The Irrepressible Rise of Novel Nicotine Products

Early 2022 has seen major tobacco companies reporting their 2021 financial results and showing their intentions to investors. The impressive performance of novel nicotine products has been central in the slides presented. It seems that a global reduced risk nicotine revolution is well underway. 

Philip Morris International (PMI) posted positive numbers for the year, estimating that the total number of users of its signature heated tobacco product, IQOS, has now reached approximately 21.2 million, of which 15.3 million  have switched away from smoking entirely. The American tobacco company Altria reported that sales of non-combustible products rose from 16 percent to 24 percent of the U.S. tobacco market from 2016 to 2021.

British American Tobacco saw revenue from its new nicotine products category rise by 42.4 percent in 2021 to £2.05 billion, primarily thanks to sales of nicotine pouches. It is projecting £5 billion revenue in new categories by 2025, and 50 million consumers of non-combustible products by 2030.

Japan Tobacco International said it hopes to prioritize heated tobacco and is predicting it will recoup its R&D investment on reduced risk products (RRP) by 2027. Its CEO Masamichi Terabatake declared that “[e]xpansion of our presence in the RRP category is utmost priority.”

Meanwhile Swedish Match – which recently opted to hive off its cigar business entirely to focus on non-combustible nicotine alternatives – reported an 11 percent sales increase in 2021 driven by smoke-free products. Their growth in Scandinavia has been impressive but even more remarkable in the US, where the number of consumers of their nicotine pouch brand, Zyn, now represents between 4 and 6 percent of the US market relative to the number of cigarette smokers.

All this information is telling. Despite the deliberately manufactured tsunami of misinformation about safer nicotine products from reactionary public health organizations in many countries, consumers are voting with their wallets and smokers are switching to nicotine alternatives regardless of the scare stories. The companies are also undeterred and have increased investment to target these new markets. It is significant that there was very little mention in any of the presentations of their combustible business despite it still being the most profitable. 

To understand why, it is necessary to recognize how these businesses have worked in the past. Historically, there has been very little movement in market share in combustibles. To gain even a half-point increase is usually categorized as a huge success when dealing with such a large consumer base which is brand-loyal, mostly because avenues for competition via marketing have been closed off.

Consider, then, that PMI reported that its early and committed gamble on reduced risk products seems to be paying off. Its share of the combustible market is currently 23 percent, but it now accounts for a 59 percent share of the new market in novel products. This is an unprecedented leap in any industry, but one which could shape fortunes in nicotine delivery for the future. A new market in safer products is up for grabs and all the major players are jostling to gain the best foothold.

Furthermore, sales of traditional products are in decline but tobacco stocks are not being cannibalized. It seems clear that fund managers are confident in the future of safer nicotine products. Consumer confidence and the basic incontrovertible truth that these products are far safer and have the potential to overwhelm combustible tobacco usage in coming years and decades means that investors are keeping faith in the companies’ ability to transition from selling dried leaves in a paper tube to the cleaner modern nicotine delivery systems available today. 

Moreover, it seems the market transition from combustible to non-combustible is good for public health. PMI’s results showed a much more rapid decline in the cigarette market in the 10 countries where IQOS has its greatest market share. In Japan, where there has been a 42 percent reduction in cigarette sales since heated tobacco was introduced, levels of hospitalizations for COPD and heart attacks have markedly decreased. In the UK, government endorsement of vaping has led to widespread use and driven dramatic declines in smoking. Sweden boasts the lowest smoking rate in Europe. And Norway is seeing a first smokefree generation with youth smoking rates of a mere one percent, both due to substitution of oral tobacco and nicotine pouches instead of cigarettes. 

Blinkered public health activists who are resisting the rise of these new products are fighting a losing battle. Since the science solidly backs up claims of significant reduced risk from novel nicotine products compared with smoking, their last remaining strategy is to trick policymakers into passing restrictive or prohibitionist laws in a futile attempt to hold back the tide of progress. These so-called public health groups may feel righteous in bravely fighting big industry, but they are arguably pursuing policies which will actually harm public health and damage their own reputations as prudent and objective academics.

Martin Cullip is the International Fellow at The Taxpayers Protection Alliance’s Consumer Center and is based in South London, UK.