Great resource here. It's a year old, but the most recent and thorough data I could find:
Trends in nicotine use 2017-2020
Summary (including some of my own perspective):
Cigarettes are still the leader in nicotine delivery by far. Yet we all know that smoking is in decline, especially in developed regions like the US and Western Europe. Tobacco companies maintain stable growth by raising prices despite stable or declining volume.
Big Tobacco is also investing in so-called “Next-Generation Products” – heat-not-burn tobacco, vaping, and tobacco-free oral.
BTI (British American Tobacco) is the largest (ex-China) and most international tobacco company. They have made significant inroads with heat-not-burn (Glo) and modern oral / nicotine pouches (Velo). Producer of Lucky Strike. They have a stake in OrganiGram, a Canadian cannabis company.
PM (Philip Morris International) sells only ex-US (currently). They are the #1 in heat-not-burn (IQOS) and are promising a “smoke-free future”. They're currently in talks to acquire Swedish Match (SWMAY), which would allow them to distribute the popular Zyn nicotine pouch both in the US and abroad. This may also allow them to distribute IQOS in the US. They produce Marlboro for sale ex-US.
JAPAY (Japan Tobacco) – they sell Camel and American Spirit ex-US. They have a significant heat-not-burn presence as well, but are being beat by IQOS and Glo. I'm not sure about modern oral. I read rumors that they may try to outbid PM for Swedish Match. They are part owned by the Japanese government and also have a pharmaceutical and processed food business.
IMBBY (Imperial Brands) – international presence but mostly in Europe, America, and Australia. They are smaller than the above mentioned players. They have had a horrible time the last few years and have failed with next-generation products. However, recently they brought on a new CEO, Steven Bomhard, and have launched a 5 year strategic plan to steady the ship and transform the business. Currently cigarette sales have steadied in their core markets, and they are experiencing limited growth with a new heat-not-burn product Pulze and also with Blu e-cigarettes (Blu primarily in the US). Cigarette brands include Kool, West, and Davidoff.
MO (Altria) – they sell Marlboro in the USA. They split from PM about 15 years ago. They have acquired a modern oral brand (on!), as well as made strategic investments in BUD and other companies like JUUL. JUUL is a vaping company, but unfortunately Altria has run into a lot of issues with this acquisition due to concerns in the US about youth vaping. I'm not 100% sure on this point but I believe that MO currently has the rights to sell IQOS in the USA. That said, heat-not-burn is not popular in the US at the moment. This may also be in jeopardy if PM decides to dump deals with MO, buy SWMAY, and market IQOS themselves. MO also invested in Cronos Group, a cannabis company.
My take:
The consensus seems to be that PM is the best-managed business, and this is reflected in how far ahead they've pushed with IQOS and their purported vision of a smoke-free future. A successful acquisition of Swedish Match would be a boon for them, both due to the success of Zyn as well as the opportunity to distribute IQOS in the USA. Neither would bode well for Altria.
BTI is considered to be behind the curve compared to PM, but still in the game and likely to push forward despite the secular decline of the tobacco industry. Debt could be a concern.
JAPAY is considered to be poorly run and behind the curve. Their heat-not-burn has not been as successful as IQOS or Glo. A bid for SMWAY would be interesting to see from them.
IMBBY is considered to be behind the curve as well, and the market seems to believe that they will not survive the transformation of the industry. However, recently they've shown resilience and stabilization, and their next-generation strategy, while not guaranteed, appears to be going smoothly.
MO is a fan favorite but is considered to be poorly run when compared to PM. There is talk that PM should dump their deals with MO and go solo in the US, which acquiring SWMAY would allow them to do.
Me personally, as an ex-smoker and also based off what I read in this report, I believe that traditional tobacco (cigarettes) are here to stay for the time being, and tobacco companies can continue to grow via price increases which offset volume declines, as well as mitigation of losses via successful launches of next-generation products. Buybacks and dividends will return value to shareholders despite ESG concerns and the market pricing in secular decline.
I am long BTI and IMBBY. I believe that PM is incorrect in their vision of a smoke-free future and that you pay a premium for something that is unlikely (in my opinion) to pan out. Meanwhile, with BTI and IMBBY you pay a discount for something proven, stable and addictive (traditional smoking). Of course, regulatory concerns are a risk, especially with the rise of plain packaging and complete bans on smoking for people of a certain age (New Zealand).
I discard MO due to being a US-only business where smoking is in decline, as well as their failure in the next-generation categories, plus potential competition from PM. They also trade at a premium vis-a-vis BTI.
I discard JAPAY due to poor management as well as lack of information… I find it difficult to get information about them as a Us-based investor.
All of this is just my opinion, and again, I am long BTI and IMBBY. I have no short positions in any of the aforementioned companies.
Other tobacco companies to look at:
TPB – Turning Point Brands – Zig Zag papers in the US and Canada. Also smokeless tobacco and vaping.
VGR – Vector Group – discount cigarettes US-only. This is a growing category.
UVV – Universal Corp – tobacco leaf grower. They sell worldwide.
XXII – 22nd Century Group – nictone-free cigarettes.
I also have long positions in TPB and UVV.
Hope this helps and feel free to discuss and challenge my analysis.
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