In a surprising trend, American cigarette use appears to be back on the rise. The big question is why.
On Monday, the Alcohol and Tobacco Tax and Trade Bureau reported that cigarette shipments for the first half of 2015 have increased from the same period the previous year. If this trend holds, it would mark the first year-over-year increase in cigarette shipments since 2006. This is a big difference from the average year of late, when a 3 to 4 percent volume decline has been the norm.
According to Vivien Azer, consumer analyst at Cowen & Co., the spike in cigarette shipments is largely due to lower gas prices.
As the price of gasoline has fallen alongside crude oil, consumers have been granted more disposable income. That is especially important for buyers of cigarettes, since the average smoker tends to earn less than the average American, Azer said. Further, she points out that one of the most popular spots for cigarette purchases are gas station convenience stores — precisely where the savings are realized.
If retail gas prices stay low, Azer expects to see "better-than-trend cigarette volumes" in both 2015 and 2016.
Reynolds American and Altria are up more than 40 percent and 12 percent, respectively, in 2015. Azer has a price target of $47 for Reynolds American, a 4 percent increase from its closing price Tuesday, and a target of $62 for Altria, a 12 percent rise from Tuesday's close.
The increase in sales "is dismaying to see," commented Anna Song, a health psychologist and associate professor at the University of California, Merced Health Sciences Research Institute.
Song has a different theory than Azer; she posits that rising use of e-cigarettes may be inspiring a more relaxed attitude around smoking in general.
"There's a lot of literature suggesting there's a link between e-cigarette use and smoking actual cigarettes," Song said. And indeed, "if you think e-cigs are not harmful and are fine, then is it really a big leap to saying that cigarettes are OK?"
Nonetheless, Song remains optimistic.
"It's the only legal product that, if used as intended, can kill you," Song said. "I do think that we can get use down to zero."
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