On November 26, the State Council issued a notice on revising the regulations of the people's Republic of China on the implementation of the Tobacco Monopoly Law of the people's Republic of China, and decided to add "Electronic cigarettes and other new tobacco products with reference to the relevant provisions of these regulations" as Article 65, effective as of the date of promulgation.

Wall Street·Jian Zhi research believes that the inclusion of e-cigarettes in the tobacco regulatory system is expected, but the significance of the announcement is of great significance, which means that the domestic e-cigarette industry has been formally endowed with legal status, will bid farewell to barbaric and disorderly growth, and move from a grey area to an orderly supervision stage, which is of positive significance to the long-term development of the industry.

“3.22The official landing of the revised opinion draft relieved the market's concern about the across-the-board ban on atomized tobacco, but the specific impact on all links of the industrial chain still had to wait until the promulgation of the national standards and implementation rules for e-cigarettes.

The chances of atomized e-cigarettes being completely monopolized by tobacco are slim.

The current tobacco monopoly system covers the whole process of tobacco products: the provincial tobacco companies subordinate to China Tobacco sign tobacco planting and acquisition contracts with tobacco farmers to purchase and allocate them uniformly, and then they are produced by cigarette factories at the provincial level that have obtained the tobacco production license, and then wholesale by the local tobacco bureaus that have obtained the license for tobacco monopoly wholesale enterprises. Finally, retail is carried out by enterprises and individuals who have obtained the tobacco monopoly retail license.

Wall Street·According to Zhi Zhi's research, the probability of atomized smoke being completely monopolized by tobacco is very small.

First of all, atomized tobacco does not contain tobacco ingredient. If you want to completely monopolize tobacco, you need to directly amend the Tobacco Monopoly Law instead of implementing regulations, which needs to be passed by the National people's Congress. The whole process takes a long time and is very complicated.

Secondly, unlike cigarettes, atomized cigarettes have more SKU and faster iteration, so the traditional cigarette sales model is not suitable.

Third, at present, the main technology of medium smoke is focused on heating non-combustion (HNB), and the atomized smoke is relatively weak.

Fourth, at present, the domestic e-cigarette industry chain is mature, undertaking about 90% of the global e-cigarette production and accommodating nearly 3 million jobs. A complete tobacco monopoly is bound to have a great impact on foreign exchange earnings, employment, and the voice of e-cigarette products and technologies that have occupied the most favorable position in the world.

Fifth, the wording of the regulations applies "reference" instead of "in accordance with", as well as the statement of "inclusive and prudent supervision of new technologies, new industries, new business type, new models, etc., tailored to the regulatory model" put forward in the implementation plan for deepening the reform of the separation of certificates and licenses, further stimulating the development vitality of the main body of the market, and so on, issued by the State Tobacco Monopoly Bureau on November 25. E-cigarettes should not all copy the traditional tobacco monopoly to regulate in the future.

Wall Street·According to the research, the core purpose and principle of supervision is to standardize the healthy development of the e-cigarette industry. The raw materials and channels of the e-cigarette industry will be the core of supervision, and the more probable way of supervision isImplementation at the raw material endNicotine quotas are superimposed on the channel side to implement franchising.The e-cigarette production end as a fully competitive personnel-intensive link will not be the focus of supervision. It is expected that the manufacturers with complete licenses and legal compliance will be able to continue production according to the existing mode after applying for and obtaining the e-cigarette production license in the future.

The production of nicotine as the core raw material in the future must be the top priority of supervision.

According to the data of the Electronic cigarette Industry Committee of the China Electronic Chamber of Commerce, the export volume of e-cigarettes is expected to reach 63.2 billion yuan in 2021, and the domestic sales are expected to reach 18.5 billion yuan. By 2025, the export volume is expected to reach 169.7 billion yuan, and domestic sales will reach 49.8 billion yuan. Exports and domestic sales are expected to grow at a compound annual rate of 28%. Under such rapid growthWall Street·According to Zhi Zhi's research, China Tobacco will probably regulate the core raw material of e-cigarettes, the addictive nicotine, so as to regulate e-cigarettes.IndustryThe development carries on the regulation and control of safety norms, speed, and total quantity.

The acquisition of nicotine is mainly divided into extraction method and synthesis method. The extraction method needs to use tobacco leaves, and tobacco leaves are strictly regulated by China Tobacco; the synthetic method uses biochemical pharmaceuticals and does not need to use tobacco leaves. At present, the nicotine extraction of domestic e-cigarettes is mainly waste tobacco leaves, which are obtained through grey areas such as purchasing inferior tobacco leaves from tobacco farmers, which is unsustainable and needs to be regulated. At present, no private enterprises in China have obtained the license for nicotine extraction.Wall Street·Jian Zhi Research believes that in the future, China Tobacco may provide legal, compliant and monopolized tobacco purchase channels by issuing nicotine extraction licenses to private enterprises. and through equity participation, holding and in the form of quotas to regulate and control the healthy growth of the e-cigarette industry.

