Wall Street thinks the FDA’s latest crackdown on e-cigs might actually be good news for Juul

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Federal regulators announced bold plans to curb the sale of sweet and fruity varieties of e-cigarettes like those offered by Juul on Wednesday. The plans are designed to remove potential on-ramps to vaping by teens and do not apply to flavors like menthol, mint, or tobacco.

At their essence, the plans crack down on sales of sweet and fruity e-cigarette varieties at several locations, both in stores and online, and may require e-cig makers to apply and get approval from the Food and Drug Administration by 2021 in order to keep selling their products.

Read more on the new rules here: The FDA commissioner just launched a crackdown on e-cigs like Juul as he prepares to leave office

At first, the moves might sound like bad news for e-cigarette companies like Juul. The company — now partially owned by Altria, the maker of Marlboro cigarettes — currently represents eight out of every 10 e-cigarettes on the market.

But some on Wall Street have a different take.

Instead of negatively impacting Juul, several analysts think the restrictions could give them a small boost. That’s because the crackdown could make Juul competitors follow its lead in pulling its sweet varieties from retail stores.

Last fall, Juul voluntarily removed its flavored e-cigarette varieties — fruit, creme, and mango — from retail stores. Now, the products are only sold online, where the company employs age-verification software to ensure buyers are 21 years old or older.

Since then, that move has meant that any e-cigarette competitor with flavored varieties has enjoyed a bit of a leg-up on shelf space at physical stores. Wherever Juul’s sweet varieties went missing, competitor e-cig flavors likely took their place.

But the FDA’s new rules could require other e-cigarette brands with sweet or fruity flavors to follow in Juul’s footsteps and take them off of store shelves. That could make for a more level playing field for Juul, according to some analysts.

“We believe this is a near-term positive for Altria, with competitors forced to remove flavored products from outlets that Juul already voluntarily removed its products,” analysts with investment bank Stifel wrote in a note circulated on Wednesday.

Analysts from investment bank Cowen agreed.

In another Wednesday note, they wrote that companies like British American Tobacco and Imperial — who make the e-cigarettes Vype, Vuse, and Blu, respectively — still have fruity flavored products on the market. They’ll likely be negatively impacted by the FDA’s plans, they said.

“From a stock perspective, these regulations would be a net headwind for both British American Tobacco and Imperial, who have yet to remove their flavored products from the market,” the Cowen analysts wrote.

Juul, on the other hand, has already pulled its sweet and fruity varieties from retail stores. So if Vype, Vuse, and Blu get pulled as well, the brands will merely end up on more level ground.

“If anything, one could argue that these actions help level the playing field for Juul and allow for sales in comparable distribution channels,” the Cowen analysts concluded.

To be clear, not everyone on Wall Street shares this view. Analysts with investment bank Jefferies disagreed, for example. In a note sent out on Wednesday, they suggested that because the FDA may now be able to remove any e-cigs that might appeal to youth, it could mean all e-cigarettes with refillable cartridges or “pods” ultimately get removed from retail stores. All Juul e-cigarettes are pod-based.

“Interesting to us, [the plan] says the FDA can remove any e-cigarettes that are targeted to minors or likely to promote use of e-cigarettes by minors,” the Jefferies analysts wrote.

“This, to us, could raise a risk of all pod products being removed, and especially raises the risk for Juul,” they said.

In accordance with its new plans, the FDA will focus on curbing the sale of flavored e-cigarettes sold at the following locations:

  • Places where “minors are able to enter at any time,” such as gas stations, pharmacies, and convenience stores
  • Stores and websites that previously were found to be selling to minors
  • Websites that don’t limit the quantity that a customer can purchase at one time
  • Websites that don’t use independent age-verification software.

Once the policy — which is currently in the draft-stage — is finalized, flavored options sold at these locations could be pulled from the market. Companies that want their flavored varieties to be available in these locations will have to submit applications for their products to the FDA by the summer of 2021, a year earlier than the date set by the previous policy.

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