WSJ Reports E-Cigarette Makers Face Rise of Counterfeit February 21 2015
By PETER EVANS, THE WALL STREET JOURNAL, Feb. 20, 2015 9:09 a.m. ET
LONDON—Liberty Flights Ltd., a British maker of electronic cigarettes, is facing a problem more associated with handbags than with nicotine vaporizers: counterfeiting.
Imitation versions of the company’s products—which allow users, known as “vapers,” to heat nicotine-laced liquid for a tobacco-free hit—have started appearing in several markets around the world. The cloned e-cigarettes use cheaper materials and are sold at prices well below normal rates.
“We’ve got a brand, we’re well-known,” said Matthew Moden, who founded Darwen, England-based Liberty Flights in 2009 and now runs “vape stores” across the U.K. and ships to the rest of the world. “The same problem is faced by Louis Vuitton.”
Illicit trade in electronic cigarettes is on the rise across the developed world, according to law enforcement agencies and makers of the products, adding another layer of uncertainty to a nascent industry bracing itself for a wave of regulation.
Counterfeiting is only part of the problem. Other tactics used to produce low-price or illegal e-cigarettes include bogus batteries that fail to recharge and liquids containing dangerously high levels of nicotine. Forensic experts working for British American Tobacco PLC say they have even seen unlicensed e-cigarette versions of their regular tobacco brands, including Kent and Vogue.
“We do see a vast number of substandard products being sold,” said Emma Logan, a director at JAC Vapour Ltd., an Edinburgh, Scotland-based e-cigarette company.
Although still a relatively small problem, experts expect illicit trade in e-cigarettes will increase as demand grows. Global sales of the genuine products were worth $7 billion at the end of 2014 (compared with $800 billion for the regular tobacco market) and are forecast to reach $51 billion by 2030, according to Euromonitor International.
That poses a problem for major tobacco companies, including Philip Morris International Inc. and British American Tobacco, which have in the past year invested heavily in e-cigarettes in a bid to mitigate years of declining sales in regular cigarettes. Nikhil Nathwani, managing director at Philip Morris-owned Nicocigs Ltd., said the “potential to attract illicit trade is a real concern,” even though the current market is “relatively small scale.”
The problem is far more serious for the hundreds of independent e-cigarette manufacturers not backed by Big Tobacco. Many say low-price, untested products make their way onto the market and undercut their sales.
Prices for e-cigarettes vary widely and at present are subject only to limited, often voluntary regulation. In the Hampstead Vape Emporium in North London, products range from $10 peach-flavored “e-shish sticks” to silver-plated “vape kits” that sell for more than $150.
In some regions like the U.S. and Western Europe, a black market for the components used in vaporizers—a type of e-cigarette with detachable batteries and refillable cartridges—is starting to develop, according to executives at e-cigarette companies. Growth in e-cigarette sales is being driven by vaporizers—not the old-style cigarette-shaped devices—in most developed markets, meaning demand for low-price components has risen sharply in the past year.
“We’ve seen an influx of cheap, generically branded liquids from China,” said Michael Clapper, international president at U.S.-listed manufacturer Electronic Cigarettes International Group.
Authorities are catching on to the dangers of the illicit trade in e-cigarettes.
In 2014, more than half of the 433 local government authorities in England warned of the risks associated with low-quality e-cigarette products, according to a survey by the Trading Standards Institute. A recent alert emailed to residents in the London borough of Southwark on the subject of illicit “e-tobacco” said that “many of the products currently available may not be safe.”
One solution to the growing threat of illicit trade is stricter regulation. European Union directives come into force next year that aim to standardize many features of e-cigarettes sold across the region, including a lowering of the maximum nicotine content of the liquid and a reduction in the size of the cartridges.
EU officials say the new regulation is designed to improve the safety of e-cigarettes and reduce the number of low-quality or dangerous products in EU countries.
“The Commission doesn’t estimate the new measures will have a significant effect on prices and there is no evidence that the provisions will contribute to increased illicit trade,” said Enrico Brivio, spokesman for the European Commission for Health.
But many e-cigarette manufacturers say carrying out onerous safety checks would push the prices of their products up and create the conditions for a black market to flourish.
“The minute you make the real product more expensive, that’s when the illicit trade really takes hold,” said Ray Story, chief executive of the Tobacco Vapor Electronic Cigarette Association, a U.S. and European industry group. “It’s just the tip of the iceberg.”
Write to Peter Evans at firstname.lastname@example.org