Investors have hammered Altria’s stock over the years thanks to volume declines and smoking restrictions. The FDA’s looming plan to reduce nicotine levels in cigarettes isn’t helping.
Smoking is prohibited in airplanes, restaurants, bars, public housing, and many types of public property. All cigarette flavors have been banned with the exception of menthol, which the FDA will probably ban this decade. These anti-smoking measures have not stopped Altria from growing revenue, operating profit, and free cash flow over the years.
Slowly but surely, the FDA plans to shift smokers away from combustibles entirely by banning menthols and reducing nicotine levels in cigarettes. The Tobacco Control Act gives the FDA the authority to reduce, but not eliminate, nicotine in combustibles.
In order to wean smokers off cigarettes, experts say that the FDA would have to take the following steps in tandem:
(1) Reduce nicotine in cigarettes to non-addictive levels.
(2) Reduce nicotine in similar combustibles like roll-your-own tobacco, pipe tobacco, and non-premium cigars to non-addictive levels so that smokers don’t just switch to these alternatives.
(3) Make sure smokers have access to non-combustible forms of nicotine like e-cigarettes and nicotine pouches.
Evidence points to this approach having mixed results.
One study showed that nicotine reduction in cigarettes did not result in significant changes in the number of cigarettes smoked per day. Smokers did not feel the need to smoke more or less than before nicotine levels were reduced but that they were satisfied with the taste and feel of cigarettes despite their low nicotine levels.
In another study, researchers found that smokers who switched to reduced-nicotine cigarettes felt less dependent on cigarettes and had fewer withdrawal symptoms when they tried to quit. Another study found that reduced-nicotine cigarettes led to fewer cigarettes smoked, reduced puff volumes, and higher rates of quitting. Those who didn’t quit reported lower levels of dependence. Despite these results, the vast majority continued to smoke.
Some evidence has shown that, for many, smoking is a habit not unlike checking your phone for notifications each hour, logging onto Twitter in the evenings, or having a beer each day after work. Researchers observed many smokers continuing to smoke despite extreme reductions in nicotine levels. There is a habitual aspect to smoking that keeps smokers coming back even when nicotine is reduced to non-addictive levels.
Reduced-nicotine cigarettes will no doubt lead to fewer smokers and fewer cigarettes smoked. But Big Tobacco has already answered decades of falling volumes with a pricing strategy that has more than compensated for those losses.
If the FDA plans to reduce nicotine in cigarettes, it would have to consider the potential increase in demand for illegal, full-nicotine cigarettes. Legal access to safer smoke-free alternatives like e-cigarettes and pouches would likely counteract that demand. And given the FDA’s expensive and cumbersome PMTA process, these non-combustible, next-generation options will very likely be guided to FDA approval almost exclusively by Altria and its Big Tobacco rivals.