Tobacco giants shares tumble on menthol cigarettes ban in US

British American Tobacco plc shares plunged to the lowest level in more than four years on news of a possible ban on menthol cigarettes in the U.S., which would eliminate products such as Newport that generate as much as one-quarter of the company’s profit.

The stock fell as much as 11 percent in London, destroying 8.4 billion pounds ($10.8 billion) of market value. U.S. Food and Drug Administration Commissioner Scott Gottlieb plans to pursue new restrictions on tobacco, the Wall Street Journal reported late Friday, citing senior agency officials. That could eliminate a loophole in a flavor ban that has allowed menthol cigarettes to continue to be sold.

The potential ban steps up the FDA’s campaign against youth smoking. Clove cigarettes were previously taken off the market, and now the agency is taking a tougher approach to alternatives, too. The FDA may impose limits on the sale of many e-cigarette products in the U.S., a senior official told last week.

The FDA has been targeting flavored tobacco products as studies indicate that teens who smoke menthol cigarettes consumed close to twice as many weekly compared with non-menthol users.

The decline in BAT shares illustrates that while the Lucky Strike maker is expanding into vapor and heated-tobacco products, the company is still very much a cigarette business. Traditional products make up most of its revenue. The company didn’t immediately respond to a request for comment.

BAT shares have dropped 40 percent this year, the biggest drop in at least two decades. They have had only two annual declines in the past 19 years.

According to an analyst at Jefferies, US menthol accounted for around 25 percent of BAT group profit, 20 percent of Altria’s profits and 15 percent of Imperial’s profits. However, he said many consumers would likely switch to a non-menthol option rather than quit outright, and that BAT’s share drop was “overdone”. Rumors of a ban on menthol in regular cigarettes would also likely not get through the courts, he said.

Imperial Brands Plc declined as such as 5 percent. The Winston maker gets about 15 percent of earnings from menthol brands such as Kool and Salem in the U.S., according to Jefferies. The proportion is about 20 percent for Altria Group Inc., which sells a menthol version of Marlboro cigarettes in that market, according to the firm. Altria dropped 3 percent Friday after the report.