China has joined a handful of countries in banning flavored vapes to combat underage use of nicotine. Starting October 1, e-cigarette companies are only allowed to sell tobacco-flavored vapes in the country, an effort by the government to "standardize" the production, sales and consumption of the novel tobacco product.
China's e-cigarette makers had a short-lived boom before regulators began reining in the lucrative industry around three years ago. First, it was a ban on the online sales of vapes. Then in May this year, a set of comprehensive regulations went into force, effectively subjecting e-cigarettes to the purview of China's tobacco authorities.
The ban is long in coming and investors anticipated the change. Relx, which as of 2020 commanded 70% of China's pod vape market, has lost over 95% of its stock value since its debut on NYSE in January 2021. Shares of Smoore, a major manufacturer of vaping devices based out of Relx's home city of Shenzhen, are down 90% since hitting an all-time high in January 2021.
A ban on flavored vapes is like a death knell to the vaping industry. Tobacco-flavored products accounted for only an insignificant amount of e-cigarette sales, according to a survey conducted by Landong, a Chinese media publication focused on the vaping industry.
Other major measures from the regulations include a tobacco tax on e-cigarette sales and stringent new requirements on how a vape is made, from its battery, ceramic coil and nicotine content to fragrance. Meeting all these criteria could cost a fortune, which means the shoddy, scruffy type of vape sellers that were crowding the market before will struggle to survive.
Well-funded Chinese vaping startups such as Relx and Myst have long begun international expansion to diversify their revenue streams. In 2020, Relx kickstarted the costly and time-consuming ordeal of obtaining FDA approval in the U.S. Myst, which was co-founded by a former Juul scientist, had entered Malaysia, Russia, Canada and the United Kingdom as of May last year.
China's clampdown on vaping flavors stems from the same concern shared by other jurisdictions: health risks for young people. In a notice from 2019, the country's tobacco authority had this to say:
"The current electronic cigarette market in China is chaos. The quality of products varies substantially, and a large number of them has safety issues around unsafe additives, leaky e-juice, and shoddy battery. In particular, some companies are casually adding addictives to change the flavor and color of e-cigarettes to make them more appealing, but this is causing severe damage to underage users' mental and physical health."
In 2019, the U.S. government was getting ready for a policy to ban flavored e-cigarette products. In June, European Union lawmakers are proposing to ban flavored heated tobacco products. As the world's largest producer of vaping devices, China's e-cigarette factories will likely see their demand shrink as regulators around the world continue their battle with the vaping industry.