Blowing smoke: Big Tobacco is getting a whole new generation hooked on nicotine

Stores stocked Zonnic behind the counter, next to the cigarettes and vapes. But unlike cigarettes, most of which are individually emblazoned with pithy admonishments like POISON IN EVERY PUFF, and unlike vapes, which are sold in boxes that alert customers to the highly addictive nature of nicotine, Zonnic cans didn’t explicitly caution customers about, well, anything.

The label identified it as a nicotine replacement therapy, and a five-page, fine-print leaflet adhered to the bottom of every can advised, “Do not use this product if you are under 18 years of age” or “if you are an occasional smoker, non-smoker or non-nicotine user.” But these were guidelines, not rules. In fact, there was no legal age requirement to buy or use Zonnic, nor any restriction on how or where the pouches could be promoted and sold. A 12-year-old could see an ad for Zonnic on social media, walk into a corner store and legally order a pack.

Zonnic debuted in this way because its producer, Imperial Tobacco Canada, pitched it to Health Canada as a smoking-cessation tool, akin to a nicotine patch, gum or inhaler. In Imperial’s telling, Zonnic represented a transforming industry’s earnest efforts to undo the damage done by cigarettes. “The core product that we sell causes harm,” says Imperial CEO Frank Silva. (To wit: Tobacco-related illnesses kill 46,000 Canadians every year.) “So, if we want to be a responsible organization, we need to think about how we move from revenue streams that cause harm to revenue streams that create a positive health benefit…We want to diversify. We want to offer choices.” This reflects what Imperial’s parent, British American Tobacco (BAT), says is its guiding strategy of creating “a smokeless world built on smokeless products where, ultimately, cigarettes have become a thing of the past.”

Health Canada green-lit Zonnic after a two-year safety and efficacy review. Because the pouches contained four milligrams of nicotine (about one-third the amount found in a typical cigarette) but no tobacco, they were approved as “natural health products,” subject not to Canada’s stringent Tobacco and Vaping Products Act but to the Food and Drugs Act, which isn’t equipped to restrict nicotine access and promotion in the same way.

Imperial legally advertised the pouches as “a new way to break up with smoking,” showing attractive 20-somethings presumably using Zonnic on the subway, in the gym, at dinner. Droves of online influencers promoted nicotine pouches—not just Zonnic but competing brands like Zyn, on!, Rogue and Velo, too—as a way to quit vaping or get a buzz. Imperial age-gated online sales and promised to pull its cigarettes, vapes and pouches from any store caught selling Zonnic to minors, but with 6,000 retailers across the country, the company couldn’t monitor every shop. Soon, there was anecdotal evidence that Zonnic was lodged under the lips of not only adult smokers trying to quit but also Canadian teens who’d never touched a cigarette, undetectable to parents, teachers and coaches.

This sparked pangs of déjà vu for federal Health Minister Mark Holland. When vaping first took off in the 2010s, Holland was executive director of the staunchly anti-tobacco Heart and Stroke Foundation’s Ontario wing. “With vaping, it was very similar language,” says Holland. “Oh, this is just for cessation.” Juul’s “Make the Switch” ad campaign, for example, featured ex-smokers talking about how vaping had helped them quit.

Today, Canada has some of the world’s highest teen vaping rates. According to the latest Health Canada data, 41% of Grade 10, 11 and 12 students have tried e-cigarettes; about 12% vape daily. “It’s had this absolutely devastating impact on our health system and on the health of young people,” says Holland. It’s also been a nightmare for schools. Kids buy and sell vapes in the hallways and puff on them in toilet stalls. Recently, some provincial governments and school boards have formally banned vapes anywhere on school grounds; other schools have resorted to installing vapour detectors in their washrooms.

