According to a report by the Winston-Salem Journal citing Barclays Bank analyst Jain Gaurav, it could take up to a decade to resolve whether the US Food and Drug Administration (FDA) has the authority to require a minimum nicotine level in traditional cigarettes.
On June 21st, the U.S. Food and Drug Administration officially announced its recommendation to lower the nicotine content in traditional cigarettes to the lowest possible level and achieve a level equivalent to being non-addictive.
It is expected that the FDA's proposal will trigger appeals from tobacco manufacturers, which could take several years to resolve.
In a recent investor statement, Barclays analyst Jain Gaurav stated, "We believe that due to the lengthy nine-step process of the FDA, inevitable litigation, and one year given to retailers to sell remaining stocks, it will take the FDA a decade or more to establish a nicotine cap.
The FDA will need to consider the opinions of stakeholders with interests related to science, law, enforcement, public health, industry, and budget, and will need to respond to all opinions before releasing the final regulations.
Some analysts are questioning whether the US Food and Drug Administration (FDA) has the authority to decrease the demand for legal products, as in this case, by lowering nicotine levels to 5% of most popular traditional cigarettes.
In June 2019, analysts at Morgan Stanley released a report titled "Industry Risk Navigator," which projected that if the US Food and Drug Administration successfully implemented significantly reduced levels of nicotine, tobacco companies would experience a significant decline in revenue, with a projected 50% decrease by the year 2034.
As nicotine levels decrease, even manufacturers who generate revenue from innovative nicotine products such as electronic cigarettes, non-burning traditional cigarettes, and oral nicotine products may experience a potential loss of up to $165 billion in overall profits for the tobacco industry over the next 15 years.
Analysts predict that the market value of BAT, which is currently at $88 billion, is likely to decrease by at most 13%. This is partly due to the fact that only 40% of BAT's profits come from the United States.
The only beneficiary of the proposal by the Food and Drug Administration (FDA) is the 22nd Century Group, which specializes in reducing nicotine and has expressed readiness to license their technology to other companies.
The FDA has authorized 22nd Century Group to sell its low-nicotine VLN King and VLN Menthol King cigarettes as modified-risk tobacco products. These are the only combustible cigarettes that the FDA has authorized during its process of modifying tobacco product risk. As of December 2021, they are the only cigarettes on the US market to have received this authorization.
Source: Tobaccoreporter.
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