The US Food and Drug Administration (FDA) dealt another blow to the tobacco companies as a part of its anti-smoking campaign. In its recent ruling, the watchdog has ordered the tobacco biggies to enlist the harmful ingredients that they are using in their products.
The FDA wants the tobacco makers to report the quantity of 93 chemicals in their products. These include formaldehyde, nicotine, arsenic, cadmium, ammonia and carbon monoxide. Tobacco companies will also have to enlist quantities of 20 different ingredients that can cause cancer, lung disease and other health.
The list of harmful products won’t be available on the packages of the tobacco products. The FDA has decided that it will compile information for each product and make them available to the public by April 2013.
Smoking related harmful side effects have become a major concern for the Americans. In US, 8 million Americans have smoking-related illnesses, and as many as 443,000 Americans die due to lung cancer.
FDA also ruled that the companies should stop making any false claims on advertisements regarding the intent of harmfulness of their products. There are many tobacco companies like Philip Morris International (PM) and Altria Group (MO) who are resorting to less-risky noncombustible products.
This ruling was followed after Cincinnati-based U.S. Court of Appeals passed a ruling in March 2011 saying that the U.S. Food and Drug Administration (FDA) is allowed to impose restrictions on the graphic labels of the cigarettes packets sold in the country. The ruling also went on to say that these restrictions were not unconstitutional, as they in no way violated the freedom of speech of the tobacco companies.
In a ruling in June last year, the FDA had asked the tobacco giants of United States to design their cigarette packets starting October 2011 according to the norms set by the council. Graphic design of a dead body, cancerous lungs and rotten teeth would definitely be a scary intimidation for US tobacco lovers each time they pick up a packet of their favorite brand.
Moreover, the ruling required that the labels must be printed in color and must cover the top 50% of a cigarette pack's front as well as back panels.
The labels were designed keeping in tune with the "Family Smoking Prevention and Tobacco Control Act" to convey the health hazards of smoking. The act gives FDA the authority to restrict the tobacco industry’s efforts to tap children, ban the introduction of flavored tobacco products, cut out misleading terms such as “light and low,” propagate larger and more effective warning labels and ask for a detailed information about all ingredients as well as additives.
United States had so far been very soft with its cigarette warnings, unlike other nations like Uruguay, Brazil and Canada. After Canada issued the first-of-its-kind law in 2000 about affixing warnings in cigarette packs, smoking rate fell to 20% from 26%.
Tobacco biggies are worried about the anti-smoking campaigns of FDA. Five tobacco giants across the globe together protested against the forceful use of horrendous labels on the cigarette packets. Reynolds American Inc. (RAI), Lorillard Inc. (LO), Ligget Group, Santa Fe Natural Tobacco, and Commonwealth Brands filed a case against FDA for imposing labels that are more probable of cutting down smokers rather than helping consumers make a free choice.
The recent ruling of enlisting the harmful ingredients will pull down sales for these companies. The FDA's stricter attitude towards modified-risk products is also worrying bigger tobacco companies, which are resorting to new products to sell as they face declining cigarette demand due to tax increases, health concerns, smoking bans and social stigma.
While Reynolds American and Atria hold a Zacks #3 rank implying a short-term Hold rating, Lorillard and Philip Morris hold a Zacks #2 rank implying a short-term Buy rating.
LORILLARD CO (LO): Free Stock Analysis Report
ALTRIA GROUP (MO): Free Stock Analysis Report
PHILIP MORRIS (PM): Free Stock Analysis Report
REYNOLDS AMER (RAI): Free Stock Analysis Report
To read this article on Zacks.com click here.
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment