PanaromaShares in big tobacco companies went up in smoke after the Food and Drug Administration (FDA) announced plans to lower the acceptable level of nicotine in cigarettes to “non-addictive levels”. Shares in British American Tobacco (BATS) fell 7 per cent, while Imperial Brands (IMB) was down 4 per cent.
The American regulator is looking to target combustible cigarettes specifically, stating that these products “represent a continuum of risk and is most harmful when delivered through smoke particles”. Alternative smoke-free products will not be subject to any caps on nicotine levels. The US is the third largest cigarette market in the world. British American Tobacco makes around 43 per cent of its revenue in the US following its acquisition of American tobacco company Reynolds, while Imperial Brands has a 23 per cent exposure.
Both companies have made progress in recent years with a smokeless next generation of products, such as vaporizers and those that heat but do not burn tobacco, to compensate for falling numbers of cigarettes sold. Imperial Brands’ subsidiary Fontem Ventures is set on promoting its e-vapour product blu, as well as looking to licence a range of patented technologies that could complement existing offerings such as low-calorie energy products. A spokesperson for Imperial Brands said it was too early to understand the practical implications of the FDA's aim to lower nicotine levels in cigarettes, which it expects to be a "measured and lengthy process".
In its half-year results, British American Tobacco stated that it had expanded its alternative products into 15 markets and is now the largest vapour company in the world. A representative for the company said Reynolds was encouraged by the FDA’s harm reduction policies, as this had been part of its efforts to transform the tobacco industry.
However, British American Tobacco has other issues to deal with on top of nicotine levels. It is under investigation by the Serious Fraud Office (SFO) over allegations that it paid bribes in East Africa. This follows claims made by an employee in Kenya and broadcast by the BBC's Panaroma programme in 2015. British American Tobacco said it would cooperate with the investigations.
