Ask any vaper in Melbourne what has happened to the price of a disposable, and you will hear the same complaint. A device that went for around AU$32 two years ago now costs close to AU$50, from the same counter and the same shopkeeper, and still with no receipt. Naturally, most people have a ready explanation, and a reasonable one. Since the Iran war choked the Strait of Hormuz, Brent crude has climbed from the mid-US$60s at the start of the year to above US$107 a barrel, and the shock has worked its way through fuel, groceries and rent. Consequently, the tobacconist pays more to keep the lights on, the supplier pays more to move stock, and the customer pays for all of it at the end. Basic economics, it seems.
Yet that story, though true, is too small. Inflation, even at its recent peak of 4.6% in the past two years, would have carried a AU$32 vape to about AU$35. More tellingly, the remaining AU$15 arrived largely before the war began, and it came from Canberra rather than Tehran. The vape’s price has little to do with what it costs to make. Excise alone on a legal 25-pack of cigarettes now approaches AU$39, yet not a single dollar of a vape’s price is tax. In other words, the customer at the counter is not really paying for the device. They are paying for the risk of selling it.
This article argues that Australia’s vaping laws did not abolish the market but repriced it, and that the premium now flows to an untaxed network of intermediaries the state does not tax or control. It makes the case in three stages: how regulation shaped the market, how money moves from factory to counter, and what the arrangement costs the Commonwealth and what it buys.
How regulation shaped the market
Understanding why a vape costs what it does begins with a fact that surprises most people: Australia never banned it. It did something stranger. In October 2021, it reclassified a consumer habit as a medical treatment and made nicotine vapes prescription-only. At first, this changed almost nothing. With retail sales being illegal on paper, tobacconists stocked disposables labelled nicotine-free instead, when many of which were not. Accordingly, prices stayed low because breaking the rules cost almost nothing.
All this changed in 2024. Disposable imports were banned in January, personal importation ended in March, and from July domestic supply was prohibited outright. None of this dulled anyone’s appetite for nicotine. Instead, what it raised was the cost of satisfying it. Stock now had to be smuggled inside shipments declared as clothing, cookware and furniture. Risking any container to be seized and any shop raided. Those costs are real, and the trade passed them on as any business would. Between mid-2024 and mid-2025, the Border Force’s own valuation of a seized vape rose from about AU$32 to nearly AU$50, long before oil became the story. In effect, prohibition works like a tax. And the difference is that it pays the smuggler rather than the Treasury.
In practice, a legal alternative might have kept prices in check, had anyone used it. It was designed so that almost no one would. Since October 2024, adults have been able to buy a vape from a pharmacist without a prescription, but only in mint, menthol or tobacco flavours, and only after a clinical consultation. For the pharmacist, that means consultation time and paperwork for a product few customers ask for. For the customer, it means a medical conversation about a habit they could feed down the street with no questions asked. Unsurprisingly, TGA data recorded around 6,300 pharmacy supplies a month against roughly 1.5 million vapers. A legal competitor almost nobody visits cannot set a price.
Taken together, these pieces give the market a clear shape. Demand persists, simply because addiction does not lapse by statute. Legal supply barely exists. Nothing caps the price, and nothing is taxed. On top of this, inflation since the war has pushed prices a little higher still, and sellers without a legal rival have met little resistance in passing it on. When everything else is getting dearer, a dependent customer has little reason to argue over one more increase. Ultimately, inflation only adds to a premium that regulation had already built. With that established, the next section follows this premium from the factories of Shenzhen to the shop counter.
The Economics Behind the Disposable, from Factory to Storefront
Nearly every vaping product sold in these unlicensed Australian storefronts is produced in the same place. The Baoan district in Shenzhen, China, produces around 80% of the vape supply worldwide, with facilities operating at sky-high capacity to meet the demands of global markets. Chinese wholesale prices range from AU$3-AU$15 per device, and the same product can be sold for roughly 5 to 7 times more once it reaches the market. The ability of illegal companies to achieve these high profit margins does not stem from nothing. Because illicit products lack safety standards and there is no incentive to reduce impact on community health and safety, retailers can simply source the cheapest vaping device available in the market with no regard of the adverse impacts its contents may have on users. Evading excise and compliance costs also leaves illicit suppliers with a structurally lower cost base, allowing them to maintain a high profit margin. Additionally, with almost a third of vapers having been unsuccessful in quitting, nicotine’s addictiveness gives vapes a unique commercial advantage, where repeat purchases are driven by dependence rather than effort from the seller. However, despite these trivially low barriers to entry, there appears to be little price competition, and prices have not converged towards costs. The drug market literature suggests why — illegality introduces uncertainty at every stage, from product quality to high search costs to frequent arrests of illicit sellers, and thus participants need to be compensated for the risks they bear in distributing these products.
