Big tobacco stands to benefit through an FDA crackdown on e-cigs

AFood along with also Drug Administration crackdown on e-cigarettes could be a boost for big tobacco, Piper Jaffray’s Michael Lavery told CNBC on Thursday.

There will be “directionally, no question” these companies might benefit, Lavery said in a “Closing Bell” interview.

“If a crackdown reduces the number of smokers switching to e-cigs, the item might likely be bad for public health although financially a benefit for public tobacco companies,” he later wrote in an email.

The FDA on Wednesday ordered a few brands — Juul, British American Tobacco’s Vuse, Altria’s MarkTen, Imperial Brands’ Blu E-cigs along with also Japan Tobacco’s Logic — to submit plans, within 60 days, to discourage teen use of their products. the item will be considering restricting e-cigarette manufacturers through selling flavored nicotine liquid or creating the products undergo an agency review.

“E-cigarette use among youth has hit epidemic proportions,” the FDA said in a press Discharge in which also detailed “a large-scale, undercover nationwide blitz to crack down on the sale of e-cigarettes to minors at both brick-along with also-mortar along with also online retailers.”

The coming crackdown could spell trouble for companies such as Juul. Their products, available in sweet flavors, are well-known with young people, who can hide the sleek devices through parents along with also teachers.

Big tobacco, on the various other hand, could benefit in a couple of ways.

There will be no industry-wide data to show how many customers vaping companies steal through tobacco, although a survey of 19,000 Juul users, conducted by the company along with also detailed in a Piper Jaffray note, said in which about 62 percent were smokers when starting to use Juul. About two-thirds of them quit after beginning to use Juul.

inside the context of huge tobacco companies, in which impact will be rather modest, Lavery said, although any move to slow or stop the migration of smokers to vaping products might benefit big tobacco.

Beyond in which, vaping research along with also development will be actually costing tobacco companies as they attempt to gain market share inside the burgeoning industry, Lavery said. A crackdown could mean less emphasis on those investments.

“The cigarette companies make all their money in cigarettes — in which’s the high-margin business where they have scale. along with also they all have smaller vape or e-cigarette businesses, although they are still in investment mode. They make little or no money there along with also, in some cases, lose money,” Lavery said.

Following Wednesday’s announcement, tobacco stocks surged then pared some of those gains on Thursday.

— CNBC’s Angelica LaVito contributed to This kind of report.

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