Holland feared history would repeat itself with Zonnic. So, in August of 2024, he issued a ministerial order cracking down on nicotine pouches. The order immediately banned non-mint or non-menthol flavours, required health labelling and outlawed youth-oriented advertising for all nicotine replacement therapies. The order also restricted the sale of the pouches to pharmacies, which Holland says will cut off underage access while preserving the product’s availability to adult smokers serious about quitting. Imperial had five days to pull Zonnic from shelves. As quickly as the pouches had appeared, they were all but gone.

This was not Canada’s first blow against Big Tobacco, nor will it be the last. Over the years, regulators have gradually tightened their grip on the industry’s ability to promote and sell tobacco products, making it difficult for the companies to replace their dying customers with new smokers. With the Zonnic saga behind him, Holland says he’s resurrecting Health Canada’s stalled promise to ban vape flavours and sweeteners—another gut punch to the industry.

Meanwhile, Canada’s $66-million-a-year Tobacco Strategy, launched in 2018, aims to push the smoking rate below 5% by 2035. If that’s not an existential threat, perhaps this will be: Imperial and its two largest competitors—JTI-Macdonald and Rothmans, Benson & Hedges—may soon have to pay the provinces tens, perhaps hundreds of billions of dollars to settle decades-old lawsuits. With so many wolves at the door, it’s fair to wonder whether Imperial and its ilk have a bankable future. Ever-escalating regulations, a dwindling number of smokers, multibillion-dollar payouts—these forces would toll the death knell for most companies.

But Imperial is not like most companies. It is wholly owned by BAT, a multinational conglomerate that had revenues of £27.3 billion (about $50 billion) last year. Roughly four-fifths of that money came from selling cigarettes. Globally, the industry still sells about 2.8 trillion cigarettes a year, and those sales represent 84% of a $1.3-trillion global tobacco and nicotine market. Cigarette sales are what keep BAT’s stock price hovering above $5,000. Cigarettes are what allowed the firm to deliver 25 straight years of dividend increases and return almost $50 million to shareholders since 2019. And cigarettes are what will keep Imperial alive, no matter what rules and fines Canada throws at it. The industry says it wants cigarettes to become “a thing of the past.” But right now, cigarettes are still its future.

Imperial’s head office is in west Montreal, across the street from a pair of decommissioned cigarette factories. The block-long buildings are lofts now, but back in the industry’s golden age—when jet-setting tobacco execs met in smoky boardrooms, when Marlboro and Camel logos decorated cars in the Monaco Grand Prix, when half of Canadians smoked—these factories pumped out millions of sticks a year.

Entering Imperial HQ, it’s clear the company would prefer not to be defined by this history. At the front entrance, a security guard hands me a visitor pass attached to a rainbow lanyard with the words “A Better Tomorrow™” printed on it. A banner in the lobby boasts about the building’s environmental bona fides. Eric Gagnon, Imperial’s vice-president of corporate and regulatory affairs, greets me warmly before giving me the grand tour—through a reception area decorated with Pride balloons, into a labyrinth of desks and glass-walled offices staffed by smiling employees, past a company café serving up oat lattes, down the stairs to a well-stocked cafeteria and fully equipped gym.

There is not a single cigarette on display. Gagnon tells me Imperial has been repeatedly certified as a Great Place to Work; people tend to stay at the company for a long time. I get the impression that it’s a diverse, inclusive, cheery, modern workplace—and that the company really, really wants me to know it.

My tour ends in the corner office of Imperial CEO Frank Silva, who quickly acknowledges his company’s PR problem. “Fundamentally, this is an industry that has a bad rap,” he says. The public imagines “a bunch of bogeymen sitting around trying to do a bunch of nefarious things,” but in reality, he goes on, “there is no ‘Big Tobacco.’ This is a company of 500 people—that’s 500 families with kids that go to hockey, that are part of PTAs. Most of the people who work here don’t smoke. They’re all inspired by the idea that we’re doing something that really matters.”

