Cigarette makers fall on possible new EU rules
Shares lose ground following reports on upcoming tobacco directive.
Shares of several companies that make cigarettes and other tobacco products are lower after reports detailed a draft of the European Union's Tobacco Products Directive, which is expected to be publicly unveiled on Wednesday.
According to EurActiv, the draft revision of EU tobacco rules will propose larger health warnings on cigarette packaging and a total ban on flavorings such as menthol.
Citigroup analyst Adam Spielman wrote in a note to investors Monday that the draft recommends a ban on "special flavours," citing a report from Europolitics, but it is unclear if this includes menthol, according to Spielman. The Citi analyst said the details of the draft that are being reported are similar to previous leaks but collectively represent "a harsh crackdown on marketing freedoms" for tobacco companies operating in Europe.
Spielman added that the directive has not been finalized and some rules, particularly those around snus, may still be opposed and changed. Still, it seems likely that whatever version of the directive is passed will make tobacco industry innovation much harder, according to Spielman, and some volume of certain types of cigarettes may be lost depending on the bans that are implemented.
Amid early day strength in the major indices, a number of tobacco names are weak, with Philip Morris (PM) down 0.87% to $86.63, Altria Group (MO) sliding 1.30% to $32.56, Lorillard (LO) falling 2.78% to $115.48 and Reynolds American (RAI) declining 1.84% to $42.09.
However, Vector Group (VGR), which is engaged in the manufacture and sale of cigarettes in the United States through its Liggett Group and Vector Tobacco subsidiaries, rose 1% to $15.22.
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