Over the past few years, there has been a boom in alternative smoking in the world. The Ministries of Health have begun to sound the alarm about the dangers of the new habit, in particular, due to the large number of counterfeit products. Therefore, heated discussions have unfolded about the regulation of the industry — some advocate balanced control, others advocate a complete ban. In Russia, a bill on vaping was submitted to the State Duma at the end of December and may be considered in the first reading in the spring session. What such a decision will lead to, — in the material of " Lenta.ru".
9 percent
Vapes have gained huge popularity — and it's not just the absence of a pungent tobacco smell, but also the fact that there was practically no regulation of sales of this category of goods in the past. This made it easy for minors to buy such products. Teenagers quickly fell in love with vapes for their bright packaging and gamification — some e-cigarettes began to be equipped with touch screens where they can play mini-games and even answer messages and calls.
At the same time, the law did not prohibit advertising such products, so bloggers and influencers provided aggressive marketing of such devices.
However, the lack of proper regulation has led to a significant increase in the volume of counterfeit devices and nicotine liquids. Fake and illegal vapes attracted a low price, but the health risks from using such products increased many times.
At the moment when "vaping" turned into a new mass bad habit, the authorities began to actively fight illegal sales, but the market has already gained huge proportions.
According to VTsIOM, only among the adult population of the country, 9 percent (10.5 million people) are consumers of electronic nicotine delivery systems (ENDS).
Experts fear that a complete ban on vapes and e—cigarettes will undo the regulatory work done and push consumers into the illegal field, since people suffering from addiction will not stop consuming when the ban is imposed - they will change the channels of purchase.
The ban doesn't work
An illustrative example is the experience of Kazakhstan, where the introduction of a complete ban on the sale of vapes did not solve the problem. In April 2024, a ban on the import, production and sale of vapes was introduced there.
Impressive penalties were also imposed for violations: for the distribution and advertising of vapes, a fine of up to 200 MCI (this is the monthly calculation index used in the republic to calculate benefits and other social benefits, as well as penalties, taxes and other payments in accordance with the law), which corresponds to about 132 thousand rubles or correctional labor for up to 200 hours or arrest for 50 days. For the import of products into the country — a fine of up to 2000 MCI (about 1.3 million rubles) and even imprisonment for up to two years.
"After the introduction of the ban on vaping in Kazakhstan, half of the stores have closed. Some of them began to sell black through telegram channels. The other half sells only to regular customers, but officially sells something else. Companies have no choice: either go bankrupt or take the path of least resistance. And this is despite the fact that large fines have been imposed and it is even criminally punishable," market participants say.
Thus, despite the legislative ban, the situation in the country has not changed much — the consumption of electronic cigarettes has not decreased, but has only shifted to the illegal sector, creating additional risks for consumers and depriving the state of the opportunity to control product quality and receive tax revenues.
Attempts at regulation
In Russia, the regulation of the electronic medicine market already includes equating this category of goods with the regulation of other types of tobacco and nicotine-containing products, including labeling, stricter sales rules, and tougher penalties for violations. The first positive results have also appeared, proving the effectiveness of the chosen approach.
Since December 2023, after the introduction of the mandatory "Fair Sign" labeling, a significant increase in the legal segment has been recorded: the number of legal points of sale has reached 170 thousand (an increase of 1.5 times), and the volume of legal sales of vapes has increased 3.5 times.
Labeling of tobacco products and other regulatory measures have led to a significant decrease in illegal product turnover in Russia. Before the start of labeling, the share of illegal cigarette trafficking was estimated at 15.6 percent. By mid-2024, turnover had dropped to 10.8 percent, according to a report from the National Science Competence Center (NSCC).
"Deputies of the State Duma are already actively engaged in legislation protecting minors from smoking. The main question is how the control and supervisory system reacts to violations. We are increasing responsibility (up to the introduction of criminal liability) for the sale of nicotine-containing products to children, and we are increasing fines. However, strict and coordinated enforcement of laws on the ground is still required," Artyom Kiryanov, Deputy Chairman of the State Duma Committee on Economic Policy, said in a statement.
According to Artyom Kiryanov, the elaborated volume of regulatory norms regarding nicotine-containing products and restrictions on access to them by minors is quite sufficient today. Especially considering the innovations that have entered or are coming into force. But the main issue is to ensure the actual implementation of the already adopted legislative norms. Regulation, however, continues "in operation mode."
There is criminal liability for unlicensed importation, fines of up to 2 million rubles for sale to minors.
Industry experts and businesses advocate smart regulation and focus on fighting the black market instead of bans. Among other things, they see a solution in balancing the excise tax rate on liquids for the EDF and consolidating the efforts of business and the state.
