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Assessing the Illicit Trade in Cigarettes and Foreseeing One in Nicotine Liquid

11/27/2014
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Euromonitor’s latest global briefing on the illicit trade in tobacco products assesses the nature, impact and logistics of the 570 billion stick, US$39 billion global market in illicit cigarettes. It outlines how the illicit trade in cigarettes, while often seen as, if not a victimless crime, a misdemeanour which the victims (arrogant tobacco conglomerates and capricious governments) deserve, is, in fact, a phenomenon which damages the best interests of a range of public and private organisations, including its consumers.

While price is, of course, the infamous key determinant of demand for illicit products one of the enabling factors discussed in the report is the existence of constraining regulation which creates absences in the legal market. An example of this is the potential for increase in illicit trade from the forthcoming ban on menthol cigarette products in the European Union’s Tobacco Products Directive. However, the report goes on to look at the existing and potential de facto illicit trade in electronic cigarettes rooted in restrictive regulation, in particular of nicotine liquid.

De facto black markets - potential and actual

There are a range of markets globally where e-cigarette products are either explicitly banned for all commercial sale or where a twin-track approach exists. In the latter markets, often nicotine-free products are widely available while nicotine e-liquid cartridges and refills are banned or nicotine-containing cartridges and products require a medicinal licence (in most cases a de facto ban as licences are prohibitively expensive to acquire).

In July 2014, results of a survey of users of a leading vaping website, the E-cigarette Forum, suggested that about 80% of e-cigarette users would “look to the black market” if products they used were banned. Reports suggest that markets such as Denmark, where nicotine-containing e-liquid is banned and which reportedly already has 200,000 regular users of e-cigarettes, already boast black markets in the products, an effective “illicit trade” in e-liquids.

A range of options for illicit nicotine liquid 

Anti-illicit enforcement would be made difficult by the fact that products required for e-cigarette use can be reduced to components which, individually, authorities may not be able or want to restrict. For example, it seems clear that governments would not want to place any specific restrictions on the batteries or clearomisers which form part of a vaper’s overall arsenal.

As is currently the case, widespread restriction on nicotine liquid, is a more likely candidate, which illustrates the potential quagmire. Banning the use of nicotine liquids would leave refusenik e-cigarette users with a range of options each more difficult to police than the next. These include buying illegally, as they now purchase legally, pre-flavoured nicotine liquid. Consumers could also purchase liquid flavouring (food flavouring) legally and ready-to-mix unflavoured nicotine solutions (illegally).

A muddle in the making

Finally, an e-cigarette user could purchase pure nicotine (again illegally) and mix their own solutions. For the average vaper, 10 grammes of nicotine constitutes a year’s supply, a quantity of such physical insubstantiality that it puts the easily transportable and often undetectable nature of cigarettes in the ha’penny place. The volume involved would make enforcement of a nicotine ban extremely problematic while there are clear public health dangers to the clandestine distribution of unadulterated nicotine.

In short, restrictions on the availability of products for which consumer demand is surging, the manufacture of which is concentrated in China and the distribution of which is concentrated online is leading to an emergent black market in e-cigarette products and nicotine liquid in these markets. As demand grows and restrictions and taxation increases, this phenomenon is likely to become a substantial challenge for authorities, as well as the e-cigarette and tobacco industries.

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