Illicit trade in Smokeless Products and the risks of its undermining global Tobacco Harm Reduction
The prominence of Smokeless Products in many markets has grown rapidly over a relatively short space of time (<10 years), with large numbers of smokers switching to these products. Unfortunately, alongside the Tobacco Harm Reduction (THR) positives from the growth seen in regulated products, there has also been a substantial rise in the availability of illicit products.
As the Oral Nicotine Pouches market has grown, there has been an alarming trend in the growth of counterfeits. These products, whilst clearly infringing on trademarks, also pose an increased risk to consumers. In some cases, counterfeit pouches have been identified with levels of over 150mg of nicotine[7], several times the amount that responsible manufacturers would include. Given that, in many markets, there is a lack of product regulation and quality control standards, it is often difficult for consumers to identify the difference between counterfeit and genuine products. Worryingly, in markets where the product is banned (e.g. Germany), the number of counterfeits identified in the market appear to be a lot higher.
We have also witnessed the substantial rise in unregulated illicit Vapour Products. These unregulated products may pose an additional risk to consumers, as most assume them to be legitimate products that are following the appropriate regulatory processes. As these illicit Smokeless Products may not be subject to the high-quality manufacturing standards required for regulated products, they are unlikely subjected to stewardship and quality controls.
A particularly concerning example of poor quality, illicit products were those that triggered the EVALI (E-cigarette or Vaping Use-Associated Lung Injury) crisis in 2019[8], where Vitamin E Acetate was used in an e-liquid solution as a carrier for cannabis-based ingredients. The presence of these illegal Vapour Products in the U.S. caused over 2,800 hospitalisations and 68 deaths[9].
Illicit Vapour Products can have flavours that particularly appeal to the underaged, as well as nicotine levels or liquid fill volumes that exceed the regulatory market limit. Such products not only present potential risk to consumers, but also lead to growing calls for greater restrictions and regulations imposed on the relevant Smokeless Product category as a result.
“The number of unique e-cigarettes sold in the U.S. has mushroomed to over 9,000 since 2020, when the FDA began restricting vaping flavours and requiring manufacturers to request permission to stay on the market. […] The increase in e-cigarettes has been almost entirely driven by Chinese-manufactured disposables, with more than 5,800 disposables currently being sold in U.S. stores, according to the IRI data. That number is up more than 1,500% from 356 disposables available in early 2020.”
Associated Press News
‘5 takeaways from the AP’s report on Chinese disposable e-cigarettes flooding the U.S market’ 2023[10]
The illicit vaping market is yet to be fully quantified; one reason for this is the multiple ways in which Vapour Products could be defined as illicit, which creates challenges for law enforcement and other stakeholders. Broadly speaking, illicit vaping can be divided into four segments:
Product Restrictions
Some countries have outright bans on sales of both Vapour Products and Oral Nicotine Pouches. In Brazil, all sales of Vapour Products are illicit, but its market value is estimated to be almost USD 1 billion, one of the largest markets globally. The Australian market, valued at almost USD 500 million, is also almost entirely illicit. This revenue generates criminal profits. We do not supply Smokeless Products to Brazil or Australia, but the continued growth in the category illustrates how consumers are able to obtain Vapour Products which are not controlled through regulatory or fiscal measures. This supports arguments put forward independently that blanket prohibition of popular products actively sought by consumers does not work either to effectively ban such products or to restrict the market so as to meet public health goals.
Many countries around the world have product restrictions, such as e-cigarette tank size, nicotine content limits and ingredient bans which restrict flavours. In the U.S., the FDA has denied virtually every application to sell non-tobacco flavoured Vapour Products, a de facto ban. However, in the U.S. (and other markets), many consumers continue to purchase illicit flavoured products. The presence of illicit products potentially undermines THR efforts across the world.
Retail Restrictions
Some countries ban the online sale of Vapour Products, but this does not stop retailers from outside the country offering illicit products through online retail channels. In some EU countries which ban online sales, more than half of all web traffic relating to Vapour Products is to foreign retailers which can be challenging to police.
Administrative Review and Market Authorisations
A large number of products are often placed onto the market without complying with the relevant administrative controls. One example can be seen via observation of the significant trade gaps that exist between the value of Vapour Products exported to the U.S. and the UK from China, compared with the value of products tracked by Customs authorities. Such analysis indicates that more than 80% of Vapour Products imported into the U.S. are not tracked. This is consistent with some estimates of over 95% of the market lacking FDA authorisation or a court order allowing the product to remain on the market, therefore classifying it as illicit, although renewed enforcement efforts and authorisation procedures appear to be improving the situation. In the EU, the volume of products notified and listed on a centralised database makes it very difficult for enforcement agencies in each country to check compliance. This leads to high volumes of illicit products and the ability for compliant manufacturers like BAT to compete on level terms is significantly undermined.
Tax
There is increasing evidence that the amount of tax revenue that should be collected where Vapour Products are taxed goes unpaid. In the EU, of the ten Member States who applied tax to Vapour Products in 2023, seven collected less than half of the tax due. Furthermore, countries which collected less tax often had more complex regulatory regimes, meaning that consumers turned elsewhere to obtain their products.
The fact that existing controls on Oral Nicotine Pouches and Vapour Products are undermined in so many ways creates a complex illicit landscape and an uneven playing field between compliant manufacturers and other noncompliant companies, who are selling these products without following appropriate regulatory processes. In many of the countries mentioned, illicit trade in Vapour Products can be above 50% (one in every two products, if not totally illicit in prohibition markets, e.g. Brazil), which is significantly higher than global estimates for illicit tobacco at approximately one in every ten cigarettes and tobacco products. Furthermore, in markets where Oral Nicotine Pouches are prohibited, these markets continue to grow, but without relevant regulations applied, leaving consumers vulnerable to illegal operators.
Without proper enforcement of existing regulations and a greater focus on illicit trade of Smokeless Products, efforts to encourage smokers to switch will be compromised. Furthermore, the presence of non-compliant or potentially dangerous products in completely unregulated illicit markets potentially undermines global Tobacco Harm Reduction efforts. This emphasises the importance of developing new policy solutions to help regulators and law enforcement to combat illicit trade of Smokeless Products.
References
A full list of references for this page can be found in the section 11. References.
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