The U.S. Food and Drug Administration on Friday announced a plan for tobacco and nicotine regulation, which seeks to lower nicotine in cigarettes to non-addictive levels.
This would be just the first step in a sweeping review of the tobacco industry's regulations by the agency, with the goal of encouraging the development of new products that are less dangerous than cigarettes. The FDA has also said it will consider the role of menthol and other flavors in tobacco products.
The statement by the FDA largely came as a surprise and will likely face much resistance from tobacco companies, which are already facing a declining consumer base for their products.
Shares of Altria Group, maker of Marlboro and Parliament brands through its Philip Morris USA unit, plunged more than 10% following the FDA's announcement. British American Tobacco, which owns brands such as Camel, Lucky Strike and Newport, fell nearly 9%. Vector Group, which sells Liggett Select, Eve and other cigarette brands, saw its stock tumble more than 4%.
Shares of Philip Morris International, which sells Marlboro and other brands outside the U.S., also dropped nearly 3% on the news. Shares of Imperial Brands, formerly known as Imperial Tobacco Group, fell 6%.
Altria, which saw the most impact on its stock following the announcement, didn't immediately respond to CNBC's request for comment.
"The overwhelming amount of death and disease attributable to tobacco is caused by addiction to cigarettes – the only legal consumer product that, when used as intended, will kill half of all long-term users," FDA Commissioner Scott Gottlieb said in a statement.
"Envisioning a world where cigarettes would no longer create or sustain addiction, and where adults who still need or want nicotine could get it from alternative and less harmful sources, needs to be the cornerstone of our efforts – and we believe it's vital that we pursue this common ground."
The FDA said Friday that it plans to begin a "public dialogue" surrounding lowering nicotine levels by way of "achievable product standards." The agency added that it's prepared to issue guidance that will describe a new enforcement policy "shortly."
"Our approach to nicotine must be accompanied by a firm foundation of rules and standards for newly-regulated products," Gottlieb said. "To be successful all of these steps must be done in concert and not in isolation."
The FDA said it will consider an exemption for what it calls premium cigars, and will consider a delay in implementing new rules for reduced-risk offerings like e-cigarettes.
"We've longed believed the FDA would ultimately take a more comprehensive approach toward regulating nicotine was a natural next step," Wells Fargo analyst Bonnie Herzog said in a note to clients.
"Overall, while the market is viewing today's announcement as a 'negative' for cigarette manufacturers, we believe this could prove to be an opportunity over the long term for reduced risk products and, therefore, a positive for Altria/PM as they have a unique competitive advantage..."
One concern remains that though the FDA seeks a balanced approach to avoid "unintended consequences," such as activity in the black market, this might not pan out as anticipated, Herzog said. It also increases the risk that a federally-mandated ban on menthol cigarettes would be implemented, she added.