Shares of some big U.S. tobacco companies have been on the upswing recently, as smokers have generally opted for traditional cigarettes amid rampant, vaping-related health concerns.

Firms such as Marlboro-maker Philip Morris International (NYSE: PM) and Nat Sherman-producer Altria (NYSE: MO) have each seen their stock climb roughly 20% since their late September troughs.

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The climb in the companies’ respective share prices have been largely attributed to the averted merger proposal between Philip Morris and Altria, which has kept PM somewhat clean of the regulatory issues engulfing Altria’s investment in JUUL.

However, the firms’ stocks have also been helped by consumers steering away from e-cigarettes and back to more traditional, combustible products.

Strategists at Barclays, led by consumer analyst Guarav Jain, noted, for example, that U.S. cigarette industry volumes fell -4.5% for the four-week period ending November 2, citing data from Management Science Associates (MSA). The level, which compared to Nielsen’s reported -6.8% drop, prompted Barclays to tout the improvement as “the best print of the year.”

The last time U.S. cigarette volumes were better than -5% was in August 2018.    

Jain and his team also highlighted that the better results happened in October 2019, which is “notable,” given Altria had increased prices in that month for the third time to date this year.

The higher prices of cigarettes appear to reflect the 4.2% year-on-year cost increase of manufacturing cigarettes, according to the U.S. Bureau of Labor Statistics’ October Producer Price Index.

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Moreover, Barclays added that e-cigarette sales dropped to around 7% over the prior year –

the first print below 10% over the past three years.

Low on Battery

Indeed, the e-cigarette business has recently been taking a beating, as a growing number of states and local governments have enacted, or are considering enacting, various forms of bans in the wake of product-related illnesses.

As of November 13, 2019, the Centers for Disease Control and Prevention (CDC) said it received reports of more than 2,170 cases of e-cigarette or vaping, product use associated lung injury (EVALI), spanning all states – except Alaska – as well as the District of Columbia, Puerto Rico and the U.S. Virgin Islands.

The CDC said it had identified Vitamin E acetate – a synthetic form of vitamin E, typically used in dermatological products such as skin creams – as a “chemical of concern” in the EVALI outbreak. The Atlanta-headquartered health institute also determined that tetrahydrocannabinol (THC) – the psychoactive ingredient found in cannabis – is linked to most of the cases and plays “a major role” in the illnesses.

To date, the EVALI investigation, conducted by CDC, along with the U.S. Food and Drug Administration (FDA), state and local health departments, and other clinical and public health partners, have uncovered forty-two confirmed fatalities across 24 states and the District of Columbia.

Pot Gets Stirred

The news has contributed to steep losses at some major marijuana-focused product developers, especially Canadian companies Aurora Cannabis (NYSE: ACB) and Canopy Growth (TSX: WEED, NYSE: CGC), which have each seen their stock plunge by around 50% year-to-date in 2019, with prices Monday marking new 52-week lows, according to the IBKR Trader Workstation.

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Meanwhile, the Horizons Medical Marijuana Life Sciences ETF (TSX: HMMJ), which has among its top holdings firms such as Aurora, Canopy Growth, Aphiria (NYSE: APHA), as well as British biopharma GW Pharmaceuticals (Nasdaq: GWPH), which uses cannabis in its treatment of multiple sclerosis, has also unsurprisingly seen its value sink over 64.3% since mid-March 2019.

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The carnage has also helped dent U.S.-based alcohol brewer Constellation Brands’ (NYSE: STZ) stock, which has fallen roughly 17.15% since late April 2019, following the firm’s recent multi-billion-dollar investment in Canopy Growth.

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Back in the Smoking Section

Against this backdrop, consumers appear to have returned to combustible cigarettes to support their smoking habits.

Altria chair and CEO Howard Willard, for instance, extolled his company’s core tobacco businesses, which comprise around 85% of the company’s profits, as delivering “excellent” results in the third quarter and reaffirmed the firm’s full-year 2019 guidance of diluted earnings per share (EPS) growth of 5% to 7%.

He said during the firm’s latest earnings call that if “there is some e-vapor consumers that find their product of choice is no longer available, they may look to other product alternatives,” adding that if “they’re not moving to vapor anymore, they’re likely stay in cigarettes or move somewhere else.”

Still, Altria seems to have pinned its strategic outlook on alternatives to traditional cigarettes, with expectations that non-combustible products can surpass combustibles as the preferred choice among adult tobacco consumers over the next decade.

The vision of smokeless products dominating the industry may have some support from federal lawmakers, amid a recent New York Times report that U.S. President Donald Trump had pulled back from an e-cigarette flavor ban despite warnings from U.S. Secretary of Health and Human Services Alex Azar.

Trump had said in September that there have been “deaths and there have been a lot of other problems.”

“People think it’s an easy solution to cigarettes, but it’s turned out that it has its own difficulties.”

Indeed, it appears that e-cigarette usage among adolescents in the U.S. had been surging, with that cohort lured by vaping flavors such as mint and menthol. Azar underscored that while about eight million adults have used e-cigarettes, roughly five million children have also consumed them. 

In intraday trading activity Tuesday, shares of Altria and Philip Morris were down around 2.19% and 1.44% to US$47.28 and US$83.57, respectively, while Canopy Growth’s stock had surged roughly 5.59% to US$19.83.

Investors will likely be watching developments in the industry closely, as volatility continues to wreak havoc in the e-cigarettes, vaping and marijuana sectors. Upcoming events in 2020 include the 49th Tobacco Workers’ Conference in Louisville, Kentucky (January 20-23); the Tobacco Plus Expo, which is slated to be held in Las Vegas Nevada (January 29-31); as well as Keller and Heckman’s 4th annual E-Vapor and Tobacco Law Symposium in Irvine, California (February 11-12).