Event: the measures for the administration of electronic cigarettes and the national standard for electronic cigarettes (second draft for comments) were released. On March 11, the State Tobacco Monopoly Administration issued the measures for the administration of e-cigarettes, which stipulates the production, sales, transportation, import and export, supervision and administration of e-cigarettes in China, which will be officially implemented on May 1. At the same time, the second consultation on the national standard for e-cigarettes will be opened, and the consultation period will end on March 17, 2022.
Interpretation of the draft of the National Tobacco standard and the second solicitation of opinions on the changes of the electronic standard:
I. clearer license management of the whole industry chain
1) production management: it is clear to include the production of tobacco and oil into the management, and there is no new type of license. The Administrative Measures stipulate that e-cigarette production enterprises (including product production, OEM, brand holding enterprises, etc., the same below), atomization production enterprises and e-cigarette nicotine production enterprises must be approved by the competent department of tobacco monopoly administration under the State Council, obtain the license of tobacco monopoly production enterprises, issue shares for the first time and go public Capital construction or technological transformation to expand production capacity shall be reported to the competent department of tobacco monopoly administration under the State Council for approval. E-cigarette license management does not establish new types of administrative licenses, but only adds corresponding items to the license scope of tobacco monopoly production, wholesale and retail licenses.
2) sales management: it is clearly stipulated that the wholesale license is only available for change (private limited), and the retail outlets need to be reasonably arranged. Wholesale link: an enterprise that has obtained the license of tobacco monopoly wholesale enterprise shall be approved by the Department of tobacco monopoly administration and change the scope of the license before it can engage in the wholesale business of electronic cigarette products. Retail link: the tobacco monopoly retail license applicable to e-cigarette products can be obtained by applying for or changing the scope of the license. At the same time, it shall meet the requirements of the reasonable layout of local e-cigarette retail outlets and avoid the surrounding areas of ordinary primary and secondary schools, special education schools, secondary vocational schools and kindergartens.
II. Standardization of electronic cigarette products
1) raw material procurement: refer to the purchase and sales plan. Tobacco monopoly products such as tobacco leaves (including reconstituted tobacco leaves and tobacco stems, the same below), redried tobacco leaves and cut tobacco used shall be purchased from tobacco enterprises with the right to operate (nicotine extracted from tobacco shall be used according to the national standard). The competent department of tobacco monopoly administration under the state Council shall issue a purchase and sales plan for tobacco monopoly products such as tobacco leaves, redried tobacco leaves and cut tobacco.
2) from the product registration system of the first draft to the technical review of the final draft: the competent department of tobacco monopoly administration under the State Council shall organize professional institutions to conduct technical review of electronic cigarette products according to the inspection and testing report and other application materials. Establish an electronic cigarette sampling and testing system to inspect or inspect enterprises, individuals and their products that have obtained licenses regularly or irregularly. Establish a unified electronic cigarette product traceability system.
3) the taste restriction is stricter than the first draft, and only tobacco flavor is sold: it is prohibited to sell flavored e-cigarettes other than tobacco flavor and e-cigarettes that can add atomization by themselves. The national standard stipulates that the atomization shall contain nicotine, which shall not induce minors, and the characteristic flavor of the product shall not show other flavors other than tobacco.
III. standardization of e-cigarette sales
1) establish an e-cigarette trading management platform. The competent department of tobacco monopoly administration under the State Council shall establish a national unified e-cigarette trading management platform. E-cigarette production enterprises, aerosol production enterprises, e-cigarette nicotine production enterprises, e-cigarette wholesale enterprises and e-cigarette retail business entities shall conduct transactions through the e-cigarette trading management platform.
2) the retailer’s purchase is limited to local areas and shall not operate exclusively. Enterprises or individuals qualified to engage in e-cigarette retail business shall purchase e-cigarette products from local e-cigarette wholesale enterprises, and shall not exclusively operate e-cigarette products sold on the market.
3) it is explicitly prohibited to sell electronic cigarette products to minors. E-cigarette operators shall set up signs in prominent places not to sell e-cigarettes to minors; If it is difficult to determine whether they are minors, they shall be required to show their identity documents. It is prohibited to use vending machines and other self-service selling methods to sell or sell e-cigarette products in a disguised form.
IV. electronic cigarette transportation and import and export supervision
1) transportation and carrying Supervision: specify the limit management. The transportation of electronic cigarette products, aerosols and nicotine for electronic cigarettes shall be subject to the supervision of the competent administrative department of tobacco monopoly. The delivery and carrying of electronic cigarette products, aerosols and nicotine for electronic cigarettes in other places shall be subject to limited management, and the carrying of electronic cigarette products by individuals into China shall be subject to limited management.
2) loose margin of export business: electronic cigarette products not sold in China and only used for export shall meet the laws, regulations and standards of the destination country or region.
