Tobacco industry has been facing several challenges of late in
the form of higher excise tax imposed by governments around the
world, declining volume and worldwide anti tobacco campaigns to
curb smoking. Last week, it received another blow as the European
Parliament as imposed stronger rules on manufacture, sale and
marketing of the tobacco products. The newEuropean Union (EU)
Tobacco Products Directive is a revised version of the original
Tobacco Products Directive issued in 2001.
The new rule has banned the sale of flavored cigarettes and
roll-your-own-tobacco in EU region. However, Other Tobacco
Products, such as cigars, cigarillos and smokeless products are
exempted from the ban.
Moreover, the directive requires the tobacco companies to
include both pictorial and text warnings on the cigarette packs
to dissuade smokers. The law also requires the warning to cover
more than 65% of both the front and back covers.
Member states have also been allowed authority to ban online
sales of tobacco products in their respective regions.
Moreover, the new rule states that e-cigarettes, with nicotine
strength of more than 20 milligrams per milliliter, would need
authorization as a medicine. Moreover, curative or preventive
qualities of these products need to be proved. E-cigarettes below
this level will face the same regulations as conventional tobacco
products if their usage as a medicinal product cannot be
These rules will pose a problem for the tobacco biggies like
Philip Morris International Inc.
Reynolds American Inc.
Altria Group Inc.
) will be adversely affected by this decision. They are facing
challenges from the strict anti-smoking campaigns launched by
governments around the world. Tobacco companies are increasingly
relying on packaging to build brand loyalty and grab consumer
attention, especially after the government curbed advertising in
magazines, billboards and on TV.
Philip Morris, which carries a Zacks Rank #4 (Sell), opines
that the new rule will disrupt the tobacco market and encourage
LORILLARD CO (LO): Free Stock Analysis Report
ALTRIA GROUP (MO): Free Stock Analysis Report
PHILIP MORRIS (PM): Free Stock Analysis
REYNOLDS AMER (RAI): Free Stock Analysis
To read this article on Zacks.com click here.