The electronic-cigarette market has evolved from a niche category into a major harm-reduction industry. Europe’s market reached USD 11.23 billion in 2025, rising to USD 11.87 billion in 2026 and projected to hit USD 15.66 billion by 2031, while global revenues are forecast to grow from USD 26.22 billion (2025) to USD 73.09 billion by 2035. Growth is driven by rising health-risk awareness, technological improvements — including battery efficiency, modular designs and optimised nicotine delivery — and regulatory encouragement in select markets. More than 6 million Europeans, just over 5 percent of the European population, have quit smoking using e-cigarettes, signalling a sustained migration toward reduced-risk products. 

This shift is not incremental. As a leading portfolio manager in the Fast Moving Consumer Goods (“FMCG”) sector informed, “To achieve a tobacco-free generation by 2040, I think multinationals need to fundamentally re-architect the portfolio.” The prescription is direct, “First run the cigarettes for cash. Harvest the cash flows, protect pricing power where elasticity allows it and redeploy Capex [capital expenditure] aggressively into Next Generation Products (“NGPs”), particularly nicotine pouches.”

“To achieve a tobacco-free generation by 2040, I think multinationals need to fundamentally re-architect the portfolio.”

Leading portfolio manager in the FMCG Sector, EU 

The capital markets case is equally explicit. “From a shareholder lens, the pivot is economically very compelling. Nicotine pouches carry 400 basis points higher margins than cigarettes and markets are rewarding exposure.” The portfolio manager continued, “Companies like Philip Morris with 40 percent new generation product mix are trading close to 23 times earnings versus 13 times for peers like British American Tobacco (“BATs”) with only 20 percent exposure.”

The operational blueprint extends beyond capital allocation. The established FMCG portfolio manager’s second imperative was to “lean into the Sweden model.” Sweden has reached sub-5 percent smoking prevalence in 2025 versus 23 percent across Europe, “largely by embracing nicotine pouches.” These products have delivered “95 percent lower chemical exposure versus cigarettes,” representing “the only nicotine category with the [US] Food and Drug Administration (“FDA”) reduced risk recognition,” and cost consumers “85 percent less per milligram of nicotine — 14 cents versus 96 cents per cigarette equivalent.” Importantly, as the senior portfolio leader observed, Gen Z is lapping it up, “running at about 60 percent adoption.” 

Yet strategic acceleration must occur within tightening policy constraints. “Regulators are running out of runway,” warned the expert. With only seven EU countries having met the WHO’s 2025 target of a 30 percent reduction in tobacco use compared with 2010 levels, escalation toward “hard interventionist tools, primarily taxation, but also plain packaging, retail licensing and online sales bans” appears likely. 

The biggest lever is clearly tax. The revised Tobacco Excise Directive proposes a 139 percent increase in minimum excise duty — from EUR 90 to EUR 215 per 1000 — creating “acute pricing shocks in lower tax markets like Spain and Italy.” This directly pressures the traditional combustible model, where volumes are already declining with France down nine, Italy down two and Spain down almost one percent, which is “really testing the limits of price-led revenue management,” remarked the source.

Exposure is uneven, with the portfolio manager noting “The most vulnerable are clearly the combustible heavy operators who rely on pricing power,” reflecting their structural dependence on price-led revenue management in a declining volume environment. Austria’s reclassification of heated tobacco, restricting sales to specialist retailers, effectively drove online distributors from the market. Fragmented next-generation players are susceptible under the EU’s third revision of the Tobacco Products Directive (“TPD3”) expansion, designed to broaden and tighten regulations on tobacco, nicotine products and e-cigarettes. “The opportunity policy solution is to use taxation asymmetrically to accelerate substitution toward nicotine pouches,” informed an industry expert. “Without that balance, excessive tax plus availability bans risks accelerating illicit trade rather than reducing nicotine consumption.” 

“The most vulnerable are clearly the combustible heavy operators who rely on pricing power.”

Leading portfolio manager in the FMCG Sector, EU

Complicating matters further is regulatory divergence. The UK has moved earlier and faster than the EU, implementing a disposable vape ban on 1 June 2025 and advancing the Tobacco and Vapes Bill (2024–26), introducing flavour, packaging and promotional restrictions alongside a vape-liquid tax beginning October 2026. The EU continues to operate under TPD2, imposing nicotine caps and advertising limits, but no EU-wide disposable ban. Meanwhile, Chinese manufacturers, particularly in Shenzhen, export large volumes of flavoured and disposable products globally, even though many cannot legally be sold domestically following China’s 2022 flavour ban. 

Fragmentation means “the era of centralised one size fits all strategy is over,” confided the expert. Firms must operate a regulatory matrix model, mapping taxation, product legality, packaging, environmental fees and channel restrictions country by country. Belgium and France ban nicotine pouches outright. Austria restricts them to licensed tobacconists. Plain packaging across several countries forces country-specific Stock Keeping Units (“SKUs”), eliminating scale efficiencies and adding significant extended producer responsibility costs. Implementation timelines are uneven; complexity is structural. 

Pricing must also localise. Excise disparities require market-level pricing committees and data-science-led elasticity management, not regional averages. Strategically, the sector expert explained that three layers are required, “Local autonomy for compliance and pricing. Central scientific advocacy to defend harm reduction under TPD3 and diversification beyond nicotine as a hedge against prohibitionist regimes.” 

The conclusion is succinct: preserve cigarette cash flows, accelerate smokeless migration, rationalise SKUs in hostile jurisdictions and align with regulators. “The firms that can scale harm reduction fast will retain pricing power and valuation multiples in a 2040 world,” concluded the leading portfolio manager.