On its own, the CVS move won't hurt cigarette companies much. Drugstores overall account for only 4 percent of cigarettes sold. That pales compared to gas stations, which generate nearly half of those sales. But it's another in a long line of changes that have led cigarette sales to fall because of health concerns, higher prices and taxes, and social stigma.
The federal government has renewed efforts to reduce the death and disease caused by tobacco use on the heels of the 50th anniversary of the landmark 1964 surgeon general's report that launched the anti-smoking movement. A new 980-page report issued last month by acting Surgeon General Boris Lushniak also urged new resolve to make the next generation smoke-free.
Health and Human Services Secretary Kathleen Sebelius called on others to follow the CVS Caremark example.
"We need an all-hands-on-deck effort to take tobacco products out of the hands of America's younger generation, and to help those who are addicted to quit," she said in a statement.
CVS Caremark competitor Walgreen Co., the nation's largest drugstore chain, sells tobacco, as does the world's largest retailer, Wal-Mart Stores Inc., which also operates pharmacies in its stores. But Target Corp., another major retailer with pharmacies in its stores, does not.
Most independent pharmacies also do not sell tobacco, according to the National Community Pharmacists Association.
On the flip side, discounters such as Family Dollar have started selling tobacco over the last couple years. They note that smokers make more frequent stops at retailers in order to buy tobacco, and their customers are more likely to be tobacco users.
Walgreen spokesman Michael Polzin said in an email his company has been evaluating tobacco products "for some time to balance the choices our customers expect from us, with their ongoing health needs." He said the company will continue to do this while also providing smoking cessation products.
The nation's biggest cigarette maker, Philip Morris USA, said in a statement Wednesday that it is up to retailers to decide if they're going to sell tobacco products.
Several cities, including San Francisco, Boston and many smaller Massachusetts communities have considered or passed bans on tobacco sales in stores with pharmacies. Other places like New York City have sought to curb retail displays and promotions and raise the legal age someone can buy tobacco products.
Philip Morris, which is owned by Richmond, Va.-based Altria Group Inc., had challenged San Francisco's tobacco sale ban, claiming it violated its constitutional rights by suppressing communications directed at adult smokers.
CVS notches about $1.5 billion annually in tobacco sales, but it expects the $2 billion drop in revenue from phasing out tobacco because smokers often buy other products when they visit their stores. The company brought in more than $123 billion in revenue in 2012 and ranks 13th on the 2013 Fortune 500 list of biggest U.S. companies.
While the company trails only Walgreen in terms of number of drugstores, it actually draws most of its revenue from its pharmacy benefits management, or PBM, business. PBMs run prescription drug plans for employers, insurers and other customers. They process mail-order prescriptions and handle bills for prescriptions filled at retail pharmacies.
CVS Caremark shares were down $1.11 to $65 Wednesday, shortly before markets opened and after the company made its announcement.
U.S. retail sales of tobacco, which is comprised largely of cigarettes, were about $107.7 billion in 2012, according to market researcher Euromonitor International.
The share of Americans who smoke has fallen dramatically since 1970, from nearly 40 percent to about 18 percent. But the rate has stalled since about 2004, with about 44 million adults in the U.S. smoking cigarettes. It's unclear why it hasn't budged, but some market watchers have cited tobacco company discount coupons on cigarettes and a lack of funding for programs to discourage smoking or to help smokers quit.
Tobacco companies also have increasingly relied on their packaging and displays at retailers to build brand loyalty and grab consumers because it is one of the few advertising levers left to them after the government curbed their presence in magazines, billboards and TV.
Murphy reported from Indianapolis and Felberbaum reported from Richmond, Va.
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