31 necsema.net New England Convenience Store & Energy Marketers Association Continued on page 35 INDUSTRY EXPERT Nicotine-Free Generation: An Existential Threat to Convenience Store Operators Aaron Cutler, C-Store Investments, LLC Many of you may not be familiar with the term “nicotine- free generation.” You will be soon. As of December 2024, eleven municipalities in Massachusetts have adopted a nicotine-free generation (NFG) policy. It appears that some legislators are planning to introduce a state-wide bill. This is not only a concern for the rights of adults to decide what they want to do with their own bodies but also for the future of our industry, and the value of our stores. What is NFG? Essentially, NFG is a policy whereby any person under a certain age in a town will be banned for life from buying nicotine products in that town. So, for instance, anyone who was under 21 in Brookline as of 2021, when they adopted their policy, will never be able to purchase nicotine in that town. Anyone who was over 21 at the time will be “grandfathered” in. It has been suggested that implementation of NFG is a “sensitive” approach as it relates to its impact on convenience store operators since it does not diminish the existing customer base but only prohibits future nicotine customers. Given our expertise with convenience store valuation, we are uniquely positioned to comment on the realities of this claim. As stated above, it has been suggested that the implementation of NFG is “sensitive” or “gentle” as it relates to the impact on convenience store operators as the policy does not diminish the existing customer base, but affects only future potential customers. In fact, NFG has both immediate and long-term implications to the value and operability of convenience stores. The policy, aimed at curbing nicotine consumption among younger generations, is projected to lead to a substantial decline in sales within affected stores. Through comprehensive analysis, we anticipate multifaceted effects including an immediate devaluation of business enterprise value, revenue losses, reputational damage, longer-term implications, and broader market dynamics. Convenience stores play a pivotal role in communities by providing essential goods and services to consumers. In many cases, convenience stores are the de-facto neighborhood market for a wide range of products. While tobacco licenses are not restricted to convenience stores, according to the National Association of Convenience Stores (NACS) State of the Industry Report of 2020 Data, sales of tobacco products represent approximately 35% of in-stores sales at U.S. convenience stores and is “important to the economic viability of the convenience store industry”. Policymakers are increasingly considering measures to discourage its use among younger demographics. One such measure is NFG, which seeks to create environments where young adults are unable to purchase nicotine products. While the public health benefits of such a policy are often the focus, the policy’s impact on convenience store valuations is an under- examined issue. One such issue is the immediate devaluation of the tobacco license and related devaluation of the enterprise value of the business. For operators contemplating a sale or succession planning, NFG will have a significant impact. In some cases, it could render the business under water and negate opportunities to sell and/or refinance. The policy also has implications to loanability and bankability of a business both with lenders and suppliers who issue credit. Loans and lines of credit, a very common financial tool for c-stores, are based on a number of factors including business value. Lenders and issuers of credit to operators within a NFG jurisdiction may require drastic changes to the terms of their agreements or, in extreme cases, cancel them outright. Damaging investment and sales prospects is a very real result as well. Convenience stores located in NFG towns are likely to become less attractive to potential buyers due to their diminished revenue potential and uncertain long-term prospects. Prospective investors and acquirers may perceive these stores as riskier investments, leading to decreased valuations and difficulties in securing financing for acquisitions. There also appears to be an underappreciation for the immediate impact to sales. While tobacco sales losses will be incremental, the loss of customers and sales of
