A possible ban on flavoured e-cigarettes in the US by the Food and Drug Administration (FDA) could end up being a positive for British American Tobacco PLC (LON:BATS), according to analysts at Liberum.
In a note on Thursday, the broker, which rates BAT at 'buy' with a 3,000p target price, said moves by the FDA to pull flavoured products off the market to combat a rise in underage vaping could end up as “more of a positive” for the company as it could make entering the vaping market more difficult for competitors, particularly e-cig maker and BAT competitor JUUL, which has recently attracted criticism for its use among underage vapers.
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Liberum’s analysts added that the tobacco giants may not even bother to fight the FDA ban in the courts, as restrictions on vaping products would probably help sales of “far more profitable” cigarettes.
Additionally, Liberum said the current regulatory push was tying up the FDA’s lawyers and therefore distracting them from advancing the Nicotine standard rule proposed by regulators which would cap the amount of nicotine allowed in tobacco products, potentially costing firms millions in lost profits.
Vaping epidemic
The move by US regulators to ban flavoured e-cigarettes hit the headlines on Wednesday after President Donald Trump said the government would push for new guidelines to remove all non-tobacco flavoured e-cigarette products from the market.
The proposal would only apply to nicotine vaping products, but it will mark a change in stance from the FDA, which has had the authority to ban vaping flavours since 2016 but has so far resisted calls to do so.
The issue has also attracted the attention of policymakers after reports emerged of US vape users suffering severe and unexplained respiratory illnesses, with health officials having identified around 450 possible cases, including six deaths, across 33 states.
Michigan became the first state to ban the sale of flavoured e-cigarettes earlier this month, while the US’s top public health spokesman, the Surgeon General, has warned around the risks of e-cigarette use among young people since 2016.
In lunchtime trading on Thursday, BAT shares were up 1.8% at 3,097p.