CVS Caremark Corporation (NYSE:CVS) has announced that its trademark CVS retail pharmacies will no longer stock tobacco products in a bid to improve its image as a health care provider, strengthen relationships with hospitals and other health care providers, and promote its in-house clinics, report Timothy W. Martin and Mike Esterl for The Wall Street Journal.

CVS Caremark

“Cigarettes have no place in an environment where health care is being delivered,” said CVS CEO Larry Merlo. “This is the right decision at the right time as we evolve from a drugstore into a health-care company.”

CVS Caremark to lose $2 billion, but gain credibility

CVS Caremark Corporation (NYSE:CVS) is giving up $2 billion in annual revenue, but the decision has already gotten praise from the medical community (and President Obama). “It just doesn’t make sense, if you exist to promote health and you sell one of the major causes of death in the U.S.,” said Otis Brawley, chief medical officer at the American Cancer Society.

While CVS Caremark Corporation (NYSE:CVS) is taking a hit now, cigarette sales continue to drop in the US, and drug stores never had an enormous part of that market anyways (most Americans buy cigarettes at gas stations and convenience stores). In the long-term, this could be a strong strategic move for the company that is trying to market its clinics, staffed by nurse practitioners, as a low cost alternative for less serious ailments. Selling the nation’s leading cause of preventable deaths sends a mixed message and would undermine the brand’s credibility with consumers.

CVS shares fall, not necessarily due to this decision

Other health care companies that deal with CVS Caremark Corporation (NYSE:CVS) have apparently also taken issue with tobacco sales, bringing it up during negotiations and questioning the pharmacy’s seriousness.

“They’re a little bit suspicious of us because we sell cigarettes,” said Troyen A. Brennan, CVS Caremark Corporation (NYSE:CVS)’s chief medical officer. “This move gives us a competitive advantage because it shows our commitment to health care.”

Shares of CVS Caremark Corporation (NYSE:CVS) have fallen 1.4% so far today, but the company’s stock price had been falling before the announcement (along with most other US equities) so it’s not clear if today’s drop is a because of the announcement or if it’s the continuing fallout of disappointing US economic data.