The Blubber

Philip Morris International (PM.N) announced on Tuesday that it will invest $232 million to increase the production capacity of ZYN nicotine pouches at its Owensboro, Kentucky plant to meet rising demand. The investment will be made through one of PMI's Swedish Match affiliates, following a recent $600 million investment to establish a ZYN manufacturing facility in Colorado.

Why it Matters
Shipments of ZYN grew by 54% in the second quarter, as reported in July, but high demand led to short-term supply chain challenges, affecting volume growth. ZYN, a nicotine pouch alternative to traditional chewing tobacco, does not contain tobacco, according to Philip Morris.

Context
Philip Morris acquired Swedish Match, ZYN's parent company, in a $16 billion deal in 2022 as part of its strategy to diversify from traditional tobacco products in response to stricter regulations and growing health awareness. In June, PMI halted online sales of ZYN across the U.S. after receiving a subpoena from Washington, D.C., related to compliance with the city's 2022 ban on flavored tobacco sales. Concerns about illicit sales due to supply gaps were also raised during the company's second-quarter conference call in July.

What’s Next
The expansion at the Kentucky facility is already underway and is expected to be completed by the second quarter of 2025. To meet production needs, the plant will shift to 24/7 operations starting in the fourth quarter of this year. PMI aims for the expansion to provide around 900 million cans of ZYN by 2025.