More than £7bn was wiped off the combined value of British American Tobacco (BAT) and rival Imperial Brands after a report claiming US regulators are planning to ban menthol cigarettes.
BAT’s shares fell 9.5 per cent on Monday while Imperial was down 3.5 per cent after the Wall Street Journal report.
FTSE 100-listed BAT, which sells Lucky Strike and Camel cigarettes, makes around a quarter of its revenue from menthol brands after buying Newport as part of a £38bn acquisition of RJ Reynolds last year.
The Food and Drug Administration is said to have pencilled in a menthol ban to come into force in two years, allowing it time to finalise and implement the new rules.
Menthols have faced greater scrutiny from the regulator as it looks into the case for stricter rules around flavoured vaping products.
Fears have grown that e-cigarettes, some with colourful branding, appeal to children.
Some studies have found that menthol cigarettes make it easier for children to start smoking as the flavour masks the harshness of cigarette smoke. They are also thought to be harder to quit than non-flavoured tobacco products.
Nicholas Hyett, equity analyst at Hargreaves Lansdown said regulation and shrinking cigarette sales were two “inevitable” facts of the tobacco industry.
“The acquisition of Reynolds gave BAT a dominant position in US menthol.
“That’s a segment that’s been in regulators’ sights for some time – thanks to its perceived status as a gateway for new smokers.
He said many menthol smokers would move over to other tobacco products but the move would still be a “major blow”.
BAT has invested heavily in next generation products like e-vapour and heated tobacco which are believed to be less damaging to health than cigarettes. But they still deliver addictive nicotine and regulators are investigating a potential ban on flavoured capsules popular with younger customers.
