Are British American Tobacco shares good value?

Since the middle of 2017, shares in British American Tobacco have fallen by as much as 30%. The shares now have a dividend yield of almost 5%, so does this mean they’re good value?

British American Tobacco: A brief overview

British American Tobacco is the world’s leading tobacco and “next-generation product” business.

It sells combustible tobacco and nicotine-related products (e.g. Rothmans cigarettes) to millions of people in dozens of countries along with a growing range of next-generation products, otherwise known as “potentially reduced-risk” products (e.g. Vuse).

Companies that sell cigarettes are usually quite defensive (i.e. non-cyclical), because smokers are unlikely to quit or even cut back on their smoking just because there’s a recession.

On top of that, there is an incredible amount of brand loyalty among cigarette smokers as most smokers stick to a single brand for years or even decades. That helps to keep BAT’s revenues and profits stable from one year to the next which makes it even more defensive.

On the negative side (at least from BAT’s point of view), the number of cigarettes sold across the world has been falling in recent years and that trend is expected to continue over the long term.

Ever-tighter regulation and a general desire not to die of lung cancer are driving this decline in traditional tobacco products. That’s why BAT’s potentially lower-risk, non-combustible products are so important for its future.

So at first glance, it seems as if British American Tobacco is a stable, defensive business operating in a declining market. Investors are probably afraid that BAT could enter a long and slow decline and that could be why its dividend yield is close to 5%.

Growth rate: A mixed bag with dividend growth and revenue decline

Here’s a chart showing British American Tobacco’s headline financial performance over the last few years:

British American Tobacco - financial results 2017
Until recently, declining revenues were a potential problem

As you can see, the dividend has been increasing at a healthy rate (about 6% per year) along with earnings per share (about 7% per year).

Unfortunately, the picture is not so rosy for revenues, which have been shrinking for much of the past decade. This is clear evidence of the decline in cigarette sales globally.

The jumps in revenues, earnings and dividends in 2017 are a result of BAT’s acquisition of Reynolds America, a £42 billion acquisition which made BAT the largest publicly-traded tobacco company in the world.

I’ll have more to say about that acquisition later, but for now, I’ll just say that the gains in 2017 are one-off in nature and are unlikely to be repeated unless the company makes further large acquisitions.

Overall, BAT’s growth rate over the last decade has averaged 4.9% per year, which is slightly above the FTSE 100’s combined earnings and dividend growth rate of 3.2%.

Growth quality: Above average, which is to be expected

As a defensive company, it’s reasonable to expect BAT to increase its revenues, earnings and dividends more consistently than other companies, and it has.

BAT’s growth quality score (which measures how often revenues, earnings and dividends have increased over the last decade) is 83% compared to 63% for the FTSE 100.

As with high-growth companies, stable companies also typically command premium share prices because investors are willing to accept lower returns in exchange for lower risks (for example, higher share prices lead to lower dividend yields which may result in lower returns).

This doesn’t seem to apply to BAT though, perhaps partly because of fears about its shrinking market but also because many investors refuse to invest in tobacco companies.

Profitability: Above average, but about to decline

Profitability is an important metric as it can be an indicator of competitive strength.

There are lots of different profitability ratios, but I like the ten-year average return on capital employed (ROCE), partly because it gives you an idea of the sort of returns a company might make on retained earnings, i.e. those it doesn’t pay out as a dividend.

BAT’s ten-year average ROCE is 20%, exactly double the average for stocks on my stock screen.

In other words, and very simplistically, you might reasonably expect BAT to generate a 20% annual return from any fixed or working capital it owns, such as factories, machinery or inventory.

However, this high ROCE ratio collapsed in 2017, thanks to the Reynolds acquisition:

British American Tobacco - ROCE 2017
Profitability has collapsed because of the Reynold’s acquisition

This acquisition, which cost £42 billion in cash and shares, was for the 58% of Reynolds which BAT didn’t yet own (so it already held a 42% stake in the company).

