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AP Business Case Study · Unit 1, Task 5

CVS Health: Walking Away from $2 Billion in Tobacco-Related Sales

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Unit 1 · Business Ethics and Profits with Purpose

A real-company case study for Unit 1, Task 5 of AP Business with Personal Finance, written in the same format as the course's business cases. Read the case, answer each question on your own, then open the sample answers to check your thinking. Facts are current as of October 2026, and every source is listed at the bottom.

The Case

Unit & taskUnit 1, Task 5: Business Ethics and Profits with Purpose
Topic1.6
Key peopleLarry J. Merlo (President and CEO of CVS Caremark/CVS Health in 2014); Troyen A. Brennan (Chief Medical Officer)
Case years2014–2026 · Evaluation case
Key questionWhy did CVS’s leaders give up about $2 billion a year in tobacco-related sales, and how well did the decision balance ethics, stakeholders, and profit?
Business Canvas componentsOrganization, Customer
Snapshot
  • Business: CVS Health Corporation (called CVS Caremark until September 2014)
  • Industry: Health care: retail pharmacy, pharmacy benefits, walk-in clinics, and health insurance (Aetna)
  • Headquarters: Woonsocket, Rhode Island
  • Key people: Larry J. Merlo (CEO in 2014); David Joyner (president and CEO as of February 2026)
  • Ownership/Status: Publicly traded (NYSE: CVS)
  • Size: $402.1 billion in total revenues (2025)

A Pharmacy That Sold Cigarettes

On February 5, 2014, CVS Caremark announced that it would stop selling cigarettes and all other tobacco products at its more than 7,600 CVS/pharmacy stores across the United States by October 1 of that year. NBC News reported that CVS would be the first national pharmacy chain to take tobacco off its shelves.

CVS was already much more than a chain of drugstores. Along with its stores, it ran MinuteClinic walk-in clinics and a pharmacy benefits business that managed prescription drug coverage for tens of millions of plan members. Company leaders described a health care system that was putting more focus on improving patients’ results, managing long-term illnesses, and holding down costs, with CVS’s pharmacists and nurse practitioners doing more hands-on patient care. In the announcement, the company pointed out that smoking is linked to more than 480,000 deaths a year in the United States. Leaders argued that selling tobacco clashed with the company’s role in health care.

Counting the Cost

The decision came with a price tag, and CVS put it in writing. In a filing with the Securities and Exchange Commission on the day of the announcement, the company estimated it would lose about $2 billion in revenue each year from tobacco shoppers—the cigarettes themselves plus other items those customers bought on the same trips. That equaled about 17 cents of earnings per share each year, with a hit of 6 to 9 cents per share expected in 2014. CVS said it had found other opportunities to make up the lost profit, and it kept its 2014 profit forecasts unchanged.

President and CEO Larry J. Merlo explained the reasoning in one line: “Put simply, the sale of tobacco products is inconsistent with our purpose.” Chief Medical Officer Troyen A. Brennan predicted that stopping tobacco sales would make a significant difference. The company noted that its move lined up with positions taken by major health groups, including the American Medical Association, the American Heart Association, the American Cancer Society, the American Lung Association, and the American Pharmacists Association. NBC News noted that the pharmacists’ group had urged pharmacies to stop selling tobacco back in 2010. CVS also promised to help millions of Americans quit smoking through a national program offering quit-smoking information and treatment in its stores, its clinics, and online. President Barack Obama publicly praised the company for setting an example.

A New Name

On September 3, 2014, nearly a month ahead of schedule, CVS stopped selling tobacco. The same day, the company changed its corporate name from CVS Caremark to CVS Health. Its businesses were grouped under matching names: CVS/pharmacy for its 7,700 stores, CVS/caremark for a pharmacy benefits business with nearly 65 million plan members, CVS/minuteclinic for its 900 walk-in clinics, and CVS/specialty for specialty pharmacy services. The company launched its quit-smoking program, which included a check of whether a person was ready to quit, education, medication support, and coaching to avoid relapse, along with a social media campaign called #OneGoodReason.

Measuring the Results

In the stores, the cost was easy to see. CVS reported that its front-store same-store sales fell 4.0% in 2014 and would have been about 3.5 percentage points higher without tobacco and the related shopping trips. In 2015, front-store same-store sales fell 5.0%, and the company said tobacco accounted for about 5.2 points of that drop. Yet the company as a whole kept growing. Pharmacy same-store sales rose 4.8% in 2014 and 4.5% in 2015. Total revenue climbed 9.9% to $139.4 billion in 2014 and 10.0% to $153.3 billion in 2015, and net income rose from $4.6 billion in 2014 to about $5.2 billion in 2015.

