The U.S. tobacco industry revenues have been growing steadily despite consistently falling smoking rates. However, the industry dynamics are about to change as the U.S. Food & Drug Administration (FDA) is rolling out a plan to cut nicotine concentration in cigarettes to curb young adult smoking rate. The U.S. anti-tobacco regulations and tax rates are still considered lenient as compared to some other developed economies, but this new proposal could be a big blow to the tobacco industry.
Source: Yardeni
The tobacco stocks have fallen off the cliff with the FDA’s announcement of a multi-year nicotine reduction plan. Altria Group (MO), which controls 44% of the U.S. tobacco industry, has lost approximately 18% value over the past few weeks. There are a lot of uncertainties around the new proposal, and its implementation may drag cigarette sales in the future, but lower nicotine mandate is overdone at this point, and a steep drop in share price is buying opportunity in my opinion.
