I was one of those aggrieved Swedish Match shareholders, so I appreciate your empathy Devin! I agree with you, Zyn’s growth in the US has been astounding.
You’ve written a lot recently about nicotine prohibitionists would like nicotine to simply go away, instead of embracing harm reduction. I think they had the advantage the past few decades because (a) well educated and high income Americans now smoke at much, much lower rates than poor or less educated Americans and (b) well educated citizens have an outsized influence on political outcomes. For instance, if banning vaping flavors makes cigarette smokers less likely to switch, it’s not the well educated who suffer the consequences.
Nicotine pouches are a different ballgame. They appeal to professionals working in the finance, tech, and media industries, for the reasons you describe. Figures like Peter Thiel, Peter Attia and Andrew Huberman have discussed their risks and benefits.
Here are the first two paragraphs of a recent Bloomberg News article on Zyn. Try to imagine someone saying the same thing about cigarettes:
> Whenever Mark Moran, chief executive officer of the investor relations firm Equity Animal, is about to perform a boring task, he has a ritual. He pops a Zyn nicotine pouch into his mouth. Then his concentration sharpens, at least for a while. “Am I addicted to it? Absolutely,” he said. “But it’s something I very much enjoy.”
If a critical mass of high powered professionals start using pouches, I don’t think politically the FDA or Congress will be able to ban them. We may already have reached that point, based on the the pushback that Senator Schumer got after his remarks last January, which you also covered.
Great points, Tian. I do think that on a global level, we are in very very early innings for modern pouches. I suspect very few investors have timelines that extend to encompass that, however.
Sadly zyn only small part of PM earnings revenue etc. Will not be relevant (maybe forever) for PM in the next years. So it is not a nicotine pouches play.
Its so sad that this is not a seperate company.
If you like nicotine pouches i would rather buy happ instead of Pm.
I can appreciate the criticism that people, broadly, spend too much time on smaller parts of some of these businesses relative to core value drivers, namely cigarettes. However, I will push back on this a bit.
Maybe forever? SWMA is already accretive to earnings, and there is some straightforward math to get to how it is likely to become more so. While associated topline is a small % of the total business, the margin profile of the products is far higher than legacy, highlighting a greater % of gross profit. Looking at the current growth profile, even assuming a deceleration following the '24 guide, it does not take more than a few years of compounding effects to lead to substantially higher operating contribution in absolute terms. Also, on a normalized basis, it should be appreciated that much of this growth will be from ZYN in the US, and USD-derived sales will help smooth over some of the FX impacts that have been a thorn in the side of the company.
Sorry but never ever is PM 2.33x better then Bats…
Still IMB/BAT > PM.
PM better business but worse stock then Bat/Imb.
I hope you also do a update on altria. Because after the earnings report for me MO is the worst tobacco stock now. Revenue decline + -10% volume decline again + market share lost in several categories. Would be interested if you are still invested in altria.
I think you dont talk about portfolio positions but I would bet altria is your smallest position …
As I've covered, I hold a basket of these names, and I view them each to have unique and compelling qualities not entirely replicated by the others. They each act as pseudo hedges against some of the qualities of others if certain scenarios do (or do not) play out. I very much agree that something like Imperial, which is retiring equity capital at a rapid pace, appears notably mispriced. I would disagree that Altria is simply 'the worst' - nor is it the smallest % of my basket. An update is sure to come.
Great reminder Devin. From portfolio management point of view, investing in leaders within the same sector such as NKE/ADS, KO/PEP, NVDA/AMD, GOOG/META, DE/CAT would not result in meaningful diversification as their operations (hence share price) tend to be highly correlated to each other. Whereas for tobacco sector, due to the industry dynamics, investing in a basket could achieve greater diversification than many would have expected.
I love what you’ve written here about volumes, pricing strength, and PM driving MORE nicotine consumption. Your point on the importance of IQOS stick detection and authentication for capturing value is also muy bueno.
I was one of those aggrieved Swedish Match shareholders, so I appreciate your empathy Devin! I agree with you, Zyn’s growth in the US has been astounding.
