NEW YORK — While the U.S. Food and Drug Administration (FDA) recently issued two proposed tobacco product standard rules that could ban menthol cigarettes and all flavored cigars, it would take years for these standards to take effect, if ever.
“Ultimately, it is a complex and lengthy process that, based on precedent, could likely take several years to be successfully implemented, if at all,” Goldman Sachs Managing Director Bonnie Herzog said in a note following the FDA’s announcement. “Having said that, we expect the uncertainty related to this increased regulation to be an overhang on the group and to pressure tobacco multiples with exposure to the U.S. market given the importance of menthol which represents about 33-34% of total cigarette category volume.”
The FDA’s rulemaking process for a menthol cigarette ban would look like this:
- The FDA issues a notice of proposed rulemaking where it informs the public that is has determined, based on the science and evidence gathered through the advanced notice phase (which in this case took place in 2018, that a rule is needed and the agency intends to prepare and publish a proposed rule.
- The Office of Management and Budget assesses the economic consequences of any proposed rule.
- Once the FDA issues a proposed rule, the notice and comment period starts again.
- Before it can issue a final rule, if it decides to do so at all, the FDA must address all comments received, among other items, before submitting the rule to the OMB again.
- If a final rule is ultimately issued, there is a statutory one- to two-year delay before it can legally be implemented.
- A final rule could also face legal challenges, which may delay or halt its implementation.
If a rule banning menthol as a characterizing flavor in cigarettes does eventually take effect, there could be a negative affect on cigarette volumes, Herzog said.
“We continue to believe a more likely scenario is for menthol cigarette users to convert to non-menthol cigarette products or to reduced-risk products that have a menthol variant such as e-vapor,” she said.
Following the menthol ban in the E.U., British American Tobacco (BAT) noted that more than 90% of cigarette smokers remained in the cigarette category, Herzog said. And of those who stopped smoking cigarettes, about 70% moved to vaping.