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Altria and PMI sign manufacturing deal — cigarette tax savings earmarked for smoke-free and pouch investment

The two companies behind ZYN and on! — the largest U.S. nicotine pouch brands — have signed a contract manufacturing deal for cigarettes. The financial logic is a tax rebate on exports, but Altria says the savings will fund its smoke-free Vision, including nicotine pouches.

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The two companies that own the largest FDA-authorized nicotine pouch portfolios in the United States just deepened their manufacturing relationship. Altria and Philip Morris International announced a contract manufacturing arrangement on August 24, 2026, under which PMI's non-U.S. affiliates will produce cigarettes for Philip Morris USA — and, at a later stage, PM USA will manufacture cigarettes for PMI's international markets.

The deal is about combustible cigarettes. But the stated purpose is not.

Altria said the arrangement will "enhance operational capabilities, generate economic benefits to support investment in our Vision, and strengthen capabilities that could be transferable to our international nicotine efforts." In Altria's portfolio language, "Vision" means smoke-free products — including Helix Innovations' on! nicotine pouches, the second-largest authorized pouch brand in the US behind PMI's ZYN.

The financial engine behind the deal is an obscure tax mechanism called the "double duty drawback." It lets U.S. tobacco companies exporting products outside the U.S. claw back federal excise taxes paid on domestically sold products. Altria, which does not sell cigarettes outside the U.S., has been boosting similar partnerships to take advantage of the rebate. The Richmond Times-Dispatch reported that PM USA's South Richmond plant produced 1.84 billion cigarettes for export in the first half of 2026 — up 28 percent year-on-year — driven by earlier contract manufacturing agreements.

That surge in export production more than offset a 6.9 percent decline in shipments to the U.S. market, where cigarette volumes continue to fall. The plant paid more than $5 billion in federal excise taxes last year.

What the deal covers

  • PMI's non-U.S. affiliates will manufacture combustible cigarettes for Philip Morris USA (Altria).
  • At a later stage, PM USA will manufacture cigarettes for PMI for select international markets.
  • First shipments are expected in early 2027, subject to operational readiness and regulatory requirements.
  • Neither company expects a material impact on 2026 financials.
  • PMI and Altria will continue to operate independently, maintaining their own commercialization, distribution, and regulatory activities.

PMI emphasized that it has not commercialized combustible cigarettes in the United States and has no plans to do so. The company framed the arrangement as leveraging manufacturing capabilities while it "continues to focus on delivering a smoke-free future."

Why it matters for pouches

Altria and PMI are not just the two biggest cigarette manufacturers in their respective markets. They are also the two biggest players in the U.S. nicotine pouch category:

  • ZYN (Swedish Match / PMI): roughly 70 percent of the U.S. pouch market, with 43 FDA-authorized products including the newly cleared ZYN Ultra 11 mg line. PMI reported $11.2 billion in Q2 2026 revenue, with smoke-free products accounting for 42 percent of total net revenues.
  • on! (Helix Innovations / Altria): 14.4 percent retail share of the nicotine pouch category in Q2 2026, available across 120,000 retail locations, with 10 FDA-authorized products including the recently cleared dessert-and-fruit flavors (Cappuccino, Rich Berry, Autumn Spice).

Both companies are actively investing in pouch portfolio expansion, higher-strength products, and new flavors. The manufacturing deal's financial logic — cigarette-export tax savings redirected toward smoke-free investment — means more capital flowing into the product lines that are replacing cigarettes.

Altria's 2028 Enterprise Goals explicitly include "competing vigorously for existing smoke-free adult nicotine consumers." The company's smoke-free portfolio includes on!, Copenhagen, Skoal, and NJOY e-vapor. PMI has invested over $16 billion in smoke-free product development since 2008.

The tax mechanism

The "double duty drawback" is an old provision that allows international tobacco firms importing cigarettes into the U.S. to get a refund of the $1.01 per pack federal excise tax — as long as they export the same amount. For Altria, which has no cigarette plants outside the U.S., the rebate was previously unavailable. Contract manufacturing partnerships with foreign manufacturers changed that.

U.S. cigarette imports covered by the drawback rose 40 percent last year to $3.6 billion, according to the U.S. International Trade Commission. Altria's South Richmond plant began making cigarettes for export under similar agreements last year, and the volume has grown sharply.

Reuters reported that Altria said in January 2026 it expected a profit boost in the second half of the year thanks to similar partnerships. The PMI arrangement expands that strategy.

What comes next

The first shipments under the PMI deal are expected in early 2027. Neither company has quantified the expected savings, but the scale of the drawback — Altria paid over $5 billion in federal excise taxes last year — suggests the redirected capital could be material for smoke-free investment.

For the nicotine pouch category, the deal reinforces a pattern: the companies with the deepest cigarette cash flows are the ones building the pouch portfolios that will eventually replace them. Whether that translates into faster pouch innovation, more aggressive pricing, or expanded marketing budgets is the question the 2027 numbers will start to answer.

SOURCES:

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