Tobacco company shares had some of their biggest gains in years on Wednesday after the Food and Drug Administration chief said that the agency could ban all flavored e-cigarettes due to their popularity among teenagers, which he said had reached “an epidemic proportion.”
“While we remain committed to advancing policies that promote the potential of e-cigarettes to help adult smokers move away from combustible cigarettes, that work can’t come at the expense of kids,” FDA Commissioner Scott Gottlieb said in a statement. “We cannot allow a whole new generation to become addicted to nicotine.”
Investors appeared to see an opening for traditional tobacco companies, which have seen sales of cigarettes tumble as smoking rates decline but have struggled to develop widely-used alternatives.
British American Tobacco BATS, -1.73% BTI, -1.38% shares rose 5.9% on Wednesday, marking the U.K.-listed stock’s biggest one-day percentage increase since the financial crisis. Volume of 4.1 million shares in midday trade was about triple the full-day average.
Altria Group Inc. MO, -2.36% shares rose 6.7%, also marking their biggest one-day percentage increase since 2008; volume of 10.6 million shares was nearly double the full-day average. Philip Morris International Inc. PM, -0.61% shares rose 3.4% on Wednesday, in their fourth-largest one-day percentage increase in five years.
Shares of the companies subsequently declined in Thursday trade, with British American Tobacco stock down 2.3%, Altria shares down 2.5% and Philip Morris shares down 0.5%.
Shares of the tobacco company Altria rose nearly 7% on Wednesday, marking their biggest one-day percentage increase since the financial crisis.
The FDA has in particular raised concerns about the popular e-cigarette maker Juul Labs, which sells such flavors as “crème brulée” and “cool cucumber.” One estimate pegs Juul’s hold on the e-cigarette market at nearly 50%.
The regulator said on Wednesday that it has asked Juul and others, including British American Tobacco’s Vuse and Altria’s MarkTen, to respond with sufficient plans to reduce teen use, warning them that they chance a ban. (The other two companies that the FDA reached out to, Imperial Brands IMB, -2.43% and Japan Tobacco Inc. 2914, +1.49% , also had shares rise on Wednesday.)
Though one Juul pod is roughly equal to a pack of cigarettes when it comes to nicotine strength, only a minority of young people who were familiar with, or had recently used the Juul, knew that it contained the addictive stimulant, according to one peer-reviewed study.
Robin Koval, chief executive and president of Truth Initiative, a nonprofit organization that campaigns against youth smoking, praised the “strong statement” made by the FDA on Wednesday. At the same time, Koval urged that the regulator shorten a grace period for e-cigarettes that were already on the market — previously extended to 2022 — to end this month.
Young people who start using e-cigarettes are “many times more likely” to use combustible tobacco products like cigarettes, she noted.
So “there are now probably a good number of young people who have become addicted to nicotine as a result of using a product that has very high nicotine levels,” Koval said. “We are going to have to think now about how we help these young people transition away from nicotine completely. But that’s not a reason to put the brakes on now.”
British American Tobacco shares have dropped 26.6% year-to-date, Altria shares have dropped 14.5% and Philip Morris shares have dropped 24.5%, compared with a 8.4% year-to-date rise in the S&P SPX, +0.30% and a 5.5% rise in the Dow Jones Industrial Average DJIA, +0.29% .