On July 28, the Food and Drug Administration disclosed a plan for tobacco and nicotine regulation. The proposed regulation is the first step in the FDA’s plan to lower nicotine in cigarettes to non-addictive levels.
The FDA has been working to review the tobacco industry’s regulations for quite some time, with the end goal of encouraging the development of new products that are far less toxic than cigarettes. In addition, the FDA said that it will consider menthol and a number of other flavors in tobacco products.
“The overwhelming amount of death and disease attributable to tobacco is caused by addiction to cigarettes – the only legal consumer product that, when used as intended, will kill half of all long-term users,” FDA Commissioner Scott Gottlieb said.
Many were surprised by the FDA’s statement and it is likely that it will face a lot of resistance from tobacco companies, which are already dealing with a dealing consumer base for their products.
Following the FDA’s announcement, Altria Group (NYSE:$MO) shares dropped more than 10%. Altria Group is the maker of Parliament and Marlboro brands via its Philip Morris USA unit, and the company saw the most impact on its stock.
While shareholders of Altria run around panicked, the FDA maintains a different view on the matter. “Overall, while the market is viewing today’s announcement as a ‘negative’ for cigarette manufacturers, we believe this could prove to be an opportunity over the long term for reduced risk products and, therefore, a positive for Altria/PM as they have a unique competitive advantage.”
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