logo
Plus   Neg
Share
Email

FDA's Nicotine Rule Likely To Cost Tobacco Industry $165 Bln: Morgan Stanley

tobacco fda 061819 lt

The U.S. Food and Drug Administration's adoption of a maximum nicotine rule would be a "potential game changer" for the U.S. tobacco industry, but it could also cut profits for major tobacco companies in the U.S. by half, according to Morgan Stanley analysts.

In October, the FDA will publish its proposed rule that regulates the amount of nicotine allowed in cigarettes and other tobacco products.

Under the rule, the agency intends to lower nicotine levels in cigarettes to a minimal or non-addictive level by creating a potential nicotine product standard.

The potential nicotine standard could decrease the chances that future generations become addicted to cigarettes and could also make it easier for more currently addicted smokers to quit, according to the FDA.

In a research report, Morgan Stanley analysts noted that if the regulation is adopted by 2035, it would cost the industry almost $165 billion in lost profits.

However, the reduction of nicotine in cigarettes to non-addictive or minimally addictive levels would also be a potential game changer for the U.S. industry, they said.

Accordingly, the analysts rated the stock of Marlboro-maker Altria Group Inc. and Imperial Brands as underweight, while downgrading British American Tobacco to underweight.

Major tobacco companies in the U.S. are already grappling with dwindling sales of cigarettes amid rising competition and changing consumer habits. Many U.S. citizens have started ditching tobacco due to its health issues.

However, the analysts noted that while tobacco companies will be badly impacted if the policy takes effect by 2035, e-cigarette makers like Juul will benefit due to the consumers' transition from smoking to vaping.

According to the analysts, Altria will be the most at risk if the FDA enacts the maximum nicotine policy.

However, Altria's 35 percent stake in Juul and its agreement with Philip Morris to sell PMI's heated tobacco product in the U.S. makes the company the best placed to transition to alternative nicotine products, they said.

British American Tobacco, which holds only a 10 percent stake of the e-cigarette market, "has a difficult path forward in the U.S.," the analysts noted.

For comments and feedback contact: editorial@rttnews.com

Business News

Editors Pick
Tesla said it will produce ventilators at its Gigafactory in Buffalo, New York to support the city's hospitals amid the coronavirus pandemic. New York is the worst affected state in the U.S. Last Saturday, Musk tweeted that he "had a long engineering discussion with Medtronic about state-of-the-art ventilators. Luxury fashion house Ralph Lauren will donate $10 million to help fight the coronavirus pandemic and manufacture face masks as well as medical gowns in the U.S. The company's charity arm, the Ralph Lauren Corporate Foundation, said in a statement that it is committing $10 million towards the global response to the COVID-19 pandemic. General Motors Co. is delaying work on new vehicle models and is cutting pay for its executives as part of efforts to conserve cash amid the coronavirus or Covid-19 pandemic. The automotive giant also extended the shutdown of North American plants indefinitely. Multiple reports cited an internal memo that salaried workforce will have 20 percent of pay deferred starting April 1.
Follow RTT
>