Big Tobacco Could Benefit from Crackdown by FDA on E-Cigarettes

A crackdown by the U.S. Food and Drug Administration on e-cigarettes could give a boost to big tobacco, said an analyst this week.

If the crackdown were to reduce the number of overall smokers shifting to e-cigarettes, it would not be good for public health, but likely financially beneficial for tobacco companies.

On Wednesday, the FDA announced that it had ordered five brands Vuse, Juul, MarkTen, Blu E-cigs and Logic to submit their plans in less than 60 days to discourage the use by teens of their products.

The FDA is also considering restricting makers of e-cigarettes from selling nicotine liquid that has been flavored or making products undergo a review by the agency.

The FDA in its press release said that amongst youth e-cigarette use has reach epidemic proportions and said that a large-scale nationwide undercover blitz to crack down on e-cigarette sales to minor by both online and brick and mortar retailers was going to take place.

This upcoming crackdown will likely be troublesome for businesses like Juul. That company’s products come in sweet flavors, and are very popular amongst younger people, who are able to hide sleek devices from both teachers and parents.

If this crackdown in fact becomes reality, big tobacco will benefit in at least two ways.

No industry wide data exists to show the number of customers that vaping companies have stolen from tobacco, yet a survey of more than 19,000 users of Juul conducted by that company said that almost 62% had been smokers when they started to use Juul products. Close to two-thirds quit smoking following their use of Juul.

That impact on big tobacco is quite modest, but any move that would slowdown or stop the shift of smokers away from tobacco and to vaping would help big tobacco.

One analyst said that cigarette company make money with cigarettes in a high margin business in which they have scale. In addition they have smaller e-cigarette or vape businesses, but remain in the investment stage, while making almost no money in that and in certain cases losing money.

After the initial announcement of the FDA ruling, tobacco stocks soared but then pared some of the gains late in the week.

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