Why Big Tobacco is buzzing over nicotine pouches

0:00Clara Murray: In 1898, John Nuveen had a vision to underwrite municipal bonds that would propel American infrastructure into the 20th century. More than 125 years later, that vision lives on. Today, Nuveen has grown into a leading global asset manager with expertise spanning public and private markets, still investing with a future in mind. Nuveen. Invest like the future is watching. Visit nuveen.com slash future to learn more.

0:27Mari Novik: Investing involves risk. Principal loss is possible. This is a revised version of an earlier episode and clarifies the position of Zin in the U.S. market.

0:40Mari Novik: There's a new product that has tobacco companies buzzing. They're called nicotine pouches.

0:46Clara Murray: It's about the size of like a piece of chewing gum and you put it under your upper or lower lip and it holds against the gum for maybe half an hour to an hour. And the flavors and nicotine in it dissolve out of it.

0:57Mari Novik: I was curious to know just how popular these pouches have become. So the other day, our show's producers took a walk along Manhattan's west side to find out. There's a park over there alongside the Hudson River, where a lot of young professionals frequent during lunchtime. One of my really good friends in our office actually takes Zin's as a use, like, to focus. That's what he uses it for. Instead of taking Adderall or another ADHD medication, he would take a Zin. Zinn is the most popular brand of nicotine pouch in the U.S., but there are other brands, too. I used it for, I would say, a full year, more or less, and I liked it a lot, so yeah, it felt like smoking 10 cigarettes at once.

1:43Mari Novik: But not everyone who has tried nicotine pouches loves them. Some people have some negative opinions about them.

1:50Clara Murray: I'm not a big fan of Zinn, to be honest. I'm not. It burns the lips and all.

1:54Mari Novik: I mean, from quality-wise, Zinn is the worst quality one of all of them. I don't do them. I've never started them, but I've tried them, of course. It's not good for you, but people do it. Despite the mixed reviews on Manhattan's West Side, the trendiness of these nicotine pouches is spelling financial success for big tobacco companies. Just look at the performance of Marlboro maker Philip Morris International. It owns the Zinn brand. Investors have really been sharing it.

2:21Clara Murray: the Philip Morris stock is up and far outpacing the stock market indices in the U.S.

2:27Mari Novik: It's good news for this industry that has struggled in recent decades to make as much profit as it used to in its heyday. But it's unclear if these nicotine pouches will become a long-term habit for big tobacco or if they'll just be a fleeting high.

2:46Mari Novik: I'm Safia Ahmed from the Financial Times, in for Michele Tendera. Today on Behind the Money, how did nicotine pouches become so popular? And could they be the product that revives big tobacco's heyday?

3:18Mari Novik: For the past several decades, the FT's leisure reporter, Mari Novik, tells me that smoking cigarettes has become less and less popular.

3:26Clara Murray: Tobacco use worldwide was more than 50 % higher in 2000 than it is now, according to the World Health Organization. So even though, you know, there is still a lot of people who smoke cigarettes, there has been a dramatic fall in terms of the usage.

3:43Mari Novik: And that decline, of course, has hit big tobacco very hard. We're talking companies like Philip Morris International, British American Tobacco, Altria Group and others.

3:55Clara Murray: As a consequence of the fact that people have not been as interested in smoking as they were before, tobacco shares have significantly underperformed the market over the past decade. And what that really has done is that it is posing an existential threat to the cigarette makers. They know that people are not smoking as much as they were before, and it's meant that they have had to start innovating and thinking about new lifelines and new ways to make revenue.

4:20Mari Novik: One of the things they try is something I at least cannot avoid seeing every day when I'm walking around New York City. Vapes.

4:30Clara Murray: Vaping has become really, really popular in the last five to ten years. And that was something that all these big tobacco companies initially invested quite a lot in and really tried to promote as their new alternative to smoking.

4:44Mari Novik: That's the FT's data reporter, Clara Murray. She tells me that it's smaller, independent vape brands that really pop off, not big tobacco.

4:53Clara Murray: None of the major tobacco companies have had a really successful vape, certainly nothing to the level of Juul in the U.S. or Elf Bar, Lost Mary in the U.K. And that's because these sort of smaller, like independent, often Chinese-made brands have been able to innovate and be a bit more successful with their marketing, whereas the tobacco companies have sort of failed to keep up.

5:17Mari Novik: Many of these smaller vaping companies, though, run into regulatory challenges pretty quickly throughout the late 2010s. A health alert tonight. The Food and Drug Administration cracks down on e-cigarettes. Developments tonight in those mysterious lung illnesses linked to e-cigarettes.