Margins this large are worth defending, and this is evident in the over 200 retail-level arson attacks on tobacco and vape shops in Melbourne that have been occurring since March 2023. These attacks typically follow a similar pattern: teenagers use a hammer to smash the storefront, splash an accelerant inside, and light the store on fire before running away. Competing organised-crime networks use these attacks to push rivals out of the supply chain, target store owners that accumulate debt, or ambush stores that refuse to sell a particular network’s product. Affected stores are costly to repair, and are thus an expense that has to be covered by these criminal businesses. Moreover, enforcement is another cost the trade absorbs, with the Australian Border Force having seized over 13.2m vapes last financial year. The prevalence of these attacks, combined with enforcement crackdowns on illicit vaping devices, suggest that the costs and risks of recovering an attacked store or even losing seized products are lower than the size of the profits being protected, making these illegal operations still worth pursuing.
Figure 1: The Australian Border Force raiding facilities in Western Australia. Source: ABC News
Uncollected Revenue, High Enforcement Costs and the Health Dividend
According to the Illicit Tobacco and E-cigarette Commissioner Report 2024-25, roughly 95.7% of e-cigarettes sold in Australia are illicit and untaxed, worth an estimated $1.6 billion. Yet the Commonwealth would collect little even if every sale were lawful: e-cigarettes fall outside the tobacco excise, and therapeutic nicotine vapes are GST-free. This means that the state forgoes the option of a tax base which this market would supply. The enforcement bill runs the other way: the government has committed a $345 million strategy to disrupt the illegal market alone, on top of routine border screening, regulatory development and policing. In 2024 to 2025, compliance and enforcement agencies reported 3,321 inspections and 2,027 operations, including 281 joint operations. Even disposal is costly: it costs $13 to destroy just 10 devices, and over 19 million illicit vapes have been seized by the Australian Border Force (ABF) and Therapeutic Goods Administration (TGA) since 2024. Organised crime groups can also reinvest profits from the trade into other illegal activity, including trafficking, scams, and money laundering, creating spillover costs; the enforcement figures above still understate what the state is really absorbing.
Yet, with uncollected revenue and high enforcement costs, Australia’s prohibition-style restrictions may deliver a health dividend—suppressing youth uptake better than a taxed retail model. New Zealand is often cited as the taxed alternative, where vapes are sold through retail, unlike Australia’s pharmacy-only channel. Under that framework, 20 per cent of 18- to 24-year-olds vape daily in New Zealand, compared to 8.3% in Australia. While demographics, smoking culture and regulatory history differ between the countries, the data highlights a clear trade-off. The former appears to suppress young people’s nicotine and toxic chemical uptake more than a sanctioned market does. The avoided addiction and health risks are a profound dividend that justifies keeping the market in the shadows.
Conclusion
In Australia, the vast majority of profits of the high-value vape market goes to an untaxed web of intermediaries rather than to the state. Restricting vaping products to be lawfully purchased only from pharmacies did not eliminate consumer demand, but redirected it into illicit businesses. Collectively, the profits ceded to organised crime, the enforcement bill and the foregone option of a tax base are what the arrangement costs the Commonwealth: a market worth an estimated $1.6 billion that returns almost nothing. In return, it buys a possible health dividend—youth vaping under Australia’s prohibition-style model runs below rates in taxed-retail jurisdictions, suggesting that restricting the legal market may curb youth uptake more than a taxed alternative would. Whether that dividend justifies a $1.6 billion market that enriches organised crime is the wager Australia’s current settings are making.
Sources
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The CAINZ Digest is published by CAINZ, a student society affiliated with the Faculty of Business at the University of Melbourne. Opinions published are not necessarily those of the publishers, printers or editors. CAINZ and the University of Melbourne do not accept any responsibility for the accuracy of information contained in the publication.
