10 Reasons CVS Will Stop Selling Cigarettes

Source: CVS Caremark.

While we've become desensitized to the facts about smoking, this one still surprised me: Even though smokers consume fewer cigarettes today than they did 50 years ago, their risk of developing lung cancer has gone up.

How could this be? According to a recent study published by the U.S. Surgeon General, "Changes in the design and composition of cigarettes since the 1950s have increased the risk of adenocarcinoma of the lung, the most common type of lung cancer."

When you take this into consideration, the decision by CVS Caremark (NYSE: CVS  ) , announced this morning, that it will soon stop selling cigarettes in all of its 7,600 pharmacy stores across the country seems fitting -- for the record, the announcement has no bearing on e-cigarettes, which aren't currently sold by the chain.

"Ending the sale of cigarettes and tobacco products at CVS/pharmacy is the right thing for us to do for our customers and our company to help people on their path to better health," said Chief Executive Officer Larry Merlo. "Put simply, the sale of tobacco products is inconsistent with our purpose."

To be clear, this wasn't a nominal decision for CVS, as the company stands to lose an estimated $2 billion a year in forgone revenue. That would equate to a roughly 1.6%, or $0.17-per-share, decline compared to the last 12 months. In terms of the bottom line, moreover, it's expected to impact earnings per share by $0.06 to $0.09 in the current fiscal year -- though the company doesn't believe it will impact its five-year financial projections.  

At the same time, however, it's unquestionably consistent with CVS' position as the largest "integrated pharmacy health-care provider" in the United States. As the company's press release noted, "This decision more closely aligns the company with its patients, clients and health care providers to improve health outcomes while controlling costs and positions the company for continued growth." 

And along these same lines, it's also in line with the Surgeon General's recent findings about the health impacts of smoking, the 10 most significant of which are outlined below.

  1. Smoking has killed 10 times the number of Americans as the number of Americans who died in all of our nation's wars combined.
  2. More than 2.5 million people have died from diseases caused by exposure to secondhand smoke.
  3. Compared to people who have never smoked, smokers lose more than a decade of life.
  4. "The estimated economic costs attributable to smoking ... now approach $300 billion annually, with direct medical costs of at least $130 billion and productivity losses of more than $150 billion a year."
  5. If we continue on our current trajectory, 5.6 million children alive today who are younger than 18 years of age will die prematurely as a result of smoking.
  6. "Each day, more than 3,200 youth (younger than 18 years of age) smoke their first cigarette, and another 2,100 youth and young adults who are occasional smokers progress to become daily smokers."
  7. More than 42 million American adults suffer from tobacco dependence.
  8. During the last 50 years, tobacco has killed more than 20 million people prematurely.
  9. "More than 100,000 babies have died in the last 50 years from Sudden Infant Death Syndrome, complications from prematurity, complications from low birth weight, and other pregnancy problems resulting from parental smoking."
  10. "At least 70 of the chemicals in cigarette smoke are known carcinogens. Levels of some of these chemicals have increased as manufacturing processes have changed."

So, what does this mean for you?

Aside from the health issues it's addressing, the decision by CVS raises at least two questions for stock market investors. The first is whether CVS itself will ultimately benefit from the decision. By the looks of its share price today, it appears as if investors aren't optimistic, as its shares are down by 1.6% in midday trading.

The second question concerns the impact on cigarette makers -- most notably Reynolds American  (NYSE: RAI  ) and Altria (NYSE: MO  ) , two of the highest-yielding dividend stocks on the S&P 500. While a spokesman for Altria brushed off the move, saying that "It is up to retailers to decide if they are going to sell tobacco products," there's simply no doubt that it could be devastating if larger retailers like Wal-Mart follow suit.

Although it's true that drugstores and general retailers account for only a small slice of the cigarette market, no more than 16% according to The Wall Street Journal, the symbolic significance can't be denied. It's for this reason, in turn, that investors in companies like Reynolds and Altria would be wise to watch the developments on this front closely.

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Read/Post Comments (15) | Recommend This Article (6)

Comments from our Foolish Readers

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  • Report this Comment On February 05, 2014, at 6:46 PM, Angelemerald wrote:

    Excellent. I am hoping the rest of the chains will follow. I will shop at CVS now if I have a choice. Shareholders should be very proud of Merlo. He is the kind of CEO who should be heading all USA corporations. Profit must be measured by more than money alone. Naive I am sure most of you are thinking. What I believe is that USA corporations long term viability and financial success will be positively affected, the stronger their ethical stance. It is clear the number of deaths caused by tobacco. The truth can no longer be obfuscated in the age of the internet. People, as we move more so to a global economy, will expect our corporations to care about the amount of pollution and harm it causes. Investors should lead the way.

