Recently, the Ministry of public security, the state tobacco monopoly administration, the State Administration of market supervision and the Ministry of Education jointly issued the special work plan for cleaning up and rectifying the sale of e-cigarettes to minors and severely cracking down on crimes involving e-cigarettes. From now on, we will carry out special cleaning up and rectification work until the end of April.

In recent years, due to the influence of policy news, the leading stocks of domestic e-cigarettes have already fallen endlessly. The share price of smore international has fallen all the way from the highest HK $89.5 to HK $29, while fog core technology has plummeted from the highest US $35 to around us $3 today, and the market value has evaporated by more than 90%. Under the high pressure of policy, it seems that the e-cigarette business does not see a good future in the capital market, Had to be trapped.

In the past few years, there have been cheers and doubts about e-cigarettes. On the one hand, the popularization of e-cigarettes has ushered in a revolutionary change in the tobacco industry, and the landing of Yueke and other enterprises in NYSE is more like a “nuclear bomb” to ignite the pursuit enthusiasm of the management;

On the other hand, the addiction and harm of e-cigarettes to teenagers is an insurmountable “fire line”. A trace of wind and grass in the policy is pulling the sensitive heart of the capital market.

The complex social factors and common problems in the industry are reflected in Yueke and other enterprises. In addition to catering to the preferences of consumers, they also need to avoid the risks brought by policies on the basis of growth and profit.

Indeed, the era of e-cigarette barbaric growth is gone forever.

01

Policy tightening, painting the ground as a prison

The utility model is composed of a cigarette oil and an electronic product. Tobacco oil is mainly made of nicotine. Nicotine and various additives are atomized through electronic cigarette sets for consumers to smoke. Different from the traditional cigarette, e-cigarette has the characteristics of no combustion, providing nicotine but basically no tar.

At first, e-cigarettes were born as a “substitute” for cigarettes, which played a buffer role in helping old smokers quit smoking. But in fact, when using e-cigarettes, in addition to nicotine, it may also inhale a variety of other undetected toxic compounds into the body. The second-hand smoke produced by e-cigarettes may also endanger health, especially for teenagers with weak self-discipline.

Cutting off the intake of e-cigarettes by minors from the source is an umbrella for the protection of minors. On May 26, 2021, the Health Commission reported that there was sufficient evidence to show that e-cigarettes were unsafe, and pointed out the impact on teenagers. E-cigarette concept stocks fell sharply. Smore international fell 17.1% that day, and fogcore technology fell more than 13% at one time.

On June 1, 2021, the law of the people’s Republic of China on the protection of minors explicitly prohibited the sale of electronic cigarettes to minors for the first time. Then, on June 18, the state tobacco monopoly administration and the State Administration of Market Supervision issued the special action plan for “protecting the growth” of minors from tobacco abuse, which mentioned that the business behavior of e-cigarettes would be comprehensively and strictly supervised, the supervision system of e-cigarettes would be gradually established and improved, and the production and operation activities of e-cigarettes would be standardized.

There are about 300 million smokers in China, which is about seven times the smoking population of the United States and the total number of smokers in many countries. The domestic market can be said to be a “fertile land” for the development of e-cigarettes. At present, the number of e-cigarettes used in China is still far lower than that in Europe and the United States, which also means that the development potential of e-cigarettes is huge.

According to Quantuo data, the domestic market scale of China’s e-cigarettes was 550 million yuan in 2013, and the market scale increased to 8.38 billion yuan in 2020. The eight-year compound annual growth rate reached 72.5% and 14.5 billion yuan in 2021.

On December 2, the State Tobacco Monopoly Administration publicly solicited opinions on the administrative measures for electronic cigarettes (Draft for comments). The opinions put forward that the competent administrative department of tobacco monopoly under the State Council will 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 trading management platform.

This means that the sales channels of the e-cigarette industry are uniformly included in the regulatory channels, the sales of e-cigarette products will be uniformly allocated and sold by the channel providers, and the brands will not have the qualification to sell products directly to the C-end users.

Retailers believe that for the industry, the inclusion of e-cigarettes into the regulatory scope is also an innovation to the industry. On the one hand, standardized management and control is conducive to the long-term and stable development of the industry, and the market will not swing with the wind due to the policy direction; On the other hand, the implementation of supervision will further eliminate some non-standard enterprises, effectively curb safety problems and end the brutal growth period of the industry.

02

Offline internal volume, strategic survival

Since November 2019, the two ministries and commissions have issued No. 1 e-cigarette notice. After banning online sales, e-cigarette users can only buy them through offline channels.

For e-cigarette brands, on the one hand, when online sales are stopped, the brand loses the direct online communication channel with users and cannot directly receive user experience feedback; On the other hand, cutting off the channels on the line will limit the expansion of brands, damage profits, and the phased performance will inevitably be affected.

Despite repeated regulatory orders, some people still choose to take risks due to high profits, and online sales of e-cigarettes have not been completely banned.

Retailers on the online shopping platform, search for “electronic cigarette” and other keywords, keywords are indeed shielded, and even show minor related protection plan, but if replaced by “electronic spray”, “electronic smoke” and other proper nouns, you can still display purchase links.

In addition, people with goods in the circle of friends pour into the e-cigarette market, advertise directly in the circle of friends, and even sell products at low prices, which virtually increases the difficulty of e-cigarette supervision.

In this context, major e-cigarette brands began to compete to occupy the offline market, and brand stores sprung up across the country.

According to the 2021 e-cigarette industry blue book, there are nearly 190000 e-cigarette retail formats in China, including 138000 authorized stores, 47000 specialty stores and 5000-7000 collection stores.

There are 9 e-cigarette brands including Yueke, grapefruit, Magic Flute and Ono with more than 500 exclusive stores, of which the total number of Yueke brand stores is about 27600, accounting for 58.2% of the total number of exclusive stores in the market.

The whole industry shows signs that the number of users can not keep up with the number of stores. Yueke, as the leader of e-cigarette, also ushers in the hunting moment