Now that Reynolds is 100% owned by British American Tobacco, Reynolds’ results and balance sheet must now be fully incorporated into BAT’s financial statements.

As a result of the acquisition, BAT’s intangible assets have jumped by more than £100 billion to £118 billion.

This vast intangible asset represents the “goodwill” paid for Reynolds and other previously acquired companies, above and beyond the value of their tangible assets (such as factories, machinery and inventory).

Is it reasonable to pay £100 billion more than the value of the acquired companies’ physical assets?

Possibly, but only if the companies can generate returns from their physical assets which are far above average.

However, by paying such a high price to acquire Reynolds, it’s likely that BAT will achieve a rate of return on that investment far below the 20% or so it could have gotten by investing directly in new factories, machinery and inventory.

So there’s a trade-off. Buying Reynolds gives BAT instant scale in the US and a collection of mature brands. But buying Reynolds will also give much lower returns than if BAT had built up its position in the US by organic expansion rather than acquisition.

Or to put it another way, BAT has chosen rapid but lower return growth through acquisition rather than slower but higher return growth through organic expansion.

I have no idea which is the best route for BAT, but as a general rule, I am not a fan of large acquisitions.

Debt: High, thanks to the Reynolds acquisition

Another thing I’m not a fan of is high debts, especially when they’re taken on in order to acquire other companies.

Unfortunately, that is exactly what BAT has done.

The Reynolds acquisition has pushed BAT’s total borrowings up from around £20 billion to almost £50 billion.

That takes BAT’s debt ratio (the ratio of total borrowings to five-year average post-tax profits) from 4.8 to 10.7.

Generally, I won’t invest in companies where the debt ratio is above five. BAT’s ratio is more than double that, which is not good.

Having said that, this picture is distorted by the fact that the additional borrowings are on the balance sheet but the earnings from the acquired Reynolds business are not yet on the income statement.

It seems likely that BAT’s profits will grow once the profits from Reynolds come through in full, but I doubt they’ll increase by enough to bring BAT’s debt ratio back down to “prudent” levels anytime soon.

The company itself admits that it is now overleveraged and intends to de-lever significantly by 2019. We shall see if it can meet that intention.

Capex: Not much is required in the way of capital investment

One of the attractive features of tobacco companies (from an investor’s point of view anyway) was the lack of capital assets required to churn out vast numbers of cigarettes and vast profits.

In essence, all BAT needs to do is buy some specialised cigarette-making machines, put them in a factory and leave them to churn out millions of cigarettes every year.

Because the cigarette industry is not particularly competitive (i.e. profit margins and returns on capital are generally quite high) each machine is able to generate a lot of profit relative to the upfront cost of the machine.

This shows up in British American Tobacco’s consistently high return on capital, but it also shows up as consistently low capital investment relative to profits:

British American Tobacco - capex ratio 2017
BAT’s capex is low relative to profits

On average, most companies spend an amount equal to about two-thirds of their profits on the maintenance or expansion of capital assets. BAT’s average figure is 18% and this sort of low capex requirement is a useful feature to have because it makes expansion relatively cheap and easy, if and when the company is able to expand.

Is British American Tobacco investible?

Let’s summarise the story so far:

On the positive side of things, BAT is a defensive company, it has a long history of steady growth and it pays a regular progressive dividend.

It’s also geographically diverse, highly profitable and is the largest publicly traded company in its industry.

On the negative side, the company operates in a market which may be in long-term decline and it is exposed to significant regulatory risk, i.e. the risk that regulation will continue to tighten, making its products more and more expensive and less and less attractive to the next generation of potential smokers.

The company has also taken on lots of debt in order to fund the acquisition of Reynolds America, which in my opinion was probably done in order to offset BAT’s declining revenues.

