The Springtime of New Tobacco Products: Policies at Home and Abroad Are Improving Simultaneously, and Industry Expectations May Be Revised Upward Next Year?

The Springtime of New Tobacco Products: Policies at Home and Abroad Are Improving Simultaneously, and Industry Expectations May Be Revised Upward Next Year?

On July 28, 2026, the State Tobacco Monopoly Administration publicly solicited opinions on the mandatory national standard for heated cigarettes, with a deadline of September 26. It is planned to be implemented 6 months after its release. At the same time, on May 5, the U.S. FDA authorized "non-tobacco, non-menthol" flavored e-cigarettes for the first time, and issued enforcement priority guidelines on May 8.

Policy trends both at home and abroad seem to be sending the same signal: the spring of HNB may be coming.

Of course, the more crucial layering lies in the fact that the certainty of upstream consumables comes from the "switching of usage structure." The value of a single cigarette of tobacco flavoring is approximately 10 times that of traditional cigarettes, 5-8 times that of reconstituted tobacco sheets, and more than 2 times that of cigarette paper. The market has gradually begun to repric and reassess perceptions of the upstream materials that are being sold in larger quantities.

I. What happened? Policy signals improved.

Two documents, one from Beijing, defining the product; the other from Washington, defining law enforcement. They are quietly changing the development path of the entire HNB industry, but few people realize the direction of these changes in the next six months.

Domestic: A mandatory national standard

In July 2026, the State Tobacco Monopoly Administration released a draft of the mandatory national standard for heated cigarettes for public comment on the National Standards Information Public Service Platform. The deadline for feedback was September 26, 2026, and the standard was planned to be implemented six months after its official release. The drafting period for this standard was 16 months, and the State Tobacco Monopoly Administration was the responsible unit. The drafting entities included the Shanghai New Tobacco Products Research Institute, China Tobacco Group industrial companies in Yunnan, Hunan, Sichuan, Hubei, and Jiangsu provinces, and more than ten other institutions such as the National Tobacco Quality Supervision and Inspection Center. Specifically, the core of the draft is that it defines heated cigarettes as "a complete set of smoking devices that only heat without burning, producing nicotine aerosol," requiring coverage of the cigarette stick, smoking device, and aerosol, and outlining four quantifiable industry red lines:

Four hard indicators in the draft national standard

  • Cigarette base (base and safety) : The tobacco base should be made from tobacco leaves, re-dried tobacco leaves, reconstituted tobacco leaves or shredded tobacco; it should not be moldy; the water activity should not exceed 0.70; and the surface temperature of the lip contact area should not exceed 55°C.
  • Smoking accessories (engineering safety) : Users are not allowed to replace the batteries themselves; must have child-proof and accident-proof start-proof functions; must meet electrical, battery, waterproof, drop, charging and pressure relief requirements; the surface temperature of the heating element must not exceed 380℃.
  • Aerosols : The average nicotine release per puff is no more than 0.2 mg.
  • Packaging and Traceability : Cigarette packaging must indicate the matching requirements for smoking accessories; both cigarette and smoking accessory packaging must include product traceability information.

The official design intent is roughly as follows: the draft defines cigarettes and smoking accessories as "two inseparable parts," requiring cigarette packaging to indicate accessory compatibility requirements. Specific cigarettes, specific smoking accessories, and specific operating conditions collectively form the basis of product compliance. If the manufacturer, structure, or parameters of the smoking accessory are adjusted, the compatibility relationship may need to be re-verified. This imposes stringent requirements on the depth of collaboration between China Tobacco Industry and smoking accessory R&D and manufacturing companies, and also means that cross-generational product compatibility design will no longer be a purely engineering issue, but rather a compliance issue.

Furthermore, the draft standard lists two scenarios for testing the surface temperature of the heating element: one where the heating element is located inside the smoking device and the other inside the cigarette. Central heating, peripheral heating, heating plates/needles/bars, peripheral heating chambers, and induction heating schemes with built-in heating elements in the cigarette are all included in the scope of application. The standard does not mandate a specific technical approach. This allows the China Tobacco system room for choice and ensures that competition among upstream heating component suppliers focuses on product performance rather than qualification exclusivity.

The impetus from the fiscal side is stronger than that from the industrial side.