At present, some e-cigarettes in the domestic market use synthetic method to obtain nicotine. compared with nicotine extracted from tobacco leaves, synthetic nicotine has the advantage of less impurities and high purity. At present, the untouched point of the focus inside and outside the industry is whether the yet-to-be-issued national standard for e-cigarettes will formally allow synthetic nicotine to be added to e-cigarettes. Although synthetic nicotine has a certain harm reduction advantage compared with nicotine extracted from tobacco leaves, nicotine management involves many departments, including the Ministry of Public Security, Drug Administration, Ministry of Agriculture, etc., because synthetic nicotine is a chemical and does not need to use tobacco, so its application to e-cigarette products will potentially lead to the possibility that it can not be effectively regulated by China Tobacco. At present, FDA in the United States is faced with the problem that synthetic nicotine is difficult to control.

The future channel end of atomized e-cigarette may implement franchise.

Wall Street·Jian Zhi Research believes that the distribution end of atomized e-cigarette batches is expected to change in the future, and there is a high probability that the original wholesale channel agents will not be able to obtain a tobacco wholesale license, and perhaps there will be no wholesale license for e-cigarettes; the retail side will make reference to the cigarette method to set up a monopoly license for e-cigarettes in the future.Terminal sales will also be subject to places and distance restrictions similar to cigarettes, such as primary and secondary schools, youth palaces and other areas where minors gather, and there shall not be a second one within 200 meters, and so on; previously, e-cigarette brands have made substantial expansion in the core areas in order to seize the minds of consumers, which may lead to non-compliance with the relevant requirements in terms of store density. The future may exist in the core area where only a few or a few brands can get a license to open a store.

In addition, it is worth noting that the National Health Commission is currently promoting nationwide tobacco control legislation, and in the future, e-cigarette stores in shopping malls may no longer be able to provide trial services for customers, which will have a great impact on e-cigarette brands to set up stores in stores. At present, there are more than 44000 e-cigarette stores in China, of which more than 40% are set up in shopping malls. Once tobacco control legislation is passed, it is bound to have an impact on the channel-end competition pattern of various brands. At present, the operation of many e-cigarette stores in the market is difficult, and now a large number of e-cigarette shopkeepers have embarked on the path of collection stores by the way of specialty stores. With the clearance of the shops with poor sales in the market, the surviving shops may enter the license issuing system.

The restrictions on taste tobacco will certainly be tightened, but it may not follow the example of the United States across the board.

Taste tobacco has a seductive tendency for minors and non-smokers, so the restriction on taste tobacco will be a global trend. At present, FDA in the United States has issued a flavor smoking ban, banning the sale of e-cigarettes with most flavors, including fruit and candy, and only tobacco and menthol-flavored e-cigarettes can continue to be sold. For the protection of non-smokers and minors, domestic restrictions on taste tobacco will certainly become more stringent, butWall Street·According to the study of wisdom,Maybe not in China for the time being.Follow the one-size-fits-all approach to taste tobacco in the United States.Once a total ban on flavor tobacco, it is bound to bring room for survival in the black market and grey areas, so it is speculated that the national standard for e-cigarettes submitted in 2017 may be extended to do taste management in the form of a more flexible whitelist.

The short-term taxation rate of atomized e-cigarettes is small, and the future tax rate may be lower than that of traditional cigarettes.

Wall Street·According to the research of Jian Zhi, it is believed that for atomized smokeTaxation will certainly 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, but at present, the industry scale of atomized cigarettes is only 10 billion, which is negligible compared with traditional cigarettes; in addition, the consumers of atomized cigarettes almost do not overlap with traditional cigarettes. Moreover, from the legal point of view, it is also difficult to levy taxes on atomized tobacco in a short period of time. In order to open the taxation, it is necessary to include atomized tobacco in the scope of the nine tobacco monopoly products of the Tobacco Monopoly Law as the subject of taxation, and at the same time, the tax law should be revised accordingly. Clear collection of subjects, tax rates and calculation methods, there will be a long and complex process to go.

The complexity of the formulation of atomized tobacco tax rules is that it is difficult to grasp the measurement. The current tax rate of traditional cigarettes is levied in two ways: ad valorem and ad valorem, and it is taxed in the whole link, the calculation process is quite complex, there is a strict basis for calculation, it is based on tobacco leaves, the ad valorem tax is based on each cigarette, and the ad valorem tax is based on the sales price of each piece. If atomized tobacco is to be taxed, we need to first define whether it is to be taxed by root, by ml, or by sales price.

The price of traditional cigarettes is strictly controlled by the state, and the distribution price, wholesale price and retail price are all planned, but atomized tobacco is currently priced in the market, and the price adjustment frequency is high. If the price of e-cigarettes is adjusted, the tax standard also needs to be adjusted accordingly.

At present, the common international practice is to levy taxes according to the capacity of tobacco oil, and from the global trend, the comprehensive tax rate on atomized cigarettes is lower than that of traditional cigarettes. It is expected that the future domestic tax on atomized cigarettes will refer to international practices.

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 FDA in the United States and was allowed to sell as a harm reduction product. At present, under the leadership of IQOS, HNB has a very outstanding performance in the world, and it is the key development direction of the world's major tobacco companies and China Tobacco. From about 16 to 17 years, each of China Tobacco has entered the research of HNB. At present, at least 15-17 of 19 China Tobacco have laid out HNB products.

Wall Street Wisdom Research believes that although the specific domestic policy opening time of HNB is unknown, it is only a matter of time before the domestic HNB is liberalized, and it is possible to become the mainstream product in the domestic tobacco market after opening up.Different from atomized tobacco, the sales of HNB will be able to make use of the current 5.6 million outlets in China, and HNB is in line with the national tobacco control and health pursuit of smokers.