Juul Labs is the electronic cigarette company most often targeted by the government when it considers imposing tougher regulations. By far the industry leader and still the most popular device with teens, Juul is the one that suffers the greatest impact when strict, new rules are handed down.

Because teens also most often use flavored tobacco products, federal, state, and local regulators and politicians are banning their manufacture and sale, even though adults also use them in large numbers to help them migrate away from cigarettes. Juul also voluntarily stopped making them even before the Food & Drug Administration began formulating a policy on them. 

While federal rules will still allow adults access to flavors under certain conditions, states and local policymakers are taking a more comprehensive approach, completely banning all flavored tobacco products and vaping devices. If allowed to stand, the fallout will extend far beyond the narrow confines of e-cigs. 

Woman smoking electronic cigarette.

Image source: Getty Images

A complete lack of taste

As tends to happen, California is at the forefront. The state senate introduced legislation in January to enact a total ban on flavored tobacco and e-cigarettes, that goes beyond a ban imposed by Massachusetts in December.

Where the Massachusetts law would allow for the sale and consumption of flavored e-cigs and other tobacco products to occur only in smoking bars (e.g., places established to sell and use tobacco), California's ban would be complete. 

It targets every flavored tobacco product on the market, including menthol cigarettes, e-liquids, and anything else that is derived from tobacco or nicotine, no matter how a person consumes it. Whether you smoke, vape, inhale, chew, snort, or sniff, if it's flavored it will no longer be legal to sell and use in California.

Such a wide-ranging prohibition would obviously ensnare Juul, and the bill's proponents couch it in terms of saving children from nicotine consumption, but it will also drag tobacco giants Altria (NYSE:MO), British American Tobacco (NYSE:BTI), and Philip Morris International (NYSE:PM) into its net, as well as undermine newer cigarette smoking alternatives, such as the snus and nicotine pouches produced by Swedish Match (OTC:SWMAF).

Stamping out alternatives

A lot of these actions are hinging on the so-called "epidemic" the FDA has highlighted over teen e-cig use, as well as the lung illness outbreak last year that resulted in dozens of deaths and thousands of injuries.

The problem is that adult usage is getting swept up in the hysteria over teen use, and the health issues were almost entirely related to illicit vape products mostly bought on the internet. Policymakers are now willing to ban commercially tested products -- and that will lead to the purchase of more black market products.

It will also crush the movement away from cigarettes. Swedish Match was the first company to be granted a reduced-risk label by the FDA for a tobacco product, for its snuff-like snus. Although they're largely unknown by most tobacco users, they are generating a cult-like following, and are one of the fastest growing tobacco products today.

Similarly, nicotine pouches, which are completely tobacco-free, are a wholly new opportunity to shift people away from smoking. Swedish Match has been a leader here with its ZYN brand, and Altria seemed worried enough by its potential that it purchased Burger Sohne's On! brand and negotiated an agreement that allowed it to start selling them even before the deal was completed.

Preparing for a revaluation

Obviously Altria's investment in Juul is already on its way toward being completely devalued, but its 80% stake in Burger Sohne's business will also suffer a devaluation, as will its partnership with Philip Morris International for the sale and marketing of its IQOS heated tobacco device.

Swedish Match is the global leader in snus, though it trails British American's Camel and Altria's Copenhagen and Skoal brands here in the U.S. With the reduced-risk label it earned, though, that could quickly change.

While California's legislature is considering a ban, San Francisco, Sacramento, and Los Angeles County have already approved such measures.

If other states follow California's or Massachusetts' lead, the opportunity to wean smokers off of cigarettes will be greatly diminished.