The accelerated implementation of these new industry regulations is likely driven more by a comprehensive consideration of fiscal figures. The State Tobacco Monopoly Administration disclosed that in 2025, the tobacco industry achieved a total industrial and commercial tax and profit of 1.657 trillion yuan, a year-on-year increase of 3.5%, and a total of 1.58 trillion yuan remitted to the treasury, a year-on-year increase of 2.3%—both record highs. Remittances to the treasury accounted for approximately 7.3% of the national general public budget revenue, equivalent to a net daily remittance of approximately 4.3 billion yuan to the national treasury.

However, a closer look at the structure reveals its flaws. In 2025, national cigarette production reached 2.47039 trillion cigarettes, an increase of only 4.93 billion cigarettes, or 0.2%, year-on-year, already entering a zero-growth phase. Tax and profit increased by 3.5%, while production increased by only 0.2%, meaning that almost all of this 3.5% came from structural upgrades and price increases. In 2025, the market share of premium cigarettes reached over 38%, and the combined share of ordinary first- and second-tier cigarettes approached 60%.

The increasing health awareness, population aging and negative growth, and multiple controls on smoking behavior have brought new challenges and issues to the traditional sale and consumption of tobacco.

Public data shows that the smoking rate among people aged 15 and above has dropped to 23.2%. The smoking rate for the 15-24 age group varies across different sources (5.2% and 10.7% exist simultaneously; the former represents adolescents, and the latter represents all individuals aged 15-24), but the trend is consistent: a generational gap has formed. Referring to Japan's trajectory, its adult smoking rate dropped from nearly 50% in 1966 to 17.9% in 2018, and cigarette sales declined by more than 60% from their peak in 1996.

But the "price increase to survive" model failed for the first time.

In the first quarter of 2026, the tobacco industry's operating revenue declined by 2.2% year-on-year, total profits declined by 3.9% year-on-year, and tax revenue fell by 8.2% quarter-on-quarter. This marks the first time all three core indicators have declined simultaneously. With tightening macro-consumption and shrinking business entertainment and gift-giving scenarios, high-priced cigarettes are among the first to be cut. At the beginning of 2026, about 70% of cigarette varieties nationwide experienced price inversions, with wholesale prices exceeding retail prices, resulting in retailers losing money on every pack sold; the inventory turnover days at the retail end increased from 45 days to 78 days. Once the price system cannot hold up, informal channels will have room to survive. Counterfeit and smuggled cigarettes not only erode tax revenue but also undermine the price authority of the tobacco monopoly system.

Overseas: The FDA's "Opening Up" and "Tightening Up"

In 2026, the FDA authorized four closed-system e-cigarette cartridges from Glas, containing 5% nicotine (50mg/ml), through the Premarket Tobacco Product Application (PMTA) pathway: Classic Menthol, Fresh Menthol, Gold (Mango), and Sapphire (Blueberry). Gold and Sapphire were the first "non-tobacco, non-menthol" flavored e-cigarette products ever authorized by the FDA. Subsequently, the FDA issued the "Enforcement Priority Guidance for Certain New Tobacco Products Without Premarket Authorization," replacing the previous guidance from April 2020, clarifying the scope of "not prioritizing enforcement."

The FDA explicitly stated that the core of Glas's approval was its DAR (Device Access Restriction) technology : users must complete age and identity verification with government-issued identification documents, the device must be paired with a mobile phone via Bluetooth to function, and it will deactivate once disconnected from the paired phone; the app will also perform random biometric verification to confirm that the actual user is a registered adult. Bret Koplow, acting director of the FDA's Center for Tobacco Products, called the technology a "potential game-changer."

In terms of specific actions, British American Tobacco has already laid out its schedule: In the first half of 2026, Vuse's revenue in the United States will increase by approximately 20% year-on-year, and its compliant market share will increase by 4.1 percentage points to 55.9%; the company has launched four Vuse Pro flavored tobacco cartridges (peach, berry, watermelon, and mint) in markets such as Ohio, and plans to cover 25,000 US retail stores by the end of the third quarter of 2026, and add another 25,000 stores by the end of the fourth quarter, for a total coverage of 50,000 stores.

It should also be noted that this round of opportunities in the US market is mainly focused on vaporized products, which are two different product lines and regulatory paths from HNB (Heated Tobacco Products). The FDA's approval progress for HNB products (such as IQOS ILUMA) is not directly related to this authorization of flavored tobacco cartridges.

II. Why is it important? Which factors are involved?

First, look at the denominator: for the same "global HNB market," the two sets of definitions differ by 3.5 times.

