Why Zyn Shortage Could Unlock Hidden Value in British American Tobacco Stock

The recent supply challenges affecting Zyn, the dominant nicotine pouch brand controlled by Philip Morris International, have created an unexpected market opening for competitors. With millions of U.S. consumers unable to access their preferred product due to the Zyn shortage, demand is being redirected toward alternative nicotine delivery systems. British American Tobacco (NYSE: BTI) stands positioned to capture significant market share through its established portfolio of next-generation nicotine products, particularly as the company trades at valuations that appear to underestimate its growth potential.

Understanding the Zyn Supply Crisis and Market Opportunity

The Zyn shortage has exposed the vulnerability of having a single dominant player control over 75% of the U.S. nicotine pouch market. With consumers actively seeking alternatives, the addressable market for nicotine pouches remains enormous—with demand outpacing supply across the category. This market dysfunction creates a window of opportunity for better-capitalized competitors to build brand loyalty and establish distribution networks before supply normalizes. British American Tobacco’s international experience and existing retail relationships position the company to capitalize on this temporary but significant market dislocation.

How Velo Nicotine Pouches Could Capture Displaced Consumers

British American Tobacco’s Velo brand offers a direct competitive alternative to Zyn with similar product positioning and claimed harm-reduction benefits. The product has demonstrated strong momentum, expanding sales at a 39% compound rate in 2023 and maintaining double-digit growth into 2024-2025. The key differentiator now is distribution and availability—where established tobacco companies maintain substantial advantages. As Zyn-seeking consumers encounter product scarcity at retail points, trial of Velo and competing nicotine pouches becomes inevitable. The conversion rate from trial to sustained usage in this category historically runs 40-50%, suggesting that displaced consumers represent a durable source of market share gains rather than temporary switchers.

Regulatory Tailwinds: The Vuse Advantage in a Crackdown Environment

Beyond nicotine pouches, British American Tobacco benefits from parallel regulatory developments affecting the vaping market. U.S. authorities have significantly intensified enforcement actions against unapproved electronic nicotine products, which had proliferated across convenience stores. This regulatory cleanup creates a consolidation dynamic favoring established, compliant brands. British American Tobacco’s Vuse brand represents one of a limited number of FDA-approved vaping products available to U.S. consumers. As illegal alternatives face removal from shelves, Vuse captures users with no other sanctioned options. The company’s “vapour” category generated sales growth of 27% in 2023, with that momentum likely to accelerate as competitive product availability narrows.

Valuation Disconnect: Why BTI Stock Appears Underpriced

The market has assigned British American Tobacco a price-to-earnings multiple of approximately 6x and a dividend yield exceeding 9%—levels typically reserved for distressed businesses with declining prospects. The pessimism reflects persistent concerns about cigarette volume erosion, with traditional tobacco sales declining roughly 8% since 2020. However, this narrative overlooks two crucial realities: first, tobacco companies have consistently offset volume declines through pricing power, resulting in revenue resilience on a currency-adjusted basis; second, the company’s emerging categories have grown to represent $5 billion in annual revenues and recently crossed into profitability on a consolidated basis.

The trajectory of these new nicotine products suggests a potential earnings inflection point within five years. If next-generation products reach $10 billion in annual sales by 2030 (a conservative growth projection based on current trajectories), and these segments generate similar-or-higher profit margins than traditional combustibles, the earnings-accretion opportunity becomes material. At current multiples, such earnings growth would warrant substantial multiple expansion, suggesting significant upside for patient investors willing to tolerate short-term tobacco volume headwinds.

The Investment Case in Perspective

British American Tobacco has transformed from a purely declining business into a company managing an orderly transition toward reduced-harm products while monetizing its legacy cash cow. The Zyn shortage, regulatory crackdowns on illegal vaping, and strong underlying demand for smokeless nicotine delivery create multiple near-term catalysts for value realization. For income-focused investors seeking exposure to a profitable business generating substantial free cash flow and supported by valuation metrics well below historical averages, BTI warrants serious consideration at prevailing prices.