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Rumoured Biden cigarette crackdown knocks £6bn off UK tobacco stocks

·3 min read
Final cigarette stubbed out, end of smoking
Final cigarette stubbed out, end of smoking

Almost £6bn ($8.4bn) was wiped off the total value of the UK's top tobacco companies British American Tobacco (BATS.L) and Imperial Brands (IMB.L), amid the threat of stricter regulation in the US, pulling the FTSE100 (^FTSE) lower.

Both were the FTSE's top fallers, down roughly 7% on Wednesday afternoon. The FTSE 100 had crashed 1% by midday in London, trading just below the 7,000 mark.

BAT's stock slumped on Tuesday afternoon. Chart: Yahoo Finance
BAT's stock slumped on Tuesday afternoon. Chart: Yahoo Finance

The moves come amid concerns that the Biden administration could force tobacco firms to reduce the nicotine content in their products to levels that it deems are non-addictive, as per a report in the Wall Street Journal.

The US Food and Drug Administration (FDA) is set to decide whether to ban menthol-flavoured cigarettes by 29 April and now it is also reportedly thinking about it looking into lowering nicotine levels.

It recently published research that shows that smokers will quit or use alternatives such as e-cigarettes or gum if nicotine is reduced in cigarettes, but it has not commented on the recent news.

"Putting to one side what level of nicotine isn’t considered addictive this could have the unintended consequence of making people smoke more, not less in order to get their fix," said Michael Hewson, chief market analyst at CMC Markets UK.

"We’ve seen some big falls today in the likes of British American Tobacco and Imperial Brands with some speculation that the US FDA might be considering a ban on menthol cigarettes, a move that would disproportionately impact British American Tobacco," he added.

READ MORE: Rumours of US cigarette clampdown send FTSE sliding

Nearly half of BAT's operating profit came from the US last year, and 25% of its revenue came from menthol, one report stated.

Watch: FTSE falls despite surprise drop in unemployment

BAT told Yahoo Finance: “Any nicotine regulation would be highly complex and would take many years to implement. It must be founded in scientific evidence, while considering unintended consequences, such as a rise in illicit trade."

It added that it "remains committed to tobacco harm reduction through our multi-category portfolio, as evidenced by the accelerated growth of our non-combustible business in the US.”

Meanwhile an Imperial spokesperson told Yahoo: “The potential for a nicotine reduction policy is not new, having been discussed in the US for a number of years.

"There is very little science and data around the effectiveness of such a policy in reducing smoking incidence, and the FDA would need to develop this, as well as an assessment of the unintended consequences, as part of any rule-making process.

"The potential pursuit of a policy would therefore take several years with an outcome that would be difficult to predict.”

Philip Morris owner Altria (MO), whose shares were down about 5% as markets opened in the US, also warned on the the growth of an illicit market and the possible impact on "hundreds of thousands of jobs from the farm to local stores across the country."

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