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Trump May Ban Flavored E-Cigarettes: Who Wins, Who Loses

Zacks Equity Research

Teenagers have been using flavored e-cigarettes as a trendy alternative to the paper rolls. But, President Trump and his administration, on Sep 11, threatened to ban flavored e-cigarettes citing health hazards.

This alternative vaping industry has skyrocketed in the last few years and created a huge teenage fan base thanks to sweet and fruity flavors. But with recent reports on lung illness from chemicals used in vaping, officials have decided to remove the fuming sticks. Now, is this good news for the traditional cigarette makers? Let’s have a look –

Threat to Ban Non-Tobacco Flavored E-Cigarettes

The Food and Drug Administration (FDA) along with public-health officials and U.S. Health and Human Services is investigating more than 450 cases of pulmonary illness potentially caused by vaping products. In fact, to date, there are six cases of death associated with illness caused by vaping.

Public officials have reported that sweet and fruity flavors attract teenagers. Juul one of the U.S. market leaders in vaping products offers mint, mango and other fruity flavors that account for more than 80% of its total sales.

Though doctors are still not sure if flavored vaping is the cause of recent lung illnesses, they are sure that “some sort of chemical exposure related to vaping or e-cigarette use may be causing inflammation or injury in the lungs,” per a Wall Street Journal report. In fact all the 450 cases and six deaths are related to use of ingredients like tetrahydrocannabinol, the psychoactive ingredient in marijuana and flavors.

Public officials are also running enquiry if the standard e-cigarettes are being tampered and have warned users not to tamper the device or buy products off the street. Meanwhile, the FDA is finalizing instructions to remove all non-tobacco flavors of e-cigarettes within 30 days. Companies can reintroduce the products in the market after they receive approval from the FDA.

The flavored e-cigarettes industry has been skyrocketing in recent months, with flavors like mango and crème that attract the younger lot. As per the annual survey of teens by Centers for Disease Control and Prevention, more than a quarter of high school students have used e-cigarettes within the past 30 days. These teens also mentioned that they vaped fruit and menthol or mint flavors.

Tobacco giant, Altria Group, Inc. MO has purchased a 35% stake for $12.5 million in Juul Labs. But Trump’s threat has pushed its stock down by 1%. As of last year, Juul’s marketing was under investigation by the Federal Trade Commission for misguiding young people to buy vaping products. On Sep 9, the FDA issued a warning letter to Juul stating that it has broken law by promoting its vaping products as less harmful than traditional tobacco products.

Similarly, Turning Point Brands TPB that owns rolling-paper maker Zig Zag and holds a few vaping companies in its portfolio, saw its shares decline 6.5% on Sep 11. While tobacco makers like Philip Morris International PM and British American Tobacco BTI were not much affected, they are definitely in a tight spot as the FDA keeps removing flavored vaping products.

Is Traditional Tobacco Still the Winner?

In 2014, the Royal College of Physicians after a study stated that “e-cigarette aerosol contains far fewer carcinogens than tobacco smoke, and concluded that e-cigarettes ‘impart a lower potential disease burden’ than traditional cigarettes.”

This had not only boosted the vaping industry but also dampened the traditional cigarettes as prolonged tobacco smoking could lead to lung cancer, breast cancer, emphysema and heart disease. But now with vaping products being held responsible for causing lung illness it seems that they are no good compared to traditional sticks.

During 2015-2017, nearly 2,035 e-cigarettes have exploded or caused burns in the United States alone. The lithium-ion battery in the device at times overheats and explodes. States like California, Massachusetts and New York are planning to ban e-cigarettes, while Michigan and San Francisco have already barred sale of vaping products.  

It may be good news for the traditional tobacco makers and related industry as people will be switching back to paper rolls. Shares of Schweitzer-Mauduit International, Inc. SWM, Vector Group Ltd. VGR and 22nd Century Group, Inc. XXII rose 2.5%, 3.7% and 4.7%, respectively, on Sep 11.

Vector Group, currently, carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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Philip Morris International Inc. (PM) : Free Stock Analysis Report
Schweitzer-Mauduit International, Inc. (SWM) : Free Stock Analysis Report
22nd Century Group, Inc (XXII) : Free Stock Analysis Report
British American Tobacco p.l.c. (BTI) : Free Stock Analysis Report
Turning Point Brands, Inc. (TPB) : Free Stock Analysis Report
Altria Group, Inc. (MO) : Free Stock Analysis Report
Vector Group Ltd. (VGR) : Free Stock Analysis Report
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