  • Report this Comment On February 06, 2014, at 6:13 PM, medicalquack wrote:

    You guys too, this has been one of the best click bate stories out in a while:)

    If you didn’t notice this was also a publicity stunt from CVS. Obviously they have other revenue streams to replace it, like data selling and I’ll give you a link to where I blogged it a few months ago. Sermo the doctor chat site and I were discussing this too. No shortage on liquor licenses either there. I met one of their big former executives about 5 years ago and his big job at the time was to make sure every store had a liquor license. Walgreens make over a billion selling data so with CVS beefing it there might be one billion of the two they are said to be “sacrificing” at CVS giving up tobacco.

    http://ducknetweb.blogspot.com/2013/10/not-to-be-outdone-by-...

    I could care less what CVS sells, candy, tampons (and those are ads are out of control), cookies, chips..alcohol..just make sure I get my prescription filled and have the drug I need in stock, and don’t stick me on the auto refill program. In court here over selling data and putting smaller pharmacies out of business

    http://ducknetweb.blogspot.com/2011/03/walgreens-and-cvs-acc...

    Their own pharmacists blew the whistle on them for that as CVS gave them productivity numbers to meet with a pay for performance plan, get that prescription over here, away from the competitorsJ

    http://ducknetweb.blogspot.com/2012/10/the-prescription-auto...

    What the marketing stint did to was put a lot of click bait out there with being infiltrated everywhere…more ad money for Market Watch and all the rest of the media..and news is what the stock bots read. Here’s one more too, their privacy mumbo jumbo..well worth a read.

    http://ducknetweb.blogspot.com/2013/08/cvs-comes-up-with-mor...

    And they sent wrong information to wrong patients…

    http://ducknetweb.blogspot.com/2012/03/cvscaremark-sends-let...

    Let’s get the whole big picture here and see how they cashed in with “click bait’ with their marketing here. I’m not saying anything wrong here but just showing how one can make money with a marketing ploy to try and help give you a different perception of who and what really goes on.

    It’s the big picture that counts and they cashed in here with a big marketing ploy on the web and an effort to help you buy their branding a bit deeper. Sorry I don't buy the fact they are going to give up $2 billion, try it again as this is a for profit company and nobody does that in their right mind:)

    Just keep the mountains of tampon ads down to a minimum, make sure the stores can fill my prescriptions when I need them and I don't care what they sell, that's why I go there and fine they make the decision and I have no problem with it, it's just the way it came out in the news in so many fake ways...

  • Report this Comment On February 07, 2014, at 8:03 AM, TMFLomax wrote:

    I'm wondering how much revenue CVS will lose due to people who go in for cigarettes and then buy other odds and ends they need at the same time, so they don't have to make multiple trips. They might lose alcohol sales too, who knows, since they can't buy both (and I thought if they were going to stop selling tobacco, they should stop selling alcohol too -- alcohol is also a legal but dangerous substance used improperly).

    I would imagine 7-11 is one retailer very happy to hear this news.

    I also think it's a stretch to think of CVS as a "health care provider" strategically.

    Just some thoughts. It's an interesting news item.

    Alyce

    Alyce

  • Report this Comment On February 07, 2014, at 9:42 AM, wvowell wrote:

    Good for goodie two shoes CVS. What a bunch of hypocrites!!!

    Stop cigs but keep alcohol. What a joke!! What about candy, and other unhealthy products they sale. CVS you are ignorant and stupid for this decision.

    I don't smoke but I will make every effort to NOT shop CVS ever again!!

    I'm fed up with this war on our freedoms and liberties. Wake up America before it is too late. Although it may already be too late.

  • Report this Comment On February 07, 2014, at 10:27 AM, gskinner75006 wrote:

    They still have enough junk food/candy in the stores to make us all diabetics. Don't forget your alcohol to wash it down with. I doubt they had much profit in tobacco products and all the free publicity with this announcement is worth its weight in gold.

  • Report this Comment On February 07, 2014, at 4:46 PM, ASimmons wrote:

    Have to agree with "medicalquack" on this one.

    I don't smoke, nor do I think smoking is a good habit, but there is no way a publicly traded company is going to give up $2B in revenue because the CEO doesn't like the perceived negative connotation of selling tobacco products.

    You can be sure that CVS' financial team ran countless scenarios to prove that this marketing ploy will earn them more money than selling cigarettes in the long run (and/or they have something more profitable in store that would directly compete with/diminish cigarette sales).

