On March 11, 2022, the State Tobacco Monopoly Administration issued the "E-Cigarette Management Measures" which will take effect on May 1, 2022. The method was introduced and immediately caused a wave of waves.

Chinese concept stock Wuxin Technology (its RELX brand is China’s No. 1 e-cigarette brand) plummeted 36.54 that night. Recently, many e-cigarette concept stocks in A-shares and Hong Kong stocks have been falling. From March 3rd to 11th, the world's leading atomization equipment manufacturer Smore International (15.84, 0.12, 0.76) fell sharply by 26.2%, and its market value 44.2 billion Hong Kong dollars evaporated.

For four consecutive days, many e-cigarette brands such as YOOZ, Weita, Youzi, Bolan, Jigan, Modi, Keyi, Kemi, Mirui, Atom, and Firearms announced their existing flavors. After the recent consumption of product inventory and material inventory is over, the Chinese market will officially stop the production of fruit and non-tobacco flavored products.

New regulations are about to be implemented, and physical stores are basically facing the problem of closing. Some agents and physical stores can only try to sell as much goods as possible before May Day to make more money, hoarding and raising prices to sell non-tobacco flavors. The rush to buy cigarette cartridges and the sharp increase in sales are also the carnival before the end, and every step is shocking.

Strong supervision has put forward new rules of the game. Manufacturing companies, brands, agents, and physical stores will face a round of reshuffle, leaving the market, transforming, going overseas, or looking for opportunities in changes. Regulation will be somewhat negative in the short term, but in the long term it also lays a solid foundation for the sustained and healthy development of the industry. At this time, it is necessary to objectively interpret the management measures and rationalize development ideas.

For manufacturers, license issuance, business activities (including establishment, division, merger, cancellation, IPO), infrastructure and technological transformation, product standards, product trademarks, and raw material purchases need to be reported to the national bureau. Implement after review, approval, filing or formulation. Products will be traceable and all transactions must be conducted on the e-cigarette transaction management platform.

For brand owners, e-cigarette products must comply with relevant regulations on e-cigarette product packaging labels and warnings, and tobacco advertising restrictions, except for the issuance of licenses, business practices, and trading platforms that are the same as those of manufacturers. The same applies to e-cigarettes. Automatic sales or disguised sales will be considered illegal. It is illegal to sell flavored e-cigarettes other than tobacco flavors, as well as e-cigarettes that can be filled with aerosols, that is, open e-cigarettes filled with oil. When overseas brands apply for tobacco monopoly production licenses, there is little overlap between domestic market sales and domestic supervision, which is relatively loose.

For wholesalers, the wholesale entities are municipal tobacco companies approved by provincial tobacco companies. There will be no national or provincial or municipal regional agents for brands in the future. Transactions must be conducted on the e-cigarette transaction management platform with retailers who have obtained tobacco monopoly licenses in accordance with the law.

For retailers, there are detailed regulations or restrictions on license scope, outlet layout, site selection restrictions, trading platforms, franchise restrictions, and protection of minors.

Judging from the above regulations, a large number of small workshops on the production side will disappear, which will be beneficial to large formal manufacturers. Export-oriented e-cigarette companies will still focus on encouragement and support. The brand-side specialty store system will disappear, and China Tobacco needs to work hard to integrate into channels to gain competitiveness. E-cigarettes at the retail end will be integrated into the original traditional cigarette channels, and a small number of original physical stores will become traditional cigarette and e-cigarette brand collection stores. The ban on consumer-end flavored cigarettes will definitely have an impact on the market in the short to medium term, and consumers will definitely need time to adjust their taste acceptance.

In the measures, there is no clear explanation of the management of listed companies or companies to be listed, no explanation of the allocation and formulation of raw material purchase and sales quota plans, no clear explanation of nicotine content proportions and related requirements, etc. It is expected to be related. Detailed rules will be issued intensively before May 1, 2022 and during the year. Continue to pay attention to policy requirements and rationally respond to various changes. In the long run, supervision will help the sustainable development of the e-cigarette industry.