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01/10/2023

Oral Nicotine Gains Traction as a Promising Alternative

The segment sees strong growth as the industry waits for regulatory action.
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oral nicotine pouches in a tin

NATIONAL REPORT — Talking to tobacco industry experts about the modern backbar, one category in particular is consistently cited as a bright beacon. Modern oral nicotine — made up primarily of pouches, tablets, gum and lozenges — is attracting a lot of attention these days.  

"Modern oral is again expected to be the tobacco category with the strongest growth in 2022," said Don Burke, senior vice president of Management Science Associates Inc. (MSA), a Pittsburgh based company focused on analytics and informatics.  

Looking at wholesale to retail shipment data, MSA tracked modern oral's growth levels in 2021 at nearly 80 percent. While the segment's 2022 gains are not predicted to be anywhere close to that, they are still forecasted to reach well into the double-digits.  

"We expect this growth level to slow to somewhere in the 20 percent to 40 percent level this year, as most convenience and tobacco outlet stores have now added this category to their product set," Burke told Convenience Store News, noting that the category is dominated by nicotine pouch products such as tobacco-free ZYN by Swedish Match,  on! by Helix Innovations LLC (an Altria joint venture) and  VELO by R.J. Reynolds Vapor Co. 

Despite the slowing distribution gains, MSA reports strong same-store sales — stores that have consistently sold modern oral products for the past 18 months showed a growth rate of 18 percent during the first half of this year vs. the first half of last year. "This is a general indication of strong repeat purchase levels, indicating high levels of consumer acceptance of this new cate gory," Burke stated.  

Bonnie Herzog, managing director at Goldman Sachs, echoes the positivity for the modern oral category and its reduced-risk potential. She told CSNews that the segment is "very promising, but still in the very early days." 

In Goldman Sachs' second quarter Nicotine Nuggets survey, retailers and wholesalers expressed optimism for modern oral nicotine and predicted continued robust growth for modern oral brands, which is offsetting the declines they are experiencing in other traditional oral categories, such as moist tobacco. Some retailers indicated they are experiencing "all-time-high sales" of oral cans per week per store.  

At Boulder, Colo.-based Smoker Friendly, "the oral nicotine products are just exploding like crazy, and I don't see those stopping anytime soon," reported Mary Szarmach, vice president of trade marketing.

She noted that the pandemic inspired tobacco consumers to try shopping at tobacco outlet stores and to try different forms of nicotine products such as modern oral, which has now taken hold as a permanent alternative. 

Ben Brooks, category manager at Worcester, Mass.-based Nouria Energy, also reports strong sales in modern oral. "We have large value in how that product is taxed in the Northeast and the advantage it gives over traditional products," he said.  

Helping Consumers Along the Nicotine Journey 

Today, many backbars around the country are being dominated by innovative products in modern oral and vapor, observed Leila Medeiros, senior vice president of new categories for R.J. Reynolds Vapor Co. She says the key is for each convenience store to recognize its unique position. "Ultimately, you need to meet your adult consumers where they are in their nicotine journey and your backbar should reflect their needs," she advised.  

Matthew Hanson, chief financial officer/chief growth officer for Black Buffalo, strongly encourages c-store retailers to allow for the introduction of modern oral products into their backbar space as "an incubator space of sorts." Black Buffalo launched in the first quarter of this year as a modern oral nicotine product that Hanson says delivers "the ritual and experience of moist smokeless tobacco in long cut and pouches, just without the tobacco leaf." 

He also highlighted innovative packaging and display solutions being brought to the market, such as framed sections in the backbar to differentiate modern oral as a segment, LED lighting, digital headers and displays at checkout or on/above the backbar. 

The Regulatory Picture 

Of course, the regulatory landscape holds both promise and potential pitfalls for the modern oral category. All modern oral nicotine products in the United States are included in the Premarket Tobacco Product Application (PMTA) regulatory framework of the Food and Drug Administration (FDA). Tobacco-derived items/pouches were part of the PMTA process outlined in 2016 and then earlier this year, the loophole for synthetic nicotine oral products was closed when Congress extended the FDA's jurisdiction to nicotine made in labs.  

This legislation caused some non-tobacco nicotine (NTN) players to exit the market rather than attempt to apply for a PMTA. Synthetic nicotine product manufacturers were required to submit PMTAs within a short 60-day period ending on May 14, 2022.  

"It appears to me the FDA has prioritized its review of [electronic nicotine delivery systems] products and is pushing modern oral nicotine products on the back burner," said Bryan Haynes, a partner with the Troutman Pepper law firm and head of its tobacco law practice. "And other than the FDA's general standards for PMTAs, we don't have a sense of how the FDA is going to evaluate these products. There are limited precedents out there." 

Nevertheless, Haynes made an educated guess that the modern oral industry could start seeing some Marketing Granted Orders issued by the FDA by mid-2023.  

For now, if a retailer questions whether they can sell a particular modern oral nicotine product, the solution is simple, according to Thomas Briant, executive director of the National Association of Tobacco Outlets.  

"The retailer can contact the manufacturer and inquire if the company has received a Marketing Granted Order, allowing the product to be sold; a Marketing Denial Order, prohibiting the product from being sold; or if it has a PMTA pending with the FDA and is waiting for a decision from the agency," he advised.  

Oral nicotine items that don't fall into any of these categories should be considered illegal, along with ones that have received Marketing Denial Orders, Briant added.