One bill after the other is being passed for the prevention of tobacco and its ill effects on consumers. Recently, ‘The Family Smoking Prevention and Tobacco Control Act’ was signed by President Obama, primarily to prevent the teenagers from becoming addicted to tobacco.
The new act gives full authority to the Food and Drug Administration (FDA) to regulate the amount of nicotine in tobacco products, along with imposing a ban on candy flavored and other flavored cigarettes, primarily as the flavored cigarettes are considered to be more appealing to first-time smokers. The Act also requires that tobacco companies should block labels such as ‘low tar’ and ‘light’ and cover the cigarette cartons with large graphic warnings against smoking.
The signing of the new bill marks an important history in the regulation of tobacco, as approximately 20% of Americans smoke and about 440,000 people in the U.S. die due harmful diseases like cancer, heart disease, emphysema and other ailments.
Furthermore, tobacco-related heath care costs exceed approximately $100 billion annually. Companies like Altria Group (MO), Reynolds American (RAI) and Phillip Morris (PM) are all in support of the new bill allowing the FDA to impose strict regulations on tobacco.
However, MO and PM have stated some First Amendment reservations about certain parts of the act. Further, despite severe restrictions on smoking across the U.S. there are more than 40 million smokers making tobacco still a viable industry. RAI and MO state that they would continue to design better products, and under the federal regulation would continue to make its products available, while PM believes that the competition would get intense as the demand for smoke-free products will increase.
We currently rate Holds on RAI, MO and PM, as the stocks maintain a low P/E due to tobacco-related litigation issues and court case losses.
Read the full analyst report on “MO”
Read the full analyst report on “RAI”
Read the full analyst report on “PM”
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