The Food and Drug Administration (FDA) is backing away from its previously proposed tobacco product standard to ban menthol as a characterizing flavor in cigarettes on public health grounds. The FDA argued that menthol increases the appeal of cigarettes, especially to younger audiences. The proposed ban was intended to reduce experimentation and use among youth while improving the health of current menthol cigarette smokers by encouraging smoking cessation.
The withdrawal of this proposal is seen as a positive for tobacco companies who would have faced the loss of a significant market share. In the United States, there are over 18.5 million smokers aged 12 and older who use menthol cigarettes.
The FDA action aimed to address the leading preventable cause of death and disease in the country and reduce tobacco-related deaths and illnesses associated with menthol cigarette use. The agency also hoped to improve health equity by reducing tobacco-related health disparities.
With the proposal now off the table, tobacco companies are likely to be able to continue selling menthol cigarettes without the threat of an imminent ban. This is reflected in the positive share price performance. The market reaction indicates investor relief as a significant regulatory risk for these companies has been removed.
The news is particularly relevant for British American Tobacco $BATS (+0,8 %)which, along with its industry peers $MO (+0,93 %)
$PM (+0,97 %)
$IMB (+0,7 %) may now be able to avoid the financial impact that a menthol ban would have had on sales and market share.
