Photo: Max and Vivian Kwok are the owners of local e-cigarette store, InDragonnet Vape.
The Government repeatedly claims,they intend to nurture innovation in Hong Kong and take advantage of emerging industries. As part of a new series, Harbour Times looks into how the Hong Kong Government’s efforts have empowered — or stifled — innovation and growth in certain industries. In the first of the series, we look at the e-cigarette business.
The potential health gains and risks of Hong Kong’s people are not the only factors at stake when it comes to e-cigarettes. The global sales of e-cigarettes surged exponentially by over 120-fold to a total of US$2.5 billion in 2014 from US$20 million in 2008, and according to industry players, those are only the conservative numbers. With over 80% of e-cigarette products manufactured in Shenzhen, Hong Kong’s next door neighbour, Hong Kong could certainly gain a sizable slice of the pie.
Max Kwok, owner of InDragonet Vape and wholesaler of “vape” products, has seen his retail store experience an approximate 20% growth per month since it started in July last year. “The traffic coming through has been much larger than we imagined.” Not too bad for a relatively secluded store found on the 29th floor in a commercial building. “We’ll be moving to a larger store on the ground floor very soon.”
According to Mr Kwok, who liaises with many e-cigarette brands for his business, between 10-20 global brands have registered offices in Hong Kong. “Hong Kong is an important financial hub, and a lot of the manufacturing happens in neighbouring Shenzhen,” explains Mr Kwok. “A lot of e-cigarette companies therefore choose Hong Kong as the centre point.”
Alexander Basile, CEO and founder of e-cigarette developer Digirette, and his business partner Derek Kwik, can certainly attest to that. Primarily a US company, Digirette is setting up an office in Hong Kong to take advantage of its position as part of China, outside China. “Our manufacturing is in Shenzhen, so it makes it very easy. Its really because it’s right across the border.” explains Mr Basile. “Beyond that, Hong Kong is much easier to conduct business.”
The duo believe Hong Kong has much to lose by banning the entire e-cigarette industry. “Vaping is a relatively new category new in HK, and we’re just at the beginning. Banning it would stifle innovation,“ says Mr Kwik.
“Banning it would stifle innovation,“ says Mr Kwik.
Mr Basile argues that with an outright ban on the e-cig business, Hong Kong would have no representation in what is now arguably between a three and four billion dollar industry that is still growing. “To quote Bonnie Herzog (Tobacco market analyst) from Wells Fargo, the possibility is there to take half the market from Tobacco within the next decade. Tobacco is worth 800 billion dollars a year, so she’s projecting 400 billion that could be taken by the vaping industry.”
Mr Kwok, who also has stores in Taiwan and Macau, has witnessed this overtaking. “Our partners in Taiwan have experienced a 30-40% percent drop per month in their sales of conventional tobacco products.” Their e-cigarette products, on the other hand, have met huge growth. “A lot of the consumers are presented with this choice between e-cigarettes and conventional cigarettes and cigars, and ask themselves, why not choose something less harmful?”
So what if Hong Kong bans the industry first? “Then we wouldn’t launch here, and Hong Kong would have no play in this growing market,” Mr Basile says coldly.
Lack of Information
With the Hong Kong Centre on Smoke and Health (COSH) advising the Government to ban e-cigarettes across the board, Mr Kwok feels that the main issue is the authority’s lack information, “We are quite concerned about the ban, but the responsibility lies with the industry to provide more information.” COSH admits as much, “There’s just too much unknown about e-cigarettes at this moment in time. In a lot of these chemicals, we don’t know what’s in the substance, and we don’t know what all the effects are,” said chairman Mr Antonio Kwong.
“There’s just too much unknown about e-cigarettes at this moment in time.”
– Antonio Kwong, Chairman of COSH
According to Mr Basile, a ban based on a lack of information would take away any opportunity for innovation to improve the product. “When you act before you have information you could be completely stifling innovation,” he said. “There’s controversy over whether it’s bad at all, but nobody is denying that it is better for you than smoking cigarettes. Even Mitch Zeller, the head of the FDA[‘s Center for Tobacco Products], has agreed that vaping is less harmful than cigarettes; to what degree is the matter of the argument. To preemptively strike and ban something that is agreed upon is better for you, doesn’t have the benefit of the people in the long run.”
Mitch Zeller is the Director of the American Food and Drug Administration’s Center for Tobacco Products, tasked with leading the “FDA’s efforts to reduce the disease and death from tobacco use and bring previously unavailable information about its dangers to light.” In a hearing with the US Congress last May, he said, “If we could get all of those people [who smoke] to completely switch all of their cigarettes to non-combustible cigarettes, it would be good for public health.” What the FDA is pushing for in the United States, is regulation.
“If we could get all of those people [who smoke] to completely switch all of their cigarettes to non-combustible cigarettes, it would be good for public health.”
– Mitch Zeller, Director of the American Food and Drug Administration’s Center for Tobacco Products
Mr Basile suggests that the local authorities should also give the e-cigarette community trust to self-regulate. “Vaping only really took off in 2009, so you’re only talking about 5 years of innovation. A lot of the problems have been taken care of and rectified through trial and error in the industry,” says Mr Basile. The example he poses, is the case of butter flavouring in e-liquids. It was found last year, that generic butter flavouring used in popcorn, releases a chemical called diacetyl when vapourised. The inhalation of diacetyl can then cause “popcorn lungs”, also known as bronchiolitis obliterans, a serious, irreversible lung disease.
“By and large the vaping community is responsible.”
– Alexander Basile, CEO of Digirette.
According to Basile, as soon as that correlation was made, the industry swiftly took those flavourings off the shelves and replaced them with new ones that mimic the flavour without the harm. “By and large the vaping community is responsible. They want to protect this thing and ensure other people have an opportunity to use it.” By contrast, diacetyl is still widely and legally used in microwave popcorn.
Another example is the coil used in e-cigarettes. When it was found that metals such as lead used as the coil could release toxic heavy metals in the vapour, manufacturers changed to nickel and kanthal instead. COSH listed both popcorn lung and heavy metal inhalation as harmful effects by e-cigarettes last month, apparently behind the curve.
Another matter that Basile suggests requires extra attention, is what information the authorities are basing their decisions on. “The FDA still has an article that is widely quoted from 2009, but the industry has grown so rapidly, they might as well have been done in the 1950s,” he joked. COSH quoting the controversial study in New England Journal of Medicine would be a good example of misleading information.
Without laws to empower his staff, Mr Kwok has had to take it into his own hands, “We screen our customers ourselves to try our best not to sell our products to anyone under 18. Of course we don’t have the laws to let us enforce any kind of verification so we rely on our experience.”
Basile also supports banning the use of the product in certain locations. “Bans in certain locations are not unreasonable. But to ban the technology entirely is irresponsible. To leave the more deadly one, and ban the, for all intentions and purposes, much better alternative, is reckless.”