Combating Illicit Trade Through Visibility, Traceability and Compliance
Executive Summary
- Illicit trade is expanding beyond conventional cigarettes, with emerging categories such as e-cigarettes, heated tobacco products & nicotine pouches increasingly targeted by counterfeiters, smugglers and unauthorised distributors.
- Regulatory oversight is evolving, including through initiatives such as the revision of the EU Tobacco Products Directive (EU TPD), as governments seek greater visibility, stronger product authentication and enhanced supply chain transparency to address the growing complexity of this market.
- Traceability is becoming a strategic need, helping manufacturers strengthen compliance, improve supply chain visibility, combat illicit trade and protect market integrity.
In Part 1 of this series, we explored how novel tobacco & nicotine products, including e-cigarettes, heated tobacco products (HTPs), nicotine pouches and snus, are reshaping the tobacco industry. As these categories continue to expand, they are creating new opportunities for innovation, growth, and consumer engagement.
However, rapid growth often attracts unwanted attention.
Just as conventional cigarettes have long been affected by illicit trade, novel tobacco & nicotine products are increasingly becoming targets for counterfeiters, smugglers, and unauthorised distributors. The combination of growing consumer demand, regulatory differences between markets, and often higher product values has created attractive opportunities for illicit actors.
As a result, manufacturers and regulators face a growing challenge: ensuring that these emerging products remain authentic, compliant, and visible throughout increasingly complex supply chains.
Illicit Trade Is No Longer Limited to Conventional Cigarettes
Historically, illicit tobacco trade primarily focused on conventional cigarettes. That landscape has and will continue to change.
E-cigarettes
Heated tobacco
products (HTPs)
Nicotine pouches
and snus
Revenue loss from counterfeit and diverted products
Brand damage caused by poor-quality imitations
Reduced visibility across distribution networks
Increased compliance risks in regulated markets
Drag to explore
As these categories continue to grow, the illicit trade ecosystem is evolving alongside them.
Why Regulatory Oversight Is Increasing
Novel tobacco and nicotine products have introduced new regulatory considerations. Governments are increasingly focused on ensuring product authenticity, monitoring market activity, collecting appropriate taxes and preventing unauthorised products from reaching consumers. As a result, regulatory frameworks that were originally developed for conventional tobacco products are evolving to address emerging product categories.
The EU Tobacco Products Directive (EU TPD) is one example. The Directive establishes a range of measures designed to improve the functioning of the internal market for tobacco and related products while supporting public health objectives. Among these measures is the EU-wide traceability system, which enables authorities to monitor the movement of tobacco products through the supply chain and helps combat illicit trade.
While these requirements currently apply to tobacco products covered by the Directive, the rapid growth of novel tobacco & nicotine products is prompting discussions about how future regulatory frameworks should address these emerging categories.
On 15 June 2026, the public consultation on the revision of the EU TPD closed, with a legislative proposal expected by the end of 2026. The European Commission launched the consultation in May 2026 to gather feedback on potential changes affecting novel tobacco & nicotine products, including scope expansion, traceability requirements and implementation timelines.
As regulators seek greater visibility across increasingly complex product ecosystems, manufacturers should expect continued focus on product authentication, supply chain transparency, product movement reporting, regulatory data management, and compliance monitoring and enforcement.
Traceability: From Compliance Requirement to Strategic Capability
In response to these evolving regulatory and supply chain challenges, traceability is becoming a critical component of modern tobacco & nicotine product ecosystems.
By assigning unique identities to products and capturing key events throughout their journey, traceability systems create a reliable record of where products originate, how they move through the supply chain and where they ultimately reach the market.
This enables manufacturers, regulators and enforcement authorities to:
- Verify product authenticity
- Identify suspicious supply chain activity
- Detect diversion and unauthorised distribution
- Strengthen supply chain transparency
- Support investigations and enforcement actions
As illicit trade becomes more sophisticated and regulatory expectations continue to increase, traceability is becoming a strategic capability that helps organisations strengthen control, reduce risk and protect market integrity.
Conclusion
As novel tobacco & nicotine products continue to grow, the industry faces a dual challenge: supporting innovation while maintaining trust, compliance, and market integrity.
Counterfeiting, smuggling, and unauthorised distribution are evolving alongside these emerging categories. At the same time, regulators are demanding greater transparency and accountability from manufacturers operating in increasingly complex markets.
In this environment, traceability is becoming a must-have strategic capability that helps manufacturers protect their brands, safeguard consumers, strengthen compliance, and maintain visibility across their supply chains. The companies best positioned for future growth will be those that can combine innovation with control, ensuring that every product can be identified, verified, and tracked throughout its journey.
Coming Next…
Traceability provides the foundation for supply chain visibility and regulatory compliance, helping organisations address the growing challenges of illicit trade.
However, compliance is only one part of the story. The rise of novel tobacco & nicotine products is also creating new opportunities for innovation, digital engagement and more direct interactions with consumers.
In Part 3, we will explore how manufacturers can move beyond compliance and leverage connected product technologies to strengthen consumer engagement, deliver more personalised experiences and unlock new opportunities for interaction, where permitted by regulation and authorised by the relevant authorities.
Stay tuned!
Looking to strengthen supply chain control?
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