Tobacco giant shares burnt by menthol ban report

British American Tobacco [JSE:BTI] shares plunged to the lowest level in three years on news of a possible ban on menthol cigarettes in the U.S., which would eliminate a product that generates as much as one-quarter of the company's profit.

The Wall Street Journal reported on Saturday that the US Food and Drug Administration (FDA) plans to pursue a ban, citing senior agency officials.

In June, San Francisco voters approved a proposition to ban the sale of flavoured tobacco products, including menthol cigarettes, in a battle in which tobacco company RJ Reynolds, a subsidiary of Reynolds American, contributed $12m against the measure.

E-cigarette products in mint, menthol and tobacco flavours will still be sold in retail outlets in the United States for now, because United States officials did not want to create a situation where cigarettes were more attractive to smokers who prefer a mint or menthol flavour.

Menthol accounts for 36pc of the U.S. market, according to analysts at Barclays, and generates around a quarter of BAT's profit as it owns Newport, the biggest menthol cigarette brand in the US.

"The FDA are now said to considering banning them altogether".

The firm has embraced the booming market for smoking alternatives, including e-cigarettes and heated tobacco, in the face of dwindling rates of smokers and mounting evidence fags can cause early death.

The FDA has been targeting flavored tobacco products as studies indicate that teens who smoke menthol cigarettes consumed close to twice as many weekly compared with non-menthol users.

But it is thought that a ban could take up to two years to come into force. Traditional products make up most of its revenue.

When BAT stepped up its presence in the United States previous year by acquiring the 58% of Reynolds it did not already own for $50bn, it listed its menthol cigarettes as a key attraction.

Imperial Brands declined as much as 5%. The Winston maker gets about 15% of earnings from menthol cigarettes in the USA, according to Jefferies.

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