By John Castle 

Analyst Bonnie Herzog has predicted that tobacco companies such as Philip Morris International and parent company Altria will survive the transition from combustible cigarettes to vapor products. The inference so far, based on these companies’ behavior, is that their survival depends on adopting and adapting to that shift rather than attempting to resist it.

 

MarketWatch reports that tobacco stocks edged higher yesterday year over year from 2018. Altria is up 12 percent year over year, while Philip Morris International is up 29 percent since the start of 2019. The majority of this rally of the two companies’ values is attributed to diversification.

 

Altria has invested in JUUL Labs via its purchase of a minority stake in that company; it has also planted a foot in the emerging cannabis market by investing in Cronos Group. Meanwhile, Altria subsidiary Philip Morris International continues to develop and promote its own combustible-cigarette alternative, iQOS.

 

A second factor driving investor confidence in Altria higher is the sense that the acting Commissioner of the U.S. Food & Drug Administration may take a less aggressive, more circumspect approach to the tightrope act of subduing underage use of vapor products while maintaining consumer freedom for adult nicotine users.

 

Ms. Herzog attended a conference earlier this week by tobacco non-profit TMA, at which FDA Center for Tobacco Products’ Mitch Zeller was the keynote speaker. Herzog noted that:

 

“…the important nuance was what Director Zeller didn’t say. Namely, he refrained from repeating former Commissioner Gottlieb’s strong threats to take more decisive action on youth e-cig access (e.g., removal of evapor pods from the market).”

 

While Ms. Herzog believes that the FDA will continue to pursue a strategy for eliminating or at least sharply curtailing underage use of nicotine products, she also predicts that major tobacco companies, at least, will survive entry into that regulatory landscape, saying:

 

“[M]major tobacco manufacturers are well-positioned in the current regulatory/political environment driven by strong management teams and a deep reservoir of bench talent and funds to drive innovation.” She also notes that industry consolidation “will increasingly favor scale in the global ‘arms’ race in reduced-risk products (RRPs) while addressing the youth crisis.”