China Tightens Controls on E-Cigarettes
China’s vaping and e-cigarettes industry witnessed two critical developments on Friday. First, new detailed regulations entitled “Administrative Measures for Electronic Cigarettes” were released and will be implemented on May 1. Second, the most recent draft of “Chinese E-Cigarette National Standards” was published and is now open for feedback.
Aiming at the links between e-cigarette production and quality management, the measures issued by China’s Tobacco Monopoly Administration clearly declare that the establishment of any e-cigarette, atomizer and nicotine production enterprises should be examined by the relevant administrative department under the State Council.
In terms of sales management, the new measures clearly state that the State Council tobacco monopoly administrative department shall establish a unified national e-cigarette trading management platform, and that enterprises in the vaping industry shall conduct transactions through that platform.
The “Chinese E-Cigarette National Standards” document is still in the stage of soliciting opinions from the public, and it needs to be examined and approved before its release and implementation three months later.
The most influential national standard requirement in the draft document pertains to the design of atomizers. At present, product flavors present in the market mainly include fruit, mint, beverages, tobacco and others. As the draft now requires: “Flavors other than tobacco shall not be offered in products to reduce the appeal of e-cigarettes to the underage.”
The United States also has e-cigarette flavor bans in place. FDA issued a flavor ban in 2020, prohibiting the sale of e-cigarettes with flavors including fruits and candy, while tobacco and menthol-flavored products can continue to be sold. This ban was mainly to combat the troubling epidemic of youth e-cigarette use, as most teenage users, according to the National Youth Tobacco Survey (NYTS), selected fruit flavors.
Affected by the above regulatory requirements, the share price of RLX Technology, the parent company of e-cigarette brand RELX, fell to $1.490 on March 11, down 36.32%. It is worth noting that RLX Technology also announced its unaudited financial report for the fourth quarter and the whole year of 2021 on the same day. According to the report, the net revenue of the company in the fourth quarter of 2021 was 1.90 billion yuan, a year-on-year increase of 17.7%, and the non-GAAP adjusted net profit in the fourth quarter was 540 million yuan, up 27.9% year-on-year.
In the whole year of 2021, RLX Technology‘s net revenue was 8.52 billion yuan, a year-on-year increase of 123.1%, with the non-GAAP adjusted net profit being 2.25 billion yuan, up 181.1% year-on-year. According to the financial report, the company’s revenue growth in 2021 is mainly due to the increase in sales revenue of offline distributors and the expansion of the company’s distribution and retail network.