Philip Morris International: District of Columbia Subpoena

Rhea-AI Summary

Philip Morris International's affiliate, Swedish Match North America (SMNA), received a subpoena from the Attorney General of the District of Columbia. This request concerns SMNA's compliance with D.C.'s ban on flavored nicotine products, specifically ZYN nicotine pouches.

Sales of these products have been identified in D.C., mainly through online platforms and independent retailers. SMNA is conducting a thorough review of its sales and supply chain in D.C. and other areas with similar bans.

As a preliminary measure, SMNA has suspended online sales of ZYN products on ZYN.com. PMI reaffirms its commitment to 21+ access and compliance with U.S. laws. SMNA's online sales represent a small fraction of the nationwide ZYN volumes.

PMI aims to deliver a smoke-free future and has invested over $12.5 billion in smoke-free product development. Their smoke-free products accounted for 37% of PMI's total net revenues in 2023, with approximately 33 million global users.

Positive

• SMNA is taking immediate remedial actions to suspend online sales on ZYN.com.
• ZYN.com sales have been fully age-gated to ensure 21+ only access.
• PMI's investment in smoke-free products since 2008 amounts to over $12.5 billion.
• Smoke-free products accounted for 37% of PMI's total net revenues in 2023.
• Approximately 33 million adults use PMI's smoke-free products globally.

Negative

• SMNA may face material liability due to non-compliance with D.C.'s ban on flavored nicotine products.
• Preliminary investigation indicates sales of flavored nicotine pouches in D.C. through various channels.
• A full review of sales and supply chain arrangements in D.C. and other localities with flavor bans is ongoing.
• Suspension of online sales on ZYN.com may impact SMNA's revenue.

Insights

Legal Expert

The subpoena received by Swedish Match North America LLC (SMNA) from the Attorney General of the District of Columbia signals a potential regulatory issue regarding the compliance of their flavored nicotine pouch products, ZYN, with D.C.'s ban on such products. From a legal standpoint, this development could lead to significant consequences for Philip Morris International (PMI) and its affiliate, SMNA. Regulatory scrutiny, especially when it involves products that fall under the purview of recent legal bans, often carries the risk of financial penalties and additional compliance costs.

While the immediate suspension of online sales on ZYN.com is a proactive step, the essence of the issue lies in the potential liability that could arise from non-compliance. If the preliminary investigation by PMI and SMNA confirms violations and if these are deemed substantial, it could result in material liabilities. Although the exact financial impact is not estimable at this time, investors should be aware of the precedent such regulatory actions can set, potentially leading to stricter oversight in other regions as well.

This situation underscores the importance of stringent compliance measures and proactive auditing of sales channels to mitigate legal risks. Short-term, PMI might face legal costs and potential fines; however, in the long-term, ensuring compliance will be important to maintain market trust and avoid recurrent issues.

Financial Analyst

From a financial perspective, the subpoena and potential regulatory non-compliance issues faced by SMNA may introduce uncertainties regarding future revenues from their ZYN nicotine pouches. Given that ZYN.com sales currently represent a very small percentage of nationwide ZYN volumes, the immediate financial impact might be limited; however, the broader implications could be more significant. Any potential fines, increased compliance costs and a temporary halt in sales could strain short-term financial performance.

Investors should pay attention to the ongoing investigation outcomes and any subsequent measures needed to align with regulations. The mention of a 'material liability' that is 'reasonably possible' indicates the seriousness of the issue, even if it is not quantifiable yet. Historically, regulatory fines in the tobacco and nicotine sectors can be substantial and can affect stock valuations. Moreover, ongoing regulatory scrutiny might affect investor sentiment and could cause stock price volatility.

In the long-term, this incident highlights the growing regulatory pressures facing the nicotine and tobacco industry. PMI’s efforts toward a transition to smoke-free products and diversification into wellness and healthcare may mitigate some of these risks, but investors should consider these regulatory challenges as part of their risk assessment.

STAMFORD, CT--(BUSINESS WIRE)-- Regulatory News:

Swedish Match North America LLC (“SMNA”), a Philip Morris International Inc. (“PMI” or “Company”) affiliate acquired in November 2022, has received a subpoena from the Attorney General of the District of Columbia (also referred to in this press release as, “D.C.”) requesting, among other things, information about SMNA’s compliance with D.C.’s ban on the sale of flavored products as it relates to ZYN nicotine pouches.

The Company’s affiliate, SMNA, intends to comply with the Attorney General’s request for information concerning sales of its nicotine pouch products in D.C. Our preliminary investigation indicates that there have been sales of flavored nicotine pouch products in D.C., predominantly related to certain online sales platforms and some independent retailers. In the event of an unfavorable outcome related to this matter, a material liability is reasonably possible though not estimable at this time. At the request of PMI, SMNA is conducting a full review of its sales and supply chain arrangements in D.C. and other U.S. localities where flavor bans may apply.

As an initial remedial measure, while our investigation continues, SMNA is taking steps to immediately suspend online sales on ZYN.com. We reaffirm our commitment to 21+ only access and confirm that ZYN.com sales have been fully age-gated. ZYN.com sales have represented a very small percentage of nationwide ZYN volumes since PMI’s acquisition of SMNA.