You’ve written a lot recently about nicotine prohibitionists would like nicotine to simply go away, instead of embracing harm reduction. I think they had the advantage the past few decades because (a) well educated and high income Americans now smoke at much, much lower rates than poor or less educated Americans and (b) well educated citizens have an outsized influence on political outcomes. For instance, if banning vaping flavors makes cigarette smokers less likely to switch, it’s not the well educated who suffer the consequences.
Nicotine pouches are a different ballgame. They appeal to professionals working in the finance, tech, and media industries, for the reasons you describe. Figures like Peter Thiel, Peter Attia and Andrew Huberman have discussed their risks and benefits.
Here are the first two paragraphs of a recent Bloomberg News article on Zyn. Try to imagine someone saying the same thing about cigarettes:
> Whenever Mark Moran, chief executive officer of the investor relations firm Equity Animal, is about to perform a boring task, he has a ritual. He pops a Zyn nicotine pouch into his mouth. Then his concentration sharpens, at least for a while. “Am I addicted to it? Absolutely,” he said. “But it’s something I very much enjoy.”
https://www.bloomberg.com/news/articles/2024-01-31/zyn-lucy-nicotine-pouches-gain-traction-with-office-workers
If a critical mass of high powered professionals start using pouches, I don’t think politically the FDA or Congress will be able to ban them. We may already have reached that point, based on the the pushback that Senator Schumer got after his remarks last January, which you also covered.
Great points, Tian. I do think that on a global level, we are in very very early innings for modern pouches. I suspect very few investors have timelines that extend to encompass that, however.
Sadly zyn only small part of PM earnings revenue etc. Will not be relevant (maybe forever) for PM in the next years. So it is not a nicotine pouches play.
Its so sad that this is not a seperate company.
If you like nicotine pouches i would rather buy happ instead of Pm.
I can appreciate the criticism that people, broadly, spend too much time on smaller parts of some of these businesses relative to core value drivers, namely cigarettes. However, I will push back on this a bit.
Maybe forever? SWMA is already accretive to earnings, and there is some straightforward math to get to how it is likely to become more so. While associated topline is a small % of the total business, the margin profile of the products is far higher than legacy, highlighting a greater % of gross profit. Looking at the current growth profile, even assuming a deceleration following the '24 guide, it does not take more than a few years of compounding effects to lead to substantially higher operating contribution in absolute terms. Also, on a normalized basis, it should be appreciated that much of this growth will be from ZYN in the US, and USD-derived sales will help smooth over some of the FX impacts that have been a thorn in the side of the company.
PM forward P/E 14
Bat forward P/E 6
Sorry but never ever is PM 2.33x better then Bats…
Still IMB/BAT > PM.
PM better business but worse stock then Bat/Imb.
I hope you also do a update on altria. Because after the earnings report for me MO is the worst tobacco stock now. Revenue decline + -10% volume decline again + market share lost in several categories. Would be interested if you are still invested in altria.
I think you dont talk about portfolio positions but I would bet altria is your smallest position …
As I've covered, I hold a basket of these names, and I view them each to have unique and compelling qualities not entirely replicated by the others. They each act as pseudo hedges against some of the qualities of others if certain scenarios do (or do not) play out. I very much agree that something like Imperial, which is retiring equity capital at a rapid pace, appears notably mispriced. I would disagree that Altria is simply 'the worst' - nor is it the smallest % of my basket. An update is sure to come.
Great reminder Devin. From portfolio management point of view, investing in leaders within the same sector such as NKE/ADS, KO/PEP, NVDA/AMD, GOOG/META, DE/CAT would not result in meaningful diversification as their operations (hence share price) tend to be highly correlated to each other. Whereas for tobacco sector, due to the industry dynamics, investing in a basket could achieve greater diversification than many would have expected.
Exactly right. I plan to devote a future piece to all the major considerations of the 'basket' approach.
I love what you’ve written here about volumes, pricing strength, and PM driving MORE nicotine consumption. Your point on the importance of IQOS stick detection and authentication for capturing value is also muy bueno.