Interview with Heno Biotech CEO Liu Qizhou: After 5 Years Back in China, What’s Next for Nicotine Co

 Dialogue with Liu Qizhou, CEO of Henuo Biotech: Elaborate his views on the future development of nicotine (nicotine) companies and the development trend of emerging nicotine products.

[Two First Origins] Recently, the new "Tobacco Monopoly Production Enterprise License"(e-cigarettesNicotine production companies) have been approved and issued one after another. Many nicotine (nicotine) manufacturing companies have stated that they have successfully renewed their certificates. Hubei Henuo Bioengineering Co., Ltd.(hereinafter referred to as "Henuo Biotech") is also among the companies that have obtained the new certificate.

Founded in 2011 and headquartered in Hubei, Henuo Biotech is a natural nicotine manufacturing company. According to the "Production Safety License", Henuo Biotech has a production capacity of 1000 tons/year; according to the "Tobacco Monopoly Production Enterprise License", the production scale obtained by Henuo Biotech accounts for about 40% of the country's total.

Recently, Liu Qizhou, co-founder and CEO of Henuo Biotech, accepted an exclusive interview with two supreme at the Shenzhen headquarters of Two Supreme. In an exclusive interview, he introduced the development of the nicotine industry and elaborated on his views on the future development of nicotine companies and the development trend of emerging nicotine products.

 Liu Qizhou (left) took a group photo with Jason (right), two supreme international public relations managers| Source: Two supremacy

The entry threshold for the nicotine industry is extremely high. The market is concentrated in China

Liu Qizhou introduced that global nicotine supply is mainly concentrated in China and India, while China's nicotine industry is mainly concentrated in Hubei. China is the country with the largest tobacco growing area in the world, and India accounts for one third of China's, which gives China an inherent advantage in raw material supply. Currently, there are 12 licensed nicotine companies in China. According to the production scale approved by the State Tobacco Monopoly Administration, domestic nicotine production capacity in 2022 will be more than 200 tons.

The domestic nicotine industry is closely related to traditional tobacco companies and is an extension of the traditional tobacco industry chain. Liu Qizhou introduced that nicotine is obtained by extracting tobacco waste produced by traditional tobacco companies and is located at the most downstream of the traditional tobacco industry chain, but innew tobaccoIt is at the forefront of the industrial chain. Therefore, nicotine manufacturing has become a key link connecting traditional tobacco companies and new tobacco companies, and plays an important role in the entire chain of tobacco products.

 tobacco growing| Source: logosc

ase-cigarette productsThe core ingredient of nicotine production in China requires four licenses-"Production Safety License","Tobacco Monopoly Production Enterprise License","Pollution Discharge Permit", and "Local Standards for Natural Extraction of Nicotine". The threshold is so high that it has become a "moat" in the new tobacco industry.

Talking about the main markets for nicotine, Liu Qizhou said that before 2018, nicotine was mainly exported to Europe, America and Southeast Asia for use in biomedicine, biopesticides, new materials and other fields. However, with domestice-cigarette marketWith the rapid development of the country, since 2018, the country has become the main market for nicotine, mainly supplied to new tobacco companies. For example, Henuo Biotech has accounted for more than 90% of its domestic business after 2018.

Since June 2022, the nicotine industry regulations have been officially implemented, and the regulatory system has been fully implemented. Nicotine manufacturing companies can only provide products to 66 atomization production companies with the same certificates.

 Tobacco monopoly production enterprise license (nicotine production enterprise for e-cigarettes)

Nicotine prices have experienced ups and downs and are now relatively stable

As a major consumer of nicotine, domestic nicotine prices have experienced a process of downturn, skyrocketing and stabilization. Liu Qizhou introduced that when Henuo Biotech entered the market around 2011, the price of nicotine was about 500 yuan/kg. By around 2021, the price of nicotine has increased about 10 times to 5000 yuan/kg.# p#pagination title #e#

Regarding the reason for the surge in nicotine prices, Liu Qizhou believes that this is related to the supply and demand situation in the entire market. Around 2021, the new tobacco industry will develop rapidly, and the demand for nicotine will increase sharply, driving the price of nicotine to rise.

In addition, Liu Qizhou said that the price of nicotine is also related to the adjustment of regulatory policies. Since the implementation of regulation in 2022, nicotine prices have returned to a relatively reasonable range and are not expected to fluctuate too much in the future.

Talking about the price of nicotine in the international market, Liu Qizhou said that the price of nicotine in the UK and the United States is relatively stable, currently about US$300/kg. As for the reasons for stability, he believes that this is because the nicotine industry originally originated in the United Kingdom and the United States. These two countries have 100 years of experience. The industry as a whole is relatively mature, so prices are relatively stable. In contrast, China's nicotine industry has only a 20-year history and is currently subject to a variety of factors, resulting in relatively unstable prices.

