaining 10% of companies to experience another major reshuffle. Market scale, technical standards, and supply capabilities will become key criteria for the licensing of the entire process of e-cigarette production, distribution, and retail, with leading companies undoubtedly holding advantages in these areas.

From the vaping industry chain perspective, companies like RELX, which has over 100,000 offline stores and masters core vaping technology, and Smoore International, the world's largest e-cigarette OEM with exclusive ceramic atomization core technology, have already gained a competitive edge.

From the heated tobacco industry chain perspective, Huabao International, which has obtained the leading position in tobacco flavoring and the only private license for new thin sheets, as well as Jinjia Co., which has reached a strategic cooperation with Yunnan Tobacco, are also worth more attention.

Fourth, a host of eager new entrants will impact the industry landscape.

Recently, BYD Electronics officially launched its ceramic atomization core technology brand BEEM CO, and Luxshare Precision also joined the e-cigarette industry committee in September. The technological brand competition in the e-cigarette industry is about to escalate.

Fifth, state-owned tobacco enterprises are entering the market.

On November 30, Jiangsu Zhongyan Industrial Co., Ltd. publicly announced the procurement of electronic cigarette and heated tobacco smoking machines and other equipment projects. Coupled with previous layouts in the e-cigarette sector by Fujian Tobacco, Hunan Tobacco, and Yunnan Tobacco, the entry of state-owned tobacco enterprises will undoubtedly help to reshape the negative image of e-cigarettes. China ranks first in the world in terms of the number of smokers, but the penetration rate of e-cigarettes is only 0.6%, while the rate in overseas countries like Europe and America is as high as over 50%. Once e-cigarettes can be repositioned under strict regulation, the development prospects for e-cigarettes will be incredibly broad as market penetration increases.

The e-cigarette industry has weathered the storms of policy, public opinion, and market fluctuations, and is now once again being embraced. The outcome of the “second half” after the rule changes is uncertain, but e-cigarette companies are already gearing up and eager to try.