Tobacco Stocks Volatile Ahead Of Key FDA Vaping Ban Decision

The Food and Drug Administration (FDA) is expected to make a critical ruling on vaping on Thursday that could potentially create some extreme volatility among tobacco and cannabis stocks.

FDA Ruling Imminent: The FDA is expected to issue new rules restricting or completely banning millions of e-cigarette products. The vaping industry had grown to be a $6 billion industry, and roughly 20% of all high school students say that they vape.

The FDA is reportedly investigating whether vaping products are “appropriate for the protection of public health.” In a worst-case scenario, more than 6.5 million vaping products may disappear from U.S. shelves, including rechargeable vape pens, disposable e-cigarettes and liquid cartridges.

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Vaping companies have argued that vaping is safer than smoking cigarettes or other traditional tobacco products. However, studies have found that vaping is also harmful.

“Emerging data suggests links to chronic lung disease and asthma, and associations between dual use of e-cigarettes and smoking with cardiovascular disease,” Michael Blaha, M.D., M.P.H., director of clinical research at the Johns Hopkins Ciccarone Center for the Prevention of Heart Disease, recently said. “You’re exposing yourself to all kinds of chemicals that we don’t yet understand and that are probably not safe.”

Full Ban Unlikely: Kathleen Hoke, professor of law at the University of Maryland, told NPR this week that she doesn’t expect the FDA will ban vaping products outright. Many former cigarette smokers have transitioned to vaping, which is a step in the right direction.

“So I don't anticipate that the FDA is going to be taking all vape products that adults might be using to assist them in — I'm not going to say cessation. I'll say transitioning down the harm spectrum,” Hoke said.

Stocks In Play: Juul is by far the market leader in vaping products, controlling an estimated 40% of the U.S. market. Tobacco giant Altria Group Inc MO holds a 35% ownership stake in Juul. British American Tobacco PLC BTI also owns popular vaping brand Vype. In addition, Turning Point Brands Inc TPB has a sizable portfolio of liquid-vapor products.

Major e-cigarette manufacturers have submitted applications to the FDA for their products to remain on the market. The FDA has said it expects to prioritize by market share, suggesting a ruling on Juul will be most likely on Thursday.

The Wall Street Journal reported on Thursday morning that the FDA is expected to seek more time to rule on Juul and other e-cigarette makers, according to sources familiar with the matter.

The FDA ruling could also create volatility in U.S. cannabis stocks as well, which are already reeling from a new study suggesting cannabis use increases the risk of heart attacks in adults under the age of 45. In the past two days, shares of Green Thumb Industries Inc GTBIF are down 8.3% and shares of Curaleaf Holdings Inc CURLF are down 3.7%.

Benzinga’s Take: It would make no sense whatsoever for the FDA to ban e-cigarettes outright while allowing traditional cigarettes to remain legal. Expect any additional regulations or restrictions to focus mainly on limiting appeal to children and teens.

Photo by Giorgio Trovato on Unsplash