Philip Morris Halts US Online Sales of Zyn After Subpoena

Advertising for Zyn smokeless nicotine pouches at a smoke shop in New York.

(Bloomberg) -- Philip Morris International Inc. stopped online sales of its popular nicotine pouch brand Zyn in the US after an affiliate received a subpoena in the District of Columbia.

The order, served to Swedish Match North America LLC, is linked to a probe of “compliance with DC’s ban on the sale of flavored products as it relates to Zyn nicotine pouches,” the company said in a filing.

The investigation could result in an unspecified “material liability” if there is “an unfavorable outcome” related to the matter, Philip Morris said, adding that it will comply with the request for information.

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 pouches do not contain tobacco.

The product has drawn criticism from lawmakers, including US Senate majority leader Chuck Schumer, for allegedly targeting young people.

While online sales make up a “very small percentage of national volumes,” analysts at Jefferies said the subpoena, coupled with current supply shortages of Zyn in the US, “is negative for sentiment.”

There is a risk of other states and localities following suit after the DC action, the Jefferies analysts including Owen Bennett said in the report. Jefferies estimates there are some 400 localities and five states that have flavor bans or restrictions relating to tobacco and nicotine products.

If Philip Morris finds that sales of flavored Zyn products in places where they are banned “is common occurrence, and takes actions to put an end to this, it is possible that the impact on sales could become more meaningful,” the Jefferies analysts said.

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.

Philip Morris shares were 0.5% lower in premarket US trading.

--With assistance from Joel Leon.

(Updates with analyst comments beginning in paragraph five)

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