However, growth (or the avoidance of decline) by acquisition is a risky strategy because:

  1. it often involves the use of large amounts of debt,
  2. acquired companies typically increase the complexity of the acquirer and also need integration and
  3. can result in low returns for investors if the price paid for the acquired company was too high.

Leaving the question of price to one side, my position on BAT is mixed:

On the one hand, I am already a BAT shareholder and BAT is a holding in my defensive value portfolio. I am happy to hold BAT because I think there’s a reasonable chance it can continue to grow for the next decade or more.

It could achieve this through a mix of cost-cutting, share buybacks and more acquisitions, as well as increasing market share.

On the other hand, if I wasn’t already a BAT shareholder I would probably not invest in the company at the moment, regardless of price.

The high levels of debt and the recent mega-acquisition of Reynolds would be enough to put me off because of the increased levels of risk they bring to the company. There are plenty of other fish in the sea and I would probably just look elsewhere.

So that’s my view of the company; now it’s time to look at the share price:

My target “buy” and “sell” prices for British American Tobacco

BAT has an above-average growth rate, above-average growth quality and above-average profitability. In short, it has been an above-average performer and my assumption is that it will continue to be for at least the next few years.

This means I think BAT should command a premium price relative to the market average.

By “premium price” I mean BAT’s price relative to its past earnings and dividends should be above the market average, which means its dividend yield should probably be below average.

So what do we have today?

BAT currently has a share price of 4,000p and the FTSE 100 is at 7,200, giving BAT a:

  • PE10 ratio (price to 10-year average earnings) of 19 (FTSE 100 = 16.5)
  • PD10 ratio (price to 10-year average dividend) of 28 (FTSE 100 = 32)
  • Dividend yield of 4.9% (FTSE 100 = 4.0%)

BAT’s PE10 and PD10 ratios are higher than the FTSE 100’s, but only very slightly. This suggests the market is giving BAT only a very small quality premium.

But BAT’s high dividend yield tells a different story. It’s comfortably higher than the index’s, which is what you’d expect to see from a value stock rather than a premium stock.

Overall, I think it’s clear that British American Tobacco shares are not trading at the sort of premium price I would expect to see from a company with its track record of relatively consistent growth.

Unilever, for example, has a similar track record to BAT but only has a dividend yield of 3.2%.

From my point of view, this is a good thing. I think BAT has a reasonable chance of producing decent growth over the next decade, so to me, its shares appear to be undervalued.

At 4,000p, BAT sits at 28th place on my stock screen out of more than 200 dividend-paying stocks. That’s another reason why I continue to hold BAT.

As a general rule I only buy stocks that are in the top 50 on that screen, so if I was looking to buy BAT in the next few months (which, as I mentioned above, I’m not) then that rule would give me the following price target:

  • Target buy price: I would only consider buying BAT below 5,000p

At 5,000p BAT would still have an above-average dividend yield of 3.9%, so I think that price would still be reasonably attractive, assuming I wasn’t bothered about the high debts and large acquisition.

At the other end of the scale, I tend to look for the exit when a stock’s rank on my screen falls below 100. That’s about halfway down my stock screen and, for context, the FTSE 100 currently sits at position 135.

Since I am a BAT shareholder the target sell price is more relevant to me, and here it is:

  • Target sell price: I would seriously consider selling BAT above 7,000p

At 7,000p BAT would have a dividend yield of just 2.8% which is below average. Its PE10 ratio would also be above 30, and that’s generally the point at which I begin to think a company, even a quality company, could be overvalued.

In summary…

As an existing shareholder, I am happy to hold British American Tobacco for now. The dividend yield is good and the company may be able to offset the effect of its shrinking market for many years to come.

There are of course risks, not only those shrinking markets, but regulatory risks as well, not to mention the high debts and a recent very large acquisition. In fact, those debt and acquisition risks are so high that if I wasn’t a shareholder already, I wouldn’t buy BAT today.

Author: John Kingham

I cover both the theory and practice of investing in high-quality UK dividend stocks for long-term income and growth.

