By Timothy S. Donahue
Top Takeaways:
Market growth forecast: Goldman Sachs projects the U.S. nicotine market will reach roughly $67 billion in revenue by 2035.
Profit shift underway: Cigarettes’ share of industry operating profits could fall to about 50% by 2035 as reduced-risk categories expand.
Pouch surge expected: Nicotine pouches may generate about $11 billion in revenue by 2035, making them the second-largest category by volume.
The U.S. nicotine market is poised for major structural changes in the next decade as smoke-free products gain a larger share of sales and industry profits, according to Goldman Sachs Managing Director Bonnie Herzog.
Speaking at Convenience Retailing University (CRU), Herzog said the total U.S. nicotine market could grow to about $67 billion in revenue by 2035, even as traditional cigarettes decline in relative importance.
“Given attractive unit economics, we expect smoke-free products to become the key driver of industry profit growth,” Herzog said.
Cigarettes still dominate the industry’s profitability, accounting for roughly 70% of operating profits across the nicotine sector. Herzog said Goldman Sachs expects that share to decline significantly over time. “While cigarettes comprise 70% of the operating profit pool today, we expect its share to fall to roughly 50% of profits by 2035,” she said.
The shift is expected to be driven by consumer migration into lower-risk categories such as vaping/e-cigarettes and nicotine pouches, along with cross-category switching among adult nicotine users. According to Goldman Sachs estimates, smoke-free products already make up about 48% of U.S. nicotine consumption. Herzog said that number could rise to nearly 75% by 2035 as adoption speeds up.
Within the vapor segment, however, Herzog warned that illicit products remain a major headwind for the legal market. “The continued prevalence of illicit e-vapor will continue to weigh on growth of the formal or tracked channel within vapor,” Herzog said. “The illicit market for e-vapor products is a widespread problem, with a broad majority of retailers feeling the impact.”
Federal enforcement agencies have increasingly targeted unauthorized vaping products entering the U.S. market. In September, the U.S. Department of Health and Human Services and U.S. Customs and Border Protection seized approximately 4.7 million unauthorized e-cigarette devices valued at about $86.5 million in retail value.
Goldman Sachs predicts British American Tobacco will stay the biggest branded player in the vapor market, though Herzog said the segment’s growth might lag behind other reduced-risk categories unless enforcement against illegal imports improves.
On March 3, the U.S. International Trade Commission (ITC)announced it had launched a formal investigation into the import and sale of certain vaping products in the United States following a complaint filed by subsidiaries of R.J. Reynolds Tobacco Company.
Nicotine pouches are projected to be one of the fastest-growing market segments. Herzog said the category could reach nearly $11 billion in U.S. sales by 2035, making it the second-largest nicotine category by volume, after vapor.
The category remains led by Philip Morris International’s Zyn brand, which has experienced quick growth throughout U.S. retail channels. “Zyn continues to perform well,” Herzog said, citing Goldman Sachs’ Nicotine Nuggets survey of retailers.
According to the firm’s fourth-quarter 2025 survey, 67% of retailers said they purchased more Zyn in Q4 than in the previous quarter, helped in part by promotional activity.
Herzog also highlighted rising competition in the pouch segment, including Velo Plus, made by Reynolds American, a subsidiary of British American Tobacco.
Survey results suggest the BAT brand has become a “fierce” competitor in the modern oral category as tobacco companies compete for share in what analysts increasingly view as one of the most important growth segments in the nicotine industry.
For the broader industry, Herzog said the transition toward smoke-free products is reshaping how companies generate growth and profits.
