As the European Union debates how to tax and regulate nicotine products, evidence from a unique “controlled experiment” in Estonia provides a cautionary tale about the effects of prohibitionist policies.

Estonian consumers have been stuck on a nicotine policy rollercoaster since the country decided to implement an excise tax on e-liquids in 2018.

The following year, the country banned all non-tobacco e-liquid flavours before relaxing restrictions slightly in 2020 to allow menthol flavours.

“The reintroduction of menthol had a bigger impact than anticipated,” Ingmar Kurg, CEO of NNA Smoke Free Estonia, tells Snusforumet.

“It really shows how much difference a single non-tobacco flavour can make.”

Estonia’s nicotine excise tax U-turn

Evidence of the impact of menthol comes from comparing excise tax revenues before and after the flavour was reintroduced.

However, making the comparison is complicated by Estonia’s excise tax U-turn in 2021, when parliament voted to suspend the tax amid concerns about growing illicit trade.

Various surveys conducted at the time estimated that illicit trade accounted for 62-80 percent of Estonia’s e-liquid market.

“When you ban or restrict a product, demand doesn’t go away,” says Kurg.

“It simply moves elsewhere to places where tax collectors and regulators can’t see it.”

Consumers instead sought out e-liquids from Latvia and Russia, which offered lower prices and a greater range of flavours, he explains.

A five-fold increase in tax revenues

Estonia eventually reinstated the e-liquid excise tax in 2023, yielding €5.7 million in revenues.

The figure caught Kurg’s attention, as it represented a fivefold increase over the roughly €1.1 million in revenue generated by the same tax in 2020, when menthol was still banned.

“Having such a restrictive flavour ban pre-2020 meant Estonia lost out on a lot of potential tax revenue,” says Kurg.

“Legalising menthol meant a lot more of that revenue went to the state instead of getting lost to the underground market.”

Estonia’s tax revenue figures also reveal that consumers are shifting toward less risky products, which have tripled their share of excise tax revenues from 2018 to 2025.

Overall, excise tax revenue generated from the sale of all tobacco and nicotine products rose from €200 million to €260 million during the same period.

Nicotine pouches in particular stand out, accounting for a 13-fold increase in tax revenues from when data first became available in 2019 to 2025.

“When low-risk products are properly regulated, consumers are more likely to choose them over cigarettes,” says Kurg.

“This shift also ended up increasing the state’s revenues rather than hurting them.”

Prohibitionist concerns with TPD3

He believes what he calls Estonia’s “controlled experiment” in nicotine policy changes holds important lessons for policymakers elsewhere in Europe.

The sharp and sudden shifts in policies, while disruptive, have nevertheless generated strong evidence about the impact of restrictive policies on illicit trade and tax revenues.

He believes the EU’s Tobacco Products Directive (TPD) is an important tool for protecting consumers from unregulated, untested products. But he’s unsure the current debate about revising the TPD is heading in the right direction.

“I’m very concerned about the possibility of more restrictive flavour bans with TPD3,” he says.

“I wouldn’t have believed it myself a few years ago, but the situation in Estonia shows you even one non-tobacco flavour can make a significant difference.”

Sweden’s ‘pragmatic’ harm reduction policies

Another concern is an overly restrictive nicotine cap. While he’s not opposed to regulating the strength of nicotine, he fears that putting the limit too low would make it harder for smokers to quit.

“It’s much harder to make the transition to vapes or pouches if there isn’t enough nicotine there to satisfy people’s cravings,” Kurg says.

He points to Sweden as an example of a “pragmatic approach” to tobacco and nicotine regulation that has yielded impressive results.

“Sweden is a real-world example of harm reduction in action,” Kurg tells Snusforumet.

“Which is why it’s so baffling that more regulators around Europe don’t just look at the data and use Sweden as a model for regulations elsewhere.”