The Nicotine Horizon

Jul 13, 2025

“The health of the eye seems to demand a horizon. We are never tired, so long as we can see far enough.” - Ralph Waldo Emerson, Nature

For those of us who take a genuinely long-term approach to our investments, short-term price movements are often just noise. Yet, that racket, as tricky as it may be to detangle, can help provide insight into what the broader market is taking into consideration.

Melting up

As expectations for rate cuts grow, one must ask: Where will those seeking a dependable yield go? Nicotine equities continue to produce outsized value relative to the multiples at which they trade. This reach for yield may prove a partial explanation, but it is far from complete.

We are witnessing constant scrambling as numerous industries rush to assess the impacts of tariffs and find ways to mitigate the sting. Other CPG companies struggle to deliver on the beloved metric of volumes after aggressively raising prices. In the background, economic uncertainty and geopolitical tensions mount. Although not impervious to all forms of shock, the nicotine ecosystem has proven itself resilient once again.

The melting up in share prices, as I see it, largely has to do with perception. Widespread opinion has begun to shift, underpinned by the promise of next-gen products to enhance profitability across the longer Nicotine Arc, which is not fully captured in current financials. These companies are beginning to be viewed less as melting ice cubes.

Far more important is recognizing that, for roughly seventy years, the perception of being melting ice cubes has never quite aligned with reality. In aggregate, the size of the value chain has continued to increase. The profits produced and returned to shareholders have followed suit.

It has been nearly three years since I wrote The New Era of Nicotine. Although the growth rates of next-gen categories continue at a rapid pace, a larger part of the story is one of persistence. Disregarded by many and wrongly assumed to be fully replaced, the financial strength of the cigarette has been—and will continue to be—the primary driver of profitability for the industry.

Performance

For many, share price drives the story. Marching higher proves soundness. Trending lower signals demise. Yet, it has continually been proven that the true driver over the longer term is not of share price, but of business.

The expectations of increasing profits, to a degree, interact unfavorably with their recognition by investors. Regardless of what you point to as the cause for the recent run-up in share prices, the very phenomenon dampens increased capital returns in the form of share repurchases. Considering this, it is not unfair to wish for modest turbulence, so that the market becomes increasingly disenchanted with the industry.

On the horizon

There appears to be growing enthusiasm as we approach earnings season. I offer a gentle reminder that it will be yet another relatively minor milestone in the broader arc, like all before it. While there will be a good deal of focus on fundamentals, I expect an excessive focus to be provided to volumes rather than pricing, mix, and cost controls—again. Growth rates of next-gen products will capture the headlines, while cross-category movement is more likely to remain a footnote.

In the coming quarters, one critical aspect that I expect companies to discuss will be not the cross-category movement from legacy products to next-gen, but rather the movement between new categories. With numerous regulatory and enforcement actions occurring within the United States and across Europe, there is a distinct possibility that relative trajectories will begin to starkly widen, such as nicotine pouches benefiting over vapor. How operators address these changes and articulate investment to capture opportunity will be illuminating.

Up to speed

One unique metric that proxies the growing interest in the nicotine industry is the influx of readers to Invariant. If you are a new reader, I encourage you to scour the archive. Below, I have highlighted several articles of each of the companies I cover, in reverse chronological order. These not only aid in understanding industry developments, but also capture my approach and perspective.

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Ownership Disclaimer

I own positions in tobacco companies such as Altria, Philip Morris International, British American Tobacco, Scandinavian Tobacco Group, and Imperial Brands. I also own positions in Haypp Group, a major online retailer of reduced-risk nicotine products.

Disclaimer

This publication’s content is for entertainment and educational purposes only. I am not a licensed investment professional. Nothing produced under the Invariant brand should be thought of as investment advice. Do your own research. All content is subject to interpretation.

Anthony Yiu

Jul 14

A great reminder. I don't fancy a surge in share price for the same reason. It directly impacts the EPS growth algorithm of Imperial Brands, making share repurchase a less attractive capital allocation option when BAT has more firepower to deploy in 2026 onwards.

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George

Nice article. Would love to hear your thoughts on $tpb. Seems to be the biggest beneficiary of nicotine pouches among US publicly traded stocks.

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The Nicotine Horizon

Melting up

Performance

On the horizon

Up to speed

Altria

Philip Morris International

British American Tobacco

Imperial Brands

Logista

Scandinavian Tobacco Group

Haypp Group

22nd Century Group

Karelia

Industry Updates

Ownership Disclaimer

Disclaimer

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