5:33Clara Murray: Vaping is... Juul in the U.S. had this explosive popularity but that attracted a lot of attention from regulators. There were a lot of class action lawsuits against Juul for getting young people addicted to vaping.

5:46Mari Novik: America's largest e-cigarette maker is under fire this morning.

5:49Clara Murray: One state now investigating whether Juul markets to teenagers. More trouble this morning for the e-cigarette maker Juul, which is being sued by another state, this time Massachusetts. One of the tobacco majors, Altria, they actually took a big stake in Juul, trying to capitalize on that popularity. They ended up having to write down their stake by 98 % because Juul was getting hit by so many lawsuits and regulations from people accusing it of getting teenagers hooked on nicotine.

6:16Mari Novik: The Food and Drug Administration in the U.S. only approved Juul's menthol and tobacco-flavored e-cigarettes for the American market as late as last month. That was after a long standoff. So thanks in part to bad press and a lot of scrutiny from regulators, vapes don't really work out for these large cigarette makers. Now they're on the hunt for something else. And that brings us to nicotine pouches.

6:47Mari Novik: Clara, give me the backstory here. Where did these come from?

6:52Clara Murray: Yeah, so nicotine pouches are basically based on this Scandinavian product called Snus, which has been around for, I think, a couple of centuries. It's essentially this small pouch that's filled with powdered tobacco leaf, and you put it under your lip, like against the gum.

7:09Mari Novik: Now in recent years, nicotine pouches have exploded in popularity outside of Scandinavia. Blink and you might have missed Robert F. Kennedy Jr. appearing to sneak something into his mouth at his Senate hearing in January. That was when he was confirmed as the U.S. Secretary of Health. It was quickly identified by internet sleuths as a nicotine pouch. And its appearance on the Senate floor underscores how a niche habit has entered the mainstream. In just a few years, the nicotine pouch has taken off everywhere from Premier League locker rooms to Wall Street trading floors. And Philip Morris' Zin brand now claims two-thirds of the U.S.

7:50Mari Novik: market.

7:50Clara Murray: So there's quite a large online subculture that's grown up around Zin. It's become sort of like a meme, like a cultural phenomenon in itself. And sales have been, you know, really skyrocketing in the U.S. So the popularity has really taken off so, so quickly.

8:07Mari Novik: In 2022, Philip Morris International, that's the tobacco business that makes Marlboro cigarettes, they notice the online buzz and dive headfirst into nicotine pouches as their next big product.

8:17Clara Murray: Philip Morris purchased it for$16 billion in 2022, which is like a really big acquisition. It's quite a lot of money to put behind it. And they obviously are a larger company. They could put a bit more marketing spend behind it. But I think maybe what they didn't anticipate was how quickly this would take off, especially online. Are the girlies doing Zin? Are they doing nicotine pouches?

8:39Mari Novik: Okay, so my thoughts on Zin nicotine pouches and any recommendations on how to... What you're hearing are clips from TikToks where people talk about using Zins as a performance enhancer at the gym, a way to focus. All right, what's up, you darebags? I got two Zins in. Let's go hit arms. Driving with a nicotine pouch in for the first time feels like driving Rainbow Road in Mario Kart.

9:04Clara Murray: You ever just throw one in? Yeah, there's quite a lot of conversation at the minute online about the supposed cognitive or performance enhancing benefits of nicotine, especially through the medium of nicotine pouches. It's important to say it's not really proven conclusively one way or another. And the tobacco companies all say that they're not promoting people to go out there and claim these things. But what's interesting is when Marie interviewed the CEO of Flip Morris, he actually said he uses Zin to help him focus. Yes, I mean, when we spoke, I asked him whether he was using a sin right now.

9:38Clara Murray: And he said, no, actually, no. But I do have it in my pocket because, you know, sometimes if I go into meetings, I might use it. Or if I'm going to study, if I'm going to read, I might put one in because it enhances my focus and my concentration. Ever since Philip Morris' acquisition, the popularity of these pouches has only gotten crazier.

10:00Mari Novik: And they've gained some celebrity users, too. It will wind you up. Really? Yes. Once you try this, you're going to get a lot richer. Zinn? Is that their advertising campaign? Zinn is not a sin. That's the advertising campaign. Really? Yeah, but the truth is Zinn is a powerful work enhancer.

10:18Clara Murray: Yeah, so that's Tucker Carlson appearing on a podcast discussing Zinn. So Tucker Carlson, really well-known right-wing pundit in the U.S., former Fox News host. Tucker Carlson has been one of these voices that have sort of been talking a lot about how Zinn enhances his focus, like improves his productivity. And he says it was kind of the key thing that helped him give up smoking after I think like 20 years of being addicted to cigarettes. And so he was a really huge proponent. And that's the sort of arguments that have been repeated by lots of other, you know, podcast bros, male influencers, you know, everyone from Joe Rogan to Andrew Huberman has sort of discussed these cognitive enhancements that nicotine pouches supposedly give you.

