Tobacco shares slide on renewed debate over US cigarette rules

Tobacco stocks have taken a hit on reports that the Biden administration is considering forcing companies to strip cigarettes of nicotine and a ban menthol products in the US.

The proposals, which have been around for years, have resurfaced as the US Food and Drug Administration faces an April 29 deadline to respond to a citizens’ petition to ban menthol cigarettes, which make up roughly a third of sales in the country.

Shares in UK groups British American Tobacco and Imperial Brands fell roughly 6 per cent on Tuesday, aping a similar slide for Marlboro-producer Altria following a report in the Wall Street Journal that said Biden’s administration was “considering” new rules. Philip Morris International, which does not sell cigarettes in the US, was down just over 1 per cent.

Tobacco groups have been racing to gain market share in vaping and non-combustible heated tobacco products, as public health campaigns in western countries continue to suppress cigarette sales.

Analysts have, however, downplayed the risk of new rules accelerating this change, partially as any potential legislation would take years to implement and be challenged by the tobacco industry.

Imperial Brands said that the “potential for a nicotine reduction policy is not new, having been discussed in the US for a number of years”. The company, which makes Winston and Davidoff cigarettes, added that “potential pursuit of a policy would therefore take several years with an outcome that would be difficult to predict”.

Adam Spielman, analyst at Citi, said the “threat” of any regulation was a “severe blow to tobacco” but added it was not yet clear whether Biden’s administration would actually implement the proposals.

He also pointed to evidence from recent bans on menthol cigarettes in other countries, such as those in the EU and the UK, arguing it “made surprisingly little difference to volume because smokers have switched easily to non-menthol brands”.

Owen Bennett, analyst at Jefferies, said the proposals were not “new news”, explaining that nicotine limits have been considered by US officials since 2017 and the possibility of a menthol ban was first raised in 2013.

He said that any rules sanctioned by the FDA would need to be supported by “robust science” and that on menthol “there has not been enough evidence to support a rule, and the [FDA] has admitted as much”. Bennett estimated it would take at least five years to gain sufficient data on the potential impact of nicotine limits, meaning any rule changes would be far off.

BAT and Altria did not immediately respond to a request for comment.

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