Philip Morris International stopped online sales of its popular brand of Zyn nicotine pouches in the United States after receiving a citation in the District of Columbia related to flavored products that are prohibited there.
Philip Morris said its preliminary investigation indicated there have been sales of flavored bags in D.C., “predominantly related to certain online sales platforms and some independent retailers.” The order was delivered to affiliate Swedish Match North America LLC, the company said in a filing.
The tobacco company said it could face unspecified “material liability” if there is “an unfavorable outcome” related to the matter, adding that it will comply with the request for information.
Any potential fine is likely to be “a few million dollars rather than a few hundred million dollars,” said Gaurav Jain, an analyst at Barclays, as relatively few flavored pouches are sold online and not all e-commerce retailers sell flavored pouches.
“More generally, however, it raises questions about the checks and balances that exist at Zyn.com, as it is in the rapid growth phase,” he said in a note to clients.
Philip Morris shares fell as much as 2.7% in New York trading after analysts raised the possibility that enforcement actions could go beyond D.C.. The stock is up about 7% in the last 12 months.
Impact on sales
“A valid question will be how many sales come from other online platforms and independent retailers that not only sell in DC, but also potentially other states/localities that have flavor bans,” said Owen Bennett, Jefferies analyst, pointing to bans on nicotine flavors and tobacco restrictions in 400 localities and five states.
Zyn, which delivers nicotine to users through small tea bag-like pouches placed between the gum and upper lip, has been a growth engine for Philip Morris in the United States. The rise in popularity of the pouches, which do not contain tobacco, has led to a shortage of supply as demand increases.
Philip Morris, which sells Marlboro cigarettes outside the US, acquired Zyn maker Swedish Match in 2022 in a $16 billion acquisition, giving it a US distribution network and new free products of smoke. Since then, it has ramped up marketing of Zyn, and Bag shipments to the United States increased nearly 80% to 131.6 million cans during the company's first quarter.
Zyn has become a popular topic on social media for some conservative influencers, and former Fox News host Tucker Carlson decried pressure to restrict sales of the bags.
Pouches made under the Velo brand by British American Tobacco Plc have benefited from Zyn supply shortages in the US. and could gain more ground if Zyn sales take a hit, according to the Jefferies report.
If Philip Morris discovers that sales of flavored Zyn products in places where they are banned “is common and takes steps to end this, the impact on sales is likely to be more significant,” Bennett said.
