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The Rise of Illicit Trade in E-vapour: Drivers and Solutions

February 2021

Illicit trade in E-Vapour is becoming increasingly common. A variety of causes, including product bans, tax differentials and willingness of illicit actors to sell counterfeit, compatible and contraband products are leading to this growth. This report discusses these causes and also examines how governments should reconsider regulation and tax structures as well as how manufacturers can use technology to combat illicit trade.

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Key findings

Illicit trade in e-vapour products is growing quickly

The widespread outbreak of EVALI across the US and growth in seizures of illegal products have demonstrated the growing reach of illicit e-vapour products. The potential dangers of unregulated products and missed tax revenue are strong incentives for authorities to reduce illicit e-vapour trade.

Uneven tax structure, bans and unavailability can drive illicit sales

The FDA’s Pre-market Tobacco Application (PMTA), a bevy of state-level flavour bans and an uneven excise tax structure between regions has created significant incentives for consumers to turn to the black market. This incentive will remain intact for the foreseeable future, as it is uncertain when or if flavoured e-vapour products will reappear in the retail market.

Illicit actors are finding new ways to get their products into the hands of consumers

The illicit market for e-vapour products differs from the illicit cigarette market in a number of ways. There is a significant presence of counterfeit e-vapour products being sold. Flavoured products are also being smuggled across borders, notably from China. The unregulated channels in which these products are sold gives young people access to e-vapour products.

Regulatory innovations are necessary to address illicit trade

The EU’s track and trace programme could serve as a model for the US and other countries to follow in efforts to understand the sources of illicit e-vapour. The successful implementation of such a programme would require cooperation between local, state and federal governments.

Manufacturers can play a role in curbing illicit trade through innovation and product design

Some e-vapour players are developing products that could enhance efforts by governments to control illicit trade. Chip technology embedded in devices could be especially useful in facilitating track and trace programmes, while geofencing could help to limit youth exposure to e-vapour products.

The Rise of Illicit Trade in E-vapour

Key findings
Illicit trade is a growing phenomenon in e-vapour
What are the common drivers of illicit trade in e-vapour?
Governments and industry have a stake in reducing illicit trade
Investigating the cause: new regulations incentivise illicit trade
Consumers find ways around bans as illicit offering grows
Counterfeiters find sophisticated methods to imitate retail brands
Compatibles offer banned ingredients in familiar devices
Heated tobacco in Southeast Asia: complete bans drive illicit trade
The current US regulatory framework is lacking
Variations in tax structures drive consumers to the illicit market
Diverse tax structure incentivises illegal interstate commerce
Consumers in Slovenia avoid tax rate rises by shopping abroad
US regulatory innovation can help address illicit trade
Technology could help prevent illicit trade and youth vaping
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