To be clear, the industry is in no rush to achieve this goal. In fact, it is still working against it. Earlier this year, Philip Morris grew its combustible business, acquiring a 15% stake in Egypt’s largest cigarette manufacturer. And in 2017, BAT bought Reynolds American for US$49 billion, adding Camel, Newport, Pall Mall and Natural American Spirit to a portfolio of cigarette brands that already included Dunhill, Lucky Strike and Rothmans. BAT says some of these brands may not last more than 30 years, but so long as cigarettes are legal and so long as people will pay for them, the tobacco industry will likely continue to squeeze every last drop of profit out of smokers.

As smoking rates have fallen, Canadian tobacco companies have hiked cigarette prices, knowing diehards will take the financial hit to feed their addiction. Wholesale prices for cigarettes have doubled since 2013, and depending on the brand and province, a pack can now retail for about $20. As BAT CEO Tadeu Marroco told investors earlier this year: “The combustible business, the one that pays the bill in the end, we have to ensure that we strike the best value out of it.”

Still, it’s undeniable that cigarettes face heavy headwinds. Production, sales and use are all trending downward, especially in the developed world. Between 2021 and 2022, Canadian spending on cigarettes decreased by 12%, or an estimated $261 million, reflecting a drop in the overall number of smokers. In 2001, 27% of Canadians aged 15 and up smoked. Now, about 12% do. As those four million or so smokers die, few new customers will replace them. Among Canadians between the ages of 15 and 19, the age when most smokers start, less than 2% currently use cigarettes. Provincial governments in PEI and Newfoundland and Labrador, like the U.K., are even mulling generational bans that would outlaw selling cigarettes to anyone born after 2008. Silva contends that the writing is on the wall. “In Canada, at least, smoking is declining and going to become a very, very small” part of the business, he says.

Before taking the top job at Imperial, Silva worked for BAT in several markets, including Asia, Europe and the U.S. He helped develop the firm’s harm-reduction strategy, which purportedly aims to transition customers from combustibles to tobacco-free vapes and pouches. These products are not risk-free. Nicotine is addictive, and it increases heart rate and blood pressure, which may contribute to the development of cardiovascular disease. Vaping can also cause throat and lung illnesses, and anecdotally, Canadian dentists have already started seeing mouth lesions and irritated, inflamed and receding gums in nicotine-pouch users. Due to the novelty of these products, their long-term health effects are still poorly understood.

Nonetheless, they’re accepted as being safer than cigarettes—almost anything is. According to Public Health England, vaping is estimated to be 95% less harmful than smoking, and industry-funded research has found that nicotine pouches are 99% less toxic than cigarettes. Proponents of pouches like to point to Sweden, which boasts the EU’s lowest rates of tobacco-related mortality and smoking, largely because Swedish men in particular prefer to use a type of tobacco pouch called snus. Both independent and BAT-backed papers have found that pouches help smokers decrease the number of cigarettes they smoke daily. (BAT spends about £300 million annually on R&D, employing 1,750 scientists and product engineers in the U.K., Italy and China who research, develop and publish studies about its new products because, as Silva puts it, “there are no legitimate companies other than tobacco companies that are really making any sort of investment into the nicotine space.”)

BAT is likely investing in e-cigarettes and pouches because, in developed nations like Canada, the market for these products, unlike that for cigarettes, is growing. The company makes £1.8 billion per year off its vape brand, Vuse, and another £539 million selling its nicotine pouches, Velo and Zonnic—and those figures are projected to rise. Earlier this year, Marroco told investors that, as the company scales its non-combustible operations, it will gain more negotiating power with suppliers, lower the cost of goods sold, and eventually match or better the profit margins of its cigarette brands.

At the moment, non-combustibles account for about 17% of BAT’s revenue, but the company says it wants these products to make up half its business by 2035. Is that realistic? Silva seems to think so. “There’s a huge market, and the majority of them would like to quit smoking, so that’s where we’re swimming with the tide,” he says. “We’re on a glide path to transform Imperial Tobacco into something completely different—a company that, yes, will probably continue to sell cigarettes for quite a period of time, but it’s probably not how people are going to think of us 20 years from now.”

