Australia: a case study in the negative impact of excessive tobacco and RRP regulation.

For years, traditional intervention methods around smoking (tax increases, display bans, plain packaging etc) have shown to have little impact on the actual number of smokers. While smoking prevalence levels may have declined, population growth has meant that the actual number of smokers has shown little movement. The one development in the past decade that has shown to be actually effective – with meaningful declines in smoking prevalence – is the introduction of reduced risk products (RRP’s).

To this, if regions and countries are to achieve smokefree ambitions any time soon, harm reduction needs to be embraced, and with that, balanced regulation that supports an off ramp for adult smokers, while also taking action to limit the risk of underage usage, as well as the growth in illicit trade.

A recent study out of Australia (by Roy Morgan) shows exactly why overly aggressive regulation, both on combustibles and RRP, can have the opposite effect to what they are trying to achieve.

For background, on RRP, Australia has banned heated tobacco, nicotine pouches can only be imported and with a prescription, and while vapes can be purchased within market, the number of options is heavily restricted, and can also only happen via pharmacies (with a consultation for strengths below 20mg, and requiring a prescription for those over). Imports of vapes, even with a prescription is not allowed. For combustibles, Australia has probably the most aggressive regulation globally, with the highest taxes in the world, while also being the first market to introduce plain packaging.

The study has shown that not only has vaping among 18-24 year olds increased (now at 20.5% vs 19% year to September 2024), but smoking rates among the same age-group has increased even more (from 8.2% up to 11.2%). What is perhaps more concerning is that regulations have just shifted users into the illicit market. In June, a report in the Australian newspaper ‘The Daily Telegraph’ reported illegal vape sales are now outstripping legal ones by almost 1,700 to one, while according to data from BAT, the combustible illicit market is estimated to have made up 39.4% of all sales in 2024, up 11.4% from 2023, and estimating it will hit 54.6% in 2025 and 64.2% by the end of 2026. It is also worth noting that between 2019 and 2023 – prior to more restrictive vape regulations coming in during 2024 – Australia saw its steepest drop in overall adult smoking rates in 30 years, with rates falling from 11.6% to 8.8% – a period that also saw a significant rise in vape use.

It may well be that Australia’s current strategy is creating more harm than it actually mitigates, mirroring many of the unintended consequences historically associated with drug prohibition. The ‘possible’ silver lining is that other regulators globally see these outcomes and it helps shape a more helpful approach to RRP’s, the role of harm reduction in nicotine, and overall tobacco regulation in the future.

Owen Bennett, ACA, CFA
VP of Investor Relations and Strategic Finance