British American Tobacco plunges on possible USA move to ban menthol cigarettes

Cigarettes

Rothmans and Lucky Strike owner British American Tobacco (BAT) has seen billions of pounds wiped off its market value after a report claimed U.S. regulators are planning to ban menthol cigarettes.

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

Cigarette shares plummeted today as investors responded to reports that the US Food and Drug Administration (FDA) is planning to crack down on menthol cigarettes.

E-cigarette flavors such as mint, mango, and cucumber are much more appealing to teens than the harsh tobacco flavor of regular cigarettes - making it immensely easier for young people to get hooked on the addictive chemical.

The process of finalizing a ban on menthols would reportedly take a year or longer and another year after that for the ban to be enforced, according to the Journal.

The potential menthol ban won't have a near-term effect on the markets, according to analysts. Clove cigarettes were previously taken off the market, and now the agency is taking a tougher approach to alternatives, too.

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The Wall Street Journal followed up with its own report Friday that said the FDA could propose a ban on menthol cigarettes.

A federal law banned flavoured cigarettes back in 2009, but the tobacco companies managed to win an exception for menthol, which was by far the most popular flavour.

"While many menthol smokers would likely move over to non-menthol products, it would still be a major blow".

Steadily declining numbers of smokers paired with an increasingly hostile regulatory environment for tobacco products have troubled shareholders for some time now.

After the announcement of the intentions of the BAT shares fell almost 9 percent.

Approximately 21 percent of Altria's volume is menthol and it accounts for around 18 percent of total profit, while about 20 percent of Imperial Tobacco's volume is menthol, the analyst said. They have had only two annual declines in the past 19 years. The Winston maker gets about 15% of earnings from menthol brands such as Kool and Salem in the United States, according to Jefferies.

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