Tobacco companies only got a stay of execution when the Food & Drug Administration backed away from its low-nicotine cigarette policy. While it's a welcome development for Altria (NYSE:MO) and British American Tobacco, it's not the call from the governor granting the industry a reprieve.

The threat of the policy implementation still hangs over the cigarette makers, as the regulatory agency says it could revisit the issue, but for now, they can breathe a little easier. Potential ruin won't be visited on them anytime soon.

Cigarette sorting machine.

Image source: Getty Images.

Zeroing in on nicotine's role

Last year, the FDA said it was moving forward with developing new regulations for the tobacco industry that would mandate cigarettes have nicotine levels in them that wouldn't cause addiction.

Under the 2009 Family Smoking Prevention & Tobacco Control Act, which gave the agency the power to regulate tobacco, it is prohibited from expressly banning cigarettes or outlawing nicotine. However, it has laid out a roadmap that puts nicotine in its crosshairs as it mulls how best to reduce tobacco-related disease and death.

Nicotine itself doesn't cause cancer, but it's what keeps smokers coming back for more with cigarettes, and their combustion creates the harmful chemicals that do lead to various illnesses and death. Reducing nicotine in cigarettes to negligible levels ought to enable smokers to more easily quit smoking, thus boosting their health.

A low-nicotine cigarette would be devastating to tobacco companies, as it could cause smokers to abandon their products in droves.

Possible blowback from the new rules

Yet cigarette smoking is already on the decline and has been for decades. The Centers for Disease Control says between 1965 and 2017, the number of adults who smoke has fallen from 42.4% of the U.S. population to just 14%, a trend that is likely to continue. Moreover, that's well ahead of what the FDA is proposing.

A second concern is that no one really knows how low a "low-nicotine" cigarette needs to go before it becomes nonaddictive. There are actually a lot of factors that come into play in determining that, and the National Institutes of Health says if the FDA includes children in its assessment, nicotine levels may need to be reduced to as little as 0.5 milligrams of nicotine, perhaps less.

To put that in perspective, cigarettes currently have between 10 and 15 mg of nicotine in them, but smokers ingest just 1 to 2 mg on average.

Another worry, though not necessarily for the tobacco industry, is that it may actually cause people to smoke more. The National Cancer Institute found low-nicotine cigarettes caused smokers to take larger puffs, take more puffs per cigarette, and smoke more cigarettes per day. It's why the FDA stopped forcing tobacco companies to market their cigarettes as "light," "mild," or "low tar."

The end is nigh

The cigarette industry has been girding for the day when the FDA lowers the boom, which explains tobacco companies' investments in electronic cigarettes. Altria invested almost $13 billion in Juul Labs, British American acquired Reynolds American in no small part for its Vuse e-cig, and Philip Morris International invested billions in its IQOS heated tobacco device, which Altria is now rolling out in the U.S.

Yet that industry is now also under attack by regulators, as teens abandoned cigarettes in favor of e-cigs, which are widely seen as a healthy alternative. But because some teens are also using the devices to increase their social status even though they don't smoke, the FDA has labeled the situation an epidemic.

While the regulatory agency hasn't said it is not moving forward with the proposed low-nicotine regulations, the Health & Human Services Department posted its fall 2019 agenda, which did not have the new standards included. A spokeswoman for the FDA told Barron's that the noninclusion didn't mean it had abandoned the standards, nor are they still a priority.

The regulations could readily return again next year, but in the meantime, the tobacco industry won't be shuffling off to the gallows.