Why Turning Point Brands Stock Got Smoked Today
Key Points
According to a media report, FDA scientists have significant concerns about nicotine pouches.
This doesn't bode well for companies that, at least partially, want to build a future on them.
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Wednesday was not a good day to be a tobacco stock investor. A report from a major news agency indicated that certain products that were supposed to be fast-tracked by a regulator might just be stuck in the slow lane for longer. With that, many tobacco company shareholders unloaded their holdings. This included Turning Point Brands (NYSE: TPB), which fell by over 14% that trading session.
A reluctant regulator?
Early that morning, Reuters published an article stating that scientists at the Food and Drug Administration (FDA) are hesitant to authorize oral nicotine products, such as pouches, currently awaiting the regulator's approval.
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Citing three unnamed sources, the news agency added that those scientists are concerned that they pose risks to new users. They are particularly worried about the effect of these tobacco products on children.
At the moment, it's not easy for such goods to win FDA approval. The agency considers whether a certain product might help smokers switch to a less harmful alternative, and these days, nicotine pouches don't seem to fit the bill.
Turning Point currently has new versions of its classic Stoker's line of chewing tobaccos and dips (also known as snuffs) in the regulatory pipeline. Its applications for the next-generation tobacco pouch product line, Fre, are also pending, ditto for its "alternative nicotine delivery systems" acquired from its 2019 purchase of peer Solace Technologies.
Turning Point did not comment on the Reuters story.
A vulnerable business
If the article is accurate, Turning Point and other tobacconists could be in for quite a rough patch. It's hard to grow a business when the path to new product introduction becomes more limited, or even blocked entirely.
Although there are many benefits to "sin stocks," they are always vulnerable to regulatory issues like this one. I'd be cautious on Turning Point and its peers until we get more certainty on the FDA's stance.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool recommends Turning Point Brands. The Motley Fool has a disclosure policy.
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