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California Approves Ban on Flavored Tobacco

By Rich Smith – Aug 28, 2020 at 5:50PM

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Sales of British American Tobacco's menthol brands will be the most immediately affected.

California moved to join Massachusetts on Friday, and is perhaps only days away from becoming the second state to ban the sale of flavored tobacco products, most notably menthol-flavored cigarettes such as British American Tobacco's (BTI 0.71%) Newport brand.

On Friday, the California State Senate voted 34-0 to pass a law banning the sale of flavored tobacco products, including e-cigarettes, just days after the California State Assembly approved the measure, 54-0.

Crossed out circle covers a cigarette and a mint leaf with the words No Menthol beneath

Image source: Getty Images.

British America Tobacco's Reynolds American subsidiary had lobbied against the measure, saying it would disproportionately affect "communities of color." (Data from the California Department of Public Health shows that 70% of Black smokers in the state prefer menthol cigarettes.) But the bill appears almost certain to be signed into law given the support it's received in the legislature and from Gov. Gavin Newsom.

The governor has until Sept. 30 to change his mind and veto the bill, otherwise it will become law on Jan. 1, 2021.

The law is likely to affect British American Tobacco more than other tobacco companies. Menthol cigarettes represent 55% of Reynolds' annual sales by volume. In contrast, only about 18% of Altria Group's (MO -0.40%) sales are menthol cigarettes.

The hit won't be huge right away. According to The Wall Street Journal, although 12% of the U.S. population resides in California, only 7% of all cigarette sales occur within the state.    

But if Massachusetts and California are the start of a trend, the sales of all cigarette companies could eventually be at greater risk.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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British American Tobacco p.l.c. Stock Quote
British American Tobacco p.l.c.
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Altria Group, Inc. Stock Quote
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MO
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