The United States Food and Drug Administration is on a mission to reduce nicotine levels in [traditional] cigarettes while also looking at new measures that can move smokers towards the new e-cigarette devices. The move is a major regulatory shift the agency announced on Friday which, understandably, sent stocks in traditional cigarette companies on a dramatic downturn.
FDA Commissioner Scott Gottlieb said, in an official statement: “The overwhelming amount of death and disease attributable to tobacco is caused by addiction to cigarettes – the only legal consumer product that, when used as intended, will kill half of all long-term users.”
He continues, “Envisioning a world where cigarettes would no longer create or sustain addiction, and where adults who still need or want nicotine could get it from alternative and less harmful sources, needs to be the cornerstone of our efforts – and we believe it’s vital that we pursue this common ground.”
On Friday, the FDA also said that it plans to open a “public dialogue” in regards to reducing nicotine levels in terms of “achievable product standards.”
Gottlieb adds, “Our approach to nicotine must be accompanied by a firm foundation of rules and standards for newly-regulated products. To be successful all of these steps must be done in concert and not in isolation.”
In addition, the agency said it will consider some exemption for “premium cigars” and will also consider delaying the implementation of these new rules when it comes to reduced-risk offerings (like e-cigarettes).
Altria, as would be expected, suffered the most drastic share price impact on the heels of this announcement.
Thus, Wells Fargo analyst Bonnei Herzog said, in a note to clients, “We’ve longed believed the FDA would ultimately take a more comprehensive approach toward regulating nicotine was a natural next step. Overall, while the market is viewing today’s announcement as a ‘negative’ for cigarette manufacturers, we believe this could prove to be an opportunity over the long term for reduced risk products and, therefore, a positive for Altria/PM as they have a unique competitive advantage.”
Of course, Herzog also makes sure to warn that while the FDA seeks a balanced approach that they hope will minimize “unintended consequences”—like a black market—they can’t anticipate all the risks.