For Big Tobacco, the ideal user of one of its nicotine pouches is an older ex-smoker who indulges in the tiny packets to get their daily dose of the stimulant.
But so-called "Zynfluencers" cropping up on TikTok to extol the virtues of Zyn, produced by Philip Morris International Inc, are sparking a frenzy over whether young people who have never smoked are getting hooked on them.
The debate over Zyn, as well as Velo from rival British American Tobacco (BAT) Plc, is eerily similar to that which engulfed vaping around five years ago.
At best, this is a reminder that Big Tobacco's transition from cigarettes to potentially reduced-risk products such as electronic cigarettes -- devices that heat-rather-than-burn tobacco and nicotine pouches -- will not be a straight line. At worst, it's a warning that they may not be able to count on these alternatives to generate earnings as smoking declines.
Analysts have predicted that in many developed markets, there will be no smokers within the next two decades, and governments such as the UK are trying to make this a reality. Consequently, the industry is investing cigarettes' still-prodigious cash flow into products that will continue to generate sales and profits for investors. But this shift is proving bumpy.
First, the industry was plunged into crisis over electronic cigarettes. In the US, vape maker Juul Labs Inc was besieged by lawsuits accusing it of using sweet fruit and candy flavours to target underage users. The situation escalated in 2019 after a spate of vape-related illnesses and deaths. Although it is now widely acknowledged that these were associated with contaminants, not the products themselves, the market took a short-term hit.
There's no suggestion that anyone is becoming ill or dying from nicotine pouches. But the rapid adoption -- Zyn shipments to the US rose 78.2% in the final quarter of 2023 -- has sparked the same concerns around youth use, particularly as Zyn is cheaper than cigarettes. The US average for a can is about US$4 (145 baht), compared with about $8 for a pack of cigarettes, according to Bloomberg Intelligence.
Philip Morris, which owns Zyn after its $16 billion acquisition of Swedish Match AB in 2022, was hit with its first lawsuit this month alleging that it marketed nicotine pouches to teens. The company said the complaints were without merit and would be vigorously defended. Philip Morris also said it did not use social media influencers, and had refused every request to work with them. It said it focused its marketing squarely on current nicotine users over 21, the legal smoking age in the US.
Supporters of nicotine pouches point to the fact that they do not contain any tobacco, nor do they require combustion, and that Sweden, the home of oral tobacco, has successfully cut smoking rates. Meanwhile, pouch use among teenagers isn't yet as prevalent as vaping. Critics argue that although not a carcinogen, nicotine is addictive and can aggravate health problems.
Perception plays a huge part in determining how potentially reduced-risk products are treated by governments and regulators. And right now, pouches are in the firing line. The backdrop is shifting from the harms of smoking to scrutiny of nicotine more broadly. For an industry that has invested billions in alternative nicotine-delivery systems, this is a worry.
What's more, the alteration comes at a delicate time. BAT wrote down the value of some of its US cigarette brands in December by £25 billion (1.1 trillion baht) because American smoking rates were falling much faster than it expected.
So how could the furore over Zyn play out? If vaping is anything to go by, the most likely outcome is a crackdown on flavours.
Many states have introduced restrictions on flavoured vapes, while the US Food and Drug Administration has, in effect, done the same by refusing to approve them. Since 2016, any nicotine containing product has required FDA permission to remain on the market. Philip Morris has submitted applications to continue to sell Zyn pouches in their various flavours and strengths.
Another option would be to restrict the potency of pouches. The most extreme action would be a blanket ban in the US. Those containing tobacco are already prohibited in the EU, with the exception of Sweden.
In a further challenge to alternatives, the UK government is proposing to include heat-not-burn devices in legislation designed to phase out smoking. It also plans to give ministers more power to regulate vaping.
Philip Morris has been the most vocal about smoke-free products -- they generated 39.3% of revenue in the fourth quarter of 2023. When US vaping was in crisis, it had little exposure because its main product was IQOS, the market-leading tobacco-heating system, which last year generated about $10 billion of revenue, surpassing Marlboro in the final quarter. IQOS will launch in the US this year. This time around, though, the company is in the crosshairs because of its ownership of Swedish Match.
It will want to avoid the same fate as Altria Group Inc, which invested $12.8 billion in a 35% stake in Juul in 2018. Last year, it swapped its heavily devalued holding for intellectual property rights for some of Juul's heated tobacco products.
A total ban on Zyn, or other alternatives, looks far off for now. Governments might want to tax them more heavily instead or be wary of driving users to the illicit market. Shane MacGuill, Euromonitor International's global lead on nicotine and cannabis, estimates that products without FDA permission or those flouting local restrictions now account for about 75% of the US vaping market.
Nevertheless, companies should prepare to broaden their horizons, from nicotine delivery to dispensing other substances. It's not a stretch to see the technology in vapes and pouches used for cannabinoids and protein powders.
Big Tobacco talks about a smoke-free future. It must contemplate a nicotine-free future, too. Bloomberg
Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry.