FDA Clamps Down on Cigarettes With New Regulations

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The major cigarette stocks were down on Friday after the U.S. Food and Drug Administration (FDA) said that it will explore plans to include less nicotine in cigarettes. This is a major regulatory shift, with the endgame of moving smokers toward e-cigarettes and away from traditional cigarettes.

Altria Group Inc. (NYSE: MO) and Phillip Morris International Inc. (NYSE: PM) had the worst reactions to the announcement. Although Reynolds American Inc. (NYSE: RAI) was down, it was not as much as the others.

Scott Gottlieb, FDA Commissioner, has more or less sided with e-cigarettes in this debate, considering they might have some better public health benefits than traditional cigarettes.

The FDA plans to begin a public dialogue about lowering nicotine levels in combustible cigarettes to non-addictive levels through achievable product standards. The agency intends to issue an Advance Notice of Proposed Rulemaking (ANPRM) to seek input on the potential public health benefits and any possible adverse effects of lowering nicotine in cigarettes. Lowering nicotine levels could decrease the likelihood that future generations become addicted to cigarettes and allow more currently addicted smokers to quit.

Gottlieb commented:

Because nicotine lives at the core of both the problem and the solution to the question of addiction, addressing the addictive levels of nicotine in combustible cigarettes must be part of the FDA’s strategy for addressing the devastating, addiction crisis that is threatening American families. Our approach to nicotine must be accompanied by a firm foundation of rules and standards for newly-regulated products. To be successful all of these steps must be done in concert and not in isolation.

Shares of Altria were last seen down over 10% at $66.07, with a consensus analyst price target of $74.57 and a 52-week range of $60.01 to $77.79.

Phillip Morris traded down 6% at $110.62. The stock has a 52-week range of $86.78 to $123.55.

Reynolds American shares were trading down 2% to $65.40, within a 52-week range of $43.38 to $67.81 and with a consensus price target of $62.63.