Shares in British American Tobacco (BAT) suffered a significant drop following the Biden administration's proposal to outlaw menthol cigarettes in the United States. The move has rattled investors, who fear the ban could severely impact BAT's revenue streams.
The US Food and Drug Administration (FDA) revealed plans to prohibit menthol-flavoured cigarettes, a decision that could reshape the tobacco industry. BAT, which owns brands like Newport and Lucky Strike, derives a substantial portion of its earnings from menthol products.
Market Reaction to Regulatory Threat
BAT's stock fell by nearly 2% in early trading as news of the potential ban spread. The company's shares have now declined over 10% since the start of 2024, reflecting growing investor anxiety about stricter tobacco regulations.
Analysts suggest the menthol ban could remove about $2 billion from BAT's annual sales if implemented. "This represents a material risk to BAT's US business," noted Holly Williams, senior market analyst at Investec.
Industry-Wide Implications
The proposed regulation forms part of a broader crackdown on flavoured tobacco products. While public health advocates welcome the move, tobacco companies warn it may fuel illicit trade.
BAT now faces strategic challenges as it navigates shifting regulatory landscapes across key markets. The company recently announced job cuts and a £25 billion write-down of some US cigarette brands, signalling the pressures facing the industry.
Investors will be watching closely as the FDA's proposal moves through the regulatory process, with final implementation potentially years away.