24 thoughts on “Are British American Tobacco shares good value?”

  1. Do you think that large tobacco companies will get involved in marijuana sales in the U.S as more States legalise its use ?

    If they do then this could make the deal for Reynolds look good.

    1. Hi Sam, I really don’t know. I don’t like to base investment decisions on single factors like whether BAT will get involved in marijuana sales. I tend to focus more generally on whether a company is likely to prosper under a broad range of possible futures.

  2. Hi John,
    Imperial Tobacco seems to be more “undervalued” with its current beaten down price?
    What do you think?

    Although Imperial Tobacco’s EPS is going nowhere and its debt load is probably even bigger than BAT.

    1. Hi Johnny, I would agree. Imperial Tobacco (or Imperial Brands as it’s now known) does appear to be more “undervalued”, or at least it’s trading on lower valuation ratios and has a near-7% dividend yield. And yes, it also has a massive debt pile.

      It’s on my list of stocks to review at some point, so keep your eyes peeled…

  3. “On the other hand, if I wasn’t already a BAT shareholder I would probably not invest in the company at the moment, regardless of price.”

    John — I can’t reconcile this statement in my mind. If you hold the stock but are not prepared to buy it, irrespective of your current holding, surely it means psychologically you don’t have faith in it so therefore should sell it, no?

    I sold BATS at £50 + and started buying it back at 4030, 4150, 3995 and will probably add more as it falls.

    Buying Reynolds was a big risk, but the cash generation going forward should allow that debt to be eaten up slowly is my guess, unless everyone stops smoking overnight of course.

    Imperial Brands could be viewed as undervalued, but it has no exposure to emerging markets or heat not burn products and Alison doesn’t seem to have a strategy that addresses those shortcomings in the companies position. I hold some IMB, half which is still in profit, the other half out of the money. It’s a ponderable at the moment.


    1. Hi LR, I get this comment quite often so perhaps I’m a bit unusual in this regard.

      For the record: Yes, I am happy to hold companies that I bought in the past but would not buy today.

      In BAT’s case, I wouldn’t buy it because it has loaded up on debt in order to make a major acquisition. I’m not a fan of this approach, or high debts, so I wouldn’t buy shares in BAT today (which means I also wouldn’t extend my existing position).

      However, those large debts are not enough to make me want to sell. They are an additional risk factor, but the risk is not large enough for me to want to immediately run for the exit.

      If BAT’s share price increased substantially, or if its financial results worsened substantially, or both, then I would start to think about selling, and in that case the debts would probably affect the timing of my sale. I.e. I would probably sell BAT sooner with high debts than without.

      “surely it means psychologically you don’t have faith in it so therefore should sell it”

      This is where we really differ I think. I try not to have “faith” in any company or any of my holdings. Instead, I have “faith” in my investment process. I have “faith” that across many investments and many years, my investment process will beat the market. But I have no faith in any one company or stock. In my opinion the uncertainties are too large to have any measure of faith in the outcome.

      This is why I focus so much on diversification, because I don’t want to fool myself into thinking that I know what’s going to happen with this company or that. I don’t, and my defence (and weapon) of choice is broad diversification.

  4. Hi John,

    I have been investigating tobacco companies for several months. I do agree that tobacco companies have many risks associated.

    However, I do think it has the potential for growth for several reasons:

    1) Heated Tobacco: iQOS by Phillip Morris has been making decent progress it has reached $1 billion dollar in sales also it has been placed in different category from cigarrettes for in certain countries so it is taxed less. We have to remember that this is a new area and through further innovation, it is likely to provide a much safer means to use tobacco. This is likely to stem the continuous decline in the mature market and I also think Glo by BAT has the same potential.

    2)Vaping is another market which poised for fast growth and again is not subject to high taxation like traditional tobacco products. Again this is projected for high growth the benefits of vaping is the potential to market the product. The other thing we have to also remember is due to the sheer scale of the companies small vaping companies will have little chance in the long run.