11:03Mari Novik: Now, Mari,$16 billion, that is a significant sum to pay. But that must mean that Philip Morris sees quite a bit of potential with this product, right? Like, how big do they see Zins getting?

11:18Clara Murray: So Philip Morris has set an aim of earning two-thirds of revenues from smoke-free products. by 2030. And so this year, they are expecting to sell up to 840 million cans of Cyn in the US, which is an increase of 45 % from the previous year. And so they've announced that they're going to expand one of their Cyn factories in the US, and then they're going to build another one in Colorado as well. So it's really an arm of their business that they're investing heavily in. Another thing to point out when it comes to that is that Citibank analysts have estimated that the gross margin of the nicotine pouch is roughly 15 percentage points higher than that of cigarettes, which means that for every nicotine pouch they make, they would make a 15 percentage point higher margin than on the cigarettes that they sell.

12:13Mari Novik: So not only is there this growing demand for the product, but it's also cheaper to produce than cigarettes.

12:20Clara Murray: Yes, exactly, exactly. At least that's what Philip Morris estimated, that it is cheaper for them to produce nicotine pouches compared to cigarettes.

12:30Mari Novik: So it seems, given the online hype, just how cheap these are to produce, that nicotine pouches could be the lifeline big tobacco is hunting for. But will things go up in smoke just like they did with vapes?

12:50Clara Murray: The future of fixed income investing will continue to blur the lines between public and private markets. Nuveen's credit platform was built to navigate this shifting landscape, channeling capital toward the businesses, infrastructure and energy solutions that are shaping tomorrow's economy, all while aiming to deliver the resilience and returns that portfolios seek today. Nuveen. Invest like the future is watching. Visit nuveen.com slash future to learn more. Investing involves risk.

13:16Mari Novik: Principal loss is possible. Now, most of the people we spoke to on Manhattan's West Side were young professionals, mostly in their 20s and 30s. Zinn may be the most popular brand in the U.S., but there are others, too. Velo from British American Tobacco or Nordic Spirit from Japan Tobacco International. And concerns are growing among international regulators that the fun flavors and powerful buzz of nicotine pouches could kickstart nicotine addiction among younger generations.

13:51Clara Murray: They're being marketed in some ways quite aggressively. You'll see them given out for free at music festivals. Some of the brands sponsor things like Formula One teams. Zinn even has a loyalty system where you can collect your empty cans and then swap them for prizes. They go all the way from new headphones, iPads, and even exclusive concerts.

14:14Mari Novik: Wow, that's a very generous loyalty program. But more generally, are regulators taking issue with this?

14:22Clara Murray: Yeah, so nicotine pouches are definitely coming into the crosshairs of regulators around the world. At the minute, in a lot of countries, they're actually completely unregulated. Like in the UK, it's completely legal to sell them to children, for example. They can be as strong as you want. They can, you know, contain any flavors. this has obviously sort of pricked the ears of governments and regulators who are worried that they need to get ahead of the trend and you know sort of cut this off before it comes to popular regulators are very concerned that in a similar way to vaping nicotine pouches are going to really appeal to young people to teenagers to people who might not have smoked before being nicotine users before and it's going to be like a gateway into addiction to the drug so they've actually already been banned in a number of countries, so Belgium and the Netherlands.

15:12Clara Murray: There's a ban coming in France very soon. Also, Ireland's health minister has recently said she wants to completely eradicate them.

15:19Mari Novik: In the US, the FDA has to approve the marketing of each nicotine-containing product. Zinn was the first nicotine pouch brand to be given permission in January this year, after a five-year-long wait. And the FDA concluded in its own words that, quote, youth use of nicotine pouches remains low despite growing sales in recent years, end quote. That decision came even as Democratic Senator Chuck Schumer urged the FDA to investigate Zinn's appeal to teenagers. Meanwhile, globally, tobacco companies are braced for potential regulatory issues. So Clara, are there any other reasons that these nicotine pouches might not be the lifeline that big tobacco companies hope that they are?

16:07Clara Murray: So a big sort of looming challenge for the major tobacco brands is that the nicotine pouches are quite cheap to produce. You know, there's not a huge barrier to entry to making these. Pretty much anyone could launch their own brand. So there has been a huge influx of challenger brands onto the market. it. A lot of them would be less, I would say, like scrupulous about how they're sort of marketing and presenting themselves. So you'll see some on the shelves that advertise themselves as being, you know, super strong. Some of them have, I think, more than six times as much nicotine in them as a cigarette.

