EU Makes Tougher Smoking Rules - Analyst Blog

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According to media reports, the European Union has passed stricter rules for the tobacco biggies as part of the anti tobacco campaign going all over the world. The worldwide campaign aims to save people from the health hazards due to cigarette smoking.

The government has approved the legislation drafted by the European Union health ministers that requires the tobacco companies to include both pictorial and text alerts on the cigarette packs to dissuade smokers. Moreover, the law requires the warning to cover more than 65% of both the front and back of the packs.

This rule is a revision of a 2001 EU law and requires that the cigar packs will hold a message declaring the presence of more than 70 carcinogenic substances in the tobacco products.        

The 27-nation strong European Union authority aims to ban the sale of menthol and other characterizing variations of cigarettes and roll-your-own tobacco products. Moreover, The European Commission, which is the regulatory body of the 27-nation bloc, plans to impose stricter rules on sale of nicotine-containing products like electronic cigarettes.

These stricter rules will pose a problem for the tobacco biggies who are facing pressure as governments around the world are embarking on stricter anti smoking campaigns. Tobacco companies are increasingly relying on their packaging to build brand loyalty and grab consumer attention. Packaging was the last resort for tobacco advertising after the government curbed advertising in magazines, billboards and TV.

While the Food and Drug Administration (FDA) has passed a rule compelling tobacco companies to print thought-provoking images on cigarette packs inducing smokers to refrain from smoking, governments of Australia and New Zealand have made plain packaging mandatory for cigarette packs.

Moreover, tobacco industry is facing high excise tax imposed by government around the world. The scenario has improved slightly due to mass protests against proposals imposing tax burdens on smokers. The compound tax growth rate has slowed down a little in the past two years, following the protests.

In spite of this, the cigarette industry continues to carry a heavy tax burden. The industry has been seeing a decline in shipment volume for the past several years due to unfavorable excise taxes and growing awareness worldwide.

Tobacco companies are resorting to cigarette alternatives, trying to reduce the harmful effects of tobacco. In May 2011, Philip Morris International ( PM ) bought the patent and global rights to an aerosol nicotine-delivery system for the delivery of nicotine to lungs without cigarette smoking.

British American Tobacco plc. ( BTI ) also created a subsidiary called Nicoventures focused on nicotine alternatives. In 2009, Reynolds American Inc. ( RAI ) purchased Swedish company, Niconovum, whose nicotine gum, pouches and spray help people give up smoking. Tobacco giant Altria Group Inc. ( MO ) is launching its first electronic cigarette under the MarkTen brand

While Reynolds currently holds a Zacks Rank #2 (Buy), Philip Morris and Altria carry a Zacks Rank #3 (Hold). However British American Tobacco currently holds a Zacks Rank #4 (Sell).



BRITISH AM TOB (BTI): 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

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: BTI , MO , PM , RAI

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