On September 12, Scott Gottlieb, the FDA commissioner, announced that the accelerating trajectory of flavored e-cigarette usage among youths has reached an epidemic proportion. The FDA is considering a policy change that would expel e-cigarette products from the market.
Gottlieb stated that the FDA would be revisiting the compliance policy that extended the application compliance periods for some products including e-cigarettes. Under the policy, the products, which were in the market as of August 8, 2016, had until August 8, 2022, to file the compliance application. Gottlieb added that the FDA asked five e-cigarette manufacturers, JUUL, Vuse, MarkTen, Blu e-cigs, and Logic, to respond within 60 days with a comprehensive plan to mitigate minors’ use of their products.
E-cigarettes’ growing popularity had a negative impact on cigarette sales. The e-cigarette market is dominated by JUUL, which had 72% of the market share as of mid-August, according to Wells Fargo analyst Bonnie Herzog. So, investors consider the potential ban on flavored e-cigarettes to be favorable for Altria Group (MO), Philip Morris International (PM), and British American Tobacco (BTI).
The announcement caused Altria, Philip Morris, and British American Tobacco’s stock price to increase 6.6%, 3.4%, and 6.0%, respectively, on September 12.
Despite the increase in its stock price, Altria is still trading 11.2% lower than the beginning of 2018. During the same period, Philip Morris and British American Tobacco’s stock price declined 24.2% and 26.8%, respectively. Tobacco companies have been under pressure in 2018 due to increased anti-tobacco regulations and the lower total industry volume.
Meanwhile, the Consumer Staples Select Sector SPDR Fund (XLP), which has invested 12.0% of its investments in cigarettes and tobacco companies, has returned -3.3%, YTD (year-to-date).