Economic Impact of Proposed FDA Nicotine Limit on Cigarettes

The United States Food and Drug Administration (FDA), which regulates the manufacture, marketing, sale, and distribution of tobacco products, intends to pursue a rule for a tobacco product standard that would establish a maximum nicotine level in cigarettes and certain other finished tobacco products.

The FDA has previously specifically referenced academic research that recommends a maximum nicotine content of 0.3-0.5 milligrams per gram of tobacco, an approximately 95% reduction in the average nicotine content of cigarettes today. The FDA anticipates that lowering nicotine levels in cigarettes would result in lower cigarette usage. However, the FDA must weigh this potential benefit against the costs of such a rule, including the rule’s significant negative economic and fiscal impacts.

The National Association of Tobacco Outlets (NATO) commissioned a report with Chmura to provide analysis on the economic and fiscal impact of the Very Low Nicotine Cigarette (VLNC) regulation, from the perspectives of national tobacco retailers. This analysis utilizes assumptions that are documented and believed to be reasonable. Chmura does not evaluate the potential public health consequences of this regulation.

What does this proposed limit mean for the economy?

Chmura estimates that the proposed new FDA rule limiting the nicotine content of cigarettes will negatively affect the national tobacco retail industry and the broader economy.

Using 2023 data, it is projected that tobacco retailers in the United States will lose $13.9 billion of revenue per year, as well as 95,511 jobs in those retail establishments. Other industries related to retail will also be affected. Adding indirect and induced impacts, the national economy could lose $30.6 billion in economic output per year, with an estimated 154,478 jobs being lost.

Federal, state and local governments will also be negatively impacted. Chmura estimates that federal exercise tax on tobacco products will decline by $8.0 billion. In addition, tax revenue for state and local governments will decline by $16.0 billion per year. Moreover, payments to states via the Tobacco Master Settlement Agreement (MSA) and payments to the other four states pursuant to separate settlements will decline by $5.6 billion, with a total revenue loss for state and local governments reaching $21.6 billion per year.

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Read our full economic impact report for the National Association of Tobacco Outlets here: Economic Impact of Proposed FDA Nicotine Limit on Cigarettes.