Things may be looking up for tobacco companies now that Scott Gottlieb is leaving his post as Food and Drug Administration commissioner.

During his tenure, Gottlieb sought to aggressively crack down on the tobacco industry, proposing nicotine limits in cigarettes, seeking to ban menthol-flavored cigarettes and cigars and placing restrictions on the sale of flavored e-cigarettes in an effort to dampen youth usage.

Read: Millions of teens are addicted to vaping, and there’s nothing anyone can do about it

Also: Vaping may be more harmful to teens than we thought

Tobacco stocks, including Philip Morris International Inc. PM, +0.87% and Altria Group Inc. MO, -0.10% , briefly spiked higher in afternoon trade Tuesday in the minutes after news broke of his resignation. On Wednesday, Philip Morris shares gained 0.2% while shares of Altria, which faced a double dose of Gottlieb’s ire given the $12.8 billion stake it took in e-cigarette company Juul Labs Inc., shot up 3.4%.

Elsewhere, shares British American Tobacco Plc BATS, +2.52% , Imperial Brands Plc IMB, +1.77% and 22nd Century Group Inc. XXII, -1.25% all rallied on Wednesday.

FactSet, MarketWatch

The resignation “calls into question whether or not the FDA will in fact enforce harsher regulations around youth e-­cig usage/access, cig nicotine limits and a cig menthol ban given he was the champion behind these initiatives,” Bonnie Herzog, senior analyst at Wells Fargo Securities, wrote in a note to investors on Tuesday. “We think this major development will be broadly viewed as a positive for the tobacco industry, although this introduces some uncertainty.”

Analysts at Stifel Nicolaus called the change a “welcome relief” for investors in the tobacco space.

Gottlieb’s “increased threatened regulation on the tobacco industry which weighed on the stocks broadly during his time in office,” wrote Stifel analyst Christopher Growe. “We view his resignation positively as it could lead to less regulatory threats and at least some reprieve from the negative tweets,” he wrote, referencing Gottlieb’s frequent use of Twitter to discuss the harmful effects of tobacco products, especially in young people. Read more about biotech stocks’ reaction.

“Investors appear to be making a bet that Scott Gottlieb’s replacement to lead the FDA will toe a far more traditional Republican party line than the current Commissioner,” Height Capital Markets analyst Stefanie Miller wrote. She disagrees, saying that attitude “significantly discount(s) the mounting pressure on policymakers to address the youth tobacco use issue,” a significant part of the political landscape Gottlieb will leave behind.

For instance, Miller thinks the FDA will still end up implementing a menthol ban. “Congress will be poised as soon as next year to move and even pass legislation that would ban menthol flavoring in cigarettes,” she predicted.

She also thinks regulations aimed at reducing the amount of nicotine in cigarettes will move forward, writing: “A Republican-led FDA is likely to be more sympathetic to market-based approaches to public health problems, which a harm-reduction tobacco control regime would support. Making cigarettes less attractive while simultaneously boosting the attractiveness of other products through modified risk designations aligns with this worldview.”

Miller does think that Gottlieb’s departure is positive news for tobacco companies’ premarket tobacco applications (PMTA) and modified risk tobacco product (MRTP) applications. “This means we continue to expect Philip Morris International will receive PMTA approval to sell IQOS in the United States,” she wrote. IQOS is a smoke-free product by Philip Morris that heats tobacco enough to release a nicotine-containing vapor without actually burning the tobacco.



“Under a more traditional Republican-led FDA in support of a harm-reduction approach to tobacco control, that would bode well for all pending MRTPs, including for IQOS, which we had previously thought was most at risk for rejection under Gottlieb’s leadership,” she wrote.