Big Tobacco’s Big Problem: The US Isn’t Lighting Up

British American Tobacco shares dropped to a 12-year low after the company announced a $31.5 billion write-down for some of its brands.

Photo by Joshua Bartell via Unsplash

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To be clear, the cigarette industry does not thank you for not smoking.

British American Tobacco shares dropped 8.5% Wednesday to a 12-year low after the company announced a $31.5 billion write-down for some of its US tobacco brands. And the company’s pivot to “healthier” smoke-free products isn’t exactly driving huge profits, The Wall Street Journal reported. Sounds like investors are going cold turkey.

Ain’t as Kool as it Used to Be

When smoking was at its peak, sometime before the US Surgeon General’s report on its health effects in 1964, a pack of cigarettes cost about 30 cents. Now, the average price for a pack in the US is $7.14, with New York state the most expensive at $10.53, according to data tracker Wisevoter. Add in recent inflation, and that spells bad news for cigarette companies with consumers less inclined to pick up or keep smoking as much as they were.

Hollywood stars old and new, like Humphrey Bogart or Ryan Gosling, can always make smoking look cool, but the habit just isn’t as appealing as it used to be — only about 1 in 8 adults are still lighting up in the US. Following decades of anti-smoking legislation, tax hikes, and the rise of vapes, a more cigarette-free America has BAT scrambling:

  • At the end of its last fiscal year, BAT’s US brands Pall Mall, Newport, Natural American Spirit, and Camel were worth £67 billion (about $84 billion). But now, the company is cutting the brands’ value by roughly a third. US cigarette sales have declined roughly 5% each year for the last few years, but recently, that loss has accelerated to 8%, the WSJ reported.
  • BAT has been diversifying its non-combustible offerings with vapes and leaf-free pouches, but it’s still losing ground to illegal disposal vapes made in China that account for 60% of all vape products sold in the US, the WSJ reported.

BAT plans to generate half of its revenue from smoke-free products by 2035, but that type of heavy investment is spooking shareholders who fear it will limit profits and scale down buyback plans.

Cold-ish Turkey: Tobacco companies like BAT could lose even more customers thanks to drugs like Wegovy and Ozempic. Though it hasn’t been fully studied yet, patients have reported to their doctors that the medications — which reduce appetite cravings in obese and diabetic users — are also limiting their dependencies on alcohol, nicotine, opioids, and even compulsive behaviors like gambling, and online shopping. Not so nice for vice.