  • Report this Comment On February 08, 2014, at 8:25 AM, wildeweasel wrote:

    This was done in Canada years ago by drug stores. Bottom line is it will make no difference in smokers they will just go somewhere else, they will also take their impulse buys and small purchases somewhere else as well. Count on at least another $2-$4B in lost revenue from things that can be bought at other stores, possibly more if this move has pissed off smokers (they tend to have longer memories). If a smoker is going to the store for cigarettes (the most common reason to go to the store for them) they will not stop at a place that does not sell cigarettes first.

    Canada has also been on the anti-smoking band wagon for a lot longer than most countries and while individual reforms like banning advertising, smoking indoors or withing 15ft of public spaces, not openly displaying tobacco, large graphic health warnings on packages...etc. make very little difference for existing smokers, they do have a marked effect on youth and the likeliness of them starting to smoke in the first place. I have smoked since I was 12, I'm 44 now and starting to see the first signs of health problems. I have always bitched and moaned about the antismoking crowd and defended smoking as a choice, but now I am seeing the change with youth not taking up smoking, my kids not taking up smoking, so many smokers that have quit, I can see the long con and I smile knowing even if I am one of the last at least it will be a healthier country for it. Sorry about the ramble,,,,I need a cigarette now.

  • Report this Comment On February 08, 2014, at 9:03 AM, xetn wrote:

    People who smoke will not care one bit about CVS' decision. They will go where the supply is. The so-called "war on drugs" proves this. Prohibition proves this.

    Since cigarettes and alcohol are both drugs, why were they not included in the "war on drugs"? Because the government reaps huge revenues from the sale of both. Both of these products could have been outlawed and forced the black market to supply them as with illegal drugs. The results are a huge criminal element and the largest prison population in the world.

    In economic terms: when ever there is a human need, a market will be created to fill the need.

  • Report this Comment On February 08, 2014, at 5:35 PM, Risky88 wrote:

    War on Freedom? really?

    It's their free choice to not sell the product, no one is forcing them.

    If anything it shows they have the ability to stand up to those that wish to control them.

    They are a independent company, its good they act that way as well.

  • Report this Comment On February 09, 2014, at 9:58 PM, wvowell wrote:

    CVS does have a free choice to not sell a particular product for whatever reason they desire.

    The only people trying to control them is our government. So I wonder if there is some gov't kickback CVS will get because they are so concerned about the health of their customers.

    This constant beating down of cigarettes as the most deadly thing on earth was the opening for our gov't to take over our health.

    We free citizens sat idly by, after all since only 25% smoke we in the 75% could care less. As a matter of fact we found it good to restrict, tax, maybe even ban them. After all it's for the good health of us all to eliminate those "deadly" cigarettes.

    Now look at all the "fat" people maybe we should tax calories. Hell why not it would be for the good of us all. Wouldn't it?

    Let's even do better, let's turn our complete HEALTH over to Uncle Sam. After all he does know what's best for us. Doesn't he?

  • Report this Comment On February 09, 2014, at 10:03 PM, wvowell wrote:

    Oh one other thing. Isn't this a racist move by CVS?

    There is a slightly higher % of the Black American population that smokes vs. the White American population.

    So is CVS trying to stop Black Americans from shopping in their stores?

  • Report this Comment On February 10, 2014, at 12:11 AM, DJDynamicNC wrote:

    "This constant beating down of cigarettes as the most deadly thing on earth was the opening for our gov't to take over our health."

    This is simply historically inaccurate. Excise taxes or "sin" taxes are as old as government. The US has had far more stringent regulations on alcohol, for example, than it ever did on cigarettes. Your statement isn't accurate.

  • Report this Comment On February 10, 2014, at 5:59 PM, williambonney wrote:

    CVS is now our savior. How about lowering prices so we have more money for food and clothing?

  • Report this Comment On March 22, 2014, at 11:27 AM, mkeeney wrote:

    I do think with CVS doing away with cigarettes is great but they are allowing a bigger risk to the American people. I do believe they should also do away with Alcohol. There was many motorist that do drink and drive. If they rid alcohol from their stores, it would be a better place.

  • Report this Comment On April 25, 2014, at 2:18 AM, thidmark wrote:

    This is Pontius Pilate washing his hands, nothing more. As long as there is a demand, it will be filled. I'm seeing independent smoke shops popping up like weeds.

    As has been pointed out, if they were serious about health, they'd get out of the alcohol business, too.

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