Analysts: Nicotine Reduction Takes Time
Industry analysts expect the implementation of any plan to mandate lower nicotine levels for cigarettes sold in the U.S. to take a long time.
Tobacco stocks plunged on April 19 after The Wall Street Journal published an article suggesting the Biden administration is considering a policy that would require tobacco companies to reduce nicotine levels in cigarettes to nonaddictive levels.
Industry analysts, however, said this process will be lengthy, according to an article published by CSP.
“While we see a very long and uncertain road to establishing a legally enforceable nicotine standard, we believe there is heightened headline risk, and the likelihood for a nicotine standard to ultimately be implemented exists,” Bonnie Herzog, a managing director of Goldman Sachs, said in a research note.
If the Biden administration moves forward with its plan, Herzog said she would expect cigarette volumes to decline dramatically and more people to convert to reduced-risk products and technologies.
Nik Modi, analyst at New York-based RBC Capital Markets, said in a research note that he’s cautious of becoming too invested in potential consequences at this time because nicotine regulation is just a consideration.
If the regulation moves to the next step, the U.S. Food and Drug Administration (FDA) would have to release a notice of proposed rulemaking and consider potential consequences. At a minimum, there is a mandatory one-year to two-year delay between issuing a final rule and policy implementation, Herzog said.
Among other things, the agency would have to consider whether lowering nicotine levels would increase consumption of cigarettes because of reduced-risk perceptions, and if its policy would boost black market sales or unregulated home manufacturing.
At a minimum, there is a mandatory one-year to two-year delay between issuing a final rule and policy implementation.
Commentators have already warned against unintended consequences of a low-nicotine mandate. Such a policy would stimulate illicit trade and could result in more smoking-related illness, wrote Brad Polumbo, a policy correspondent at the Foundation for Economic Education (FFEE).
“Were the amount of nicotine in cigarettes lowered by law, many people would respond by smoking more total cigarettes to get their nicotine fix. Because it is tar and other carcinogenic substances in cigarettes that cause cancer—not the nicotine itself—this would likely mean more cases of lung cancer and more premature deaths,” he wrote on the FFEE website.
What’s more, smokers unhappy with the new weak cigarettes for sale at legal outlets may turn to black markets to buy stronger variants, according to Polumbo. “Because black market dealers have little business accountability or oversight, there’s a greater chance that the products could be laced with dangerous substances or dangerously made,” he wrote.
The argument of compensatory smoking is disputed by 22nd Century Group, a company specializing in low-nicotine tobacco that stands to gain considerably from a nationwide low-nicotine mandate.
“Public health researchers have conclusively refuted the common misperception that reduced-nicotine content cigarettes could cause smokers to increase their smoking, saying, ‘Effectively compensating to maintain nicotine exposure is virtually impossible when switching to cigarettes with minimally addictive nicotine content,’ and, ‘[M]andated reduction in nicotine content is unlikely to result in an increase in smoking behavior to obtain more nicotine,’” the company wrote in a statement about the topic.
Analysts also noted that policy implementation could be delayed by legal challenges from the tobacco industry. Cigarette manufacturers could challenge or sue the FDA if they think the agency isn’t acing in accordance with regulatory guidelines or overstepping boundaries, said Modi.
The current discussion about lowering nicotine dates from 2018, when the FDA introduced its Comprehensive Plan for Tobacco and Nicotine Regulation.