Two weeks ago, the British Medical Association (BMA) made an important decision. BMA doctors voted to demand a permanent ban on selling cigarettes to those born after the millennium.
This means that children under the age of 14 will no longer be allow to buy cigarettes. While the sale of tobacco products to those under the age of 18 is already against the law, this latest vote is part of the BMA’s long-term war against tobacco. A long-term plan that is bad news for Imperial Tobacco (LSE: IMT) (NASDAQOTH: ITYBY.US) and British American Tobacco (LSE: BATS) (NYSE: BTI.US).
Tobacco-free society 
The BMA has in place a plan of action designed to make Britain a tobacco-free society by 2035. The Association has already successfully lobbied the government to introduce the ban on lighting up in public places and on smoking in cars carrying children, after votes during 2002 and 2011.
A ban on the sale of cigarettes to those born after 2000 is designed to “de-normalise cigarette smoking,” although once again the BMA’s vote has reignited the ‘black market tobacco’ argument. Many opponents of the recent deal have said a ban would lead to boom in the black market cigarette trade. Black market cigarettes are potentially more dangerous than their legal equivalent.
Both Imperial Tobacco and British American are based here in the UK, and it is likely that they will be forced overseas if the BMA achieves its long-term goal of making the UK a tobacco free society by 2035.
How much is it likely to hurt?
If Imperial and British American are forced out of the UK, investors are unlikely to get off lightly. Around 13% of Imperial’s sales are in the UK, this translates into 20% of group profit. So, a tobacco free Britain will remove around a fifth of Imperial’s profit.
British American meanwhile does not report its results on a country by country basis. However, the group’s management did have this to say on the UK market during 2013:
“Good performances from Pall Mall and Rothmans led to increased market share although volume was lower. Profit grew strongly due to price increases, cost management and increased Fine Cut volume.”
Still, with a larger international presence than Imperial, British American is likely to come off better than its smaller peer, if it is pushed out of its home country.
What should you do?
Is this news anything to worry about? Well, for long-term holders it could be. That said, big tobacco has a reputation for being well run and it’s unlikely that either Imperial or British American will let this new assault on their sales impact future results.
Further, big tobacco is currently in the process of riding the electronic cigarette revolution, which is going some way to offset falling cigarette sales.
It would appear that tobacco investors do not need to jump ship just yet.
