Big Tobacco Just Got Smoked

Here's an unsurprising news flash: Lawmakers hate the tobacco industry. In recent months, the tobacco industry has faced legal attacks like never before. These attacks have gone far beyond the usual class-action lawsuits brought upon it by consumers and have instead come from large authoritative bodies laying down the law.

In the United States, the Food and Drug Administration and the Centers for Disease Control and Prevention have been doing their best to curb the appeal of smoking. The CDC spent $54 million on its graphic 12-week television advertising campaign to get consumers to kick their nasty habit -- and according to traffic visits to its help-quit website and phone calls to its help-quit hotline, they worked very well. The FDA has been recently pushing tobacco producers for more concrete statistics about the make-up of their cigarettes.

As I've suggested in the past, this is bad news for U.S.-based tobacco companies like Altria (NYSE: MO  ) , Reynolds American (NYSE: RAI  ) , and Lorillard (NYSE: LO  ) . Both Altria and Reynolds have responded by slashing their workforce by double digits over the coming years as cigarette shipping volumes have stagnated. Lorillard has been the lone bright spot, bucking the trend and raising its dividend in the process.

I've often suggested that the safe haven for investors who are intent on profiting from consumers' tobacco addiction is to look internationally. Well, that safety net just had a few holes cut in it.

Australia's High Court upheld a groundbreaking decision that will require tobacco companies, including Philip Morris International (NYSE: PM  ) and British American Tobacco (NYSE: BTI  ) , to remove their brand imaging from cigarette packaging as of December. That brand image will be replaced by graphic images of the dangers of smoking (very similar to the CDC's ads), and the packaging will be available in the color of olive only. A brand's name may still be used on the packaging, but it will be relegated to a standard font and a much smaller surface area on the packaging.

International tobacco suppliers like Philip Morris and British American Tobacco had argued that the removal of its brand image represented an acquisition of owned intellectual property without due compensation. Australia's High Court struck down that assertion and now sets the table for the European Union to potentially introduce similar legislation, using Australia as its precedent.

However, before you freak out -- don't! Australia represents a very small piece of the international pie for Philip Morris and British American Tobacco. For Philip Morris, which practically counts the entire globe as its customer, a much more damaging blow would be if other parts of Southeast Asia or China itself were to take up such harsh legislation. That's where the growth is for international tobacco providers at present, and it seems very unlikely that we'd see legislation like what we've seen from Australia in other Southeast Asian countries anytime soon.

In the meantime, keep your eye on what, if anything, the EU does in response to this legislation, and, once again, do your best to avoid highly legislated countries (ahem, the United States, ahem) if you choose to invest in the tobacco sector.

Tobacco companies are often attractive investments because of their delectable dividends. However, it isn't the only sector that can offer returns that'll have you coasting into retirement. Find out which three companies our team at Stock Advisor feels will have you retiring rich by clicking here to get your copy of this latest, free, special report.

Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy that doesn't use smoke and mirrors.


Read/Post Comments (1) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 21, 2012, at 2:40 PM, harleyrider1978 wrote:

    The FDA has just been sued by Big Tobacco and a Federal Judge agreed to go forth with the suit!

    http://www.csnews.com/top-story-tobacco-judge_allows_challen...

    The Australian High Court purposely gave a quick decision without handing down their reasoning for their decision saying they would relate that at a much later date. The fact is the court broke international treaties on trade with their decision and the last anyone who looked treaties are a higher law than any constitution even the U.S. Thats how the UN has been able to usurp American Law and institute its policies within our own shores!

    The plain lies of

    plain-packs advocates

    The MPs then asked whether such legislation will stop at tobacco: ‘If the Department of Health were to introduce standardised packaging for tobacco products, would it also do the same for alcohol, fast-food, chocolate and all other products deemed unhealthy for us?’

    In any event, such legislation would appear to be in breach of World Trade Organisation rules, which state that ‘the use of a trademark in the course of trade shall not be unjustifiably encumbered by special requirements’. Therefore, the tobacco industry – like it or loathe it – has reason to be dismayed at the loss of its brand property.

    Having failed to persuade us to quit with graphic health-warnings, outrageous tax hikes and by hiding cigarettes behind shutters in shops, the anti-tobacco lobby sees the plain-packaging campaign as the latest stage in the process of taking the choice out of our hands altogether - in other words, prohibition. It is not, however, the place of any government to decide how we should live our lives, even when we make the ‘wrong choices’. Everyone must understand that where tobacco control goes, the regulation of other ‘bad habits’ inevitably soon follows.

    As the anti-smoking brigade continues its vituperative attacks on the vice of smoking through the obscurantist term ‘plain packaging’, we all have an interest in standing up in the face of such bigotry and illiberalism. As autonomous individuals, we should not have our lifestyle choices determined by anyone else, let alone this puritanical band of intolerant anti-smokers.

    http://www.spiked-online.com/site/article/12788/

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1991122, ~/Articles/ArticleHandler.aspx, 10/21/2014 9:53:32 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement