British American Tobacco and Imperial Brands saw £7bn wiped from their stock market value as U.S. regulators prepare to crack down on the sale of flavoured e-cigarettes and menthol cigarettes.
BAT owns Newport, the leading menthol brand in the USA, and sales of the mint-flavoured products there are estimated to bring in a quarter of the company's revenues, according to analysts at Morgan Stanley.
The Wall Street Journal reported on Saturday that the US Food and Drug Administration (FDA) plans to pursue a ban, citing senior agency officials. The FDA may impose limits on the sale of most e-cigarette products in the US, the Washington Post reported last week.
Its marketing plans were successful - by 2013 in the USA, almost nine out of 10 black smokers aged 12 years and older preferred menthol cigarettes to non-menthol cigarettes, according to a study that website references.
The potential menthol ban won't have a near-term effect on the markets, according to analysts.
A ruling on menthol in traditional cigarettes would come in a separate action from the FDA's planned restriction on e-cigarette flavors, according to the official.
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BATS owns Newport, the largest menthol cigarette maker in North America, which contributes as much as 25% of the group's annual profit.
Dow Jones quoted analyst firm Jefferies saying it would require a lengthy evidence-gathering process to get the ban through U.S. courts. The FDA may impose limits on the sale of many e-cigarette products in the United States, a senior official told Bloomberg News last week.
In limiting the sales of flavors to vape shops that sell products more popular among adults, the FDA is acknowledging the role the devices might play in helping older smokers switch to a potentially less harmful product.
Imperial Brands plc declined as much as 5%.
BAT shares have dropped 40 percent this year, the biggest drop in at least two decades.
Newport is BAT's largest menthol brand and accounts for about 40 percent of USA sales, according to Duncan Fox, an analyst at Bloomberg Intelligence. None of the major tobacco companies would comment on the possibility of barring menthol cigarettes at this early stage.