Abstract: The one-size-fits-all risk in the vaping e-cigarette industry is eliminated. In the future, the raw material end nicotine and the channel end will be the focus of supervision
On November 26, the State Council issued an announcement on amending the “Regulations for the Implementation of the Tobacco Monopoly Law of the People’s Republic of China”, and decided to add “e-cigarettes and other new tobacco products with reference to the relevant provisions of the regulations on cigarettes” as Article 65, since the promulgation It will come into effect today.
Wall Street·Jianzhi Research believes that the inclusion of e-cigarettes in the tobacco regulatory system is expected, but the significance of the announcement is extraordinary, which means that the domestic e-cigarette industry has been officially given legal status, and it will bid farewell to barbaric and disorderly growth and move from a gray area to orderly supervision. The stage is of positive significance to the long-term development of the industry.
“3.22The official landing of the “Draft Opinions” has relieved the market’s previous concerns about a one-size-fits-all ban on atomized cigarettes, but the specific impact on each link of the industry chain will need to wait until the national standard and implementation rules for electronic cigarettes are promulgated.
The odds of vaping e-cigarettes completely going out of the tobacco monopoly are slim
The current tobacco monopoly system covers the entire process of tobacco products: each provincial tobacco company affiliated to China Tobacco signed a tobacco planting purchase contract with tobacco farmers, and the purchase and allocation were unified, and then the cigarette factories of each provincial China Tobacco company that obtained tobacco production licenses The production is carried out, and then the tobacco bureaus of various regions that have obtained the tobacco monopoly wholesale enterprise license carry out the wholesale, and finally the enterprises and individuals that have obtained the tobacco monopoly retail license carry out the retail.
Wall Street·Jianzhi research believes that the probability of atomized cigarettes completely going to the tobacco monopoly is very small.
First of all, atomized cigarettes do not contain tobacco ingredients. If you want to completely go to the tobacco monopoly, you need to directly modify the tobacco monopoly law instead of the implementation regulations. The National People’s Congress needs to pass it. The entire process is time-consuming and very complicated;
Secondly, unlike cigarettes, atomized cigarettes have many SKUs and fast iterations, and the traditional cigarette sales model is not suitable;
Third, China Tobacco’s current main technology focuses on heat not burn (HNB), and atomized smoke is relatively weak;
Fourth, the current domestic e-cigarette industry chain is mature, taking about 90% of the world’s e-cigarette production, and accommodating nearly 3 million jobs. The full use of tobacco monopoly is bound to generate foreign exchange, employment, and already occupy the most favorable position in the world. E-cigarette products and technology have a big impact;
Fifth, the wording in the Regulations should be “reference” instead of “in accordance with”, and in conjunction with the “Implementation Plan on Deepening the Reform of the Separation of Licenses and Licenses and Further Stimulating the Development of Market Entities” by the State Tobacco Monopoly Administration on November 25, New industries, new business formats, new models, etc. implement inclusive and prudent supervision, and tailor-made supervision models.” According to the expression, e-cigarettes should not copy traditional tobacco monopoly to supervise them in the future.
Wall Street·Jianzhi Research believes that the core purpose and principle of supervision is to make the e-cigarette industry normatively develop. The raw material and channel ends of the e-cigarette industry will be the core of supervision. The more probable supervision method isRaw material end implementationNicotine quotas are superimposed on the channel side to implement franchising.The e-cigarette production side, as a fully competitive, personnel-intensive link, will not be the focus of supervision. It is expected that manufacturers with complete licenses and legal compliance can continue to produce in the current mode after applying for and obtaining an e-cigarette production license in the future.
In the future, the production of nicotine as the core raw material must be the top priority of supervision
According to the data of the Electronic Cigarette Industry Committee of the China Electronic Chamber of Commerce, in 2021 it is estimated that the export value of e-cigarettes will be 63.2 billion yuan, and the domestic sales will be 18.5 billion yuan. Domestic sales have a compound annual growth rate of 28%. With such rapid growth,Wall Street·Jianzhi Research believes that China Tobacco will most likely supervise the core raw material of e-cigarettes and the addictive nicotine, so as to control e-cigarettes.industryDevelop the regulation of safety regulations, speed, and total amount.
The acquisition of nicotine is mainly divided into extraction method and synthesis method. The extraction method requires the use of tobacco leaves, which are strictly regulated by China Tobacco; the synthesis method uses biochemical pharmaceutical methods, and does not require the use of tobacco leaves. At present, the nicotine extraction of domestic e-cigarettes is mainly based on waste tobacco, which is obtained through gray areas such as buying inferior tobacco leaves from tobacco farmers. It is not sustainable and needs to be regulated. At present, no private enterprise in China has obtained a license for nicotine extraction.Wall Street·Jianzhi Research believes that in the future, China Tobacco may issue nicotine extraction licenses to private enterprises, provide legally compliant and monopolistic tobacco leaf purchase channels, and regulate and control the e-cigarette industry through shareholding, holding and quotas. Healthy growth.
At present, some electronic cigarettes in the domestic market use synthetic methods to obtain nicotine. Compared with the nicotine extracted from tobacco leaves, synthetic nicotine has the advantage of less impurities and higher purity. At present, the focus of the industry and the outside world is whether the national standard for e-cigarettes, which has not yet been issued, will officially allow synthetic nicotine to be added to e-cigarettes. Although synthetic nicotine has a certain harm reduction advantage compared to tobacco nicotine extraction because of its low impurities, nicotine management involves multiple departments, including the Ministry of Public Security, the Pharmaceutical Administration, and the Ministry of Agriculture. Because synthetic nicotine is a chemical substance, tobacco is not required. Therefore, when applied to e-cigarette products, it will potentially create the possibility that it cannot be effectively supervised by China Tobacco. At present, the US FDA is facing the difficulty of controlling synthetic nicotine.
