Decoding the UK E-Cigarette Industry Report

Insights on Compliance Risks and Challenges

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Decoding the UK E-Cigarette Industry Report: Warning of Compliance Risks

Since February 2023, the UK Medicines and Healthcare Products Regulatory Agency has been investigating Chinese e-cigarette brand Elefbar’s products due to issues with nicotine e-liquid content. Elefbar has committed to withdrawing non-compliant products, and subsequently, a US court has ordered a halt to E-brand sales in the United States.

The UK is one of the top three e-cigarette consumption markets in the world. In September 2022, the UK’s Centre for Economics and Business Research (CEBR) released a report on the economic impact of the e-cigarette industry, mentioning non-compliant capacity issues. Compliance issues erupted a few months later, proving the report prophetic. This article analyzes the UK e-cigarette industry report and its problems, reflecting on the compliance path for Chinese companies in the e-cigarette industry in light of relevant compliance events.

I. The UK E-Cigarette Industry has a Significant Positive Economic Impact

The report, commissioned by the UKVIA (UK Vaping Industry Association), analyzes the UK e-cigarette market’s specific impact on the UK economy based on industry data from 2017 to 2021.

E-cigarette user numbers: In 2017, there were 2.7 million e-cigarette users in the UK, which grew to 3.7 million by 2021, an increase of about 1 million users in four years.

Overall e-cigarette volume: In 2017, the UK e-cigarette industry’s turnover was £1.074 billion, growing to £1.325 billion by 2021. However, there were declines in turnover in both 2019 and 2021, with drops of approximately 5%-8%. The report suggests that the 2019 decline may have been related to widespread discussions of vaping-related lung diseases, while the 2021 decline may have been due to lower e-cigarette prices in newsstands compared to specialized stores, leading to a drop in turnover as consumer habits changed.

Key takeaway: Falling e-cigarette prices may be an industry trend.

II. The UK E-Cigarette Industry has Some Socioeconomic Benefits, Helping to Improve Smokers’ Health

In the UK, many cigarette users often use e-cigarette products to quit or reduce cigarette smoking. According to a survey by UK polling firm Opinium, 80% of e-cigarette users have reduced cigarette smoking since starting to use e-cigarettes, with 50% quitting cigarettes altogether.

To further discuss the role of e-cigarettes in quitting smoking, Opinium surveyed former cigarette smokers who now use e-cigarettes. The data shows that the vast majority of those who smoked for less than a year to thirty years quit cigarettes after using e-cigarettes, with over half of those with more than thirty years of smoking quitting as well. From the perspective of e-cigarette use purposes, over half of e-cigarette users aged 25 and above use them to quit smoking or obtain nicotine in a healthier way.

In 2022, the UK government released another health study on nicotine consumption, which showed that the health risks of using e-cigarettes are at least 95% lower than smoking cigarettes for short-term and medium to long-term smoking behaviors. However, e-cigarette liquids still contain nicotine and other chemicals, which may damage the respiratory system, cardiovascular system, and immune system.

Key takeaway: The report believes that e-cigarettes benefit both the country and its citizens, and it is highly probable that the UK will continue to strongly support e-cigarettes in the future. Major companies investing in the UK market is also highly probable.

III. UK E-Cigarette Market Access and Compliance

As mentioned at the beginning of the article, the e-cigarette brand Elefbar has faced significant compliance challenges this year due to product compliance issues. In the UK, Elefbar’s “600” model product contains liquid nicotine ranging from 3ml to 3.2ml, which is over 50% more than the legally required amount. Currently, these products are under investigation, and Elefbar has pledged to remove the non-compliant products from the market. In the US, Elefbar also faces challenges in the intellectual property domain. As Elefbar’s e-cigarette products may infringe on VPR Brands’ trademarks and patents, potentially causing damages of approximately $100 million to the latter, a US court has ordered a ban on the sale of Elefbar e-cigarettes in the country.

