E-cigarette bid farewell to "streaking without license": the reshuffle is about to end the era of small enterprises or out profiteering

E-cigarette bid farewell to "streaking without license": the reshuffle is about to end the era of small enterprises or out profiteering

E-cigarettes will bid farewell to the era of "streaking" without license. On December 2, the state tobacco monopoly administration solicited public opinions on the administrative measures for electronic cigarettes (Draft for comments) (hereinafter referred to as the draft for comments).

The draft for comments consists of six chapters and 48 articles. The main contents are: clarify the definition and supervision object of e-cigarette. Strengthen the production management of e-cigarettes, and establish the quality and safety assurance system of e-cigarettes and the traceability system of e-cigarettes. Market entities engaged in the production, wholesale and retail of e-cigarettes shall obtain the license issued by the competent administrative department of tobacco monopoly accordingly.

The exposure draft specifies that a national unified e-cigarette trading management platform will be established to manage the trading of e-cigarette products and e-cigarette nicotine. Electronic cigarette products shall comply with the national standards for electronic cigarettes and the relevant provisions on packaging marks and warnings, and use registered trademarks according to law. The relevant provisions on tobacco advertising shall apply to electronic cigarette advertising. The Department of tobacco monopoly administration under the State Council shall supervise and administer the import and export trade of e-cigarettes and foreign economic and technological cooperation according to law. The tax collection and payment of e-cigarettes shall be implemented in accordance with the national tax laws and regulations. Sales outlets of electronic cigarette products shall not be set around ordinary primary and secondary schools, special education schools, secondary vocational schools, special schools and kindergartens. It is prohibited to sell electronic cigarette products to minors.

Some practitioners said that the draft has a great impact on the e-cigarette industry. All links should meet the regulatory requirements, which may exceed the ability of most brands, so it will lead to the survival of the fittest. In the long run, it is conducive to eliminate counterfeiting, shoddy goods and disorderly prices, which is good for enterprises and consumers. In addition, with national standards, the public opinion level of e-cigarette will gradually turn from negative to positive.

Experts pointed out that the establishment of a national unified e-cigarette transaction management platform, and all parties need a license to participate in production and operation, which is equivalent to translating the original whole transaction process of cigarettes to the field of e-cigarettes. "Since e-cigarettes also implement tobacco monopoly, it is also necessary to carry out comprehensive monitoring and management."

E-cigarette bid farewell to the era of unlicensed operation

Expert: cigarette trading process or shift to the field of e-cigarette

The venture capital boom of e-cigarette began in 2018 and reached a climax in the first half of 2019. At that time, more than 30 e-cigarette brands received more than 1 billion yuan of financing, but the subsequent policies cooled the business rapidly.

On November 1 of that year, the state tobacco monopoly administration and the State Administration of market supervision jointly issued the notice on further protecting minors from e-cigarettes, requiring e-cigarette products to be fully removed from the shelves of e-commerce platforms.

Affected by this, a number of online Red e-cigarette brands fell. At the same time, some e-cigarette brands continue to vigorously expand offline channels. Baide and Yueke raced off-line to enclosure and opened stores on a large scale.

In January this year, Yueke's parent company fog core technology landed on the New York Stock Exchange and became the "first share of China's e-cigarette brand". On the first day of its listing, the market value of fog core technology reached US $45.8 billion, which also made it the world's most valuable e-cigarette brand.

According to statistics, there are more than 600 e-cigarette brands in China, which are in full market competition. However, the development of the e-cigarette industry has been wandering in the gray area. Even regular offline stores will participate in the wechat channel based on traffic storage, and the development of online secret channels has also led to the rampage of all kinds of fake and shoddy products.

The state tobacco monopoly administration pointed out that in recent years, due to the regulatory gap and the disorderly development of the e-cigarette industry, some products have problems such as unclear nicotine (nicotine) content, unknown added ingredients and cigarette oil leakage. In particular, some operators publicize and mislead consumers, induce minors to smoke, and infringe on minors' physical and mental health. All sectors of society have strongly reflected and constantly called for strengthening supervision.

