Market Analysis: The Changing Landscape of the E-Cigarette Industry
Introduction: In recent years, the North American tobacco market has been undergoing significant transformations. With major tobacco companies introducing various new tobacco products, the sales of combustible cigarettes have been impacted. Simultaneously, the ever-evolving regulatory environment continues to play a crucial role in shaping the North American tobacco market.
Steady Growth in the U.S. and Canadian Tobacco Markets
According to Statista, the U.S. tobacco market is projected to reach $107.5 billion by 2024, with a compound annual growth rate (CAGR) of 0.62% from 2024 to 2028. The largest segment remains the combustible cigarette market, expected to reach $82.7 billion by the end of 2024. Marlboro will maintain its dominance with a 50% market share in the U.S. cigarette market.
Statista also predicts that the U.S. e-cigarette market will reach $8.8 billion by 2024, with a CAGR of 3.24% from 2024 to 2028. This growth reflects the increasing adoption of vaping products as an alternative to traditional smoking.
Last year, the U.S. saw unprecedented growth in nicotine pouch retail sales. According to Euromonitor International, the market size for nicotine pouches in the U.S. was $8.58 billion in 2023, up from $7.23 billion in 2022. The market is expected to reach $11.03 billion by 2027.
In Canada, the tobacco market is smaller due to the lower population. Combustible cigarettes still dominate sales, with the market expected to reach $10.6 billion this year. The e-cigarette market in Canada is projected to reach $1.4 billion by 2024. From 2024 to 2028, the Canadian tobacco market is expected to grow at a CAGR of 1.1%.
Nicotine pouch products were approved for sale in Canada on July 18, 2023. Currently, Canadian tobacco regulations primarily restrict the sale, use, and advertising of cigarettes and e-cigarettes, while nicotine pouches remain largely unregulated. However, this situation is unlikely to persist indefinitely.
Rising Issues of Illegal Trading
At the TPE held in Las Vegas from January 30 to February 2, MARC Research’s EVP Brad Seipel stated that new tobacco products have been on the market for over a decade, and the industry continues to drive product innovation.
Goldman Sachs analyst Herzog noted in an industry report that tobacco retailers have observed fewer customer visits to stores, attributed to consumers switching to alternatives like nicotine pouches. Generally, these products are more durable than combustible cigarettes.
Illegal tobacco trading is rapidly growing in the U.S., with illegal disposable e-cigarette products becoming a significant concern for tobacco manufacturers and retailers. The FDA is increasing its efforts to crack down on flavored e-cigarettes and non-compliant products.
Herzog reported that most retailers believe the situation is worsening, particularly in urban areas and regions with stringent flavored e-cigarette bans.
“Many retailers emphasize that illegal disposable e-cigarette products are affecting cigarette sales. Altria Group estimates that the growth in illegal tobacco product sales has caused their cigarette sales to decline by 1.5% to 2.5% over the past 12 months. Retailers believe that without stronger enforcement, this situation will not change. Given the ubiquity of illegal products, tracking and enforcement difficulties, and relatively light penalties reducing regulatory deterrence, retailers are generally pessimistic about this situation improving,” Herzog said. The FDA imposes fines for violations, but current penalties have not fundamentally resolved the issue. Some retailers have made high profits from selling illegal products, offsetting the loss of cigarette sales.
Regulatory Measures Need Improvement
At the Tobacco Products Legal Seminar in Las Vegas on January 29-30, CTP Director Brian King stated that the FDA has inspected several retailers selling illegal products, issuing warning letters and fines.
Tim Phillips of Tamarind Intelligence spoke at TPE, emphasizing the importance of scientific enforcement. Although the FDA’s PMTA process is lengthy, it seems ineffective as the FDA has taken little action to prevent unregulated products from entering the market.
Phillips stated, “The FDA’s current inspections only scratch the surface of the evolving illegal market. Many products on the retail market have not undergone review procedures. The FDA is increasing enforcement activities, but the reality is the market is not well-regulated. The same situation exists to some extent in the UK and across Europe.”
The impending menthol ban in the U.S. could also increase illegal tobacco trading. The FDA has submitted proposals to the White House to ban menthol in cigarettes and other tobacco products and prohibit non-tobacco flavors in cigars. These proposals are under review by the White House, which must assess their potential economic impact before implementing new product standards.
Herzog’s survey found that some retailers are frustrated with the menthol ban, FDA measures, and slow PMTA review progress. “The FDA’s decision to implement a menthol ban may lead some retailers to sell illegal products because they are more profitable and affordable for consumers,” Herzog said.
Future Market Prospects
Despite the challenges, the market remains hopeful. Seipel stated that the heated tobacco market has significant growth potential, with awareness and usage still low in North America. He believes that as long as there are combustible cigarette users, there is room for new tobacco products to grow, as many new tobacco product consumers transition from combustible cigarette use.
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