Nicotine pouches now dominate oral tobacco, pressuring Altria’s on! franchise and smoke‑free pivot narrative

What happened

New industry data indicate nicotine pouches have reached roughly 55.7% of the U.S. oral tobacco market, underscoring how quickly the category is shifting away from traditional moist smokeless products. Within this growth arena, Altria’s on! brand is reportedly losing share, which is notable because management has framed smoke‑free platforms—including oral nicotine, NJOY e‑vapor and Horizon heated tobacco—as key pillars of its 2028 growth plan. Altria’s filings already highlighted intense pouch competition (notably from PMI’s ZYN) and illicit trade risks, but the latest share trends suggest its current oral portfolio is underperforming the broader nicotine‑pouch category. While oral tobacco contributed a minority of 2024 net revenues relative to the smokeable segment, it carries attractive margins and was expected to be a more durable, regulation‑resilient profit pool. The news therefore reinforces that Altria’s value case remains anchored in its U.S. combustible cash engine and capital returns for now, with smoke‑free still more of an option on future execution than a fully de‑risked growth driver.

Implication

For investors, the acceleration of nicotine pouches to 55.7% of the oral market and on!’s share losses mean the smoke‑free transition will likely be bumpier and more competitive than Altria’s medium‑term narrative implies. Near term, this does not meaningfully alter the cash‑flow outlook, as combustibles still generate the vast majority of earnings and free cash flow that fund the dividend and buybacks. However, it lowers visibility on oral tobacco’s ability to contribute to mid‑single‑digit EPS growth through 2028, increasing reliance on pricing in combustibles and on better execution in NJOY and Horizon. Position sizing should reflect that a larger portion of the thesis rests on stable-to-slowly-declining cigarette cash flows and disciplined capital allocation, rather than robust growth from oral nicotine. Monitoring quarterly share and margin trends in the oral segment, along with any strategic response (product refresh, pricing, promotion or M&A), becomes more important for assessing whether Altria can credibly build a competitive smoke‑free portfolio over time.

Thesis delta

The new data on nicotine pouches and on!’s share loss modestly weakens the smoke‑free growth leg of the BUY thesis, as it suggests Altria is not yet capturing its fair share of the fastest‑growing oral nicotine category. Our rating would remain BUY at current valuation and balance‑sheet strength, but with a greater emphasis on combustibles and capital returns as the core of the thesis and a wider confidence band around smoke‑free contributions to the 2028 targets. In practice, this shifts oral nicotine performance from a secondary upside lever to a key execution risk that needs closer monitoring alongside NJOY and Horizon.