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The US Food and Drug Administration proposes to ban menthol cigarettes, which make up 25% of BAT’s US sales.
The US Food and Drug Administration proposes to ban menthol cigarettes, which make up 25% of BAT’s US sales.

Threat of US menthol cigarette ban knocks BAT down 11%

RETAILER NEWS

By Robert Laing - Nov 12th 2018, 13:39

British American Tobacco’s (BAT) share price plunged 11% to R555, wiping R176bn off its market capitalisation, on a report the US government is considering banning menthol cigarettes. 

The Wall Street Journal reported that the US Food and Drug Administration (FDA) plans to pursue a ban, citing senior agency officials.

Menthol cigarettes account for about a quarter of BAT’s US cigarette sales, making it a bigger casualty of the potential ban than its competitors Altria and Imperial Brands.

“The FDA concluded in 2013 that menthols are harder to quit and likely pose a greater health risk than regular cigarettes. The agency said use of the cigarettes, which are flavoured with the compound menthol, was likely associated with increased smoking initiation by youth and young adults, possibly because menthol helps reduce the throat irritation caused by cigarette smoke,” the Wall Street Journal wrote.

When BAT stepped up its presence in the US last year by acquiring the 58% of Reynolds it did not already own for $50bn, it listed its menthol cigarettes as a key attraction.

“Reynolds is well-positioned as the number two player in the US market, with three out of the four top-selling cigarette brands and the benefits from the Lorillard acquisition already evident,” BAT said in January 2017.

“Reynolds has a 34% cigarette market share, with Newport the leading brand in menthol, Pall Mall the leading value brand and Natural American Spirit, the fastest-growing premium brand. Reynolds’ American Snuff subsidiary also has a 33% share of the growing moist-snuff segment, led by its Grizzly brand.”

Dow Jones quoted analyst firm Jefferies saying it would require a lengthy evidence-gathering process to get the ban through US courts.

“Jefferies notes previous similar proposals struggled due to a lack of data over the harm caused by menthol cigarettes and the high requirements of ‘conclusive’ evidence,” Dow Jones reported.
Business Live 

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