(Bloomberg Opinion) -- Philip Morris International Inc. has stopped online sales of Zyn in the US after receiving a subpoena in the District of Columbia related to flavored products that are banned there.
It’s the latest example of the popular nicotine-pouch brand hitting the headlines, and raises further questions about not just the fast-growing product, but Big Tobacco’s ability to shift from cigarettes to potentially less risky alternatives.
The debate around Zyn already looked eerily similar to that which engulfed vaping five years ago. The latest episode, combined with soaring sales and the rise of social media “Zynfluencers,” could make restrictions on the sale of the pouches more likely.
Philip Morris said this week that it had received a subpoena from the Attorney General of the District of Columbia, requesting information about Zyn owner Swedish Match’s compliance with the sale of flavored tobacco and nicotine products, which were banned in the region in October 2022.
The company said it had investigated, and its preliminary findings indicated that there had been sales of flavored pouches — which do not contain tobacco — in DC, predominantly related to certain online platforms and some independent retailers. It added that this did not relate to youth use: Zyn.com sales were age-restricted. It also said that Zyn.com represented a very small percentage of nationwide volumes since the acquisition of Swedish Match in 2022.
Nevertheless, it said it faced an unspecified “material liability” if there was an “unfavorable outcome” related to the matter.
Given that Philip Morris generated free cash flow of about $8 billion last year, the size of the fine is “largely irrelevant,” says Duncan Fox, analyst at Bloomberg Intelligence. And suspending online sales of Zyn might actually be helpful right now. Demand for the pouches has taken off to such an extent in the US — shipments in the region rose 80% in the first quarter — that Philip Morris has struggled to keep up, leading to shortages.
But the incident could mean further scrutiny of Zyn’s sales and marketing practices, and in the longer-term, greater regulation.
Philip Morris has asked Swedish Match to conduct a full review of its sales and supply-chain arrangements in DC and other US states and municipalities where flavor bans may apply. California and Massachusetts have such arrangements — and analysts at Jefferies estimate that bans of some sort are in place in about 400 localities across the US.
The discovery of further sales of flavored pouches in locations where they are prohibited can’t be ruled out, particularly given how quickly demand for Zyn has ramped up.
There is a broader sense that the product is coming under fire, not just because of the spectacular sales growth but because it has become part of popular culture. As my colleague Lisa Jarvis has noted, while pouches offer the kick of a cigarette without the cancer-causing smoke and chemicals of tobacco, they are not risk-free. We know very little about how they could affect health and addiction trends in the US.
Philip Morris was hit with its first Zyn lawsuit in March, alleging that it marketed nicotine pouches to teens. The company said the complaints were without merit and would be vigorously defended. Indeed, many of the concerns have centered on whether young people who have never smoked are getting hooked. Pouch use isn’t yet as prevalent as vaping among teens, with the most recent National Youth Tobacco Survey showing that just 1.5% of US middle- and high-school students were using them, compared with 7.7% for electronic cigarettes.
Even so, if vaping is anything to go by, the most likely outcome of the scrutiny on Zyn will be restrictions on the flavors that pouches can be sold in. Alternatives would be limiting their potency, or even an outright ban in the US.
That looks far off for now.
But what happens at Zyn — both in the DC case and beyond — has huge ramifications for the tobacco industry. While Philip Morris is the market leader in modern oral tobacco as it’s called, British American Tobacco Plc and Altria Group Inc. are also marketing the products.
With smoking rates falling in many developed markets, and some governments, such as the UK, seeking to stub it out altogether, tobacco companies have been investing their still prodigious cashflow into products that will continue to generate sales and profit.
Zyn looks like just that, as does Philip Morris’s other market leading alternative, the IQOS device that heats rather than burns tobacco. Indeed, the company has been the most vocal in moving to what it calls a smoke-free future. Sales of these products, including Zyn and IQOS, accounted for 39% of its revenue in the first quarter. Philip Morris aims to generate more than two-thirds of its revenue from potentially reduced-risk products by 2030.
But the DC subpoena to Zyn is a stark reminder that giving up smoking is easier said than done.
More From Bloomberg Opinion’s Andrea Felsted:
- London Shouldn't Want a Shein Hand-Me-Down
- Lululemon Is Coming to an Office (and Golf Course) Near You
- Hey Target, Walmart Is Coming for You
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.
More stories like this are available on bloomberg.com/opinion
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