Rampant Black Market and Regulatory Challenges: Is Compliant E-cig Market in Australia Still Worth It?

On the social media platform Twitter, numerous users from Australia have been posting tweets, sharing their experiences of legally purchasing electronic cigarettes from New Zealand with a prescription. 2FIRSTS have found that these users emphasize the legality of their actions.

In fact, since May of this year, Australia has completely banned the sale of electronic cigarettes and related products. The only legal way to purchase them is with a prescription from a general practitioner, and they can be bought from a pharmacy or foreign websites. Any other means of purchase, such as from tobacco or convenience stores, is considered illegal.

Why do you need a prescription to buy e-cigarettes? This is because the Australian government believes that electronic cigarettes can assist smokers in quitting, but a diagnosis from a general practitioner is necessary to determine whether a smoker needs "smoking cessation therapy" using electronic cigarettes. Therefore, the prescription is often referred to as "nicotine replacement therapy."

So, how has the "prescription electronic cigarette" model promoted by the Australian government fared in practice?

Sudden Strengthening of Ban

The policy of purchasing electronic cigarettes with a prescription in Australia did not begin this year but was implemented starting from October 1, 2021.

When the policy was first introduced, the Australian government stipulated that consumers needed a prescription to purchase all nicotine-containing electronic cigarette products. However, due to the large number of tobacco shops in Australia, the process of obtaining a prescription from a general practitioner was too complicated and did not yield the expected results.

In May of this year, the Australian government further tightened its control over electronic cigarettes by implementing a comprehensive ban on disposable electronic cigarettes and explicitly prohibiting unauthorized electronic cigarette products from entering Australia.

This means that the days when consumers could ignore the issue of "electronic cigarette prescriptions" are over. If they want to use electronic cigarettes, they must actively consult a general practitioner to obtain a prescription. At the same time, all electronic cigarette shops in Australia, as well as tobacco and retail stores with electronic cigarette businesses, must cease their operations.

Compliant Market Bound by Formalities

Zhang Hua (alias), who is involved in the e-cigarette business in Australia, detailed the process of obtaining electronic cigarette prescriptions in person to 2FIRSTS:

First, "patients" need to consult a general practitioner to obtain a prescription. The price of the prescription is roughly around 70 Australian dollars (equivalent to approximately 330 Chinese yuan). The choices for the treatment duration include 3 months, 9 months, and 12 months, and the specific treatment duration is determined by the doctor based on individual circumstances. After obtaining the prescription, "patients" also need to contact a pharmacy in advance to reserve electronic cigarettes because most pharmacies do not typically stock electronic cigarette products.

In addition, 2FIRSTS have learned that electronic cigarette prescriptions can also be obtained online, but at a relatively higher cost.

On a website that claims to be the "leading Australian clinic for smoking cessation and nicotine electronic cigarette harm reduction," 2FIRSTS found that they provide online electronic cigarette prescription services. Applicants need to provide basic personal information and smoking history and pay an 85 Australian dollar fee (equivalent to about 400 Chinese yuan) to obtain a prescription valid for 12 months.

So, what kinds of products can enter the pharmacy system? Zhang Hua stated that this requires distributors or importers to submit declarations to the local Australian government, and once approved, they need to find pharmacies willing to sell these products.

However, finding pharmacies willing to accept electronic cigarette products is not an easy task. On July 5, 2FIRSTS previously reported that in order to convince Australian pharmacies to sell electronic cigarette products, international tobacco giant Philip Morris International (PMI) voluntarily offered to forego 80% of the sales profit.

In addition, Zhang Hua further explained that the electronic cigarettes sold in pharmacies in Australia are 2ml pod-based products with limited flavors, primarily consisting of mint and some basic flavors. There are typically two main brands, with one of them being the well-known Chinese brand RELX.

However, according to Zhang Hua, the compliant electronic cigarette business in Australia appears to have almost no market, and the prescription system seems to be a mere formality.

Compliance Benefits New Zealand

Among the legal ways to purchase electronic cigarettes in Australia, there is also a method called the "personal import scheme."