Regarding the global HNB (Heated Towel) market size, at least two sets of widely cited data exist in public channels. Euromonitor's retail-based figures are: $34.5 billion in 2023, $37.1 billion in 2024, $43.1 billion in 2025, and an estimated $68.4 billion in 2028; Frost & Sullivan's manufacturing-based figures are: $8.5 billion in 2023 and an estimated $19.42 billion in 2028. At the same point in time, for the same product category, the difference between retail and manufacturing figures is approximately 3.5 times.

How to understand the difference between the two? The retail end includes consumption tax, markups in the distribution process, and retail gross profit, which measures "how much money consumers spend" and is suitable for extrapolating terminal pricing, penetration rate, and fiscal revenue; the factory end is the revenue recognized by the manufacturer, which measures "how much money the supply chain can get" and is suitable for estimating the market accessibility of smoking device OEM, e-cigarette cartridge manufacturing, and upstream materials.

Let's look at the position of HNB (Heated Tobacco Products) within the overall tobacco market. According to 2024 data, the global tobacco market totaled approximately US$938.8 billion, including US$770.7 billion for cigarettes (including cigars), US$83.4 billion for cigars and tobacco, US$37.1 billion for heated tobacco products, US$22.6 billion for e-cigarettes, US$13.8 billion for smokeless products, and US$11.2 billion for oral nicotine.

This structure determines three things. First, the potential of HNB (Heated Tobacco Products) comes from the "migration from 4.0% to a higher proportion," not from the size of the category itself—it has already surpassed the scale of vaporized e-cigarettes and is the largest single category of new tobacco products globally. Second, growth rate, rather than existing market size, is the investment rationale for this sector: from 2019 to 2023, the global HNB cartridge market size compound annual growth rate was approximately 21.3%, significantly higher than the 2.9% of vaporized cartridge products and also higher than the negative growth of traditional cigarettes during the same period. Third, China's role in this is currently that of a "manufacturing center" rather than a "consumer market": in 2024, China's e-cigarette product exports amounted to US$10.961 billion, with an export volume of 252,300 tons; in 2025, the total export value was approximately US$10.6 billion, a year-on-year decrease of approximately 3.3%, of which exports to the US exceeded US$4.1 billion, accounting for approximately 39% of total exports, a year-on-year increase of 11%. Downstream brands and demand are in Europe and the United States, while manufacturing and supply chains are in China—this mismatch is the key to understanding why domestic HNB standards are accelerating at this point in time.

Scenario Assessment: The Decision-Making Power Is Not in the Hands of the Industry

Based on the disclosed constraints, we present a three-scenario calculation framework. There are three constraints: China's annual sales of traditional cigarettes are approximately 2.45 trillion cigarettes (2025 production is 2.47039 trillion cigarettes); the price per cigarette of HNB (Heated Tobacco Products) is approximately 1.5-2 times that of traditional cigarettes (referencing the price difference structure after taxes in overseas markets); and penetration rates are 3%/5%/10%, corresponding to the low-end, neutral-end, and high-end versions based on the Japanese experience. The corresponding cigarette volumes for the three scenarios are approximately 73.5 billion, 122.5 billion, and 245 billion cigarettes, respectively, corresponding to market sizes (retail end) of approximately RMB 50 billion, RMB 85 billion, and RMB 170 billion. The differences among the three scenarios are almost entirely determined by the penetration rate, which is jointly determined by tax design, channel access, and taste rules—all three of which are in the hands of regulators, not the industry.

Where does the value increase lie: in the shift of usage structure?

The fundamental change brought about by HNB (Heated Tobacco Products) to the upstream process is that replacing "combustion" with "heating" necessitates a complete overhaul of the formula and structure. Traditional cigarettes rely on combustion to release the natural aroma of tobacco, while HNB's heating temperature is only 250-350℃, resulting in insufficient release of aroma substances. This necessitates the addition of external flavorings, which must be uniformly and slowly released, and heat-resistant and stable. Furthermore, the main body of the cigarette is no longer natural tobacco shreds, but primarily reconstituted tobacco sheets. This directly reshapes the usage structure of upstream consumables.

The premise for these three amplifications is that "e-cigarette cartridges are produced," not "what the penetration rate is." As long as the China Tobacco system begins to mass-produce e-cigarette cartridges in a compliant manner—even if it only corresponds to a conservative scenario of 73.5 billion cartridges—the shift in the usage structure of upstream consumables will have already occurred. This is the layer with the highest certainty in the entire HNB (Heated Tobacco Products) industry chain.

III. What should we pay attention to next? Which signals are worth noting and tracking?

Policy narratives can have many versions, but financial statements only have one. Let's look at the current state of the industry using the disclosed interim report data.

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