"The adoption of a bill on a total ban on electronic nicotine delivery systems or a ban on flavorings (flavors), which is essentially the same as a complete category ban, will affect at least 150,000 small and medium-sized companies that are now legally operating in this market. In order to whitewash the market, it is necessary to reduce excise taxes on social security funds. A sharp increase in the excise tax on vaping liquids has led to a cost gap of almost 1,000 percent between legal and illegal products. In addition, the ratio of the excise tax rate on liquids for ESDS to the excise tax rate on cigarettes in Russia is now nine times higher than the average for other countries. Therefore, the share of counterfeit goods in this area has already increased to 95 percent. OPORA RUSSIA believes that instead of bans, it is necessary to move to smart regulation and focus on combating the black market," said Sergei Borisov, Chairman of the Board of Trustees of OPORA RUSSIA.
In support of this thesis, Sergey Borisov recalled the speech of Russian President Vladimir Putin during the lesson "Talking about important things" at the Kyzyl school: there is always a line beyond which prohibitions no longer apply.
"Vladimir Putin is absolutely right when he said that instead of prohibitions and restrictions, it is necessary to carry out comprehensive work. In recent years, the Government has taken a number of effective measures aimed at increasing the effectiveness of countering the illegal trafficking of nicotine-containing products. But we need to continue this work: to balance the excise tax rate, taking into account the limitation of nicotine concentration in the liquid for medical devices, to introduce reasonable requirements for market access through the registry model. The requirements should not be discriminatory, but they should be severely punished if market participants do not comply with them. Up to and including exclusion from the register for at least three years," said Sergey Borisov.
The Ministry of Industry and Trade also opposed the ban on vapes and electronic cigarettes in Russia.
"We all know what complete bans lead to: the formation of a black market, without control. It is unclear how much nicotine there is on the black market or who actually works there. Among other things, it is accompanied by huge budget losses, because it is clear that the tax base cannot exist if turnover is prohibited," said Vladislav Zaslavsky, director of the Department of digital labeling of goods and legalization of product turnover of the department.
The Ministry of Finance also previously noted that "the ban on electronic payment systems will lead to significant losses to the federal budget, the sources of compensation for which have not been determined. Making a positive decision on this issue will lead to the illegal turnover of these nicotine-containing products without paying excise tax."
Licensing
"The Russian Ministry of Finance has prepared a draft concept for the introduction of licensing activities for wholesale and retail sales of tobacco products, nicotine-containing products, hookahs and devices for the consumption of nicotine-containing products. The document assumes that a federal law will be developed, which sets out the requirements for a license for participants in the turnover of goods and the conditions for obtaining such licenses. The Ministry of Agriculture of Russia, as part of the interdepartmental coordination, sent proposals and comments to the draft concept to the Ministry of Finance of Russia," they told Lenta.<url>" in the press service of the Ministry of Agriculture of Russia.
The Ministry of Finance and the Ministry of Industry and Trade were unable to promptly prepare a response to the publication's request.
From March 1, 2024, the production, export and import of tobacco and nicotine-containing products are subject to licensing, but this does not apply to trade. In the coming days, the government is expected to present a new concept for market regulation.
Among the proposals discussed were licensing or the creation of a special registry, as well as limiting the minimum retail space (at least 25 square meters in villages and at least 50 square meters in cities) and the ownership or long—term lease of retail premises and warehouses for the wholesale link.
Problems
The limitation of the minimum retail space is a tracing paper of specific requirements for alcohol markets — large areas for storefronts, counters and equipment.
For tobacco shops, this approach to restrictions is not entirely appropriate, since the law prohibits the open display of goods, tobacco products themselves do not take up much space, and large stocks are not required.
Limiting the area to 25-50 square meters will lead to the closure of 150,000 retail outlets and the monopolization of the market by retail chains.
"On the one hand, it is proposed to use the experience of regulating alcohol markets, on the other hand, this approach absolutely does not correspond to the real situation on the market. More than 150,000 specialty stores selling nicotine—containing products are small formats with an area of up to 10 square meters. The conclusion is simple — if such restrictions on the area are adopted, tens of thousands of small enterprises and sole proprietors will be forced to close their businesses," explained Vladimir Mishelovin, member of the Presidium of the Board of the NP OPORA Association, member of the Board of the SPINI.
The requirements for storage facilities are of particular concern to market participants
According to industry associations, more than 70 percent of wholesale tobacco suppliers do not have their own warehouses for economic reasons and lack of objective necessity — the compactness of products does not require large stocks.
"In the current difficult situation in the warehouse logistics market, many wholesale trade participants use the services of third-party 3PL operators in order to optimize business processes and maintain business profitability. With this model, there is no possibility of directly concluding lease agreements between the product owner and the counterparty's warehouse. And in cases with direct leases, wholesalers are in unstable conditions in terms of lease terms (at the same time, only lease agreements for a period of more than a year are subject to registration with Rosreestr). In addition, the participants of the wholesale link actively apply the practice of storing products in HUB logistics complexes consisting of many warehouses/cells located on the same square at a single address, where tobacco and nicotine—containing products from different owners can be stored at the same time," said Vladimir Mishelovin.
According to him, regulation through the creation of a register of sellers seems to be the best solution for controlling the turnover of tobacco and nicotine-containing products. This will allow the market to be cleared of illegal players, while maintaining more flexible conditions for legal business compared to strict licensing.
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