Big Tobacco Isn’t Up in Smoke Just Yet

Conventional wisdom has it that the tobacco industry is shrinking faster than a lit menthol cigarette, but that’s entirely wrong: Big Tobacco is having a banner year.

Last week, the sector scored a big win after the FDA agreed to fast-track the approval process for ultra-popular nicotine pouches amid pressure from the White House. The victory comes amid what has been a rather strong sales year, especially among non-cigarette products.

Zyn Vogue

Historically, the FDA takes a long time to grant its stamp of approval to new forms of delivering a nicotine fix. In January, the agency finally approved 20 different flavors of Zyn, the industry-leading nicotine pouch brand owned by Philip Morris International, after five years of review.

According to documents seen by Reuters, the agency is now fast-tracking the process for pouch products from four industry leaders to completion by December. That means a legal launch may be right around the corner. (Note: The industry is increasingly taking a “bring to market first, ask for legal approval later” approach to its products, especially those featuring “synthetic” nicotine).

Big Tobacco has also largely evaded scrutiny from the Make America Healthy Again movement, and its product tends to do well amid periods of economic uncertainty anyhow:

• So far this year, a basket of six global tobacco stocks has produced an average total return of 43%, according to a Wall Street Journal analysis published last week.
• Zyn drove shipments of oral smoke-free products above 200 million cans in the Americas in PMI’s most recent quarter, up 32% year-over-year; the company’s stock is up more than 37% year-to-date as of Friday. Meanwhile, Altria reported 26% year-over-year growth in shipments of its Zyn competitor on! in its most recent quarter; its share price is up 27% year-to-date.

Altria-uism: Scratch the bit about tobacco stocks doing well in periods of economic uncertainty; they tend to do well in any period. A Credit Suisse study, also cited by the WSJ, found that the industry outperformed all other sectors in the US between 1900 and 2015. That has been a boon, believe it or not, for many US municipalities. That’s because way back in the late 1990s, major US tobacco companies agreed to pay 52 US municipalities and states $206 billion over the next 25 years (in exchange, those jurisdictions gave up their right to legal claims against the tobacco firms). Roughly half of those municipalities securitized the payments into municipal bonds, and the WSJ found those bonds — tied to actual cigarette sales — have gained 2.5x more than the S&P municipal bond index. Which means, somehow, the cigarette industry has become good for public health. Or, at least, public financial health.