(Bloomberg) -- Philip Morris International Inc. is expanding production of Zyn in the US as the popular oral nicotine pouch becomes increasingly hard to find because of soaring demand.
The company will invest $600 million over the next two years in a manufacturing facility in Aurora, Colorado, according to a statement. The factory will begin operations by the end of next year with regular production starting in 2026.
Zyn is an important source of growth for Philip Morris International as cigarette smoking declines, and the vape industry is increasingly dominated by unauthorized products made in China. The company sells Marlboros and other cigarette brands outside the US.
Sales of Zyn recently took off, jumping 80% in the first quarter and straining Philip Morris International’s capacity to keep up. Supply was further pressured after the company decided to halt online sales nationwide in June following a subpoena in the District of Columbia asking for information on the sale of flavored pouch products that are banned there.
The investment is a “wise move” to bolster inventories of Zyn as the brand’s limited supply weighs on its market share, Bloomberg Intelligence analyst Kenneth Shea wrote in a research note.
To meet demand, Philip Morris International is also increasing production at a facility making Zyn in the US in Owensboro, Kentucky. The investments in US factories are intended to help meet demand in the country and create capacity for exports, the company said.
“The new facility should ensure sizable supply going forward,” Jefferies analyst Owen Bennett wrote in a research note, referring to the Colorado location. He estimated the company may have capacity of as much as 2.5 billion cans a year between the two facilities. That’s almost three times as much as the current expectation for US pouches, which are set to be around 850 million cans by the end of this year, according to Bennett.
--With assistance from Tiffany Kary.
(Updates with analyst comment in seventh paragraph.)
©2024 Bloomberg L.P.
