Shares in tobacco companies surged yesterday after the FDA threatened to pull flavored e-cigarette products from shelves in 60 days if "widespread" teen use isn't tackled.
Altria shares rose more than 6% in their best day since November 2008 while Philip Morris International shares increased by around 3% and British American Tobacco stocks increased almost 6%.
The increase came after the FDA announced that it was ordering the five largest e-cigarette manufacturers to submit plans on how they will prevent teens from using their products.
JUUL, Vuse, MarkTen, Blu E-cigs and Logic will have 60 days to respond to the agency, otherwise the FDA may ban vape juice flavors described by FDA Commissioner Scoot Gottlieb as a "principal drivers of the youth appeal" of vape products.
A statement from the FDA said that if the brands could not tackle the youth problem, they would be required to "remove some or all of their flavored products that may be contributing to the rise in youth use from the market until they receive premarket authorization and otherwise meet all of their obligations under the law."
The agency also announced that it was taking action against 1,300 retailers who illegally sold JUUL and other vape products to minors during an"undercover blitz" of stores this summer.
FDA announcement of threat to remove major e-cigarette brands from the market coincides with sharp rise in Big Tobacco share prices.
Christopher Russell (@NicotineSurveys) September 12, 2018
Why a Flavor Ban is Good News for Big Tobacco
Tobacco investors have been put off by the falling smoking rate in the United States and the rising popularity of e-cigarette products, particularly the market leader JUUL.
Data from the Centers for Disease Control and Prevention (CDC) shows that the smoking rate fell from 20.9% in 2005 to 15.5% in 2016.
Cigarette use in teens is also down. The CDC found that cigarette use among high schoolers more than halved from 15.8% in 2011 to 7.6% in 2017.
This is alongside an increase in e-cigarette use. Nearly 12 out of 100 (11.7%) high school students reported using an e-cigarette in the past 30 days in 2016, up from 1.5% in 2011.
Market analysts suggest that the growing popularity of e-cigarettes is having a negative impact on the tobacco industry, with non-traditional products like JUUL hovering up a large proportion of the market share.
E-cigarette enforcement action by the FDA, which could include a ban on flavors, is a good thing for the big tobacco companies. By lowering the appeal of e-cigarettes, big tobacco investors are betting that fewer people will switch from cigarettes to e-cigarettes.
This will harm the adult smoking population in the long run. A landmark study has shown that vaping is around 95% safer than smoking regular cigarettes.
FDA Commissioner Gottlieb did acknowledge that electronic cigarettes were safer in his statement released yesterday, but he also warned of drastic action to fight youth e-cigarette use.
"We're also fully committed to the concept that products that deliver nicotine exist on a continuum of risk, with combustible products representing the highest risk, and electronic nicotine delivery systems perhaps presenting an alternative for adult smokers who still seek access to satisfying levels of nicotine, but without all of the harmful effects that come from combustion," Gottlieb said.
He continued: "But in enabling a path for e-cigarettes to offer a potentially lower risk alternative for adult smokers, we won't allow the current trends in youth access and use to continue, even if it means putting limits in place that reduce adult uptake of these products."
The admission that FDA policy restrictions could reduce adult uptake is significant.
Repeated studies have shown that adults who switch from cigarettes to e-cigarettes prefer flavored vape juice.
With flavor bans in place in several cities across the United States, and the FDA consulting on a flavored liquid ban, the outlook isn't bright for US vapers. Adult vapers are also under threat in the senate, where two senators have introduced a bill to ban flavoured juices at a federal level.
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