The nicotine market is attractive and growing, said New York-based Goldman Sachs Managing Director Bonnie Herzog.
The total U.S. nicotine market is expected to reach roughly $67 billion in revenues by 2035, said Herzog, adding that she expects cigarettes to make up a smaller portion of revenues (47%) while smoke-free revenues expand. Herzog spoke Thursday at a virtual session at CSP’s Convenience Retailing University in Austin, Texas.
“Given attractive unit economics, we expect smoke-free products to become the key driver of industry profit growth,” Herzog said. “While cigarettes comprise 70% of the operating profit pool today, we expect its share to fall to roughly 50% of profits by 2035.”
With smoke-free products expected to be the dominant driver of volumes, Herzog said downtrading and cross-category movement will likely drive this growth.
“Smoke-free products make up roughly 48% of U.S. nicotine volumes today,” she said.
Herzog said she expects that number to jump to roughly 75% by 2035.
Illicit headwinds
Turning to the e-vapor category, Herzog said that illicit e-vapor penetration is roughly 70% today, but expects this to fall through 2035.
“The continued prevalence of illicit e-vapor will continue to weigh on growth of the formal/tracked channel within vapor,” she said. “We expect that British American Tobacco will remain the largest branded player in e-vapor, but the category will deliver softer growth relative to other reduced-risk categories until there’s greater enforcement on illicit e-vapor products.”
Federal officials have noted that illicit products have flooded the legal market, prompting stepped-up enforcements. In September, the Department of Health and Human Services (HHS) and Customs and Border Protection (CBP), seized 4.7 million units of unauthorized e-cigarette products valued at an estimated retail value of $86.5 million.
“The illicit market for e-vapor products is a widespread problem, with a broad majority of retailers feeling the impact,” Herzog said.
Citing Goldman Sachs’ fourth-quarter 2025 Nicotine Nuggets survey, Herzog said retailers remain pessimistic as the industry lacks meaningful enforcement from the government.
Nicotine pouches
Turning to the nicotine pouch segment, Herzog said to expect nicotine pouches to grow to nearly $11 billion of revenues by 2035.
“Expect nicotine pouches to be the second largest category by volume in 2035—behind e-vapor,” she said.
Smokeless nicotine offerings remain strong, led by modern oral nicotine brands Zyn, from Stamford, Connecticut-based Philip Morris International (PMI).
According to the survey, Herzog said Zyn continues to see strong gains fueled further by stepped up promotions.
“Zyn continues to perform well,” she said.
Herzog said that 67% of retailers in the survey indicated that they bought more Zyn in fourth-quarter 2025 than in third-quarter 2025. She said gains were helped by elevated promotions, including a free can offering in September and a discount on multiple cans in October through November.
Herzog said that modern oral nicotine brand Velo Plus, from Winston-Salem, North Carolina-based Reynolds American Inc., a subsidiary of BAT, has been a “fierce” competitor in the space, according to survey results.
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