Analyst: Nicotine Rule Could Take a Decade

It could take up to a decade to resolve whether the Food and Drug Administration could require traditional cigarettes to contain minimal nicotine levels, reports The Winston-Salem Journal, citing Barclays analyst Jain Gaurav.

On June 21, the FDA formally announced its proposal to reduce nicotine content in traditional cigarettes to minimal and potentially non-addictive levels.

The FDA proposal is expected to draw legal challenges from tobacco manufacturers that could take several years to address.

“We think it will take a decade or longer for the FDA to introduce nicotine caps due to the long nine-step process at the FDA, the inevitable litigation, and then the one-year time given to retailers to get rid of excess inventory,” Barclays analyst Jain Gaurav said in an investor note.

“The FDA will need to take into consideration inputs from scientific, legal, law enforcement, public health, industry and budgetary stakeholders, and respond to all the comments in an iterative process before it can publish a final rule.”

Some analysts also question whether the FDA has the authority to purposefully decrease demand for a legal product, in this instance by reducing nicotine levels to 5 percent of what most popular traditional cigarettes contain.

In June 2019, Morgan Stanley analysts issued an “industry risk navigator” report that predicted a significant decline in revenue—up to 50 percent by 2034—for tobacco companies if the FDA succeeds in establishing significantly lower nicotine levels.

With the lower nicotine levels, the tobacco industry could lose up to $165 billion in combined profits over the next 15 years even if manufacturers gain revenue from innovation nicotine products, such as electronic cigarettes, heat-not-burn traditional cigarettes and oral nicotine products.

The analysts project BAT taking up to a 13 percent decline to its $88 billion market capitalization, partially limited because just 40 percent of BAT’s profits come from the U.S. Altria could experience up to a 20 percent decline of its $92 billion market capitalization.

The only apparent manufacturing benefactor of the FDA proposal is 22nd Century Group, which specialized in nicotine-reduction and has said it is ready to license its technology to others.

Those are the only combustible cigarettes that the FDA had authorized in the modified-risk tobacco product process. In December 2021, the FDA authorized 22nd Century to market its low-nicotine VLN King and VLN Menthol King cigarettes as modified risk tobacco products. They are currently the only cigarettes with such an authorization on the U.S. market.