Legal Consequences in China for Unlawful Production and Distribution of E-Cigarettes

Since 2023, China's National Tobacco Administration has adopted strict regulation measures for the electronic cigarette industry. Multiple media outlets have reported on the severe crackdowns against companies and retailers engaged in illegal production and sales of e-cigarettes. Tobacco products have always been a key focus of government regulation due to their status as exclusive or restricted goods under legal and administrative regulations. Although e-cigarettes differ in composition from traditional tobacco products, the 2021 amendment to the "Regulations on the Implementation of the Tobacco Monopoly Law of the People's Republic of China" has officially included e-cigarettes under the scope of tobacco product regulation. Therefore, entities and individuals involved in the e-cigarette industry need to be vigilant in preventing legal risks during the production, transportation, and business operations.

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This article will examine the current legal and regulatory framework of the e-cigarette industry, using practical cases to explore potential liability issues related to illegal production and sales. (Sales and transportation referred to in this article only apply to e-cigarettes sold and transported within China.)

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The current regulatory framework for e-cigarettes in China adopts a "1+2+N" model, which relies on the "Regulations on the Implementation of the Tobacco Monopoly Law of the People's Republic of China" as the foundation, and is supported by the "Administrative Measures for Electronic Cigarettes" and the mandatory national standard for e-cigarettes (GB 41700-2022), as well as multiple policy documents. Under this regulatory framework, key aspects of the e-cigarette industry, such as market entry, production, sales, and transportation, are subject to strict supervision.

Regulations on Production, Sales, and Transportation of E-cigarettes in China

(1) Control of e-cigarette production

According to Article 8 of the "Administrative Measures for Electronic Cigarettes," the establishment of e-cigarette production companies (including product manufacturers, contract manufacturers, and brand holders, among others) as well as aerosol and e-cigarette nicotine production companies, requires approval from the State Tobacco Monopoly Administration and the acquisition of a tobacco monopoly production enterprise license, as well as registration approval from the market supervision administration department.

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Regarding product production, the national standard for e-cigarettes provides detailed specifications for nicotine and additive concentrations in e-cigarette products. For example, aerosols should contain nicotine, but the concentration should not exceed 20mg/g. The national standard for e-cigarettes also prohibits the production of flavored e-cigarettes other than tobacco flavors, primarily to prevent inducement of minors. Additionally, e-cigarette product packaging should strictly follow the rules outlined in the "Implementation Regulations for the Packaging of Electronic Cigarette Products."

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(2) Control of e-cigarette sales

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There are also strict admission requirements for the sale of e-cigarettes. According to the "Regulations on the Implementation of the Tobacco Monopoly Law of the People's Republic of China," businesses involved in the wholesale and retail of tobacco monopoly products, as well as those engaged in import and export of tobacco monopoly products and foreign tobacco product purchases and sales, must apply for and obtain a tobacco monopoly license.

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The "Administrative Measures for Electronic Cigarettes" prohibits the sale of flavored e-cigarettes other than tobacco flavors and e-cigarettes that can self-add aerosols.

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On June 15, 2022, the National Electronic Cigarette Trading Management Platform, established by the State Tobacco Monopoly Administration, was officially launched. All e-cigarette-related business activities are now included on this platform, including registration, e-commerce, and offline sales. This platform aims to provide a unified e-cigarette trading environment and standardized management, as well as improve industry transparency and enhance consumer protection.

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(3) Transportation of Electronic Cigarettes

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The "Electronic Cigarette Management Regulations" also provide regulations on the transportation of electronic cigarettes. Article 34 stipulates that the tobacco monopoly administrative department or the relevant departments can inspect and deal with illegal activities related to the transportation of electronic cigarette products, aerosols, and nicotine for electronic cigarettes in accordance with the law. Article 24 stipulates that the transportation of electronic cigarette products, aerosols, nicotine for electronic cigarettes, and other related items should be supervised by the tobacco monopoly administrative department. The transportation of electronic cigarette products, aerosols, and nicotine for electronic cigarettes through postal services or across different regions is subject to quantity restrictions and must not exceed the limits specified by the relevant authorities of the State Council.

On June 2, 2022, the State Tobacco Monopoly Administration of China released the "Electronic Cigarette Logistics Management Regulations", which provided clear guidelines for the logistics management of the production, wholesale, and import/export of electronic cigarettes.

