Explosive Growth to 97.1 Billion Won in Sales... E-Cigarette Industry That Profited in 'Regulatory Blind Spot' Faces Emergency over April Tax Bomb

Starting April 24, "synthetic nicotine" products used in liquid e-cigarettes will be legally classified as "tobacco," initiating massive taxation and strict regulations. As brakes are expected to be applied to the e-cigarette market, which has grown explosively by evading the law, the industry's excessive encouragement of hoarding ahead of the tax bomb is coming under fire.

Liquid E-Cigarettes Grew in a Regulatory Blind Spot: Problems to Date

Until now, liquid e-cigarettes have been in a regulatory blind spot, causing various social problems. Because the previous Tobacco Business Act only recognized products made from "tobacco leaves" as tobacco, businesses evaded various taxes and regulations by putting forward nicotine extracted from tobacco stems or roots, or "synthetic nicotine" created by mixing chemical substances.

In this regulatory vacuum, adolescents could easily purchase liquid e-cigarettes through non-face-to-face online shopping malls or unmanned vending machines with only lax age verification. As a result, this created a severe side effect where the e-cigarette usage rate among youth exceeded the smoking rate for regular combustible cigarettes. Additionally, due to the lack of clear product distribution standards, problems threatening consumer health and safety—such as products past their expiration dates or made with unclear ingredients being distributed at bargain prices—have been continuously pointed out.

Recognized Legally as "Tobacco" from April 24... Massive Taxes and Business Regulations Applied

However, massive changes will occur in the market as the amendment to the Tobacco Business Act takes effect on April 24. For the first time in 37 years, the legal definition of tobacco is being significantly expanded from "tobacco leaves" to "tobacco (including leaves, stems, and roots) or nicotine," bringing synthetic nicotine products under the same regulations as regular cigarettes.

Accordingly, a tax burden of approximately 1,800 won per 1 ml of nicotine liquid will be imposed, and with about 54,000 won in taxes added to the current price of a 30 ml bottle of liquid, which is currently in the 20,000 to 30,000 won range, prices are expected to soar up to the 70,000 won range. In addition to taxation, strict regulations on par with regular cigarettes will be simultaneously applied, including a total ban on use in non-smoking areas, mandatory health warning images on packaging, prohibition of flavoring substance labels, restrictions on online sales, and a ban on installing vending machines.

"Stock Up Before Taxes Are Added" Sellers' Hoarding Tricks Rampant

The problem is that, ahead of the law's enforcement in April, liquid retailers and wholesalers are blatantly encouraging "inventory clearance" and "hoarding" to avoid taxation. Some retail stores and online shopping malls are inducing mass purchases by consumers with promotional phrases such as "Compared to the price increase after April, it's profitable to stock up now" and "Buy now and get one free, nationwide free shipping."

Furthermore, it is understood that wholesalers have already imported and stockpiled enough synthetic nicotine liquid from China to sell for approximately the next 160 years. In response, to prevent tricky tax evasion through hoarding, the government has announced a tough response, taking de facto "sales ban" measures such as applying the Framework Act on Consumers to collect and destroy products that were manufactured more than six months prior to the implementation of taxation.

Major Companies Experiencing 'Hyper-Growth' Due to Regulatory Vacuum... Keeping a Close Watch on Future Financial Performance

The passage of this amendment to the Tobacco Business Act is analyzed to deliver a direct blow to the financial soundness of major e-cigarette companies that have generated massive profits in the meantime. In fact, according to provided external data, a leading company in the e-cigarette sector, Haka Korea, started with 24.1 billion won in sales and 3.4 billion won in operating profit in 2019, and rapidly grew to 97.1 billion won in sales and 7.7 billion won in operating profit in 2024. Another e-cigarette company, Dragon Vape, also recorded tremendous earnings growth, achieving 51.7 billion won in sales and 13.2 billion won in operating profit in 2024, compared to a mere 8.5 billion won in sales and 300 million won in operating profit in 2019.

Major e-cigarette companies such as Haka Korea, Dragon Vape, and Mons, which have left massive margins without cost burdens until now, have reached a corporate inflection point due to the taxes that will be imposed starting in April. Along with concerns about consumer defection due to massive price hikes, the possibility of demand shifting to "pseudo-nicotine" products to evade regulations is also being raised, and the industry's attention is focused on what kind of blow this taxation amendment will deal to the financial status, such as future sales and operating profits, of e-cigarette companies that have grown explosively.