In Silva’s telling, there’s just one thing standing in the way of Imperial’s metamorphosis: the government. When Health Canada limited access to Zonnic, he argues, they were not protecting public health but endangering it. “Why would you want to take something that is helping thousands of consumers move off of cigarettes and say, ‘Listen, we’re gonna make it very difficult for consumers to get these products’? It makes zero sense to me,” says Silva. He says nicotine pouches should be sold wherever cigarettes are, so that smokers are cued to quit every time they pick up a pack. Banning flavours and relegating the product to pharmacies, he adds, will only push consumers to the black market.

As evidence, he points to the consequences of Quebec’s 2023 decision to ban vape flavours: Illicit retailers popped up, governments lost out on excise taxes, law-abiding tobacco companies suffered, and the public was no healthier for it. “You’d probably only need to tackle 600 stores in Canada with really strong regulations to end the youth vaping problem,” he says. “But there doesn’t seem to be a will to do that.”

The way Silva sees it, Imperial is trying to help smokers quit, and the state is screwing it up. “If you have very emotion-based and erratic regulation, then all of a sudden you have to start to think, ‘Is it worth it?’” he says. “But you stand up and you keep on going, because we’re doing the right thing. Eventually we’ll prevail, and public health will benefit because of that.”

This is not the first time the industry has presented itself as a solution to the epidemic it created. Over the decades, tobacco companies have introduced all manner of so-called reduced-harm products: light, filtered, smooth and low-tar cigarettes, and then, when those products proved little safer than traditional smokes, heated tobacco, snus, vapes and nicotine pouches. The industry has always presented these products as safer alternatives—an off-ramp for existing adult smokers, not an on-ramp for the untapped masses. “That is one thing that has been consistent over the years: the industry’s ability to spin its activities into something that appears to be beneficial,” says Les Hagen, an adjunct professor at the University of Alberta and executive director of the tobacco control organization Action on Smoking & Health. “But you don’t have to dig very deeply to find the contradictions.”

While it’s true vapes and pouches can, as advertised, help people smoke fewer cigarettes, an Oxford study shows these products can also extend and increase users’ overall nicotine intake and dependence, decreasing their chances of breaking underlying addictions and quitting for good. “Smokers who used to just exit the nicotine market are now grabbing an e-cigarette on their way out and using it for longer,” says David Hammond, a professor at the University of Waterloo’s School of Public Health Sciences who studies interventions to reduce chronic disease, including tobacco control. “There’s very little or no evidence in Canada that [these products have] actually reduced the number of smokers.”

They are, however, attracting plenty of new customers. BAT’s own data reveals that, as of 2019, 58% of the company’s e-cigarette consumers, as well as half of its nicotine pouch users, were “entrants”—people who had never smoked cigarettes or used nicotine products before.

“The emergence of newer nicotine products, at a time when global smoking rates were in decline, has been a potential lifeline for the tobacco industry,” STOP, an industry watchdog, wrote in a January 2024 report titled “Tobacco Harm Reduction: The Industry’s Latest Trojan Horse?” The authors contend that these new profits, not a concern for public health, are why the industry is so keen to build out its vape and pouch brands. “Having invested billions of dollars in research, development and marketing of these products, the industry remains determined to fight any regulation that could reduce demand—particularly in countries where strong tobacco control regulations limit its ability to sell cigarettes.”

Canada is one such country. It imposes some of the world’s harshest tobacco control measures: It was among the first nations to ban flavoured cigarettes, limit advertising and standardize plain cigarette packaging. Its cities and provinces were leaders in restricting smoking in restaurants and bars. These efforts helped to dramatically lower smoking rates. They also likely pushed tobacco companies to pivot to new products like Zonnic.