According to 2FIRSTS, this method also requires a prescription. Once consumers obtain a prescription, they can purchase electronic cigarettes from official foreign websites and have the products shipped to them. This method allows consumers to choose the brand and flavor they prefer, with fewer restrictions.

However, this method requires individuals to import electronic cigarettes with a supply of no more than three months (based on the manufacturer's recommended maximum daily dose) each time, and the total supply within any 12 months cannot exceed 15 months.

2FIRSTS have learned that consumers who purchase electronic cigarettes in this way mostly buy electronic cigarettes and e-liquids from online stores in New Zealand.

According to industry insiders familiar with the New Zealand market, there are numerous electronic cigarette brands in New Zealand, with no single leading brand. One of the electronic cigarette brands with good sales is Airspops from AIRSCREAM, a well-known British electronic cigarette company.

"Rampant" Black Market Issue

However, whether it is the "electronic cigarette pharmacy" or the "personal import scheme," the share they hold in the market is quite limited. The main sales of electronic cigarettes in Australia still concentrate in the illegal market.

After the comprehensive ban on electronic cigarettes in May this year, an Australian electronic cigarette distributor expressed their view on this policy on TikTok. They openly stated that they would not close their business due to the government's new regulatory measures and would choose to continue operating in the "black market."

As of now, the e-cigarette ban in Australia has been in effect for 5 months, and it seems that many distributors share the same viewpoint as the aforementioned distributor. Zhang Hua stated that there are about 2,000 electronic cigarette shops in the Sydney area alone.

Zhang Hua also added that due to the relatively weak enforcement in Australia, although regulatory authorities occasionally inspect tobacco shops, overall, the penalties are not severe. Typically, the first violation results in a warning, the second may lead to the confiscation of goods, the third may involve fines, and the fourth or subsequent violations could lead to the tobacco shop being deregistered. However, even if stopped, shop owners often continue their business by rebranding or changing licenses.

It is understood that in the Australian black market, the mainstream electronic cigarette brands mainly include IGET, HQD, GUNNPOD, and WAKA. According to Zhang Hua, IGET has the largest market share, estimated to be around 60% to 70%, while the other three brands collectively account for 20% to 30%.

However, due to the enhanced regulation of e-cigarette imports in Australia, unauthorized e-cigarette products entering the market face a great risk of detention. An industry insider specializing in e-cigarette logistics revealed to the 2FIRSTS that Australia's e-cigarette import policy is extremely strict, compliance procedures are difficult to handle, and "gray customs" products are also accompanied by a great risk of being detained, so the number of logistics providers who can ship e-cigarettes to Australia is very limited.

Will the Ban Be Lifted in the Future?

According to data from the Australian Department of Health, more than 3.5 million residents aged 14 and above in the country use cigarettes or electronic cigarettes, accounting for about 13.5% of the total population. This proportion is similar to the smoking rate in the leading European electronic cigarette market, the UK, which is 13.3%.

In addition, according to export data released by the General Administration of Customs of China for September, China exported electronic cigarettes worth $17.39 million to Australia. This also indicates that there is considerable demand for electronic cigarettes in the Australian market.

Many experts and scholars in the field of tobacco harm reduction are concerned that Australia's strict electronic cigarette control policy may lead to the flourishing of the black market, contradicting the original intention of banning electronic cigarette products.

At the 2023 Global Tobacco and Nicotine Forum (GTNF), Paton, a former member of the Victorian Parliament in Australia, stated that the Australian government has not genuinely implemented tobacco harm reduction (THR) measures. Caroline Beaumont, the founder of MedicalNicotine, a company offering general practitioner and prescription services for electronic cigarettes in Australia, also stated that the implementation of the electronic cigarette prescription system in Australia has not completely eliminated the use of non-prescription electronic cigarettes and that this approach still needs to be debated.

Currently, many tobacco harm reduction experts and international tobacco companies are actively calling for and lobbying to have the Australian government lift the ban on disposable electronic cigarettes and establish new regulatory policies. Whether the Australian government will open the electronic cigarette market or not is still uncertain.