Tobacco Shares Fall Following Biden Announcement

Newly-elected US president, Joe Biden seems intent on cleaning up the world, which is not a bad thing, unless you own a tobacco company that is. There are two apparent matters currently under Biden’s consideration, a total ban on menthol cigarettes and a significant reduction in the nicotine levels in standard cigarettes bringing them down to a ‘non-addictive’ level.

Tobacco share prices slump

All tobacco companies took a hard hit on the stock exchange this week, beginning immediately after news of the announcement became public. Shares of all the major tobacco companies began a slide, with British American Tobacco falling by 7.5% and Imperial Brands by 6.8% – meaning a combined loss in value of $6 billion by close of trade.

As things stand, stocks have pretty much stayed subdued and are showing no signs of bouncing back at this point in time. Even Phillip Morris, which does not market its products in the US, suffered a 2% drop in its share price following news of Biden’s speech, although its stock has since made a recovery, unlike its peers.

Potting the profit

Interestingly, marijuana stocks also suffered a blip around the same time as the tobacco crash, but are now back to trading strongly, no doubt aided by an unexpected boost from New York’s Senate Leader, Chuck Schumer.

Schumer is currently campaigning heavily for the legalisation of recreational cannabis across the US and that very clearly in a perfectly timed speech this week:

“I believe the time has come to end the federal prohibition on marijuana in this country,” stated Schumer “hopefully, the next time this unofficial holiday, 4/20, rolls around, our country will have made progress in addressing the massive over criminalization of marijuana in a meaningful and comprehensive way.”

In fact, recreational marijuana is already legal in sixteen US states, as well as Washington DC and as one UK journalist put it (tongue firmly in cheek) “…it could soon be forbidden to take a drag off a full-strength cigarette during your lunch break – but it’s already perfectly legal to puff away on pot”.

The final countdown…

Decisions are due to be made on both counts on 29 April and it is looking likely that stocks will remain stagnant until after that date. In the meantime, amidst much hype from various sources, the FDA is issuing bulletins left right and centre focusing on its recent research which includes facts like “…smokers will quit or use alternatives such as e-cigarettes or gum if nicotine is reduced in cigarettes…” but it has declined to comment on the recent news.

If that was proven to be true, it does not bode well at all for the tobacco giants. However, many believe that it will actually create more business for them. One such is Michael Hewson, chief market analyst at CMC Markets, who stated matter-of-factly “Putting to one side what level of nicotine isn’t considered addictive this could have the unintended consequence of making people smoke more, not less in order to get their fix”.

Nobody can really predict what will happen and all we can do meanwhile is watch and wait on this particular occasion.

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