CLARENCE, N.Y. & LONDON-- With low-nicotine-cigarette producer 22nd Century Group Inc. and British American Tobacco PLC (BAT) ending their current partnership, discussion over the viability of a low-nicotine future has picked up.
Last month, London-based BAT ended a four-year partnership that now allows Clarence, N.Y.-based 22nd Century Group to be a free agent, all at a time when the U.S. Food and Drug Administration (FDA) is placing a new emphasis on low-nicotine tobacco products.
“The company is free to engage in licensing agreements and strategic partnerships with any and all tobacco companies—with no restrictions, limits or caps on licensing royalties,” 22nd Century officials told the Winston-Salem Journal in a statement.
The decision is just one of many ongoing developments in the low-nicotine story, all of which led Bonnie Herzog, managing director of consumer equity research for Wells Fargo Securities LLC, New York, to make several predictions about the new category …
The FDA won’t rush the process
In a recent research note, Herzog said she expects the FDA will not rush the move to enforce lower-nicotine products.
“While we think there is a sense of urgency at the FDA, we still believe it will take three to five years before any potential changes are implemented, given the sheer complexities and risks involved,” she said.
A risk for big tobacco?
“We expect the scientific community to rally around an immediate vs. gradual reduction in nicotine levels in cigarettes, a potential … risk for big tobacco,” Herzog said. “It’s our understanding there’s an additional study that could be released by the end of the year which could find an immediate and sharp reduction of nicotine in cigarettes is ideal.”
Herzog said the FDA’s vision creates supply challenges, because the cost of stripping nicotine out of tobacco presents cost and quality challenges for cigarette manufacturers. But she says this should be largely manageable for companies with strong cash flows and reduced-risk-product portfolios.
“Uncertainty remains as to what the FDA may ultimately propose and how the industry may adapt,” Herzog said. “However, we continue to believe in an environment where nicotine levels in cigarettes are reduced [and] conversion to reduced-risk products will accelerate."