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The Swedish snuff that's targeting the US

Friday, 10 Jan 2014 | 2:44 AM ET
Bloomberg | Bloomberg | Getty Images

Big tobacco may be scrambling to grab a hold of the e-cigarettes market, but there's a little-known 700-year old tobacco product from Europe that's also seen as having big potential.

Snus (pronounced "snoose") is similar to U.S.-style dipping tobacco. It's a derivate of snuff with the history records showing its use dating back to the late 1400s. It's placed inside the upper lip and is either sold loose in tins or in tiny tea bag-style pouches.

Snus is primarily manufactured and consumed in Sweden but is banned across the rest of the European Union. Nonetheless, the Swedish market is growing amid fierce competition from rival brands, according to Citigroup analyst Adam Spielman, who told CNBC that demand is growing in the United States too.

(Read More: E-cigarettes could significantly cut tobacco use: Study)

"We do recognize the U.S. snus business is an important investment consideration, and it could turn into quite a positive," Spielman said in a note on Tuesday.

Chad Jones, a U.S.-based snus user and blogger for Snubie.com, a website devoted to smokeless tobacco, told CNBC via email that he has witnessed growth in popularity with more retail outlets offering the product in his local area.

"I was looking for a way to quit smoking and discovered snus...what drew me in was how discreet snus was and the lack of dangerous health risks that other forms of tobacco carry. As a new parent, I also didn't want to expose my daughter to any of the second-hand effects of smoking, and I no longer wanted to subject myself to the effects and risks of cigarettes either," he wrote.

"Snus is a way that people who have been trying to quit smoking unsuccessfully can finally put down the cigarettes and move forward with their lives."

(Read More: Court ruling could deal blow to e-cigarette industry)

Shares in Swedish Match, one of the major snus manufacturers, fell around 5 percent Tuesday as Citigroup cut its rating to a "sell" from "neutral" citing "competition pressures" and a "price war" in Sweden that will continue into 2014.

One ray of light will be the U.S., Spielman said. Currently snus in the U.S. is generating sales of roughly 60 million Swedish Krona ($9 million) a year for Swedish Match, he said. That's 4 million cans of snus a year at approximately $1.50 to $2 per can. Swedish Match are currently pumping about 8 percent of its trading profit into growing its U.S. business, he said.

'Modified or lower risk'

Statistics from research firm Euromonitor suggest that the U.S. will be snus' biggest growth area. Between 2013 and 2017 it expects retail volume to grow by 19.7 percent in the U.S., 11.1 percent in Sweden and 15.5 percent in the rest of the world.

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Don Hedley, a contributing analyst at Euromonitor predicts Swedish Match to face fierce competition from U.S. brands Reynolds American Inc. and Altria as well as traditional dipping tobacco which is more popular. Swedish Match currently only account for around 6 percent of U.S. consumption of snus. In a research note in March, Hedley noted that it's also a market with an ageing customer base in long-term volume decline.

(Read more: NYC may douse e-cigarettes in public spaces)

Emmett Harrison, the senior vice-president of investor relations at Swedish Match told CNBC that total U.S. sales of snus is around 47 – 50 million cans per year and has grown from virtually nothing in 2007. The company has indicated that it is working on an application to the U.S. Food and Drug Administration to label its products as having a "modified or lower risk", which could provide much faster sales growth, according to Spielman.

A study by the World Health Organization in 2008 concluded that among the smokeless tobacco products on the market, products with low levels of chemicals called nitrosamines, such as Swedish snus, are considerably less hazardous than cigarettes.

"The finding in Sweden that long-term use of smokeless tobacco by men reduces cigarette smoking has not been replicated in other countries where smokeless tobacco has been widely available. The Swedish experience may not therefore be generalizable, and it would be premature to use it as a basis for public health recommendations," it said.

Clarification: This article has been updated to reflect that Swedish Match is working on an application to the U.S. Food and Drug Administration to label its products as having a "modified or lower risk".

By CNBC.com's Matt Clinch. Follow him on Twitter @mattclinch81

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