In late November 2024, British American Tobacco (BAT) officially launched its synthetic nicotine e-cigarette, NOMAD SYNC 5000, in South Korea. Since synthetic nicotine is not currently classified as a tobacco product under South Korean law, the product is exempt from tobacco-related taxes. However, throughout 2024, the South Korean government and lawmakers have sought to close this legal loophole by introducing legislation to classify synthetic nicotine e-cigarettes as tobacco products, aiming to curb their use in the country.
Synthetic Nicotine and Dual Forces: Regulation and Innovation
South Korea’s e-cigarette market is undergoing significant transformation, driven by the dual forces of regulatory changes and the demand for innovative products. According to Sam Kim, CEO of Connected Korea, “The South Korean tobacco market was valued at $11.3 billion in 2023 and is largely segmented into Traditional Cigarettes (73.1%), Heated Not Burn (HNB) (19.0%), Open Pod E-Cigarettes (4.9%), and Closed Pod E-Cigarettes (Disposable, CSV) (2.5%).”
While traditional cigarettes dominate, novel tobacco products, particularly heated tobacco, have gained significant traction. “The decline in Traditional Cigarette sales in 2022 also shows that many consumers have started switching from Traditional Cigarettes to Heat not Burn (HNB) or Electronic cigarettes,” Kim noted.
Open-system e-cigarettes, though introduced later than heated tobacco products, are also experiencing rapid growth. “Open Pod System (e-liquids), which was introduced later than Heated Not Burn (HNB) products in Korea, is gaining popularity among young consumers due to its diverse flavors and products with ‘less Smell’ & ‘less harmful’, while still maintaining the benefits of HNB. As a result, the annual growth rate in this category is expected to be high.”
The growth of open-system e-cigarettes has also driven the development of local e-liquid companies. Products tailored to consumer preferences, such as Connected Korea’s HYPERMIX and SEOUL JUICE, have played a significant role in expanding the market.
Regulation-Driven Trends in South Korea’s E-Cigarette Market
The South Korean government’s push to regulate synthetic nicotine products represents one of the most significant changes in the industry. Synthetic nicotine has gained popularity due to its tax advantages, but lawmakers are working to equalize taxes on synthetic and natural nicotine. “If legislation defines synthetic nicotine to be taxed as natural nicotine, the market would choose natural nicotine, as its cost is half of synthetic nicotine,” Kim explained.
Between 2020 and 2024, South Korea reportedly lost approximately $2.4 billion in tax revenue due to synthetic nicotine products. Some natural nicotine products are disguised as synthetic nicotine to exploit regulatory loopholes, a practice that has drawn attention from lawmakers.
On November 27, during the 418th session of the National Assembly, lawmakers including Park Sung-hoon and Nam In-soon jointly proposed amendments to the Tobacco Business Act. According to 2Firsts’ review of the original legislative document, the new law focuses on “raising tax revenue” and “health considerations.” The document states: “Including liquid e-cigarettes made with synthetic nicotine (i.e., vaping products) within the scope of the Tobacco Business Act would enable increased taxation.”
While lawmakers across party lines have reached a consensus on regulating these products, the timeline for new legislation remains uncertain. Kim predicts the new regulations could take effect as early as June 2025.
Synthetic Nicotine Regulation: Challenges, Changes, and Future Directions
The South Korean government’s push to regulate synthetic nicotine products represents one of the most significant changes in the industry. Synthetic nicotine has gained popularity due to its tax advantages, but lawmakers are working to equalize taxes on synthetic and natural nicotine. “If legislation defines synthetic nicotine to be taxed as natural nicotine, the market would choose natural nicotine, as its cost is half of synthetic nicotine,” Kim explained.
Between 2020 and 2024, South Korea reportedly lost approximately $2.4 billion in tax revenue due to synthetic nicotine products. Some natural nicotine products are disguised as synthetic nicotine to exploit regulatory loopholes, a practice that has drawn attention from lawmakers. While lawmakers across party lines have reached a consensus on regulating these products, the timeline for new legislation remains uncertain. Kim predicts the new regulations could take effect as early as June 2025.
Industry Competition in the Shadow of Synthetic Nicotine Regulations
As synthetic nicotine regulations loom, the competitive landscape for e-cigarette companies in South Korea is rapidly evolving. International brands such as VUSE (owned by BAT) and Bubblemon (owned by RELX) currently dominate the disposable e-cigarette market, but their combined market share remains under 2%. Emerging players like ELFBAR are also entering the fray, intensifying competition.
Despite the growing market, convenience store channels remain a challenging barrier. “To enter an E-Cigarette into a domestic convenience store (CVS) in Korea, much capital is required initially. (Prepayment of taxes, marketing, promotion, store entry fee, etc.),” Kim said.
Global Implications: South Korea’s Synthetic Nicotine Regulations and Beyond
The regulatory developments in South Korea are not only reshaping the local market but could also have global implications. As one of East Asia’s leading tobacco markets, South Korea’s approach to synthetic nicotine regulation may influence other countries considering similar policies.
South Korea’s emphasis on health and taxation highlights the broader challenges faced by the global tobacco industry in balancing innovation with regulatory compliance. Companies aiming to expand internationally must adapt to these evolving standards to maintain their competitive edge.
The Road Ahead: Navigating Regulation and Innovation in South Korea
Looking to the future, South Korea’s e-cigarette market presents both opportunities and risks. The decline in traditional cigarette sales in 2022 indicates a growing consumer shift toward heated tobacco and e-cigarettes, but regulatory uncertainties remain a significant hurdle.
Nicotine pouches, for example, have yet to gain traction in South Korea. “Nicotine pouches have no market in South Korea. Because consumers just started to know it, they are not recognizing it well,” Kim said. The absence of clear regulations for nicotine pouches further exacerbates market uncertainties, deterring companies from investing in this segment.
“Over the next 3-5 years, we expect significant changes in regulations and consumer behavior,” Kim said. “Despite these challenges, the South Korean market remains a high-potential opportunity for companies willing to adapt.”
Conclusion:
As South Korea’s e-cigarette market evolves, balancing innovation with regulatory compliance will be critical. While tax reforms and new legislation may pose challenges, they also present opportunities for companies to establish credibility and gain consumer trust. With a growing focus on health-conscious products, the South Korean market is poised for growth, offering significant potential for those who can adapt to its unique dynamics.
Cover Image | Source: Generated by ChatGPT
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