Measuring the health effects was harder. In September 2015, the CVS Health Research Institute, the company’s own research arm, reported that in the 13 states where CVS held at least 15% of the pharmacy market, cigarette pack sales fell about 1% in the eight months after the exit. That worked out to roughly 95 million fewer packs, while nicotine patch purchases in those states rose 4%. Brennan pointed out that more than two-thirds of smokers want to quit and about half try each year. A critic quoted by the Christian Science Monitor argued that CVS had sold only a small share of the nation’s cigarettes, and the paper pointed out that smoking had already been declining for decades. A 2017 study in the American Journal of Public Health, whose authors included Brennan, found that smokers who had bought cigarettes only at CVS were 38% more likely to stop buying cigarettes after the exit than smokers who bought them only at other stores. As of 2015, news reports noted that other retailers had not followed CVS’s lead.

Where CVS Health Stands

The new name pointed to where the company was heading. In November 2018, CVS Health completed its purchase of the health insurer Aetna in a deal valued at about $70 billion. For 2025, CVS Health reported total revenues of $402.1 billion. By then it operated about 9,000 retail pharmacy locations and more than 1,000 walk-in and primary care clinics, its pharmacy benefits business served about 87 million plan members, and David Joyner was its president and CEO.

Exhibit 1: CVS before and after the tobacco exit, 2013–2015
YearTotal revenueNet incomeFront-store same-store salesEstimated tobacco effect on front-store sales
2013$126.8 billion$4.6 billion—Tobacco still sold all year
2014$139.4 billion$4.6 billionDown 4.0%About 3.5 points of the decline (sales stopped September 3)
2015$153.3 billion$5.2 billionDown 5.0%About 5.2 points of the decline

Source: CVS Health fourth-quarter and full-year results releases for 2014 and 2015 (Exhibit 99.1 to Form 8-K). Front-store sales are sales of items other than prescriptions; same-store sales compare stores open at least a year with the year before. Annual tobacco-related revenue given up: about $2 billion (CVS Form 8-K, February 5, 2014).

Reading Questions

These are the same for every case. They check that you caught the basics before you analyze.

1. Which business does this case feature, and what product or service does it provide?
The case features CVS Health, which was called CVS Caremark until September 2014. It runs CVS/pharmacy drugstores that fill prescriptions and sell everyday items, MinuteClinic walk-in clinics, and a pharmacy benefits business (CVS Caremark) that manages prescription coverage for plan members. In 2018 it also bought the health insurer Aetna.
2. Who are the key people named in the case, and what roles do they play? Which other stakeholders — individuals or groups — have an interest in the business?
Larry J. Merlo, president and CEO in 2014, announced and explained the decision to stop selling tobacco. Troyen A. Brennan, the chief medical officer, supported the decision and later helped write a study of its effects. David Joyner was president and CEO as of February 2026. Other stakeholders include customers who smoked (who lost a place to buy cigarettes but were offered help quitting), other shoppers, employees and pharmacists, shareholders who absorbed a hit of about 17 cents per share a year, pharmacy benefits plan members, health groups such as the American Medical Association, government leaders such as President Obama, tobacco companies, competing retailers, and outside critics who questioned the results.
3. Identify an opportunity and/or a challenge the business faces in this case.
Opportunity: by removing tobacco, CVS could present itself as a health care company (CVS Health) whose actions matched its role working with doctors, health groups, and pharmacy benefits clients. Challenge: it gave up about $2 billion a year in tobacco-related sales, its front-store same-store sales fell 4.0% in 2014 and 5.0% in 2015, and it had to show that the move actually reduced smoking when critics pointed out smokers could buy cigarettes elsewhere.

Practice Questions

These apply the Unit 1 concepts from Task 5 to the case, in the style of AP free-response prompts.

1. Describe the ethical dilemma CVS’s leaders faced in 2014, and explain how they responded to it using evidence from the case.Topic 1.6 · LO 1.6.B
CVS faced an ethical dilemma because its values conflicted with a financial goal: the company described its purpose as helping people on their path to better health, yet tobacco shoppers brought in about $2 billion in revenue each year. Leaders resolved the dilemma by weighing stakeholders rather than short-term profit alone—they chose to stop selling tobacco, which they judged would benefit customers’ health and the company’s relationships with health groups and plan members, even though it would cost shareholders about 17 cents per share a year. They responded transparently, disclosing the expected cost in an SEC filing on the day of the announcement. They also reduced harm to smokers by launching a quit-smoking program instead of simply turning those customers away.
2. Using the exhibit, calculate the estimated annual tobacco-related revenue CVS gave up as a percentage of its 2013 total revenue. Then explain why this percentage alone does not capture the decision’s full impact on stakeholders.Topic 1.6 · LO 1.6.B
$2 billion ÷ $126.8 billion = 0.0158, or about 1.6% of 2013 total revenue. Although that is a small share of the whole company, the loss was concentrated in the stores: front-store same-store sales fell 4.0% in 2014, with tobacco accounting for about 3.5 points of the drop, which affected store-level results and the employees who run those stores. Shareholders expected an earnings hit of 6 to 9 cents per share in 2014. On the benefit side, the company’s own analysis estimated about 95 million fewer cigarette packs sold in high-CVS states, a gain for public health. A complete stakeholder analysis weighs these benefits and harms for each group, not just the percentage of total revenue.
3. Explain how CVS’s decision to stop selling tobacco could strengthen the company’s long-term viability. Use a cause-and-effect chain and evidence from the case.Topic 1.6 · LO 1.6.A
Ending tobacco sales made CVS’s actions consistent with its stated health care purpose, so its words and behavior matched. That consistency builds trust with key stakeholders—health groups such as the American Medical Association backed the position, and President Obama publicly praised the company. Greater trust and credibility support the company’s growth as a health care business with nearly 65 million pharmacy benefits plan members and walk-in clinics, which the 2014 rebrand to CVS Health signaled. The case shows that even as front-store sales fell, total revenue rose 9.9% in 2014 and 10.0% in 2015, though the case does not prove the tobacco decision caused that growth. Over time, a reputation for putting customers’ health first can help a health care company keep partners and customers, which supports long-term profit.

