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 …
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.
“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.”
Recent science suggests reducing nicotine levels in cigarettes by 85% is optimal in achieving FDA-related goals, Herzog said, using the term “sweet spot.”
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."
Get today’s need-to-know convenience industry intelligence. Sign up to receive texts from CSP on news and insights that matter to your brand.
CSP’s Top 202 details the largest chains in the convenience-store industry and the biggest M&A stories of the past year. Welcome to a deep dive into the c-store landscape.
Category sales performance in Beverages, Candy, General Merchandise, Packaged Food/Foodservice and Snacks.
The industry’s largest distributors by sales volume
Corporate retail news affecting the convenience-store industry
The latest information on products and trends in the convenience-store and foodservice industries.
Peek inside new convenience stores to uncover the best in retail store design across North America.