Atomized e-cigarettes may implement franchising on the channel side in the future
Wall Street·Jianzhi Research believes that the wholesale end of atomized e-cigarettes is expected to change in the future, and the original wholesale channel agent will most likely not be able to obtain a tobacco wholesale license, and perhaps there will be no wholesale license for e-cigarettes; the retail end will refer to it in the future The Cigarette Measures set up a monopoly license for e-cigarettes.Terminal sales will also be restricted to places and distances similar to cigarettes. For example, areas where minors gather such as primary and secondary schools and youth palaces cannot obtain permits, and there cannot be a second store within 200 meters; the previous e-cigarette brands have To seize the minds of consumers, there is a situation of substantial expansion in the core area, which may lead to non-compliance with the relevant requirements in the intensity of store openings. In the future, there may be situations in which only a few or a few brands in the core area can get a license to open a store.
It is also worth noting that the National Health Commission is currently promoting nationwide tobacco control legislation. In the future, e-cigarette stores in shopping malls may no longer provide customers with trial smoking services, which will have a lot of impact on e-cigarette brands setting up stores in stores. Impact. At present, there are more than 44,000 e-cigarette stores in the country, and more than 40% of them are set up in shopping malls. Once the tobacco control legislation is passed, it will inevitably have an impact on the competitive landscape of various brand channels. At present, many e-cigarette specialty stores on the market have difficulties in operating. Now a large number of e-cigarette shop owners have embarked on the path of collection stores through specialty stores. As stores with poor sales in the market clear out, surviving stores may enter The certification system.
Flavored tobacco restrictions will definitely be tightened, but it may not follow the United States across the board
Flavored cigarettes have a tendency to attract minors and non-smokers, so the restriction on flavored cigarettes will be a global trend. At present, the US FDA has issued a ban on flavored cigarettes, prohibiting the sale of most flavored e-cigarettes, including fruits and candy, and only tobacco and menthol flavored e-cigarettes can continue to be sold.Out of the protection of non-smokers and minors, domestic restrictions on flavored cigarettes will definitely become stricter, butWall Street·Jianzhi research believes thatMay not be in the country for the time beingFollow the US’s one-size-fits-all approach to flavored cigarettes.Once flavored cigarettes are completely banned, it will inevitably bring living space to the black market and gray areas. Therefore, it is speculated that the national standard for electronic cigarettes submitted in 2017 may be extended to implement flavor management in the form of a more flexible whitelist.
The probability of short-term taxation of atomized e-cigarettes is small, and the future tax rate may be lower than that of traditional cigarettes
Wall Street·Jianzhi research believes that the effect of atomized smokeTaxation will definitely be implemented in the future, but it will not be the current focus of e-cigarette supervision.In 2020, traditional cigarettes contribute nearly 1.2 trillion in tax revenue, while the current scale of the atomized cigarette industry is only 10+ billion, and the tax contribution can be negligible compared to traditional cigarettes; in addition, the consumer groups of atomized cigarettes hardly overlap with traditional cigarettes. Moreover, from a legal perspective, it is difficult to levy taxes on atomized cigarettes in the short term. To start the taxation, atomized cigarettes must be included in the scope of the nine tobacco monopoly products under the Tobacco Monopoly Law to be the subject of taxation. At the same time, the tax law requires To make corresponding amendments to clarify the subject of the collection, the tax rate and the calculation method, there will be a long and complicated process to go.
The complexity of the formulation of the atomized tobacco tax is difficult to grasp in the measurement. The current tax rate of traditional cigarettes is levied in two ways: specific and ad valorem, and the tax is levied in the whole link. The calculation process is quite complicated and has a strict calculation basis. The specific tax is based on tobacco leaves. The specific tax is based on each cigarette and ad valorem. Tax is based on the sales price of each item. To levy a tax on atomized cigarettes, it is necessary to first define whether the tax is levied on the basis of the root, the e-liquid ml, or the sales price.
The price of traditional cigarettes is strictly controlled by the state. The distribution price, wholesale price, and retail price are all prescribed in the plan. However, atomized cigarettes are currently priced in the market and the price adjustment frequency is high. If the price of electronic cigarettes is adjusted, Taxation standards also need to be adjusted accordingly.
The current international practice is to levy taxes according to the volume of e-liquid, and from a global trend, the comprehensive tax rate for atomized cigarettes is lower than the tax rate for traditional cigarettes. It is expected that the tax on domestic atomized cigarettes will refer to international practices in the future.
HNBThe launch time is unknown, but it is expected to become a mainstream product in the tobacco market in the future
Last year, Philip Morris International IQOS passed the MRTP audit of the US FDA and was allowed to be sold as a harm reduction product. At present, under the leadership of IQOS, HNB is performing very well in the world. It is the key development direction of the world’s major tobacco companies and China Tobacco. . From 16 to 17 years, all China Tobacco companies have entered HNB research. At present, at least 15-17 of the 19 China Tobacco companies have deployed HNB products.
Wall Street’s knowledge and wisdom research believes that although the specific HNB domestic policy opening time is currently unknown, it is only a matter of time before the domestic liberalization of HNB, and after the liberalization, it may become a mainstream product in the domestic tobacco market.Unlike atomized cigarettes, HNB sales will be able to utilize China Tobacco’s current 5.6 million outlets across the country, and HNB is in line with the country’s tobacco harm reduction and control and smokers’ pursuit of health.
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