    3 )Reynolds offer BAT growth potential for several reasons USA population is still growing due to that growth it is able to maintain the actual number of smokers despite the declining in smoking percentage wise. Couple this with low cigarette prices and higher disposable income BAT is likely to maintain a healthy income for a decade or so.

    The other thing we have to remember is that tobacco companies have a history of serving their investors very well from 60s onwards due to risk of government legislation the tobacco companies began to diversify into other areas such as FMCG companies and insurance companies. This indicates that directors may diversify into other areas via acquisition.

    1. Hi Reg:

      1) & 2) I agree, and these companies are pretty explicit about it. Burning tobacco is the past and other “potentially less harmful” ways of delivering nicotine are the future.

      3) In the US the main area of interest among investors seems to be the potential for the legalisation of cannabis and how that might affect the tobacco companies. It seems that cannabis could be a major new market for them, but since the details are so uncertain it’s pure speculation at the moment.

      As for diversifying into new areas, it carries a lot of risks. Most companies are good at one thing and when they try to do something very different it often ends in tears (for example, I’m not sure what the overlap is in competence between manufacturing cigarettes and insurance?)

      1. If I remember correctly BAT was heavily involved in insurance and obviously, it worked for them because BAT only divested its interest in insurance in the 90s once they realised that tobacco will remain sustainable. However, I agree that this is a strange way to diversify. Phillip Morris safely managed its risk through the acquisition of Kraft which it then spun off to Karft, Altria and Phillip Morris. Reynolds achieved a similar form of diversification via the acquisition of Nabisco.

        BAT is a multinational company with competence in managing major FMCG brands if things don’t work out in tobacco, in the long run, it wouldn’t surprise me that they diversify into the territory of Nestle, RB and Unilever. We also have to remember that these companies generate copious amounts of cash so they could slowly diversify into this area. Leveraging is only bad if the revenue is unpredictable however FMCG operate in a sector where revenue is predictable and they enjoy great pricing power this should allow tobacco companies to take on more leverage than normal companies.

        Speculating on cannabis is probably not a sensible rationale given the uncertainty of cannabis. I personally believe heated tobacco offers tobacco companies the best chance to survive for the long term. Given the success of iQOS, it wouldn’t surprise me if a further breakthrough is made in heated tobacco tech to give a product with minimal harmful effects. This is the area investors should watch carefully.

      2. Hi Reg, yes I pretty much agree with you on all points. Slow diversification is a serious option if their next generation products don’t take off. Cigarettes may be on the way out, but it will probably be a very slow and steady decline over several decades, giving plenty of time to come up with alternatives.

        And don’t forget that shrinking while returning excess cash to shareholders (via buybacks or higher dividends) is another possible option. Directors don’t like it because a smaller company means smaller director pay, but from a shareholder value perspective it can make sense.

      3. Hi John I agree with you and your original observation on the price of the stock being too high not for the leverage reason but simply from the margin of safety principle. It’s impossible to anticipate what might happen in the future so buying a stock at a cheaper price gives you some form of cushion. Current price is not unreasonable but as the future is uncertain I would aim for that margin of safety.

  5. Hi John,

    I thought I would revisit this post given how much the price in BAT has changed. I think you’re right about the debt issue. I started to look at it from the perspective of enterprise value and clearly, the management has destroyed shareholder value. Despite BAT generating higher operating profit now and share prices being similar to 2016, the previous structure of the company offered better value for shareholders at a higher price.

    Share prices in 2016 reflected the majority of the enterprise value but now its less than half. This makes me wonder do you think that’s the reason why the CEO is resigning because it wasn’t the smartest move to make in relation to shareholder value? As it has destroyed the quality of earnings. Yes the USA offers high-quality earnings but the debt has diluted the earnings. I think now the FDA cracking on the tobacco firms concerning nicotine levels the rationale for moving back into USA hangs on the balance.

