The tobacco industry has been facing the brunt of worldwide anti-tobacco campaigns which are prompting governments to impose restrictions on the sale of tobacco products.
Tobacco stocks like British American Tobacco and Imperial Tobacco declined last week after the news was flashed in fear of being hit hard again after U.K.’s opposition labor party promised to levy U.S. style ‘sin tax’ on tobacco players, if they come to power.
Labour leader Ed Miliband announced in his party's annual conference that the tax will be based on the tobacco company’s market share. The tax aims to raise approximately 150 million pounds ($245 million) from the tobacco biggies.
The tobacco companies have not been in good terms with the British government since late. In April 2014 ‘The New Tobacco Products Directive’ endorsed by the European Parliament in Feb 2014 received a green signal from the Council of European Union (EU) on March 14, 2014.
The Directive is a revised version of the original Tobacco Products Directive issued in 2001. The new directive imposes stricter rules on the sale of tobacco products in the EU region. The new rule bans the sale of flavored cigarettes and roll-your-own-tobacco in EU regions. However, member states have the option to exempt products like ‘Other Tobacco Products’ like cigars and cigarillos from the ban. The revision was made in order to make tobacco products less attractive to young smokers in the region.
Moreover, early in 2014 Reuters reported that the government of Great Britain is considering a plan to make tobacco companies sell cigarettes in plain packaging.
These rules will pose a problem for the tobacco biggies like Philip Morris International Inc. (PM), Reynolds American Inc. (RAI), Lorillard Inc. (LO) and Altria Group Inc.’s (MO) as they will be adversely affected by this decision. As it is they are facing challenges from the strict anti-smoking campaigns launched by governments around the world. The tobacco industry faces many challenges, which may pressure margins. Governments around the world are imposing restrictions on tobacco companies which, in turn, are lowering cigarette consumption. The U.S. Food and Drug Administration (FDA) has made it mandatory for tobacco companies to use precautionary labels on cigarette packets to dissuade customers from smoking.
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