How Long Before The FDA Could Ban Menthol Cigarettes?

Earlier this month, the U.S. Food & Drug Administration announced its latest efforts to restrict tobacco companies marketing to teens. Tobacco investors are watching closely to see how the FDA plans to attack and how the industry will respond.

Latest From The FDA

On Nov. 15, FDA head and cancer survivor Scott Gottlieb announced new restrictions on flavored vaping products. However, Gottlieb got tobacco investors’ attention by also proposing an outright ban on menthol cigarettes, which represent about 35 percent of total U.S. cigarette sales.

Anti-tobacco organization Truth Initiative said the FDA should implement its ban immediately on menthol cigarettes immediately and warned the regulatory process can be extremely slow.

“Banning menthol cigarettes and all flavored cigars is one of the most powerful actions the FDA can take when it comes to saving lives,” Truth Initiative said in a statement.

Actions Louder Than Words

While a ban on menthol cigarettes is a major potential disruptor for the tobacco industry, Height Capital Markets said this week Gottlieb’s bark has been louder than his bite up to this point.

“Since his November 15 announcement, we have yet to see the agency formally advance the regulatory process required to ban menthol cigarettes,” Height wrote.

“The FDA has not issued a notice of proposed rulemaking (NPRM), and inaction by the FDA combined with press reports now makes it seem like this event will not occur until 2019,” Height said.

Height said an NPRM submitted by the end of January 2019 could still put the ban on track to be implemented by the end of 2020, but any delays beyond January could push the ban back to 2021.

Stocks Impacted

According to Wells Fargo, British American Tobacco PLC BTI would potentially take the biggest hit from a menthol ban, with about 55 percent of its U.S. volume coming from menthol sales. Altria Group Inc MO (21 percent of volume) and Imperial Tobacco Group plc IMBBY (20 percent of volume) would also be impacted.

If Height’s projections are correct, Philip Morris International Inc PM and 22nd Century Group, Inc. XXII would also have about two years to prepare for a potential menthol ban.

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