The black market for e-cigarettes in Germany: structures, dynamics and regulatory challenges

The black market for e-cigarettes is booming – a new study reveals alarming dimensions.

A recent study by HG Innovation and FTI Consulting entitled "The Black Market for E-Cigarettes in Germany: Structures, Dynamics and Regulatory Challenges" reveals that between 40 and 60 percent of all e-cigarette sales in Germany originate from illegal sources. Billions in lost tax revenue and increasing risks for consumers underscore the urgent need for action.

The entire study do you find here.

The study concludes that the The black market for e-cigarettes in Germany poses a major economic challenge. This represents an estimated 20% of the value of illegal products. 40 to 60% of total sales This resulted in excise tax losses of approximately €173 million to €390 million in 2024 alone. If lost VAT revenue is added, The estimated total tax losses are likely to double to over 800 million euros.. It is expected that in 2025 the black market will surpass the legal market in sales figures for the first time, generating a turnover of over 1.5 billion euros.

The dynamics of the black market: RAT and RCT

The Analysis of the black market is based on criminological theories such as the Routine Activities Theory (RAT) and the Rational Choice Theory (RCT). According to the RAT, the illegal market exists due to the convergence of three critical elements:

1. Motivated perpetrators (Traders and retailers).
2. Suitable destinations (willing consumers).
3. Inadequate supervision (Weaknesses in assertiveness).

1. Motivated perpetrators (traders and retailers)

Traders and retailers are motivated by robust market growth and substantial profit margins. The main advantages result from the Circumvention of excise tax on e-liquids as well as other taxes such as value-added tax and income tax. Furthermore, they save on compliance costs and sell to underage consumers by circumventing age restrictions. Rational traders choose the black market when the expected benefits of tax evasion and avoided costs outweigh the combined monetary costs, opportunity costs, and penalty-related costs.

The dealers systematically use regulatory asymmetries within the EU internal market by using countries like the Netherlands, where no excise taxes on e-cigarettes exist, as an entry point (“market entry hopping”).

2. Suitable targets (consumers)

Many consumers participate in the illegal market, sometimes unknowingly. The main drivers for consumers are:

• Price incentives: The main reason is the significant price difference, as untaxed e-liquids are considerably cheaper than legal, taxed alternatives. For example, untaxed e-liquid costs around €10 per liter, while legally taxed e-liquid will cost around €330 by 2026.
• Product variety and availability: Illegal products circumvent product regulations (such as the limit of 2 milliliters of e-liquid per disposable device or a maximum nicotine content of 20 mg/ml) and thus offer so-called “Big Puffs” with a larger volume.
• Accessibility: Black market dealers specifically target minors and ignore age verification (Youth Protection Act, JuSchG).

Illegal products, mostly disposable devices, often fail to meet basic safety and health standards, sometimes contain unsafe ingredients or nicotine concentrations exceeding the legal limit, and lack the required tax stamp. The black market has evolved from counterfeiting well-known brands to... Establishing one's own illegal brands developed.

3. Inadequate supervision (enforcement weaknesses)

Current enforcement mechanisms have flaws that allow for extensive black market activity. The challenges stem from:

• Resource and capacity limitations: German customs authorities, for example, need 1,200 additional officers just to ensure sufficient parcel inspection capacity. Approximately 80% of companies that report illegal traders receive no response from the authorities.
• Limitations of competence: Customs authorities are primarily limited to identifying tax losses and often have difficulty recovering illegal financial gains, which reduces their deterrent effect.
• Online enforcement: Tracking online shops is difficult because merchants often operate from abroad or use fictitious addresses, which reduces the likelihood of detection.
• Lack of EU-wide harmonization: Regulatory differences, particularly regarding excise duties, are systematically exploited by criminal networks to introduce products into the internal market at uncontrolled entry points.

Regulatory approaches and social welfare perspective

The study evaluates alternative regulatory approaches from a Social welfare perspective.

• Taxation: Germany's progressive consumption tax structure generates revenue, but also incurs significant social costs due to market distortions. The high taxes create strong financial incentives for illegal traders and drive price-sensitive consumers to black market products.
• Prohibitions and restrictions: Unilateral bans on products or flavors (as in the Netherlands or Quebec) often lead to a shift of trade into unregulated channels (e.g., illegal online shops), which intensifies the displacement of the legal market and negatively impacts the social welfare balance.

The study identifies integrated and coordinated approaches than more promising solutions:

• EU-wide harmonization: A unified regulatory framework, particularly regarding excise taxes, would increase enforcement efficiency and prevent criminal networks from exploiting regulatory differences.
• Strengthening enforcement capacity: The reform strategy "Customs 2030" It offers the opportunity to improve enforcement capabilities and strengthen asset recovery mechanisms.
• Digital regulation: An improved application of the EU Digital Services Act (DSA) and the E-commerce action plan It is intended to curb illegal advertising and sales via online platforms.
• Public education: Targeted awareness campaigns that highlight both the health risks of unregulated products and the legal and social consequences of illegal trade can improve consumer awareness and reduce the demand for black market products.

Conclusion: Effectively curbing the illegal e-cigarette market requires a deep understanding of the interplay between economic incentives, consumer behavior, and insufficient enforcement capacity. Instead of unilateral measures, integrated approaches are recommended that focus on regulatory harmonization, targeted education, and optimized enforcement coordination.