We remain committed to ensuring compliance with all laws and regulations concerning the sale of our affiliates’ products in the U.S. and worldwide.

Philip Morris International: Delivering a Smoke-Free Future

Philip Morris International (PMI) is a leading international tobacco company, actively delivering a smoke-free future and evolving its portfolio for the long term to include products outside of the tobacco and nicotine sector. The company’s current product portfolio primarily consists of cigarettes and smoke-free products. Since 2008, PMI has invested over $12.5 billion to develop, scientifically substantiate and commercialize innovative smoke-free products for adults who would otherwise continue to smoke, with the goal of completely ending the sale of cigarettes. This includes the building of world-class scientific assessment capabilities, notably in the areas of pre-clinical systems toxicology, clinical and behavioral research, as well as post-market studies. In 2022, PMI acquired Swedish Match – a leader in oral nicotine delivery – creating a global smoke-free champion led by the companies’ IQOS and ZYN brands. The U.S. Food and Drug Administration has authorized versions of PMI’s IQOS devices and consumables and Swedish Match’s General snus as Modified Risk Tobacco Products. As of December 31, 2023, PMI's smoke-free products were available for sale in 84 markets, and PMI estimates that approximately 33 million adults around the world use PMI's smoke-free products. Smoke-free business accounted for approximately 37% of PMI’s total full-year 2023 net revenues. With a strong foundation and significant expertise in life sciences, PMI announced in February 2021 its ambition to expand into wellness and healthcare areas and, through its Vectura Fertin Pharma business, aims to enhance life through the delivery of seamless health experiences. For more information, please visit www.pmi.com and www.pmiscience.com.

Forward-Looking and Cautionary Statements

This press release contains projections of future results and goals and other forward-looking statements, including statements regarding expected operational performance; regulatory outcomes; and business plans and strategies. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. In the event that risks or uncertainties materialize, or underlying assumptions prove inaccurate, actual results could vary materially from those contained in such forward-looking statements. Pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, PMI is identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forward-looking statements made by PMI.

PMI's business risks include: excise tax increases and discriminatory tax structures; increasing marketing and regulatory restrictions that could reduce our competitiveness, eliminate our ability to communicate with adult consumers, or ban certain of our products in certain markets or countries; health concerns relating to the use of tobacco and other nicotine-containing products and exposure to environmental tobacco smoke; litigation related to tobacco and/or nicotine use and intellectual property; intense competition; the effects of global and individual country economic, regulatory and political developments, natural disasters and conflicts; the impact and consequences of Russia's invasion of Ukraine; changes in adult smoker behavior; the impact of natural disasters and pandemics on PMI's business; lost revenues as a result of counterfeiting, contraband and cross-border purchases; governmental investigations; unfavorable currency exchange rates and currency devaluations, and limitations on the ability to repatriate funds; adverse changes in applicable corporate tax laws; adverse changes in the cost, availability, and quality of tobacco and other agricultural products and raw materials, as well as components and materials for our electronic devices; and the integrity of its information systems and effectiveness of its data privacy policies. PMI's future profitability may also be adversely affected should it be unsuccessful in its attempts to introduce, commercialize, and grow smoke-free products or if regulation or taxation do not differentiate between such products and cigarettes; if it is unable to successfully introduce new products, promote brand equity, enter new markets or improve its margins through increased prices and productivity gains; if it is unable to expand its brand portfolio internally or through acquisitions and the development of strategic business relationships; if it is unable to attract and retain the best global talent, including women or diverse candidates; or if it is unable to successfully integrate and realize the expected benefits from recent transactions and acquisitions. Future results are also subject to the lower predictability of our smoke-free products performance.

PMI is further subject to other risks detailed from time to time in its publicly filed documents, including PMI's Annual Report on Form 10-K for the fourth quarter and year ended December 31, 2023, and the Quarterly Report on Form 10-Q for the first quarter ended March 31, 2024. PMI cautions that the foregoing list of important factors is not a complete discussion of all potential risks and uncertainties. PMI does not undertake to update any forward-looking statement that it may make from time to time, except in the normal course of its public disclosure obligations.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240617049272/en/

Philip Morris International

Investor Relations:

Stamford, CT: +1 (203) 904 2410

Lausanne: +41 582 424 666

Email: InvestorRelations@pmi.com

Media: Corey Henry

Stamford, CT: +1 (202) 679 7296

Email: Corey.Henry@pmi.com

Source: Philip Morris International

FAQ

What is the District of Columbia subpoena about for Philip Morris International (PM)?

The subpoena concerns the compliance of Swedish Match North America's sales of ZYN nicotine pouches with D.C.'s ban on flavored products.

What actions is Swedish Match North America taking in response to the D.C. subpoena?

SMNA is conducting a full review of its sales and supply chain in D.C., suspending online sales on ZYN.com, and ensuring compliance with 21+ age restrictions.

How might the D.C. subpoena affect Philip Morris International (PM) financially?

If the outcome is unfavorable, SMNA could face a material liability, though it is not estimable at this time.

What percentage of PMI's revenues came from smoke-free products in 2023?

In 2023, smoke-free products accounted for 37% of PMI's total net revenues.

How many adults use PMI's smoke-free products worldwide?

Approximately 33 million adults globally use PMI's smoke-free products.