When Regulation Creates the Black Market: What the Fraunhofer Study Reveals About Vaping

A new report from the Fraunhofer Institute takes a close look at something policymakers rarely acknowledge openly: the size of the illegal vaping market in Europe. The study, titled The Irregular Market for E-Cigarettes in Europe, tries to answer a simple question. How much of the vaping market actually operates outside the legal system?

The researchers estimate that roughly 48% of Europe’s vaping market is “irregular”. That means it operates outside official legal channels. This includes both grey-market and black-market activity. Grey market products are legal somewhere, but sold in a country where they don’t meet local regulations. Black market products are the result of outright illegal commercial trade.

Together, these markets are worth around €6.6 billion today and could grow to roughly €11 billion by 2030. In simple terms, almost half of the European vaping market is already happening outside formal regulation.

The report suggests the main reason isn’t the sudden emergence of mysterious criminal networks. The real driver is policy fragmentation. Different European countries have very different rules for vaping. Some impose high taxes. Others ban flavours. Some restrict nicotine strength, product size, or where products can be sold.

These differences create price gaps and product shortages between countries. When that happens, consumers and suppliers adapt quickly. People buy products elsewhere or obtain them through informal channels.

The researchers note that about 90% of vaping products entering Europe originate in China. Once these products enter the distribution system, they pass through complex networks of importers, wholesalers, online retailers, and physical stores. That complexity makes tracking and enforcement extremely difficult.

One of the most important points in the report is about bans and strict restrictions. The researchers argue that national bans rarely eliminate the market for vaping products. Instead, they tend to push demand into grey or black markets. Europe’s open borders make this especially easy. If one country restricts products heavily, consumers can buy them online, import them from neighbouring countries, or purchase them through informal networks.

In other words, demand does not disappear. It simply moves outside the legal system.

This has several consequences. Governments lose tax revenue. Legitimate retailers face unfair competition. Consumers may be exposed to products that are not subject to safety standards. Age-verification rules become easier to bypass. Ironically, these are the high risks policymakers often cite when arguing for tighter restrictions.

The report suggests that overly restrictive regulation can unintentionally create the conditions that allow illegal markets to thrive.

This is particularly relevant when looking at Australia. Over the past few years, Australia has taken one of the most restrictive approaches to vaping, pushing nicotine vapes into a tightly controlled prescription model and effectively removing them from normal retail markets. The intention was to reduce vaping, particularly among young people. But demand for nicotine products did not disappear.

Instead, Australia now has a massive illicit vape market operating through convenience stores, informal distributors, and online sellers. Products that are legally banned or restricted are still widely available outside any regulated framework. At the same time, cigarettes remain legal and widely sold.

The parallels with the Fraunhofer findings are difficult to ignore. When policies restrict legal access to products that consumers still want, markets adapt quickly. Supply chains reorganise, new distribution networks emerge, and enforcement becomes increasingly difficult.

The researchers suggest that instead of relying on bans or isolated national crackdowns, governments should focus on coordinated regulation that recognises how markets actually behave. A legal market with clear rules, product standards, and proper oversight is far easier to manage than a large illicit one.

The broader lesson from this report is simple. When regulation collides with demand, prohibition rarely eliminates the market. It simply changes where that market operates. And once an illicit market reaches billions of euros in size, bringing it back under control becomes extraordinarily difficult.