Retailers to feel biggest negative impact from the ban.
Wells Fargo weighed in on the potential impact of San Francisco’s ban on menthol cigarettes and all flavored tobacco products, which is set to go into effect on April 1, 2018.
While Wells Fargo noted the ban is a “significant historic event,” it said the ban was not a “deal-breaker” for the menthol category, albeit it is likely to hit retailers the hardest compared to manufacturers and smokers.
The U.S. Food and Drug Administration (FDA) banned flavored cigarettes under the Tobacco Control Act of 2009, but menthol was not included in the flavor ban. San Francisco’s flavor ban goes much further by banning all flavors, including menthol, in all tobacco products including cigarettes, cigars, smokeless tobacco and e-cigs/vapor products, Wells Fargo pointed out.
“To date, just a small handful of local jurisdictions have enacted, or are drafting legislation, to restrict menthol cigarette sales. Chicago, Berkeley & New York currently enforce restrictions, albeit much narrower in scope than San Francisco, and Minneapolis, Oakland, Contra Costa, and Santa Clara are considering menthol bans. Bottom line, we believe the net negative impact for manufacturers will be limited since we expect many consumers will likely move their purchases online or cross border ultimately having the greatest negative impact on retailers,” said Bonnie Herzog, senior analyst at Wells Fargo. “Importantly, we don’t expect menthol bans to be widespread especially given possible legal options by the industry.”
Next Steps for the Industry
Meanwhile, the industry is working to get 20,000 signatures from voters before Aug. 7, in order to place a referendum question on the June 5, 2018 election ballot, to halt the ban.
“Ultimately, we think this goes the way of some of the minimum age restrictions that have been placed on the sale of tobacco products—consumers who want the product will still find a way to get it either by purchasing online, cross border, or on the black market. That said, the industry is most certainly watching this closely given the importance of menthol to the category (about 35% of total cigarette volume),” Herzog said.
Retailers told Wells Fargo they think menthol bans in more cities would be negative for the category given menthol’s relative size.