(Bloomberg) — Philip Morris International Inc. stopped online sales of its popular nicotine pouch brand Zyn in the US after receiving a subpoena in the District of Columbia related to flavored products that are banned there.
Philip Morris said its preliminary investigation indicated that there have been sales of flavored pouches in DC, “predominantly related to certain online sales platforms and some independent retailers.” The order was served to affiliate Swedish Match North America LLC, the company said in a filing.
The tobacco company said it could face an 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 Barclays analyst Gaurav Jain, as relatively few flavored pouches are sold online and not all e-commerce retailers sell flavored pouches.
“More broadly though, it does raise questions around the checks and balances that exist at Zyn.com as it is in the phase of rapid growth,” he said in a note to clients.
Shares of Philip Morris fell as much as 2.7% in New York trading after analysts raised the possibility that enforcement actions could go beyond DC. The stock is up about 7% in the past 12 months.
Sales Impact
“A valid question will be how many sales come from other online platforms and independent retailers that are not only selling into DC, but also potentially other states/localities that have flavor bans,” said Jefferies analyst Owen Bennett, noting flavor bans on nicotine and tobacco restrictions across 400 localities and five states.
Zyn, which delivers nicotine to users via small pouches resembling tea bags placed between the gum and upper lip, has been a growth engine for Philip Morris in the US. The surge in popularity of the pouches, which don’t contain tobacco, has led to supply shortages as demand rises.
The product has drawn criticism from lawmakers, including Senate majority leader Chuck Schumer, for allegedly targeting young people.
Philip Morris, which sells Marlboro cigarettes outside the US, acquired Zyn maker Swedish Match in 2022 with a $16 billion takeover, giving it a US distribution network and new smoke-free products. It has since ramped up marketing for Zyn, and US shipments of the pouches rose nearly 80% to 131.6 million cans during the company’s first quarter.
Zyn has become a popular subject on social media for some conservative influencers, with former Fox News host Tucker Carlson decrying the push to restrict sales of the pouches.
Pouches made under the Velo brand by British American Tobacco Plc have benefited from Zyn supply shortages in the US and could gain more traction if Zyn sales are impacted, the Jefferies report said.
If Philip Morris finds that sales of flavored Zyn products in places where they are banned “is a common occurrence, and takes actions to put an end to this, it is possible that the impact on sales could become more meaningful,” Bennett said.
–With assistance from Joel Leon and Sabah Meddings.
(Updates with analyst comment in fourth and fifth paragraphs.)
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Published: 19 Jun 2024, 12:22 AM IST