Holland says he supports innovations that help smokers quit. “But for them to come out with tropic breeze and berry frost, these are not targeting somebody my age. These are for kids,” he says. “The fact that a company would exploit that vulnerability in young people is, in my view, morally repugnant, and it seems, on the basis of all reason and evidence, that they knew exactly what they were doing…They create a devastating public health impact, profit from it enormously and then hide behind the fact that somebody, somewhere, might be helped by this product. It’s what they do, this kind of moral shell game.”

Some anti-tobacco advocates suggest that the federal government should stop playing cat-and-mouse with tobacco companies and phase out the industry once and for all. If Canada wanted to try to bankrupt Big Tobacco, now would certainly be the time to do it. The provinces are currently negotiating multibillion-dollar settlements with Canada’s three largest tobacco companies: Imperial, JTI-Macdonald, and Rothmans, Benson & Hedges. These talks stem from lawsuits the provinces began launching in 1998.

Among the allegations: that the defendants had engaged in a number of deceptive and otherwise wrongful practices, such as obfuscating the harms of smoking cigarettes and marketing to children. In their suits, the provinces sought damages to recover money spent providing health care to smokers; even back in 2012, the Conference Board of Canada calculated that tobacco-related illnesses costs taxpayers an estimated $6.5 billion a year.

Lawsuits inched through the courts until 2015, when a judge ordered the tobacco firms to pay Quebecois smokers in a private class action $15 billion in damages. That decision, upheld by an appellate court four years later, left the industry vulnerable to country-wide claims totalling more than $500 billion. Paying such steep penalties would have put the defendants (though perhaps not their parent companies) out of business, so in 2019, they obtained creditor protection, which stayed any further litigation against them as they began negotiating a master settlement.

To date, the defendants have collectively banked an estimated $12 billion but have yet to pay out a penny to plaintiffs, 700 of whom have reportedly died since 2019. Manitoba Premier Wab Kinew recently hinted that a payout was imminent, telling the crowd at an NDP event that he expected his province to receive up to half a billion dollars in the first round, which it would use to fund a cancer care facility, by late 2024 or early 2025. That’s about all the public knows so far because, by court order, the negotiations are confidential. “We continue to operate in good faith,” says Silva. “Unfortunately, there’s nothing more I can say without going to jail.”

Whenever it arrives and whatever it decides, the settlement will shape Canada’s tobacco industry for decades to come. “The power over the future of the industry is in the hands of the provincial governments collectively,” says Cynthia Callard, the executive director of Physicians for a Smoke-Free Canada. With this power, she says, the provinces could pursue a number of goals. They could earmark 10% of all payouts for anti-smoking efforts, as some public health advocates have urged. They could regulate tobacco more like alcohol, placing it under the purview of provincial boards and centralizing where it’s sold—though, given provinces have mostly liberalized alcohol and cannabis sales in recent years, this seems unlikely.

Thanks to the availability of vapes, pouches and other nicotine products, the provinces could use the payouts to mandate a gradual phase-out of commercial cigarette sales, a move supported by 70% of Canadians, according to a September 2023 poll conducted by Leger. Or, Callard says, there’s the nuclear option: “They could bankrupt the industry.”

But even the most zealous anti-tobacco activists admit a full-stop wind-up is highly improbable. For one, the tobacco firms’ parent companies may have enough money to bail them out. And even if it were possible, wiping out the industry would deprive governments of tax revenues they’ve come to expect: An estimated 22% of every dollar spent on cigarettes goes to the feds, and an average of 31% is remitted to the provinces. Because smoking is most prevalent among low-income Canadians, Indigenous people, and those living with mood and anxiety disorders, these are deeply regressive taxes. Still, they net governments several billions of dollars every year—a steady stream of funds that politicians may not be willing to exchange for far-off health care savings.

Besides, prohibition would almost certainly result in millions of illicit cigarettes flowing into the country, untaxed and unregulated. According to Health Canada, governments already miss out on roughly $400 million worth of excise duties every year from illegal cigarette sales. It seems the government would prefer a legal industry it can control over a black market it can’t.

