Could Biden Extinguish Tobacco Stocks With This Regulation?

Zinger Key Points
  • Menthol cigarette smokers are typically younger, which makes the market lucrative for tobacco companies that count on brand loyalty and lifetime sales from users.
  • Around 43% of U.S. smokers used menthol cigarettes in 2020, up from 30.5% in 2005, according to the report.

The U.S. government could be speeding up a plan to ban menthol cigarettes, according to a new report. Here’s the new timeline and two stocks that could be affected.

What Happened: The Biden Administration could advance a ban on menthol cigarettes, according to a Wall Street Journal report. The administration under President Joe Biden has worked on pushing forward a plan that was started under President Barack Obama and later shelved by President Donald Trump. 

The Food and Drug Administration is expected to publish a report on Thursday that would lay out new rules and details for a plan. The plan would lay out the timeline for a national ban on menthol cigarettes and flavored cigars.

The ban would not impact the sale of menthol e-cigarettes.

Around one-third of all cigarettes sold in the U.S. are menthol cigarettes, according to the report.

The ban would likely take effect in 2024 or later. The FDA would allow the public and companies to comment on the rules and then review them. Final rules would then be announced in 2023.

The Wall Street Journal reports that one tobacco company has indicated that it might litigate over the new rule, which could delay the timeline for the menthol cigarette ban.

The proposed ban of menthol cigarettes has been in the works for years, with the FDA gaining control over regulating the tobacco industry in 2009.

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Why It’s Important: Menthol cigarette smokers are typically younger, which makes the market lucrative for tobacco companies that count on brand loyalty and lifetime sales from users.

Around 43% of U.S. smokers used menthol cigarettes in 2020, up from 30.5% in 2005, according to the report.

The Stock Impact: The two stocks that could see the greatest impact from the menthol cigarette ban are Altria Group MO and British American Tobacco BTI.

Altria Group owns the Marlboro brand and is second in market share for menthol cigarettes in the U.S. In 2021, it was reported that Altria had 26% market share in menthol cigarettes. The company gets around 17% of its overall volume from menthol cigarettes, making it less impacted by the ban, but it's still a potential worry for investors.

British American Tobacco acquired Reynolds American for $50 billion in 2017. Reynolds America owns Newport, which is the largest menthol cigarette brand in the U.S. by market share. Reynolds America had a 66% market share for menthol cigarettes in 2021. Menthol cigarettes make up around 50% of British American Tobacco’s U.S. unit sales and around 30% of its global profits.

Fewer Smokers Overall: The ban of menthol cigarettes would come as overall cigarette usage has dropped in the U.S. for the last several decades. In 2020, around 12.5% of U.S. adults smoked cigarettes, or around 30.8 million people.

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