Discussion Questions

Talk these through with a partner or your class. There's more than one good answer, so back yours up with evidence from the case.

  1. Critics pointed out that smokers could simply buy cigarettes at another store. Does that make CVS’s decision less ethical, less effective, or neither? Explain.
  2. Should a business ever stop selling a legal product because it conflicts with the company’s purpose? Where would you draw the line for other products a pharmacy sells?
  3. CVS disclosed the expected cost of its decision in an SEC filing the same day it announced it. Why might that kind of transparency matter to shareholders and other stakeholders?
  4. The 2015 sales analysis came from CVS’s own research arm, and the 2017 study’s authors included CVS’s chief medical officer. How should readers weigh evidence that a company publishes about its own decisions?
  5. Which factor do you think most influenced CVS’s leaders? (a) the company’s health care purpose and values, (b) relationships with health groups and pharmacy benefits clients, (c) public reputation, or (d) expected long-term financial growth. Defend your choice with evidence from the case.

Application Activity

Choose a business you know—a gym, a grocery store, a streaming service, or your school cafeteria—and identify one product or practice that could conflict with the business’s stated purpose. Complete a short stakeholder analysis: list at least four stakeholders, the likely benefit or harm to each if the business dropped that product or practice, and your recommendation with one sentence explaining why.

Key Takeaways

  • An ethical dilemma often pits a company’s values against a financial goal. CVS’s leaders weighed about $2 billion a year in tobacco-related sales against their stated purpose of improving health and chose the option they judged consistent with that purpose.
  • Ethical decisions affect stakeholders differently. Shareholders took a short-term earnings hit and front-store sales fell, while public health groups, plan members, and smokers who wanted to quit stood to benefit—so leaders had to weigh benefits and harms for every group.
  • Profit with purpose: aligning decisions with the mission can support long-term viability—CVS’s total revenue kept growing after the exit—but leaders must be transparent about the costs and honest about how results are measured.

Use it in your Business Canvas Project

Run your Business Canvas idea through the same test CVS faced: is there anything your business could sell or do that would earn money but conflict with your core values? Write one code-of-ethics statement that commits your business to a choice, and note what that choice might cost you.

For Teachers

Opening activity: Ask students: Would you shop at, or work for, a store that sold something it believed hurt its customers? Then pose a quick scenario: a store earns about 2% of its sales from a product that conflicts with its mission. Have students list everyone who would be affected if the store stopped selling it, and save the list to revisit after reading.

Tip: “Print case” prints the case and all questions with the sample answers hidden, so it works as a student handout.

Sources

  1. Form 8-K, Item 7.01 Regulation FD Disclosure (decision to stop selling tobacco), CVS Caremark Corporation / U.S. Securities and Exchange Commission, 2014-02-05
  2. CVS Caremark to Stop Selling Tobacco at all CVS/pharmacy Locations (company press release), Pharmacy Times, 2014-02-05
  3. CVS to Quit Selling Tobacco Products, NBC News, 2014-02-05
  4. CVS Caremark Announces Corporate Name Change to CVS Health to Reflect Broader Health Care Commitment (company press release), Pharmacy Times, 2014-09-03
  5. CVS Health fourth quarter and full year 2014 results (Exhibit 99.1 to Form 8-K), CVS Health / U.S. Securities and Exchange Commission, 2015-02-10
  6. CVS Health fourth quarter and full year 2015 results (Exhibit 99.1 to Form 8-K), CVS Health / U.S. Securities and Exchange Commission, 2016-02-09
  7. Did CVS's tobacco ban really cut smoking?, The Christian Science Monitor, 2015-09-03
  8. Impact of CVS Pharmacy's Discontinuance of Tobacco Sales on Cigarette Purchasing (2012–2014), American Journal of Public Health 107 (Polinski et al.), IDEAS/RePEc (abstract and citation), 2017
  9. CVS creates new health-care giant as $69 billion Aetna merger closes, CNBC, 2018-11-28
  10. CVS Health Corporation Reports Fourth Quarter and Full-Year 2025 Results (Exhibit 99.1 to Form 8-K), CVS Health / U.S. Securities and Exchange Commission, 2026-02-10
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