Nicotine Pouches: USA

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ZYN – USA: June 2024

Swedish Match North America (SMNA), a Philip Morris International (PMI) affiliate acquired in November 2022, received a subpoena from the Attorney General of the District of Columbia (DC) requesting information about ZYN’s compliance with DC’s ban on the sale of flavored products.

PMI’s preliminary investigation indicates that there have been sales of flavored nicotine pouch products in the DC, predominantly related to certain online sales platforms and some independent retailers (i.e. non-compliance with the ban). In the event of an unfavorable outcome, a material liability is reasonably possible.

SMNA is conducting a full review of its sales and supply chain arrangements in DC and other US localities where flavor bans may apply. As an initial remedial measure while the internal review continues, SMNA will immediately suspend online sales on zyn.com – which represents a small percentage of nationwide ZYN sales volumes since PMI’s acquisition of SMNA.

ZYN – USA: June 2024

The supply shortage and consequent stock-outs at the retailers continue to have an adverse effect on ZYN’s growth momentum in the US. In Q1 2024, Philip Morris International (PMI) reported a shipment volume of 131.6Mn ZYN cans in the US, corresponding to +79.7% year-on-year growth. The shipment growth (reported by PMI) was in line with the (retail) consumer off-take growth (reported by NielsenIQ) – which peaked just above 80% in April 2024. Since then, ZYN’s off-take growth is down to 50%.

PMI shipped 384.8Mn ZYN cans to the US market in 2023 and initially guided 520Mn case for 2024. PMI later increased the FY24 guidance to 560Mn cans and, most recently at the DB Global Consumer Conference, re-iterated its guidance. Thereby, PMI’s most recent guidance implies 45.5% year-on-year growth – well-below the consumer off-take growth observed so far at any point this year. In the absence of supply-chain constraints, PMI could achieve 650Mn cans volume in FY24 in the US according to our internal estimates – corresponding to an estimated 90Mn cans in lost volume. Taking advantage of the supply shortages and in an attempt to (financially) compensate for the lost volume, PMI is hiking ZYN price (resulting in up to ¢50 increase in the Retail Sales Price).

Winner of ZYN’s stock-outs? Swisher’s Rogue and BAT’s VELO with year-on-year consumer off-take growth reaching +90%-100% range most recently. Recall that, at the H1 2024 Pre-close Update, BAT mentioned that the early results from the phased roll-out of refreshed VELO brand expression are encouraging. For further details: BAT – H1 2024 Pre-close Update.

ZYN – USA: June 2024

At the DB Global Consumer Conference, PMI states that ZYN’s strong growth in the US is creating some tension on retail availability whether at the level of retailer or SKU. Capacity expansion (at the existing US factory) is underway and the supply should progressively improve in Q2 and Q3 – with the aim to be back to a normal level in the course of Q4 2024.

PMI re-confirms 560Mn cans volume target for ZYN in the US in 2024 despite the supply challenges. Moreover, PMI is now working on a new location in the US for the production of ZYN in 2025.

ZYN – USA: May 2024

Retailers in several US states, including New York, New Jersey, and Florida, are reportedly experiencing ZYN stock-outs. The supply shortage are ongoing for several weeks. At an earlier occasion, PMI confirmed that ZYN’s growth “is creating some tensions on the supply chain”. Meanwhile, some loyal ZYN users are speculating about the appetite-suppressing effects of the nicotine and tout ZYN as the new (make-believe) weight-loss quick fix (an inexpensive hack to replace new blockbuster drug, Ozempic) – which drives a further surge in the popularity of ZYN for its stimulant effects.

US FDA takes action against retailers for underage sales of ZYN: April 2024

US FDA announced1 the issuance of 119 warning letters to, and the filing of 41 civil money penalty complaints against, brick & mortar retailers that engaged in the underage sale of various flavors of ZYN nicotine pouches between October 2023 and February 2024. US FDA has also issued warning letters to three online retailers for the sale of unauthorized, flavored ZYN nicotine pouches, including Espressino, Black Cherry, Lemon Spritz, and Cucumber Lime.

Data from the 2023 National Youth Tobacco Survey show ~1.5% of youth reported currently using nicotine pouches, and use has remained unchanged among youth in recent years. However, FDA notes that they have received reports about the potential increased popularity of these products among youth, and the products are also a popular topic on social media among youth and social media influencers.

US FDA also underlines that no ZYN product has not been authorized for sale in the US as of April 2024.

First ZYN Lawsuit in the US: March 2024

In our note below (January 2024), we highlighted the risks associated to ZYN’s “explosive” growth in the US and mentioned the new market chatter: Is Swedish Match to PMI what JUUL was to Altria? Acquisition from Hell?

Philip Morris International now faces its first major legal challenge for ZYN in the US on the basis of ZYN being addictive and harmful to young people. The lawsuit says that ZYN pouches deliver more nicotine than cigarettes and that PMI benefits from “Zynfluencers” who promote the brand on social media (with an estimated 30,000 TikTok accounts that use the hashtag #Zyn).

The single plaintiff alleges addiction and dental issues as a result of ZYN use. The suit seeks class-action status and claims that PMI and Swedish Match failed to warn about the risk of addiction and other harmful effects like cognitive issues, cardiovascular injuries, gastrointestinal problems and gum disease. The case was brought by the law firm, whose initial lawsuit against Juul Labs investors (including Altria) expanded into thousands of legal actions and led to Altria’s eventual settlement of $235Mn.

US Senate Majority Leader calls for federal action on ZYN: January 2024

In a press conference, the US Senate Majority Leader (Democrat) called ZYN “pouch packed with problems” and urged the Federal Trade Commission and Food and Drug Administration (FDA) to investigate ZYN over its marketing practices and health effects. The Senator claimed that nicotine pouches are used by teens as an alternative to e-cigarettes and called for federal action to crack down on ZYN. These comments prompted a strong reaction from Republicans who openly offered support to ZYN on Social Media2.

However, even the slightest mention of ZYN crackdown is enough to chill the market. Philip Morris International (PMI) has a high-stake bet running on ZYN: PMI expects the US nicotine pouch category to be three times of its current size in 2030 and projects US$3.5Bn net revenue from ZYN in the US. PMI even presented ZYN’s stellar results before (less than stellar) IQOS during the Q3 2023 Earnings release.

PMI paid $16Bn in 2022 to acquire Swedish Match to gain presence in the smokeless category (especially, nicotine pouches and the ZYN brand) and access to the US market (Recall: Tobacco Industry: Acquisitions). However, the US FDA is yet to offer its verdict on nicotine pouches. Review of the pending ZYN PMTAs are expected to be completed towards the mid of the year. Would US FDA reject all flavored ZYN PMTAs and hand over the flavored nicotine pouch market to the illicit products and illegal sellers? And, even worse: what if PMI finds itself drowning in US litigation due to its alleged “marketing practices” – similar to the Altria and JUUL?

The new market chatter: Is Swedish Match to PMI what JUUL was to Altria? Acquisition from Hell?

References:

  1. https://www.fda.gov/tobacco-products/ctp-newsroom/fda-issues-warning-letters-and-files-civil-money-penalty-complaints-against-retailers-underage-sales ↩︎
  2. https://eu.usatoday.com/story/news/politics/2024/01/24/chuck-schumer-zyn-nicotine-pouches/72340548007/ ↩︎

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