Criminal Offenses Related to E-Cigarettes

(1) Crime of Illegal Business Operation

E-cigarettes are considered new types of tobacco products under the "Regulations for the Implementation of the Tobacco Monopoly Law" and are subject to regulations similar to those of cigarettes. According to the "Interpretation of the Supreme People's Court and the Supreme People's Procuratorate on Several Issues Concerning the Specific Application of Laws in Handling Criminal Cases of Illegal Production and Sale of Tobacco Monopoly Products" (Fa Shi [2010] No. 7), individuals or enterprises that operate tobacco monopoly products illegally without the necessary licenses such as the tobacco monopoly production enterprise license, tobacco monopoly wholesale enterprise license, special tobacco monopoly operation enterprise license, or tobacco monopoly retail license are in violation of the State Tobacco Monopoly Management laws and regulations. Those found guilty of illegal business operation may face criminal charges under the provisions of Article 225 of the Criminal Law. If the circumstances are serious, the offender may be sentenced to fixed-term imprisonment of up to five years or criminal detention, and may also be fined not less than one time but not more than five times the illegal income, or fined less than five times, or have their property confiscated.

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(2) Crime of producing and selling counterfeit and substandard products

According to Article 140 of the Criminal Law, those who produce and sell products that are adulterated, fake, substandard or falsely labeled may be charged with a crime if the sales amount exceeds 50,000 yuan but is less than 200,000 yuan. The punishment for such an offense is a fixed-term imprisonment of no more than two years or criminal detention, and a fine of not less than 50% but not more than twice the sales amount. If the sales amount is more than 200,000 yuan but less than two million yuan, the offender may be sentenced to a fixed-term imprisonment of not less than three years but not more than seven years, and a fine of not less than 50% but not more than twice the sales amount. If the sales amount exceeds two million yuan, the sentence may be 15 years of fixed-term imprisonment or life imprisonment, and a fine of not less than 50% but not more than twice the sales amount or confiscation of property.

In accordance with the "Administrative Measures for Electronic Cigarettes" and the national standards for "Electronic Cigarettes," producing and selling e-cigarettes that do not meet the national standards may constitute the crime of producing and selling counterfeit and substandard products.

(3) Crime of drug trafficking

In recent years, synthetic cannabinoids have become popular among drug traffickers due to their low cost and the ability to camouflage them as electronic cigarettes. However, on July 1, 2021, synthetic cannabinoids were included in the "Supplementary Catalog of Controlled Narcotic Drugs and Psychotropic Substances for Non-medical Use." Therefore, selling e-cigarettes containing cannabinoids constitutes a crime of drug trafficking. Depending on the amount of drugs involved, the perpetrator may face a minimum of three years and a maximum of 15 years in prison, life imprisonment, or the death penalty.

In the case of Lu and Zuo's smuggling and drug trafficking case [(2022) Hunan 0304 Xingchu No. 50], the defendants knew that synthetic cannabinoids were listed as drugs by the state. They purchased e-cigarette oil containing synthetic cannabinoids and sold it to drug addicts. The court ruled that both Lu and Zuo committed the crime of drug trafficking.

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(4) The Crime of Counterfeiting Registered Trademarks and Other Illegal Activities in the E-Cigarette Market

Perpetrators who illegally operate e-cigarettes may not only violate market order, but also infringe upon legal interests. For example, according to the "Administrative Measures for Electronic Cigarettes," e-cigarette products must use registered trademarks, and the regulations on the use and management of tobacco product trademarks apply. The revised "Implementation Regulations of the Tobacco Monopoly Law" stipulate that those who produce and sell various types of goods may be suspected of counterfeiting registered trademarks or selling goods with counterfeit registered trademarks, and may also be involved in smuggling. If the perpetrator intentionally commits a criminal act and commits two or more crimes, they will be punished according to the principle of severity.

According to Article 213 of the "Criminal Law," those who use the same trademark as the registered trademark on the same kind of goods or services without the permission of the owner of the registered trademark, if the circumstances are serious, shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention, and shall also be fined. If the circumstances are particularly serious, they shall be sentenced to fixed-term imprisonment of not less than three years but not more than seven years, and shall also be fined. If the amount of illegal gains is huge or there are other especially serious circumstances, the sentence is not less than three years and not more than ten years of fixed-term imprisonment and a fine.

In summary, the regulation of the production and sales of e-cigarettes has been improving. Starting from March 1, 2023, China's provincial tobacco monopoly bureaus, together with local governments, public security, and city supervision departments, will carry out a two-month special inspection to regulate the order of the e-cigarette market across the country. The e-cigarette industry governance framework in China is relatively complete, and illegal and criminal acts involving e-cigarettes will be severely punished. Therefore, relevant enterprises should be aware of the national laws, regulations, and policies related to e-cigarettes in advance and take measures to prevent potential criminal legal risks.