Sky News reported on the 12th of November that “Tobacco giant shares burnt by methanol ban report.”.  The same was also reported by The Guardian news, with a bit of twist stating, “Tobacco shares go up in smoke amid US crackdown plan.”

Tobacco Decline

The Tobacco company’s share seems to be on a recurring decline as it has slumped by almost 40% over the past year, placing it on track for its third annual decline in the last twenty years. The US regulators are preparing to crack down on the sales of flavoured e-cigarettes and menthol cigarettes. The effect of this on the British American Tobacco and Imperial Brands seems to be not pleasing as they have had £8.6 billion wiped from their stock market value.

The regulation seems to have had minimal effect on the US tobacco giants, Philip Morris International Marlboro and Altria Group. The world’s top cigarette brands are manufactured by this company. By lunchtime on the New York Stock Exchange, Marlboro was down by 1% and Altria Group was down 1.9%.

The sixth-biggest company in the FTSE 100 and the maker of brands including Lucky Strike, Dunhill, Rothmans, and Benson & Hedges, British American Tobacco(BAT) have had their shares tumble by 10.6%. This has sent their market value plummeting from £76 billion at the close on Friday to £68 billion at the end of trading on Monday.

The same fate was suffered by the number one player in the UK market, Rival Imperial Brands. The £25 billion company had about £600 million wiped away from its market value. The US Food and Drug Administration has made up their mind and without considering the effect of their regulation on these companies, will impose the ban this week. The ban will be imposed on the sale of most flavoured e-cigarettes in tens of thousands of stores and petrol stations across the US.

FDA Changes

The ban could take up to two years to be finalized and enforced. The FDA is planning to impose age-verification requirements to make sure online sales are actually made to rightful customers. The product which is on the verge of extinction accounts for about a quarter of BAT’s total annual profits. At Imperial and Altria it stands at 15%.

An analyst at Jefferies, Owen Bennet said “In terms of how much profit is at risk, though we think it is way below this, we think many will just switch into a non-menthol variant of their brand versus quitting or given the availability of reduced risk products, will now switch into one of these. The question is then; can the majors take their fair share of those switching?

The accusations made against the BAT to have been using flavoured cigarettes to lure young smokers coupled with the declaration made by the FDA in 2013 that menthol cigarettes were harder to give up and pose a greater threat to health than the regular cigarettes, led to the gradual decline observed in their market values. In June, San Francisco voters approved a proposition to ban the sale of flavoured tobacco products, including menthol cigarettes. This battle saw tobacco company RJ Reynolds, a subsidiary of Reynolds American, contributing $12 million against the measure.

Last week, it was recorded that the imperial Brands Chief executive, Alison Cooper, told investors that the company was targeting ambitious growth plans at “next-generation products”; it owns the Blu e-cigarette brand. BAT owns e-cigarette brands including Vype and Vuse.

Nicholas Hyett, equity analyst at Hargreaves Lansdown also said: “Along with cigarette volumes shrinking, regulation is the other inevitable fact of the tobacco industry. The acquisition of Reynolds gave BAT a dominant position in Menthol sales. That’s a segment that’s been in regulators’ sights for some time- thanks to its perceived status as a gateway for new smokers.

UK worries

Recent statistics compiled by the ASH (action on smoking and health) stated around 9 million adults in the UK smoke cigarettes: 195 of men and 155 of women. Two-thirds of smokers start before the age of 18.

The news of the major blow on the British American Tobacco was further compounded by the announcement made by Mr Drakeford. He wants to ban smoking in outdoor areas of cafes and restaurants, although smoking is currently banned in indoor public places.

Wales could be the first part of the UK to ban smoking in city centres if the proposal were implemented. “It is very important that we press ahead with reducing the level of smoking here in wales, we already have bans on smoking on beaches in parts of Wales. This is a proposal to take this further.”-said Mr.Drakeford in a recent interview with BBC Wales. He denied he would want to ban it outright..