A year ago there were 3,000 shops selling e-cigarettes in Spain but now that number is closer to just 300, according to the country's national e-cigarettes association (ANCE).
"There has been a very intense attack by pharmaceutical companies which has generated bad publicity in the media," ANCE vice president Alejandro Rodríguez told Spain's El Confidencial newspaper.
The comments come after emails leaked from top pharma GlaxoSmithKline showed the company was lobbying for tougher regulation of e-cigarettes. According to company emails, the firm wants the products — which have been advertised as a way to quit smoking — to be regulated as medicines so that they would have to compete with products like nicotine gum.
Spain has yet to introduce such regulation but has banned the use of electronic cigarettes in public places like hospitals and schools because of their possible health risks.
But the ANCE spokesperson also conceded too many shops had opened in Spain in too short a period. Many of the staff were inexperience and didn't know how to advise their clients, said Rodríguez.
One Italian shop owner who arrived in Spain nine months ago to open an e-cigarette store told El Confidencial of his shock at seeing three such shops on a Madrid street in the space of 200 metres (220 yards).
"Madness. As soon as I said it I knew that things would turn to shit for most of us," he said.
"There was a boom for the product here, people thought it was a magic wand for giving up smoking, and no (this wasn't the case). It seemed like the market was infinite and there would be enough for everyone, and we can't deny that many of our clients have gone back to normal tobacco, although nobody is going to admit it," the shop owner said.
Governments around the world have struggled with how to regulate e-cigarettes since their emergence and growing popularity in recent years.
Supporters claim they are a less dangerous alternative to regular cigarettes and a valuable tool in helping smokers to quit. However, the World Health Organisation has advised against them, saying their potential health risk "remains undetermined".
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In October 2013 European lawmakers rejected a bid to classify e-cigarettes as medicinal products, which would have restricted their sale to pharmacies, although the UK then went on to introduce such legislation
ANCE claim some 900,000 Spaniards use e-cigarettes regularly but no official statistics are available.
Under Spain's anti-tobacco law, one of the strictest in Europe, smoking is banned in bars, restaurants, discotheques, casinos, airports as well as in outside places such as outside hospitals and children's playgrounds.