    Fortunately, I have not invested in BAT as like you said the leverage is the big issue which has made me stay away. I still think the company has a long future but based on its debt level its too much of a risk for a dividend investor like me.

    1. Hi Reg, I have no idea.

      BAT’s now ex-CEO is 62 and had been with the company for 37 years, so perhaps he just wanted to retire!

      I’m sure his CEO pay package makes a comfortable retirement very likely, and I can’t complain if the man just wants to put his feet up and take it easy.

      Somewhat more seriously, as you know I’m not a fan of this sort of large debt-fuelled acquisition, so perhaps by leaving now he’s getting out while the going is still good…

  6. John – Are you still holding on…Im really wishing I’d sold all at £50 now but it does seem overdone…Any Thoughts


    1. Hi John, yes I’m still holding. I was asked about this the other day so I’ll copy my answer in here:

      “I’m not looking to sell BAT just yet. Obviously I don’t know what will happen in the future, but I would say:

      1) BAT is still growing in all regions, including Western Europe, so tighter regulation such as plain packaging in the UK has yet to have a significant impact on the company.

      2) BAT is very internationally diverse, with Western Europe making up around 20% of the companies revenues and profits. The US acquisition does weight the company more towards western markets, which is a concern though, and ‘the west’ now makes up something like 40% of revenues and profits, with 60% coming less ‘hostile’ regions (although from a non-investment point of view I think banning tobacco products globally is a good idea).

      3) The timescale over which tobacco products may/will decline in the west and globally is very uncertain and could be multi-decadal. It’s impossible to tell, but I don’t see cigarettes disappearing anytime soon (my wife still smokes despite the unbelievable price of cigarettes).”

      Here’s a good article about why BAT has continued to grow even as the percentage of smokers declines, and I agree with most of what it says:

      How big tobacco has survived death and taxes

      As for the price decline, I think (guess) that investors just want to see the Reynolds acquisition debt pile paid down. If that can be done in a few years then perhaps investors will cheer up, assuming the company continues to perform well.

      Again, I don’t know what the future will bring, but I’m not looking to sell yet.

  7. Hi John,

    I thought given my interest in tobacco I thought I would comment on the recent debacle that has unfolded.

    “FDA planning to ban menthol cigarettes”

    To my shock, the share price has plunged its unfortunate investors have reacted to the news so badly. I thought I should take the time to point a few sad home truths in USA.

    1] Thanks to the Master’s Settlement Agreement and subsequent packaging of the tobacco payment as bonds individual states have a vested interest in protecting the tobacco companies. Sadly in the USA individual state does aid and abet through state-level legislation.

    2] Big tobacco have big pockets and big lobbying power it’s highly unlikely they will tolerate the idea of their profit being whittled away it wouldn’t surprise me if they challenge the FDA all the way to the supreme court.

    3] Investors should really look at the track of this sector fighting tooth and nail in the court. Big tobacco is serial offenders always in court and always walking away eventually or with a reduced sentence.

    Personally, I think this sector offers a far better return because although the business itself is simple tobacco legislation is complicated and long-winded. This upsets short-term investors who fail to realise that these companies are used to fighting legal battles and do win quite frequently.

    1. “Personally, I think this sector offers a far better return because although the business itself is simple tobacco legislation is complicated and long-winded. This upsets short-term investors who fail to realise that these companies are used to fighting legal battles and do win quite frequently.”

      This is what creates the price difference and opportunity. I don’t think the debt is an issue because capital expenditure will fall due to the slow decline of tobacco use meaning the extra cash can be used to pay off debt.

      1. Hi Reg, thanks for your insights.

        Tobacco is definitely out of favour at the moment, at least in terms of the big UK tobacco stocks.

        ” I don’t think the debt is an issue because capital expenditure will fall due to the slow decline of tobacco use meaning the extra cash can be used to pay off debt.”

