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Tobacco: Cigarette makers slump on report FDA considering menthol ban

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6 years ago

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smoking tobacco
Javier
Ignacio Acuña Ditzel/Flickr

  • The Food and Drug Administration (FDA) plans to pursue
    a ban on menthol cigarettes, The Wall Street Journal
    reported.
  • As early as this week, the FDA is expected to
    announce a ban on the sale of most flavored e-cigarettes in
    convenience stores and gas stations.
  • As a result, tobacco stocks took a hit across the
    broad.
  • The potential menthol ban won’t have a near-term effect
    on the markets, according to analysts.

Tobacco stocks are getting slammed on Monday following a
report the Food and Drug Administration is going
after menthol cigarettes, which the investment firm
Jefferies says represents 34% of the total US
cigarette market.

FSA Commissioner Scott Gottlieb plans to pursue
a ban on menthol cigarettes, The Wall Street Journal reported
on Friday, citing
 senior agency officials. The
final rule banning menthol could take a year or more, and the
enforcement could take another year, sources said.

The FDA’s possible ban on menthol cigarettes is the latest
in a series of crackdown on the industry. As early as this week,
Gottlieb is 
expected to announce
a ban on the sale of fruit- and candy-flavored e-cigarettes
from companies like Juul in convenience stores and gas stations
in order to stop young people from getting addicted. The planned
restrictions will not include vape shops or other specialty
retail stores, and menthol and tobacco flavors will be exempt
from the restrictions.

As a result, tobacco stocks were under pressure. Here’s the
scoreboard as of 9:42 a.m. ET:

While cigarette makers are taking a hit, Wall
Street analysts are saying the potential menthol ban won’t have a
near-term impact.

“Menthol regulation would have to go through the FDA’s rulemaking
process, which could take at least two years to finalize, and the
industry would likely have one to two years to implement the
change,” said Pamela Kaufman, an analyst at Morgan Stanley.

Kaufman added: “The FDA has been evaluating the role of
menthol in cigarettes since the passage of the Tobacco Control
Act in 2009, and more recently increased its focus on flavors
in e-cigs/menthol cigarettes as part of its Comprehensive
Tobacco & Nicotine Regulatory plan announced last year.
Despite these efforts, we do not believe that the market has
been anticipating a near-term focus on menthol.”

And Jefferies analyst Christopher Mandeville
agreed. 

“At face value, this could have a material impact on the
c-store channel; however, we’d advise investors to be mindful
of how regulatory change is often a slow process,” he wrote.
“Moreover, any ban doesn’t necessarily equate to an absolute
loss of sales/GP$ as users have alternatives for their
nicotine fix.”

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