Most industry watchers expect the provinces’ negotiation with Big Tobacco will result in a deal akin to the U.S.’s 1998 Master Settlement Agreement, which forced tobacco companies to pay states US$200 billion over 25 years, plus another US$9 billion per year after that. In Canada, perpetual payouts such as these could recompense smokers, fund cancer research, bankroll anti-smoking campaigns and inject much-needed money into the health care system. Those might seem like desirable outcomes, but tobacco control proponents warn they’d come at a cost: The tobacco firms would need to continue selling addictive products to keep paying the provinces. “They have to injure someone else in order to pay their previous victims,” says Callard. “We call it the litigation Ponzi scheme.”

There is one path forward, however fanciful, that might make everyone happy: a future in which Big Tobacco stops selling not only tobacco but also nicotine. To this end, BAT and Imperial recently began building a portfolio of products they collectively call Beyond Nicotine. Through one of its corporate ventures, BT DE Investments, BAT has waded into the US$21-billion cannabis market, investing roughly $350 million in the Moncton-based cannabis company Organigram and acquiring a 16% stake in the German cannabis firm Sanity Group. Meanwhile, another BAT company, Btomorrow Ventures, has made almost two dozen investments in non-nicotine businesses since 2020, including a £48-million stake in a hemp-based wellness products company, a partnership with a $30-million Brazilian healthy snacks and supplements supplier, and further-afield plays in bioplastics, medical testing devices, wearable tech, software and artificial intelligence. In BAT’s estimation, the market for wellbeing and stimulation products will grow from £296 billion today to £495 billion by 2030—fertile land the company would like to till.

Off-brand as they may seem, these holdings are not without precedent. In the 1970s and ‘80s, before it was acquired by BAT, Imperial Tobacco Canada held stakes in Shoppers Drug Mart, Canada Trust and Hardee’s; BAT Industries, as it was called at the time, held investments in other retail, paper and cosmetics businesses. “The ability of this company to transform and evolve through the ages—that’s always been in our DNA,” says Silva. “This company is going to survive.”

Before I leave Imperial HQ, I ask Silva how he might view a customer who quits cigarettes, stops vaping, gives up pouches and exits the nicotine market entirely. “That is what our journey is,” he says. “That is the strategy that we’ve adopted.” But, he qualifies, “the reality is nicotine has been used for 2,000 years, and nicotine will continue to be used.” That is why BAT and Imperial are so committed to vapes and pouches. “The need for us to have safer forms or less harmful forms of nicotine is really what the goal is.”

Silva sends me on my way with a gift: three 60-millilitre cans of Ryde, a “wellbeing shot” produced by a wholly owned subsidiary of BAT called the Water Street Collective. These tiny drinks, which look a bit like bottles of 5-hour Energy, contain ingredients like caffeine, taurine, vitamin B and ginseng extract, and are available in three varieties: Energize (“works with you in those moments you need a jump start”), Focus (“de-fuzzes and fuels your mind”) and Relax (“helps you unwind, like wearing your favourite comfy socks”). I want to like Ryde; I really do. But when I down the shots, I notice no discernible effect, much less three distinct sensations. Instead, I detect orange, raspberry and an unspoken recognition that, no matter how masterfully they’re marketed, these syrupy treats will never seriously compete with the satisfaction of smoking a cigarette.

Update: On Oct. 18, 2024, after this issue went to press, a court-appointed mediator proposed a plan that would require Imperial Tobacco Canada, JTI-Macdonald and Rothmans, Benson & Hedges to pay a total of $32.5 billion to settle all legal claims against them. Roughly $25 billion would be paid to the provinces and territories—half up front and half over the next five years—with an additional $6.6 billion allocated for payments to smokers, and another $1 billion earmarked to fund a new national foundation dedicated to researching cancer and other smoking-related diseases. Claimants are expected to vote on the plan by Dec. 12. Listen to journalist Luc Rinaldi discuss this month’s cover story on The Globe’s Lately Podcast.

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