Comments are as follows:
The new regulations were implemented on May 1, and the pace of policy promotion was accelerated. On November 26 last year, the State Council officially revised the regulations for the implementation of the tobacco monopoly law and added the supplementary provision “e-cigarettes refer to cigarette management”. On November 30 and December 2, the state tobacco monopoly administration successively issued the national standards for e-cigarettes and the administrative measures for e-cigarettes (Draft for comments). On January 29 this year, the comment period of the two policies has expired. On March 11, the national tobacco administration issued two heavy documents on the same day, the national standard for e-cigarettes (second draft for comments) and the administrative measures for e-cigarettes. The period for comments on the national standard was only March 17, and the administrative measures were officially implemented on May 1, which significantly accelerated the pace of policy promotion.
Only tobacco flavored e-cigarettes will be retained, and the supervision will be tightened to match the expectation. The management measures clearly stipulate that the sale of flavored e-cigarettes other than tobacco flavor is prohibited. The national standard of e-cigarettes (second exposure draft) points out that atomized substances should not induce minors and should not make the characteristic flavor of products show other flavors except tobacco. The temporary license of atomized additives is reduced from 122 to 101, excluding rose alcohol, Neroli alcohol, rum ether, orange oil, etc, D, l-menthol, cocoa extract, coffee extract, etc. are still retained. We expect that in the future, e-cigarettes will only retain the mixed flavor with tobacco flavor as the main tone. According to the research data of blue hole, after stopping the flavoring cigarette cartridge, it is expected to affect 50% – 70% of the shipments of existing brands, and the supervision will be tightened to match the expectation.
Refine the license management of the industrial chain, and strengthen the source control and quota management. Under the administrative measures, 1) the approval level of production license is higher: the establishment of e-cigarette production enterprises (including production, OEM and brand), atomization production enterprises and nicotine production enterprises must be approved by the competent department of tobacco monopoly administration under the State Council and obtain the license of tobacco monopoly production enterprises. 2) The wholesale license is limited to the China tobacco system: enterprises that have obtained the license of tobacco monopoly wholesale enterprises shall be approved by the competent department of tobacco monopoly administration under the State Council and change the scope of the license before they can engage in the wholesale business of electronic cigarette products. 3) Administration of tobacco monopoly products quota system: the national standard stipulates that nicotine shall be extracted from tobacco. The above-mentioned enterprises shall purchase raw materials from enterprises with tobacco monopoly products management qualification, and the competent department of tobacco monopoly administration under the State Council shall issue the purchase and sales plan of tobacco and other tobacco monopoly products.
Product side: the threshold is raised & the production capacity of the supply chain is cleared, and the leading enterprises benefit. For e-cigarette production enterprises, in addition to obtaining the license of tobacco monopoly production enterprises, their e-cigarette products need to pass the technical review conducted by professional institutions organized by the competent department of tobacco monopoly administration under the State Council according to the inspection and testing report and other application materials, and meet the mandatory national standards for e-cigarettes. We believe that the standardized management of products improves the technical threshold and makes inferior products withdraw from the market, which is conducive to the clearing of the industry pattern. At the same time, the improvement of product safety is conducive to the improvement of the public opinion environment, and the leading manufacturers with capital, technology and manufacturing strength benefit.
Sales side: in the wholesale link, the tobacco control and retail store mode are over, and the e-cigarette channel system is facing reconstruction.
1) Brand: the license system improves the industry access threshold. Under the restriction of tobacco advertising, the head brand that has occupied the mind of consumers has the first mover advantage. 2) Wholesale: the license of tobacco monopoly wholesale enterprise can only be obtained through changing the scope, which is expected to be limited to enterprises within the China tobacco system. 3) Retail: the opening of retail outlets needs to meet the layout requirements of local e-cigarette outlets. The disorderly expansion and vicious competition of the industry may improve. Retail enterprises are not allowed to exclusively operate e-cigarette products sold on the market. At present, the mainstream agent brand store system of the e-cigarette industry will be fully reconstructed. 4) Trading: all links need to be carried out in a unified e-cigarette trading management platform, and the chaos of wechat, fleeing goods, disorderly prices and other industries may end.
Industry side: electronic cigarette tax collection will be promoted in an orderly manner, with limited impact on export business. 1) Tax: the e-cigarette management measures do not mention the issues related to e-cigarette tax. At present, China imposes a high consumption tax on traditional cigarettes. We believe that the follow-up e-cigarette tax policy will also be promoted in an orderly manner, and the profit margin of each link will be affected. The specific degree depends on the bargaining power of the industrial chain. 2) Export: according to the data of the e-cigarette Industry Committee of China e-cigarette chamber of Commerce, the export volume of China’s e-cigarette in 2021 was 138.3 billion yuan, an increase of 180% at the same time. The management measures pointed out that the laws, regulations and standards of the destination country or region should be given priority to the export of e-cigarette products, which is expected to have a limited impact on the export business.
Investment suggestion: strengthening supervision is expected to promote the sound development of the industry, benefit the leading enterprises with product, technology and brand advantages, and HNB tobacco is expected to accelerate the promotion. It is suggested to pay attention to [ Shenzhen Jinjia Group Co.Ltd(002191) ] with stable main industry of large packaging and perfect layout of the whole industrial chain of new-type tobacco, as well as the OEM leader of fogging industrial chain [SIMORE international].
Risk tips: the risk that the content and progress of policy implementation are less than expected, the risk of deviation in the calculation of market space and performance elasticity of each company, the risk that downstream demand is less than expected, product quality risk, etc