16:41Clara Murray: And also they'll be, you know, really colorfully branded. There's some brands called like Killer or, you know, they'll be named after types of candy, like stuff that is really quite appealing to children. Right.

16:53Mari Novik: And that's what happened with vaping. These smaller independent brands are who really succeeded with vaping products.

17:01Clara Murray: Yeah, I think that there is a risk that these brands could also come in and win market share from the tobacco majors. At least for now, Zin is still really, really dominant in the US. I think they have about two thirds of the market. And in the UK, brands like Nordic Spirit and Velo are really popular. So it hasn't happened But I think that's something they'll be keeping an eye on, especially in light of them losing control of the vaping market.

17:25Mari Novik: Now, we do need to talk about the health impacts here. What are big tobacco companies doing in that space to make sure that this isn't another vape scenario?

17:35Clara Murray: Yeah, I think they're definitely worried about it going on the same trajectory as, you know, a brand like Juul, which had this explosive popularity, but kind of took the sort of full brunt of the blame for getting young people hooked on vaping. And I think this is something that the tobacco companies are going to be very cautious of. And I think this is why that they have signed up to this voluntary code of practice that they've signed between them and basically trying to say we're being responsible. You know, we're the good guys. We're not going to try to go after the youth market in a way that regulators are sort of fearing that history will repeat itself.

18:13Mari Novik: Tobacco companies, we're the good guys. That's not something you hear every day. Yeah, exactly. Are they just being more careful this time around with this code of practice and stuff?

18:26Clara Murray: Yeah, so the major companies have signed up to like a voluntary code of practice, basically saying they've all agreed together to limit marketing to young people, to limit the strength of pouches, so how much nicotine they contain, and a couple of other provisions. So I think they're really leaning on the side of, oh no, we can regulate ourselves. but yes they would also support things like age limits on who can buy them that sort of thing. It's also a point that for nicotine pouches the message that they really want to send is guys nicotine pouches is different it's been around in Scandinavia for centuries Sweden was declared smoke-free last year in 2024 because less than five percent of the population are now smoking because people are instead using nicotine pouches.

19:14Clara Murray: So that's the message that they want to send is that actually this is a much healthier way to stop smoking or to get your nicotine hit.

19:24Mari Novik: But is that true though? Like is this necessarily healthier or less harmful than smoking a cigarette or vaping?

19:31Clara Murray: Experts sort of warn that although it seems like in theory they should be healthier definitely than cigarettes where you're burning a lot of random chemicals and you know even vapes where you're still inhaling something into your lung. Nicotine pouches don't have any sort of obvious health drawbacks but they kind of warn that you know anything you're putting into your body for like a long period of time we don't really know what the long-term health implications of that are going to be yet. They're quite a different product to cigarettes. The nicotine in them is quite concentrated and it gets into your bloodstream quite quickly.

20:03Clara Murray: So a lot of people have quite negative reactions to them, like quite physical reactions to them when they take them for the first time or the first few times. I had a Norwegian friend over last year and she gave to a Spanish friend of mine a nicotine pouch and it was the first time that she ever tried one. And she ended up vomiting 14 times. 14 times? Yes. So it just gives an example of how strong the reaction can be for someone. And this was an especially strong nicotine pouch. But the nicotine is so concentrated and it goes straight into your bloodstream. So it is really something that can give some negative consequences right away, actually, for some people.

20:48Mari Novik: So there's a number of challenges that Big Tobacco face with its latest product, these nicotine pouches. But final verdict, what do you guys think? Are they putting too many eggs in one basket here?

21:01Clara Murray: It's hard to say whether they put too much into this nicotine pouch hype or how long it will last. But I think the answer to this question is they don't have a choice because we are seeing that demand for cigarettes is decreasing. And these tobacco companies, if they are going to survive, they have no choice but to start innovating.

21:25Mari Novik: Today's episode was hosted by me, Safia Ahmed It was also produced by me, Michaela Sia and Michaela Tendera Sound design and mixing was done by Sam Giovinco And original music is by Hannes Brown Special thanks to Dan Stewart as well Topher Forges is the FT's acting co-head of audio Thanks for listening, see you next week

21:57Clara Murray: The future of fixed income investing will continue to blur the lines between public and private markets. Nuveen's credit platform was built to navigate this shifting landscape, channeling capital toward the businesses, infrastructure and energy solutions that are shaping tomorrow's economy, all while aiming to deliver the resilience and returns that portfolios seek today. Nuveen. Invest like the future is watching. Visit nuveen.com slash future to learn more. Investing involves risk. Principal loss is possible.