Stocks of all major tobacco companies produced gains in 2017, though some, like Philip Morris International (NYSE: PM) and British American Tobacco (NYSE: BTI), did much better than others, growing by double-digit percentages.
Although having a global outlook helped those two outpace domestic giant Altria (NYSE: MO), which gained only 7%, all the players remained very profitable and their dividend yields remain among the most attractive across many industries.
With cigarette smoking still on the decline and electronic cigarette usage continuing to rise, these are five key things tobacco investors should watch in 2018.
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1. How will the FDA regulate next-gen e-cigs?
Investors should get a pretty good idea of what's in store at the regulatory level for next-generation "heat-not-burn" (HNB) e-cig technology when the Food and Drug Administration holds a hearing on Philip Morris International's iQOS device at the end of January.
The purpose of the hearing is to determine whether the device has earned a reduced-risk classification, which could give it a competitive edge over other e-cigs on the market. While it seems intuitive that inhaling a vapor is safer than ingesting smoke, the integrity of the tobacco giant's clinical tests was recently called into question, which tosses a wild card into the process. In addition, it's worth noting is that the agency has only, until recently, sought to control the proliferation of e-cigs.
Also on the table, if not on the agenda, is whether Philip Morris will be able to market the iQOS without the reduced-risk designation. The decision it receives on that question will probably color whether British American Tobacco moves forward with its competing HNB device, the iFuse glo. BAT previously said it intended to file a marketing application in 2018 for the glo, but its plans may change if the FDA comes down hard on the iQOS.
2. How the FDA regulates nicotine levels in cigarettes
Last July, the agency announced that it was in the early stages of developing a plan to require tobacco companies to cut the level of nicotine in cigarettes to "non-addictive" levels. If the regulator finds the acceptable amounts of nicotine to be virtually negligible, it could well lead to an effective ban on combustible cigarettes.
Still, the FDA has yet to actually begin the public rule-making process, and if it looks like it will move toward stricter regulation of nicotine levels, the tobacco companies -- not to mention politicians from tobacco-growing states -- will weigh in. Moreover, there's some question about whether those new rules would apply to e-cigs, many of which feature liquids containing high levels of nicotine.