After a surprise announcement last Friday that the FDA is looking to slash the nicotine content in combustible cigarettes, investors in tobacco stocks immediately took notice. Meanwhile, the vaping industry largely cheered the bold move and applauded the also-included decree that the FDA deeming regulations would get a 5-year reprieve.
Shares in the Big Tobacco conglomerate the Altria Group, manufacturer of Marlboro cigarettes, plummeted a whopping 17.3 percent within moments of the FDA report. By the end of the day, the trading price had recovered slightly to a still-abysmal 9.5 percent drop overall.
British American Tobacco also took a huge hit, tumbling a whopping 13 percent in early morning trades and leveling out to an astonishing 7.6% cumulative decline by day’s end. Phillip Morris shares were also traded heavily, although the company recouped most of its temporarily losses by the end of the trading. According to a report in the New York Post, the Big Tobacco industry lost $60 billion in market capitalization thanks to the shocking FDA news release.
Is the FDA finally embracing vaping over Big Tobacco?
The responsibility for the revised stance on nicotine by the FDA is largely credited to its new chief, Commissioner Scott Gottlieb. During his recent Senate confirmation hearing in April, the Trump appointee admitted to being a major financial investor in the KURE e-cigarette company. He also promised to recuse himself from any pending regulatory actions involving the American vaping industry for a period of 12-months after his confirmation.
This period of recusal may be why the FDA announcement did not abolish the FDA deeming regulations entirely, instead opting to delay the implementation of its more critical components until 2022. According to Friday’s press release, retailers and manufacturers of vaping products have another 5-years to comply with the million-dollar PMTA (Pre-Market Tobacco Application) process typically reserved for Big Tobacco. At a press conference immediately following the announcement, Gottlieb issued the following statement.
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In a single press release, Gottlieb seems to have shaken the stock market to its very core. By signaling a possible reversal of previous FDA policy under the Obama Administration which demonized vaping and seemingly favored Big Tobacco, Gottlieb sent shock waves through Wall Street.
However, the War on Vaping is not yet won. It may be only moving to a new frontier. As local governments like San Francisco continue to implement their own versions of anti-vaping legislation which prohibit the sales of flavored e-liquids and ban public vaping, the delay of the federal PMTA process is not a permanent solution. When Wall Street takes notice and tobacco stocks take a hit, politicians in every level of government immediate take notice. And they will likely be inclined to fight back…hard!
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