        This is an interesting point. When these companies do go ex-growth and start to shrink in line with the 5% or so decline in global tobacco sales, they may be able to keep growing on a per-share basis by buying back shares with cash that would previously have gone into growth investment. And they will become much more focused on cost cutting and efficient capital allocation, probably divesting unwanted assets to return cash to shareholders.

        My guess is that this particular ‘cigar butt’ has quite a few puffs left in it. But, as ever, only time will tell.

      2. Hi John,

        I think tobacco stocks offer better returns for the long-term investor compared to most other stocks.

        I can’t think of any other companies/sector enjoys scale, pricing power and oligopoly simultaneously. The only issue it has is litigation/tighter regulation which Tobacco company has become skilled in dealing with.

        I looked further into the Menthol debate and I can see that when FDA moves in with its proposal it will face a very uphill struggle trying to get it to pass within the US government.

        I think if more investors brushed up on legality aspect of tobacco trade we wouldn’t have this panic on this market. I would rather stick with tobacco than Apple because its impossible to know whether it will be able to produce a hit product in 5 years down the line.

      3. “I would rather stick with tobacco than Apple because its impossible to know whether it will be able to produce a hit product in 5 years down the line.”

        I think the same thing about Facebook. Why would my son (who’s eight) use Facebook a few years from now when all his friends are on some other social network and Facebook is just full of old codgers over the age of 30? It could all go belly-up just as quickly as it did for MySpace. Facebook’s only hope (perhaps) it so hoover up any competition before they achieve critical scale.

  8. Hi John,

    I read the FDA will pursue the ban for menthol cigarette and I thought I should give a brief outline of what this will entail so anyone who has invested in tobacco can calm themselves down.

    FDA has to make an Advance notice of proposed rulemaking. This is a consultative process where various stakeholders are engaged and asked to make comments. This lasts for 90 days. Subsequently, they have to ask the Congress to approve the bill.

    In Congress it has to address the following questions:

    Menthol cigarettes are actually a preference for Black Americans and other ethnic groups. This makes it a race issue and potentially discrimination act via law. It will force a significant portion of smokers to acquire illegal cigarettes and force law-abiding smokers to become criminals. In USA they have an epidemic in opioid use and gun crime I doubt they want to create another area the government would have to monitor. In 2009 Congressional Black Caucus managed Menthol Cigarettes to be exempted again they probably will object to this.
    I mentioned about MSA it is dependent on combustible cigarettes being sold. Menthol Cigarettes form 30% of USA tobacco market it would lead to huge job loss and loss of revenue for individual states and defaulting of tobacco bonds for which individual States are responsible because they securitised the MSA settlements in the early 2000s.

    Given the economic repercussion, it will cause I have a strong suspicion that it will face serious adversaries objecting to this ban. A fact that most people overlook is Washington is littered with tobacco advocates and Vice President Mike Pence is a strong supporter of tobacco and Republicans hold a Senate majority. It will be interesting to see how long it takes them to even ratify this ban. This could take years and given how strong tobacco’s hold on US politics it is unlikely it will be easily made choice. I would wager that it would require amendments to be made.

    An interesting point to make is with Trump in power who as a president is so corrupt getting the bill signed by Trump is another hurdle. It wouldn’t surprise me if Trump vetos this given his main set of voters are the rust belt of the USA i.e. Kentucky, North Carolina, South Carolina and Georgia, whose jobs will disappear if Menthol Cigarettes are banned.

    Let’s assume that after a year or two or three FDA manages to get the bill approved. It then has to face the wrath of big tobacco law firms. Like I said this becomes a race issue and it can become wrapped in endless court circuit. I have more faith in legal firms winning favourable terms rather than the management of Apple, Facebook, Google and Microsoft coming up with a new enticing product as big tobacco is skilled in the legal arena.

    I hope anyone who has invested in this remains calm and looks at the facts.

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