The Elefbar product incident highlights the importance of product compliance and intellectual property compliance for e-cigarette export companies. These compliance issues will surface as the business grows, and failure to meet the requirements can lead to products being removed from the market or even delisting. Understanding local laws and regulations is crucial, as slight deviations or negligence can lead to severe consequences. For example:

  • The Tobacco and Related Products Regulations 2016 in the UK sets clear requirements for e-cigarette liquid container capacity, nicotine content, and concentration. E-cigarette liquid containers must not exceed 10ml; disposable e-cigarettes or replaceable e-cigarette cartridges must not exceed 2ml in liquid capacity; and the maximum concentration of nicotine in e-cigarette liquids must not exceed 20mg/ml. (Elefbar was allegedly non-compliant and required to remove its products from the market.)
  • Article 31 of the regulations stipulates that manufacturers of new e-cigarettes and refill containers must apply for permission from the Medicines and Healthcare products Regulatory Agency (MHRA) at least six months before selling their e-cigarette products in the UK market. (V-brand products were required to be removed and recalled due to the absence of MHRA permission for their sale.)

The regulations also set requirements for ingredient disclosure, child-resistant packaging, advertising, and promotional restrictions. Failure to meet these compliance standards may trigger compliance risks.

IV. The Value of Corporate Compliance

Corporate compliance is a common legal culture in Western countries like the UK and the US. In simple terms, effective corporate compliance can help avoid or mitigate criminal or administrative penalties that company shareholders, controllers, or executives may face due to non-compliant actions by subordinate employees.

As for the Elefbar incident, no health risks have been reported so far, and it is expected that there will be no additional criminal or administrative penalties in the future. E-cigarette products, which contain nicotine and pose significant health risks, can lead to serious product liability claims from consumers or administrative and judicial authorities if non-compliant incidents result in health damages. These liabilities may target company shareholders, controllers, and executives. For example, in the Enron case, the company’s CEO faced criminal liability and was sentenced to 24 years in prison.

Under Western legal systems, according to the theory of organizational liability, company shareholders, controllers, and executives can only avoid or reduce liability if an effective corporate compliance program is in place; otherwise, they can’t escape responsibility. Large corporations, especially multinational ones, may inevitably experience deception by mid-level or subordinate employees pursuing their own interests. Implementing effective compliance programs has become a necessary choice for multinational corporations to protect their shareholders, controllers, and executives.

China’s Shenzhen produces over 90% of the world’s e-cigarettes, which may become one of the most important consumer products in the coming decades and a significant source of foreign exchange earnings. While celebrating China’s crucial role in the e-cigarette industry, it is important to pay attention to and emphasize compliance with local laws and regulations in target markets. As the Elefbar case demonstrates, failure to comply with regulations can lead to significant financial losses, reputational damage, and even legal consequences for those involved.

V. Recommendations for E-Cigarette Export Companies

To ensure successful entry into international markets and avoid compliance issues, e-cigarette export companies should consider the following recommendations:

  1. Thorough research: Understand the laws and regulations governing e-cigarettes in target markets. This includes compliance with safety standards, packaging requirements, advertising restrictions, and intellectual property laws.
  2. Product testing and certification: Ensure products meet the safety and quality requirements of target markets by conducting thorough testing and obtaining relevant certifications.
  3. Intellectual property protection: Register trademarks, patents, and other intellectual property rights in target markets to avoid infringement claims and protect your brand’s reputation.
  4. Establish a compliance management system: Implement a comprehensive compliance management system to ensure all employees are aware of and adhere to relevant regulations in the target market.
  5. Regular compliance audits: Conduct periodic compliance audits to identify potential risks and take corrective actions to address any issues that arise.
  6. Engage with local partners: Collaborate with local distributors, retailers, and other stakeholders who are familiar with the local market, laws, and regulations to ensure seamless market entry and ongoing compliance.
  7. Monitor regulatory changes: Stay up-to-date with changes in regulations and industry trends in target markets to ensure ongoing compliance and make necessary adjustments to business strategies.

By taking these steps, e-cigarette export companies can minimize the risk of compliance issues, protect their brand reputation, and ultimately ensure long-term success in international markets. As the e-cigarette industry continues to evolve and grow, companies that prioritize compliance and adhere to international standards will be better positioned to succeed and thrive in this competitive landscape.

Matthew Ma