BAT Plunges on Possible U.S. Move to Ban Menthol Cigarettes

(Bloomberg) -- British American Tobacco Plc plunged on news of a possible ban on menthol cigarettes in the U.S., which would hit a business that generates as much as one-quarter of the company’s profit.

• Food and Drug Administration Commissioner Scott Gottlieb plans to pursue new restrictions, the Wall Street Journal reported late Friday, citing senior agency officials.

Key Insights

• The potential ban on menthol cigarettes, popular with younger smokers, steps up the FDA’s campaign against youth smoking. Clove cigarettes were previously taken off the market, and now the agency is also taking a tougher approach to cigarette alternatives.
• The FDA has been targeting flavored tobacco products as studies indicate that teens who smoke menthol cigarettes consumed close to twice as many weekly compared with non-menthol users.
• BAT is still very much a cigarette business. While the company’s vapor and other heated tobacco products are growing, they make up about 3.5 percent of revenue. U.S. menthol cigarettes account for 25 percent of profit, according to Morgan Stanley analyst Richard Taylor.