More than three years after the Government began its consultation on whether to license electronic cigarettes, the medicines regulator will today outline its plans for an industry that has since burgeoned.

Tobacco multinationals are investing millions of pounds on “next generation” alternatives to tobacco products and casting their eye over start-ups; the Silicon Valley poster boy Sean Parker, the co-founder of Napster, is taking a punt.

A decade after e-cigs were invented by a Chinese pharmacist, they are becoming mainstream, yet many of the small businesses behind them face a threat from regulators and big business.

The announcement today from the Medicines and Healthcare Products Regulatory Agency comes as France has said that it will impose curbs similar to those placed on conventional cigarettes, and as the European Union debates plans to restrict them in a way that the industry says is tantamount to a ban.

There are between 650,000 and 700,000 users of e-cigarettes in Britain, according to Action on Smoking and Health, compared with about 10 million adults who smoke cigarettes.

The British market is much more fragmented and has weaker distribution networks than is the case in America. Mr MacGuill estimates there are about 20 viable players.Sales of e-cigs in the United States, the world’s biggest market, are forecast to double to $1 billion this year. 

Altria Group, which owns Marlboro in the US, yesterday said that it was launching its first e-cig, MarkTen, in August. Shane MacGuill, a tobacco industry analyst at Euromonitor, believes that the British market is worth “between $300 and $400 million”. He estimates that Britain, Germany and Russia contend to have the world’s second-biggest market.

They import from Asia, typically China, where they are manufactured and distributed through the internet and retailers, including Tesco, Sainsbury’s and the Co-operative.

There are about five leading brands in Britain, including E-Lites, which advertised on ITV and Sky this year, testing the 50-year ban on promoting smoking on television, and Skycig, which advertised at Barclays Premier League football grounds last season.

Few manufacture e-cigarettes. Gamucci, whose chief executive is a former marketing and general manager at Rothmans, secured a patent for its technology in April and owns manufacturing facilities in China. Umer Sheikh, who founded the business with his brother Taz in 2007, said: “We have full control of our supply chain.”

Norman Lamb, the Health Minister, told Parliament last October that the “available data suggest that there can be great variability in the content of electronic cigarettes”.Concerns about the safety and health implications of e-cigs prompted the MHRA to launch a public consultation in February 2010 and ask for more time to gather further evidence in March 2011.

The e-cig industry argues that licences would destroy it and aid the pharmaceutical industry and “Big Tobacco”, which is investing in the products.

British American Tobacco, the world’s second-biggest tobacco company, launched Nicoventures, a £100 million investment into cigarette alternatives in 2011, and bought Manchester-based CN Creative for £40 million last December. BAT is reportedly poised to launch a new brand called Vype, and is developing a separate licensed nicotine product.

Imperial Tobacco said in April that it was working with third-party e-cig businesses through a new division called Fontem Ventures in the Netherlands and expects to launch a product next year.

Jeremy Mean, group manager of vigilance and risk management of medicines at the MHRA, who will announce the plans today, said in April that one option was to introduce licensing, but not for existing products. They were mindful, as Mr MacGuill puts it, of “killing the goose” before it has “laid an egg”.