Tobacco Stocks Slide as Biden Administration Considers Cutting Nicotine In Cigarettes

Tobacco shares suffered a decline after reports surfaced that the Biden administration is considering imposing restrictions on nicotine levels in cigarettes sold in the US, as well as a full ban on menthol products.

Such proposals for increased regulation of tobacco products are not new; however, the US Food and Drug Administration has reignited the debate ahead of an April 29 deadline for declaring its stance on banning menthol cigarettes. According to the Wall Street Journal, which cited people familiar with the matter, the Biden administration now has to decide whether to move ahead with a menthol ban or a nicotine reduction in all cigarettes sold in the US— or both.

The latest nicotine-reduction policy would force cigarette companies to cut back the amount of chemical in cigarettes to minimal levels that are deemed nonaddictive. This would force millions of smokers to either quit their habit, or make the switch to less health-damaging alternatives, such as e-cigarettes or nicotine gum. Similarly, a ban on menthol products would aim to reduce smoking prevalence among young individuals, many of whom first become addicted to menthol cigarettes.

However, although ambitious, both policies would likely face significant pushback from cigarette makers, and take years to implement. According to Jefferies analyst Owen Bennett, in the event that such rules are imposed by the FDA, there would need to be substantial scientific evidence to support the move. Bennett estimated that it would take at least another five years before sufficient and robust data is gathered on the impacts of nicotine limits.

With the negative impact of cigarette use increasing becoming the subject of campaigns in western countries, tobacco companies have been rushing to gain market share in alternative tobacco goods, such as vaping and non-combustible heated tobacco products. In the meantime, shares of tobacco companies slid following the news, as both British American Tobacco and Imperial Brands fell by more than 5% on Tuesday.

Information for this briefing was found via the WSJ. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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