Nicotine Pouches: International

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ZYN – Canada: June 2024

The Government of Canada issued a recall for ZYN nicotine pouches, stating that the product is sold without market authorization1. The recall affects 8 product variants with a range of flavors, including Apple Mint, Black Cherry, Citrus, Cool Mint, Original, Espresso, Spearmint, and Bellini (an Italian cocktail made with Prosecco and purée of peach or nectar). All the products, except Spearmint (1.5mg), contain 3mg of nicotine. The depth of recall extends the retailers only.

Recall that nicotine pouches (<4mg nicotine) are classified as “Natural and Non-prescription Health Product” in Canada and are marketed upon receiving a market authorization from Health Canada. ZONNIC, the first nicotine pouch to be authorized and launched in Canada, has caused social and regulatory backlash since its launch in Q4 2023 by Imperial Tobacco Canada (part of BAT group). For further details: Smoking Cessation Products.

VELO – Japan: May 2024

BAT subsidiary, Pakistan Tobacco Company Limited (PTC), aims to generate $100Mn annual export revenue through VELO (modern oral tobacco-free nicotine pouch) shipments to Japan. The announcement is made at the launch of “Made in Pakistan 3.0” initiative, marking a significant milestone in PTC’s history2.

In April 2019, PTC embarked on “Made in Pakistan” initiative, in alignment with the export ambitions of Government of Pakistan, focusing on exporting cigarettes and processed tobacco to various countries. The initiative has generated over $157Mn since its inception.

Nicotine pouch is a product at an early embryonic stage in Japan and (nicotine containing) vapes are non-existent due to the pharma classification. Heated tobacco, in the absence of competition from alternative nicotine products, has captured 42% of the total nicotine market (cigarettes & heated tobacco) in the country. How big is the potential of VELO and the nicotine pouch category in Japan? We cover this question and more in our forward-looking, proprietary category report: Nicotine Pouch Market: 2023-2030.

ZYN – International Expansion: May 2024

At the Jefferies Virtual Reduced Risk Seminar, PMI confirms that ZYN is launched / re-launched in 9 markets (outside the US & Scandinavia) and in select Duty Free stores. Launch markets:

– Europe: UK, Switzerland, Hungary, Iceland, Finland, Latvia

– Asia: Pakistan, Philippines

– Africa: South Africa

BAT – Emerging Markets: Feburary 2024

In FY23 Earnings release, BAT stated that

– in Pakistan, through stronger consumer acquisition, BAT has achieved the highest active consumer base (as a % of population) in modern oral nicotine category globally

– in Kenya, the accelerated national roll-out in January 2023 has driven a near fourfold increase in number of adult consumers

– together, learnings from these two markets give confidence to unlock the emerging market potential for modern oral nicotine category going forward.

However, a week later, in its own FY23 Earning release3, BAT Kenya [in a somewhat contradictory tone] stated that the regulatory uncertainty relating to the modern oral category resulted in disruption of nicotine pouch supply to the market. Additionally, this uncertainty impeded BAT’s ability to use the nicotine pouch factory in Nairobi for the domestic and export markets.

PM – ZYN Expansion Plans: September 2023

PMI targets 800Mn-1Bn nicotine pouch cans volume by 2026, mostly from the US, and expects international growth (outside the US) only in the mid-/long-term. Regulatory uncertainty (i.e. legal status of the product) and consumer readiness are the two impediments to ZYN’s progress in the international markets. In the foreseeable future, geographical presence of nicotine pouches seems to remain restricted to the US, Nordics and a select few markets with regulatory clarity.

55% of PMI’s oral nicotine revenue is already associated to ZYN sales in the US. This figure is set to increase as ZYN US is growing much faster (3-year volume CAGR: 51%) than the rest of the oral nicotine category. Thereby, it is all about the continuity of “stellar performance” of ZYN in the US in the 2024-2026 planning period. On 12-month rolling basis (ending June 30, 2023), PMI shipped 292Mn ZYN cans to the US market and reported more than 40% sequential growth. PMI needs ~30% annual volume growth in ZYN US shipments in order to achieve its “800Mn-1Bn cans by 2026” target. This seems to be – more or less – achievable considering the ongoing sales momentum in the US (i.e. ongoing velocity growth in the Western region and eventual extrapolation of the Western region’s performance to the Rest of the US) and the competitive restrictions brought in by the US FDA’s PMTA process.

PMI expects the US nicotine pouch category to be 3 times of its current size in 2030. This is not implausible. PMI also mentions $3.5Bn net revenue form US ZYN in 2030 assuming the same category share (i.e. 76.8% by value). This is implausible. Why? (1) The competition will heat up as BAT and Altria become able to introduce new/better products to the market (i.e. once the PMTA bottleneck is cleared out). Recall that PMI has 58% share in snus and only 15% share in nicotine pouches in Nordics (Swedish Match’s own turf); (2) US States and even the Federal Government will eventually start introducing/increasing excise on nicotine pouches.

As a summary, PMI’s 2026 nicotine pouch target seems reasonable. However, it will be more problematic to keep the growth momentum going beyond 2026 – especially if an unfavorable regulatory environment builds up in the international markets.


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