The CPC Central Committee and the State Council attached great importance to this and decided to amend the regulations for the implementation of the tobacco monopoly law of the people's Republic of China to strengthen the supervision of new tobacco products such as e-cigarettes according to law. On November 10, the decision of the State Council on Amending the regulations for the implementation of the tobacco monopoly law of the people's Republic of China was officially promulgated and implemented, which made it clear that "new tobacco products such as electronic cigarettes shall be implemented with reference to the relevant provisions of these Regulations". In order to further strengthen the supervision of e-cigarettes and other new tobacco products, the state tobacco monopoly administration drafted the measures for the administration of e-cigarettes (Draft for comments) (hereinafter referred to as the draft for comments).

One of the new regulations is to establish a national unified e-cigarette transaction management platform.

According to Articles 20 and 21 of the draft for comments, the Department of tobacco monopoly administration under the State Council shall establish a national unified e-cigarette trading management platform. E-cigarette production enterprises and e-cigarette brand holding enterprises that have obtained tobacco monopoly licenses according to law can only sell e-cigarette products to e-cigarette wholesale enterprises through the e-cigarette transaction management platform. Enterprises or individuals that have obtained a tobacco monopoly and retail license and are qualified to engage in e-cigarette retail business shall purchase e-cigarette products in local e-cigarette wholesale enterprises.

Zheng Rong, a professor at the University of international business and economics and director of the WHO Center for tobacco control and economic policy cooperation, told the shell finance reporter of the Beijing news that this provision is equivalent to shifting the original whole transaction process of cigarettes to the field of e-cigarettes, "because since e-cigarettes are tobacco monopoly, it is necessary to carry out comprehensive monitoring and management." This is also equivalent to declaring the authority of the Tobacco Monopoly Bureau over e-cigarettes.

"The tobacco monopoly of traditional cigarettes is equivalent to a closed system within a system. Only the production enterprises and wholesale enterprises in this tobacco system can engage in the production and sales of cigarettes." at the same time, the production and wholesale of traditional cigarettes also implement the planning and quota system. Zheng Rong concluded that the production and wholesale of e-cigarettes may also refer to this provision. As for whether state-owned capital will participate in private enterprises in the future, it remains to be further observed.

According to the exposure draft, both the production, wholesale and retail of e-cigarettes need to obtain relevant licenses. Zheng Rong inferred that in this case, "the probability of licenses obtained by large leading e-cigarette enterprises will be relatively large, while for small enterprises, many will be out."

CITIC Securities also said that the implementation of e-cigarette management measures has greatly raised the entry threshold, which is good for head enterprises. In the long run, the accelerated promotion of supervision is expected to guide the industry towards standardized, benign and sustainable development.

There has been speculation and discussion in the industry about the tax policy of e-cigarettes. Article 45 of the draft for comments stipulates that the tax collection and payment of e-cigarettes shall be implemented in accordance with national tax laws and regulations. Zheng Rong believes that relevant departments may introduce the consumption tax policy of e-cigarettes later. "The value-added tax of 13% on e-cigarettes is actually not high. The consumption tax is relatively high, which will be related to the local tax revenue."

E-cigarettes are no longer in the gray zone

Practitioners: unified deployment by the state, fake and shoddy products may be eliminated

"As an e-cigarette brand enterprise, we welcome and look forward to the standardized management of the e-cigarette industry by the state. The exposure draft basically gives normative requirements for the whole upstream and downstream industry chain of e-cigarette, that is, all links should be certified, which should be said to have an all-round impact." Fang Hui, partner and CMO of Baide, said that the sales link should be incorporated into a unified electronic trading system and supervised throughout the process, On the one hand, it solves the operational problems for taxation; On the other hand, in theory, the situation of fake and shoddy goods, collusion and disorderly prices has been basically eliminated, which is good for enterprises and consumers.

Liu Cheng (a pseudonym), an e-cigarette entrepreneur, said that the exposure draft allows e-cigarettes to be purchased and sold uniformly according to the management mode of cigarettes, "In the past, each e-cigarette developed its own agents, its own channels, its own management and development. Now this provision is equivalent to using the way of cigarettes, grid management, national unified allocation, unified procurement, unified sales and unified specifications. It is equivalent to that each end only needs to do its own part, not the whole chain."

"The draft for comments and the previous new regulations have given e-cigarettes the basis of laws and regulations and are no longer in the gray area." Zhao Yangbo, co-founder of e-cigarette brand RXR Shiwu, told the shell finance reporter of the Beijing news that because of the national standards, the level of public opinion will gradually turn from negative to positive, "Before, because there was no standard, there were many small and medium-sized businesses with mixed quality in the market, so the product quality must be worrying. Many consumers will doubt or even deny e-cigarettes. Now with national standards, everyone will recognize compliant products."

According to statistics, there were more than 15000 kinds of e-cigarette flavors circulating in the market before, and there were no regulations on the production process, added substances and battery safety. Sun Chengye, member of the CPPCC National Committee and researcher of the China Center for Disease Control and prevention, said, "the whole industry is in a state of disorder and needs to formulate industry standards and norms."

Fang Hui believes that the comprehensive standardization of the e-cigarette industry in the exposure draft is bound to improve the entry threshold of the industry and the level of the whole industry. "The most realistic point is that enterprises have to pay a high capital cost to meet the regulatory requirements of all links, which may exceed the ability of most brands." Therefore, it will lead to the survival of the fittest, and truly powerful brands will come out.

"First of all, as a brand, we should see who can produce products that really meet the requirements of national standards, that is, high-quality products." Zhao Yangbo told the shell finance reporter of the Beijing news that since 2018, the domestic e-cigarette market has developed rapidly, and there are many good and bad brands in the market. The determination of the national standard will make many brand products obsolete because of their substandard quality.

According to the draft for comments Article 5 stipulates that e-cigarette products shall comply with the national standards for e-cigarettes. The national standards for e-cigarettes include the specifications and technical requirements for e-cigarettes, atomizers, e-cigarette liquid, e-cigarette fittings, e-cigarette components, cigarette bombs, atomizing agents, atomizer additives, e-cigarette materials, e-cigarette releases, release amount, etc. previously, on November 30, the state tobacco monopoly administration had The national standard for electronic cigarette (Draft for comments) was released for public comments, and it was said that the national standard for electronic cigarette would be officially implemented 3-5 months after its release.

"Recently, the State Council's circular, national standards, management rules and other information have been intensively issued, and the process is faster than expected. I think this is good for the long-term healthy development of the industry, and the e-cigarette industry will soon usher in a new era. The inclusion of the e-cigarette industry into the track of standardized management will further highlight the social responsibility of the industry and take the national interests and consumer interests as the fundamental starting point "Said Fang Hui.

Channel cleaning storm or coming again

Multi brand strengthens channel control, and the era of e-cigarette profiteering may end

The introduction of management rules also brings a series of challenges to practitioners and e-cigarette brands.

Fang Hui said that the exposure draft will certainly have a certain impact on the existing e-cigarette sales system, and all brands need to adapt to changes. "Taking Baide as an example, we have been communicating with agents and stores to prepare for the advent of a new era of e-cigarettes."

On the other hand, the storm of channel cleaning may come again.

According to media reports, even after the online ban, many people can still buy all kinds of e-cigarettes through secret channels such as wechat and second-hand e-commerce. This is due to the huge profits of e-cigarettes. According to Huachuang securities, Yueke generation e-cigarette set (one shot and two bullets) The cost is 70 yuan, the distributor takes 120 yuan, and the terminal sales price can reach 299 yuan. The cost price of a box of three ceramic atomization core smoke bombs carved by Yueke is 30 yuan, the agent takes 45 yuan, and the retail price is 99 yuan.

