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Big Tobacco Won't Give Up Menthol Cigarettes Easily -- Barrons.com
DOW JONES & COMPANY, INC. 6:59 AM ET 11/19/2018

Symbol Last Price Change
BTI 34.64up +0.1 (+0.29%)
MO 55.64up -1.14 (-2.01%)
PM 87.4up +1.07 (+1.24%)
IMBBF 33.25 -0.34 (-1.01%)
QUOTES AS OF 02:53:08 PM ET 11/19/2018

Scott Gottlieb's war on teenage smoking will probably be challenged by other parts of the Trump administration as well as in court -- and banning menthol cigarettes could be the toughest part of the plan to enact, says one analyst.

Last week, Gottlieb, the Food and Drug Administration commissioner, unveiled plans to ban menthol in cigarettes and cigars, and restrict the sale of many flavored e-nicotine systems, to crack down on youth use. A rule could take a year or more to finalize and another year to be enforceable, according to The Wall Street Journal.

Since the announcement, shares of British American Tobacco(BTI) , Altria Group(MO) , Philip Morris International(PM) , and Imperial Brands(IMBBF) have taken a hit.

"Maybe they get a proposed rule out in the next six months or so before election year politics shuts down the regulatory process for controversial stuff, but I think the odds are very remote that they'll actually finalize anything," Rob Smith, the health-care and consumer staples analyst at Capital Alpha Partners, wrote clients last week. " It's telling" that the FDA is not pursuing a full ban on e-cigarette flavors, or on online sales, or on sales in dedicated tobacco/vape shops. The process to institute a regulatory ban is "long and arduous," he adds.

Meanwhile, he says, "menthol would be much harder to tackle." Menthol cigarettes make up about a third of the market. A menthol ban was under consideration for inclusion as part of the Family Smoking Prevention and Tobacco Control Act and then dropped because "it's difficult to ban an entire class of product," says Smith.

Then there's the argument that a menthol ban would create a black market, as British American Tobacco(BTI), whose brands include Newport, maintains. "Regulating menthol cigarettes...differently to non-menthol cigarettes will increase the illegal market, fueling more criminal activity, adding further challenges to criminal and social justice issues. Further, as an illegal market in menthol cigarettes will increase, youth smoking access will increase," British American Tobacco(BTI) said in a statement.

The Office of Management and Budget must sign off on regulations, and as part of that process, other agencies get to express any concerns they have. While the Justice Department might not care about any number of regulations, it would certainly care about a black market, says Smith.

Read more: The Menthol Meltdown in Tobacco Stocks Could Be a Buying Opportunity

"There will be lawsuits," possibly by tobacco companies and retailers, he says. "I don't think [the FDA] has something that's buttoned up." Some suits will concern whether the science supports that menthol leads to greater dependence or increased health risk.

In a statement, Murray Garnick, general counsel of Altria(MO), maker of Marlboro cigarettes, said "We continue to believe that a total ban on menthol cigarettes or flavored cigars would be an extreme measure not supported by the science and evidence. We expect that establishing product standards on menthol cigarettes and flavored cigars will be a multi-year, deliberative process, and we will be fully engaged throughout."

Still, the move shows the FDA's seriousness about addressing the teen tobacco-use epidemic. In a statement, Gottlieb said, "if the policy changes that we have outlined don't reverse this epidemic, and if the manufacturers don't do their part to help advance this cause, I'll explore additional actions." Gottlieb has moved to curb teen use of e- cigarettes, especially since more than a million middle school and high school students reported using them in 2017, with about a third saying the flavors were a big factor.

Juul Labs, which has more than 70% of the e-cigarette market in the U.S., said it would suspend sales of most flavored pods in retail stores.

Write to Leslie P. Norton at [e-mail]


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11-19-180659ET
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