Natural nicotine dominates and is more controllable than synthetic nicotine

Nicotine is divided into two main categories on the market: natural nicotine and synthetic nicotine. Natural nicotine needs to be extracted and separated from tobacco waste; synthetic nicotine uses chemical synthesis to produce nicotine molecules.

 Nicotine production plant| Map provided by Henuo Biotech

According to a survey by data consulting firm Global Info Research, natural pure nicotine products dominate the market and currently account for about 99% of the total market output. However, since synthetic nicotine products are more expensive, from a revenue perspective, in 2021, Synthetic nicotine products account for approximately 4% of the global market size.

Regarding the difference between synthetic nicotine and natural nicotine, Liu Qizhou believes that the main difference between the two lies in controllability and uncontrollability.

He said that natural nicotine has been used in four major fields: biomedicine, biopesticides, new materials and tobacco products for 100 years. Its impact on the human body has been tested for a long time, and its risks are within controllable limits. However, synthetic nicotine was invented late. It was a chemical solution for new tobacco, and the understanding of the real harm to the human body was still limited.

 Nicotine Enterprise Chemical Information Command Center| Map provided by Henuo Biotech

Liu Qizhou introduced the rise of synthetic nicotine,"Since 2019, the country began to gradually control the production of nicotine products, resulting in a tight supply of nicotine in the market. At the same time, with the rise of electronic cigarettes abroad, the market demand for nicotine continues to increase. In order to meet market demand, R & D personnel invented synthetic nicotine technology and put it into market application. In addition, synthetic nicotine has gradually attracted market attention due to its ability to circumvent regulatory and tax issues in some countries."

Zero-Ni products are a "false proposition" and are more optimistic about the development of nicotine bags

Talking about the development of new tobacco products, Two Supremes asked Liu Qizhou about his views on zeroni e-cigarette products and nicotine bags.

Regarding zeroni e-cigarette products, Liu Qizhou bluntly said that this is a "false proposition." He believes that without nicotine, the business model for this product would not exist. Lingoni products lack addiction, so consumers will not rely on them, have no demand, and will not repurchase them. If you are just pursuing taste stimulation, consumers can choose to buy chewing gum. Therefore, he believes that zero-nickel products are only short-term actions by manufacturers to circumvent regulatory policies and are not suitable for long-term consumerism. Overall, he believes that zerin-nickel products are not a good business.

As for nicotine bags, Liu Qizhou is optimistic about their development. He mentioned that in 2022, the global nicotine bag market share will reach 8 billion yuan; in the product layout, nicotine bags have been listed as the third largest category of SKUs by the four major tobacco companies; in terms of usage methods, nicotine bags and e-cigarettes The lungs are different. Nicotine bags are ingested through the oral mucosa and produce a reaction in the stomach, enriching the category of nicotine products. Based on these views, Liu Qizhou is very optimistic about the development prospects of nicotine bags.

 Nicotine bag| Picture source: Network #p#pagination title #e#

He said that nicotine products need innovation. Now that nicotine in the mouth has attracted attention, it may appear that it is smelled through the nose or felt on the skin in the future. These are new manifestations of industrial progress.

How can China nicotine companies go to sea to break the situation?

Liu Qizhou mentioned that with the implementation of supervision in 2022, domestic demand for nicotine will decrease, and nicotine manufacturers need to seek overseas markets again.

He also admitted that nicotine manufacturing companies are facing some difficulties when going abroad. The main competitors of the nicotine manufacturing industry going overseas are companies from India. The main problem currently facing is price inversion. In addition, domestic requirements for safety, environmental protection, franchising and other policies have led to an increase in raw material costs for domestic nicotine companies and a decline in competitiveness in overseas markets. These two main reasons make it relatively difficult for China nicotine companies to enter overseas markets.

 Henuo Biological Headquarters| Map provided by Henuo Biotech

The question of how the domestic nicotine industry can break through overseas. Liu Qizhou said that the domestic nicotine industry has two major advantages. First, China has the advantage of the entire industry chain in the nicotine industry, which can make up for the disadvantage in raw material prices; second, national policies encourage nicotine companies to go abroad in compliance with regulations.

Based on these two advantages, nicotine companies themselves need to focus on R & D and innovation and promote the research and development of more supporting products in the industrial chain to improve the competitiveness of the domestic nicotine industry in overseas markets.

In addition, Liu Qizhou revealed that Henuo Biotech is also actively seeking opportunities to cooperate with overseas pharmaceutical companies. To this end, it has invested more than 100 million yuan in applying for ESG system certification and "Drug Production License", and plans to complete the certification this year.

He believes that in addition to developing new products to drive the industrial chain, it is also necessary to control product quality and produce products through requirements higher than industry standards, so that companies can gain stronger competitiveness in domestic and foreign markets.

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