It is easy to forget, given the decline in smoking in recent decades, the huge importance to many investors of tobacco stocks.

The UK stock market is home to the world’s second and sixth largest quoted tobacco companies – British American Tobacco and Imperial Brands – and the pair are, respectively, the ninth and 39th largest businesses in the FTSE-100 index.

And while many institutional investors may now shun tobacco stocks on environmental, social and governance (ESG) grounds, the pair remain mainstays in the portfolios of thousands of retail shareholders, who favour them for their reliable flow of dividends.

Those investors will have been among those who will have felt most keenly the falls in the share prices of each today.

BAT, at one point, was down by 8% and Imps by almost as much.

That wiped more than £6bn from the pair’s stock market value.

The drop in the shares of those two companies alone was enough to clip 25 points from the Footsie.

In the US, shares of Altria – which owns the Marlboro brand in the United States – fell by more than 7%.

It follows a report overnight in the Wall Street Journal that the Biden administration is considering making tobacco companies lower the nicotine in all cigarettes sold in the US to levels at which they are no longer addictive.

The Journal said that lowering nicotine levels in cigarettes to “non-addictive or minimally addictive levels” would be aimed at pushing millions of smokers to either give up or switch to less harmful alternatives like nicotine gums, lozenges or e-cigarettes.

It reported that the administration was considering the policy ahead of a deadline for the Food and Drug Administration (FDA), the main US health regulator, to decide whether or not to ban menthol cigarettes.

The FDA has to make a decision on this, under the law, by 29 April.

Neither idea is new.

Scott Gottlieb, who was appointed head of the FDA by former president Donald Trump in March 2017, favoured both a menthol ban – on the basis that menthol cigarettes are harder to quit – and a reduction of nicotine levels in cigarettes.

But the idea was shelved after he left the FDA in April 2019.

Yet even the notion that either policy might be revived has rattled the sector.

The impact on the revenues of the UK tobacco companies in the event of a curb on nicotine content is difficult to predict because it is hard to model the impact of such a measure on consumers.

But the United States is the biggest single market for BAT, whose brands include Lucky Strike, Rothmans, Dunhill and Kent, as well as the vaping brand Vuse and the heated tobacco brand Glo.

It is the third largest individual market for Imps, whose brands include John Player Special, L&B, Kool, West and Embassy, as well as the vaping brand Blu and the heated tobacco brand Pulze.

A ban on menthol cigarettes is easier to predict.

When the US last considered a ban on menthol cigarettes, the product was estimated to account for as much as a quarter of profits at BAT, which owns the Newport brand, while they were estimated to account for around a tenth of earnings at Imps.

Those figures, however, pre-date the ban on menthol cigarettes introduced by the EU and the UK, which was still subject to EU regulation at the time, that came into effect in May last year.

In a sense, tobacco investors will be familiar with the political risks involved, particularly since the Trump administration declared war on vaping in September 2019.

Analysts also believe that the FDA may struggle to come up with evidence that a ban on menthol cigarettes in particular is likely to come up with a significant change in behaviour.

It is thought that most previous smokers of menthol cigarettes in the EU and the UK merely switched to non-menthol varieties of cigarette after last year’s ban there.

It is also possible that, should the FDA push to reduce nicotine levels in cigarettes, the move would simply convince smokers that ‘low nicotine’ cigarettes are safe to consume and simply drive them to such brands.

That would go against the FDA’s purported aim of getting smokers to kick the habit altogether.

Moreover, any bans or changes in the law could take years to implement, with the tobacco industry likely to mount legal challenges.

Altria told the Journal: “Any action that the FDA takes must be based on science and evidence and must consider the real-world consequences of such actions, including the growth of an illicit market and the impact on hundreds of thousands of jobs from the farm to local stores across the country.”

That gives a flavour of the battles that may lie ahead.

Related posts:

Redundancy rates during pandemic have increased faster than in crisis of 2008-09 Millions have not received money back for flights, says Which? The central bank hotseat that’s even less secure than being Chelsea manager UK’s wind farms are helping emissions but not the economy, say business leaders Mustier and Arnault’s SPAC targets £2.5bn UK fintech True Potential JD Sports red-carded by top investors over boss’s pay Special forces veteran and son jailed over Carlos Ghosn escape COVID restrictions ease, oil production to rise, and how the pandemic hit the cruise sector Homebase faces scrutiny over pandemic support after profits surge Energy crisis, bereavement leave, and Ikea investment Hut Group founder Moulding to give up golden share in bid to restore City confidence Two more suppliers collapse as pipeline delay prompts fresh gas price spike