has come under investigation over its sale of flavored nicotine pouches. Although management warned that “material liability” could arise from the probe, investors have shrugged off the risk, for now.
Philip Morris stock fell 3% in premarket trading, but recovered much of the loss after the market opened. As of Tuesday afternoon, the shares were down 1.1% for the day.
Still, oral nicotine pouches, an increasingly popular smokeless product, will likely undergo more regulatory and public scrutiny in the coming years. Investors should pay attention.
Philip Morris said on Monday that Swedish Match North America, a subsidiary selling the popular Zyn nicotine pouches, has received a subpoena from the attorney general of the District of Columbia, probing the firm’s compliance with the district’s ban on flavored nicotine pouches.
A preliminary investigation indicates that there have been sales of flavored nicotine-pouch products in the city, according to Philip Morris, mainly via online platforms and independent retailers. The company said it is conducting a full review of its sales and supply chain.
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Swedish Match intends to comply with the subpoena, Philip Morris said in its Monday statement, and has immediately suspended online sales on its website ZYN.com. Sales there represent a very small percentage of Zyn’s nationwide volumes, according to Philip Morris.
“In the event of an unfavorable outcome related to this matter, a material liability is reasonably possible though not estimable at this time,” wrote the tobacco company.
As cigarette sales have declined over the past decades, Big Tobacco companies have been pivoting toward smokeless products to lead their next leg of growth. Oral nicotine pouches, which dissolve as users tuck them under their lips, are an increasingly important part of the transition.
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Zyn has been available in the U.S. since 2014, but its sales have skyrocketed since Philip Morris acquired Swedish Match for $16 billion in 2022. In the first quarter this year, more than 130 million cans of Zyn were sold in the U.S., up 80% from a year earlier.
Other tobacco companies are also eying a piece of the pie.
owns 80% of Helix Innovations, maker of Zyn’s rival brand On!.
and Imperial Brands are also developing their own equivalents and acquiring startups that make oral tobacco products.
Still, Zyn is the undoubted leader. On! reported shipment volume of 33 million cans during the first quarter, roughly one fourth of Zyn’s sales volume in the U.S.
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As their popularity rises, nicotine pouches have come under increasing scrutiny. Although research shows that nicotine pouches are generally less harmful than cigarettes, a series of lawsuits against Philip Morris were filed this year. A central allegation is that the firm failed to warn consumers about the risk of nicotine addiction from using Zyn.
In January, Sen. Chuck Schumer called for regulators to probe Zyn’s health effects and marketing practices. He alleged that the products are being promoted to children and teenagers on social media to get them hooked.
Still, vaping appears to be a bigger problem. Just 1.5% of middle and high school students reported using nicotine pouches in the last 30 days, according to a 2023 survey from the Centers for Disease Control and Prevention, while 7.7% said they had used e-cigarettes.
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Philip Morris said it markets and sells nicotine pouches only to people of legal age and those who would otherwise continue to smoke. In the Monday statement, the company reaffirmed its commitment to selling only to people 21 or older and said that sales via ZYN.com are only open to those who meet that requirement.
The District of Columbia’s investigation of Swedish Match’s sales practices might be nicotine pouches’ latest problem, but given the rapid growth of sales, it likely won’t be the last.
Write to Evie Liu at evie.liu@barrons.com