Zhao Yangbo also admitted that although the relevant departments banned the online trading of e-cigarettes in 2019, the sales of e-cigarettes can still be seen on wechat merchants and some e-commerce platforms, and "the proportion is not low", "after the national regulatory rules come down, these informal channels can be standardized."

At the policy briefing held on December 2, the relevant person in charge of the State Tobacco Monopoly Administration said that all kinds of e-cigarette production and operation entities should fully close the e-cigarette Internet sales website or client according to law, standardize e-cigarette advertising in strict accordance with the relevant provisions of tobacco advertising, and all kinds of e-commerce platforms should fully close online e-cigarette stores and remove e-cigarette products from the shelves.

As for brands, Zhao Yangbo said that on the one hand, products should be settled on a unified trading platform in the future. On the other hand, the offline channel stores in the future also need to have special business licenses. The prohibition of sales around some schools and the protection of minors should also be considered. In addition, some competition chaos in the e-cigarette market will also be regulated. "For example, a shopping mall may open more than ten or more than twenty e-cigarette stores or convenience stores. For example, the license of traditional cigarettes itself has distance protection, so this kind of store density may also be regulated. In short, for brands, it depends on who can operate for a long time on the premise that the terminal channel meets the requirements of national regulations."

With the advent of regulatory rules, the response of some brands has also been carried out. Zhao Yangbo said that after the publication of the exposure draft, Shiwu will actively carry out more in-depth research and development with its own factories and cooperative OEM factories, "we should upgrade technology to ensure that our future products meet national requirements." On the other hand, it also began to convey the spirit of point-to-point to the downstream channels. "Inform the downstream terminals that further supervision and management should be done at this stage to strictly prevent and control the sale of e-cigarettes to minors. At the same time, it also requires the local channel leaders to actively communicate with the local tobacco management department to effectively meet the national requirements and standards at the channel management level."

At the same time, the supporting measures and specific implementation of the management measures need to be further observed. Some practitioners said that in the future, for example, it is uncertain whether the wholesaler link will be open or internal like the traditional cigarette. "Now the detailed rules are still in the stage of soliciting opinions, and we can't know what we can do and what we can't do until we get the specific certificate."

Some practitioners are worried about the backlog of e-cigarette products in their hands because of the provisions of the license. The State Tobacco Monopoly Administration said that considering that there is a process for the formulation and promulgation of e-cigarette management measures and national standards for e-cigarettes, in order to protect the legitimate rights and interests of e-cigarette production and operation entities, from the "decision" From the date of promulgation and implementation to the formal promulgation and implementation of e-cigarette management measures and national standards for e-cigarettes, a certain transition period shall be set. During the transition period, the existing e-cigarette production and operation entities can normally carry out production and operation activities.

In addition, the state tobacco monopoly administration also said that in order to standardize the market order of the e-cigarette industry, the e-cigarette industry will be smoothly brought into the track of legalization and standardization, and in line with the newly revised implementation regulations In line with the relevant supporting policies being studied and formulated, at this stage, all kinds of investors are not allowed to invest in new e-cigarette production and operation enterprises; the existing e-cigarette production and operation entities are not allowed to build or expand production capacity, set up new e-cigarette retail outlets and market new products, and suspend the import of new e-cigarettes.

"This market will certainly be more standardized in the future, and the era of huge profits will certainly be over." Liu Cheng believes that after the tax increase on e-cigarettes, the product profits will return to normal. "Before, the tax was collected according to electronic products, which was lower than the tobacco tax rate." Zhao Yangbo also agrees with this view. He said that e-cigarette transactions are carried out on the trading platform under the unified supervision of the state, and the product gross profit and product price will be better supervised; in addition, after the standardized management of e-cigarette, higher taxes will be paid than before.

■ extension

The voice of e-cigarette supervision has a long history

There has been a long-standing call for strengthening the supervision of e-cigarettes. At the two sessions this year, members of the National Committee of the Chinese people's Political Consultative Conference