2026: The Rise Of Compliant E-cigarette Brands And The Retreat Of Contract Manufacturing

In 2026, it will be a watershed year for global e-cigarettes and new types of tobacco. After experiencing the ups and downs during the "14th Five-Year Plan" period, the entire industry will enter a relatively stable regulatory environment. A few enterprises have reaped the benefits of "long-termism", while most enterprises need to consider how to "elegantly" exit. With the cancellation of export tax rebates for e-cigarettes in China, enterprises without the ability to "commandeered prices" can consider the timetable for withdrawal.
The "compliance, health, and low price" rule of the e-cigarette industry triangle is not inevitable. Eventually, only enterprises that can "commandeered prices" can survive well.
Supply chain risks of e-cigarettes in the global tobacco industry under the long-term cycle
The overall consumption of traditional tobacco has declined, and the consumption of high-priced cigarettes will continue to decrease. However, there is no equivalent iterative relationship between traditional tobacco and new tobacco. The growth of e-cigarettes and heated tobacco has slowed down, and a large number of "bubbles" will be squeezed out. Including regional small brands, which are affected by the exit and price hikes of Chinese supply chain manufacturers, they also appear very fragile.
For example, the Korean brand Justfog, which was once well-known in Europe, has now vanished. With the gradual implementation of supporting policies in China's e-cigarette industry this year, it will officially enter the "optimization" era. To reduce overcapacity, adjust the structure, and reverse the "internal competition" will be the main themes in 2026.
Many enterprises still hold the idea that "as long as it can be sold, it can make money". The logic that the whole world should import e-cigarettes from China remains unchanged. They will still stick to it. This idea may eventually lose more money.
Enterprises that closed factories and liquidated assets in advance since 2024 can now be glad that they stepped on the brakes in advance. Shareholders at least don't have to continue investing money or losing money.
The overall threshold for "compliance" has increased globally, and the leading enterprises are engaged in the final "contest".
This month, Reynolds Tobacco once again submitted a review to the US ITC, arguing that several Chinese e-cigarette brands and their subsidiaries, along with nine US distributors, through evading multiple restrictions, engaged in unfair competition, illegally expanded market share, and caused "significant damage" to the domestic performance of their Vuse products in the United States. Unlike before, the US government and officials have also intensified the crackdown on imported e-cigarettes from China since last year, and have allocated a special budget. In this round of 337 investigation proposed by Reynolds Tobacco, the number of Chinese entrepreneurs accused has decreased compared to the previous round in October 2023, the evidence strength is stronger, and it focuses more on "illegal trade", mainly based on evidence such as not passing the FDA and evading taxes.
In addition, if there are no exceptions, JUUL will continue to seize the market through patent strike strategies. It will soon launch a new 337 investigation and patent lawsuit, targeting the second-tier brands.
Brand effect highlights market concentration
Similar to the development logic of traditional tobacco, globally, new tobacco is likely to form a "five major traditional tobacco + five new tobacco" TOP10 pattern, demonstrating the control power, strategic competitiveness of the financial groups and capital behind the nicotine industry.
TOP10, with its strong capital strength and control ability, has made long-term and high-intensity investments in compliance, research and development, and marketing to convey a clear signal of "safe, reliable, and compliant" to the market. When consumers choose e-cigarette products, they increasingly tend to prefer these well-known brands. If a Shenzhen e-cigarette leading enterprise is not in the "circle of friends" of TOP10, it will always face competition friction, intellectual property disputes, and other means of exclusion.
This trend is forcing small and medium-sized OEM/ODM enterprises to exit the "low-price" market. Foreign small brands themselves will also gradually exit the market due to changes in the market, and the order sources of these factories will be interrupted. Growing brands no longer consider low prices as the top priority, but shift orders to high-quality OEM enterprises with strong quality control and R&D capabilities. As one fades and the other grows, it is inevitable that enterprises lacking core technologies and brand empowerment capabilities will be naturally eliminated by the market.
Reducing production capacity and canceling tax rebates accelerate short-term risks.
There were nearly 400 electronic cigarette processing enterprises in China, which led to severe overcapacity in domestic production and uneven production and quality. Between 2023 and 2025, it is expected that hundreds of enterprises will go bankrupt, liquidate, or sell their equity, and there are almost no voices from domestic electronic cigarette brands (for domestic sales) and export (trade) brand enterprises. Some enterprises that were and involved in nicotine (or similar tobacco products) have almost all stopped in this round of the national full-chain crackdown on "illegal operations".
In the next three years, under the background of capacity reduction, tax rebate cancellation, and credit assessment policies, the demand for capacity consolidation will first absorb some enterprises. There will be a wave of enterprise mergers in the short term, which is very similar to the reform path that traditional tobacco has gone through. The remaining enterprises without stable orders will gradually exit or reduce their scale. Optimistically, they can only hold on until September 2027 when the license is renewed.
Graceful exit is the law of industry development. Prepare in advance to prevent risks.
Facing these difficulties, many business owners choose to "hold on", often citing that "I've been doing this for half my life, I don't know what else I can do". However, in the business world, sentiment cannot replace rational decision-making. Actively and compliantly conducting liquidation and exit is not a failure, but a smart way to stop losses and protect oneself.
(1) Enterprises without resources are advised to accelerate their exit
For pure production enterprises with insufficient cash flow, technical personnel, and orders, it is recommended to set the exit time on the agenda to avoid employee group incidents and creditor squeezes. Gradually dismissing and rehiring employees becomes an important task in the short term. Quickly conduct financial and tax risk checks and prepare for self-examination in advance.
(2) Enterprises with weak brands but with multiple industrial chains should be cautious in integration
Some investors of electronic cigarette enterprises have other affiliated enterprises and have certain financing capabilities or cash flow support. However, in this new wave of industry development, whether the electronic cigarette sector will be liquidated or integrated depends on whether there is still an opportunity to enter the top 20 in the domestic market. They should be cautious in investment and avoid expansion of scale.
(3) Individual investors with significant risks should comply with exit
When an enterprise has a large cash flow gap and has no certainty about the sustainability of future orders, suspending operations and initiating liquidation procedures is the best choice to protect the personal funds of shareholders. Continuing to operate means using shareholders' personal savings to fill the company's holes, which may lead to shareholders exhausting their years of original accumulation and ultimately both the company and the individual will be in a desperate situation. Compliant liquidation can clearly define the boundary between company debts and shareholders' personal assets within the legal framework, achieving risk isolation.