The Food and Drug Administration's animus toward both traditional and electronic cigarettes is escalating. It is proposing  new graphic packaging rules for traditional cigarettes that would require photo-realistic health warnings on all cigarette packs and in tobacco ads, despite having lost a federal court case several years ago prohibiting it from doing so. The agency is also running public service announcements likening e-cigs to traditional cigarettes, and it is investigating purported cases of seizures and pulmonary illness due to vaping.

The outcome of these efforts will come on top of the existing hurdles for e-cig makers to comply with costly and voluminous pre-approval marketing applications. All this could severely hamstring the tobacco industry -- and leave a yawning chasm for smokers looking for a substitute.

But there is a niche product already on the market that could get a big boost if even some of the government's initiatives come to pass.

Tins of Swedish Match snus

Swedish Match is the world's largest producer of snus. Image source: Swedish Match.

The future of nicotine replacement?

Snus, a moist powdered tobacco typically sold in small lozenge-sized pouches, is one of the fastest growing tobacco products on the market, with sales up 250% last year, according to IRI data. U.S. tobacco industry sales totaled around $127 billion last yearwhile e-cig sales were over $2.3 billion. That makes the $60 million snus generated in 2018 a tiny drop, but that could all change quickly.

Global giant Swedish Match (OTC:SWMAF) is the largest producer of snus in Sweden and the third largest in the U.S. It sees the potential for snus and a tobacco-free nicotine pouch version to become an important alternative to cigarettes and e-cigs in the U.S.

Earlier this year, it announced its intention to expand the availability of its tobacco-free brand called ZYN and said it was embarking on a major marketing rollout for it. "In the U.S., we will broaden the distribution for ZYN, to make this popular nicotine pouch product available to consumers nationally," Swedish Match said, adding that it was building a 16,000-square-foot factory in Kentucky to support the campaign.

If Swedish Match can earn a reduced-risk label for its snus -- which may not be all that fanciful a possibility despite the FDA having yet to issue a single such label for any product -- it could become the premier provider on the market.

Swedish Match has been a prolific filer with the FDA for reduced-risk labels for its snus, but it has so far been rebuffed due to deficiencies in its applications. The agency, though, seems to be inclined to approve the applications because it has told the company it can resubmit them once the problems are corrected. British American Tobacco (NYSE:BTI) has also submitted a number of applications for its Camel brand of snus.

Although snus has been on the market here for years, it's really only just beginning to gain in popularity. In Scandinavia -- where it originated -- it is immensely popular, with sales surpassing traditional cigarettes.

The ZYN nicotine pouch is similar to snus except that it doesn't use tobacco. It's chemically similar to nicotine chewing gum, containing nicotine salts derived from tobacco, and it uses other food-grade ingredients as filler and flavor enhancers. Rather than inhaling or chewing, a ZYN pouch is placed under the upper lip, much like snus.

They snooze, they lose

It is likely that Swedish Match's expansion plans drove Altria (NYSE:MO) to buy the international business of Burger Sohne, whose primary product -- on! -- is another tobacco-free nicotine pouch. While the deal won't be finalized until later this year, the transaction allows Altria to begin marketing the pouches immediately.

Traditional cigarette sales are tumbling hard. Nielsen data shows a 7.2% drop in the four-week period ending Aug. 10, but they have been in a secular decline for years.

The tobacco companies settled on e-cigs as their primary replacement, but they are now facing an early 2020 deadline to submit applications to the FDA validating their rationale for staying on the market.

Because the agency is also taking a closer look at vaping as the root cause for 127 cases of teens suffering seizures, it's quite possible that even more restrictions will be placed on them -- even companies like Philip Morris International that have already made it through the regulatory labyrinth.

Snus may be a weird-sounding cigarette alternative at the moment, but along with tobacco-free nicotine pouches like Zyn, this could be where the industry's next big growth spurt comes from.