Monster Beverage May Soon Run Out of Energy

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When New York City's mayor banned supersized drinks because of health concerns, it was rightly criticized as duplicitous since he was seen just weeks later presiding over the paean to gluttony, the annual Coney Island hot-dog eating contest sponsored by Nathan's Famous (Nasdaq: NATH  ) . Apparently, engorging yourself on dozens of red hots is as healthy as a bowl of tofu and bean sprouts.

Such hypocrisy among politicians is nothing new, as they're always willing to mouth some shibboleth if it will garner them votes. Mayor Bloomberg is famous for his "do as I say, not as I do" attitude, as he's known to regularly put salt on almost all his food -- apparently even saltine crackers! -- which is why the beverage industry is worried that yet another ban emanating out of New York will gain traction, this one on selling energy drinks to minors.

There's no standard if it's not double
New York is quickly becoming the epitome of the Nanny State as Mayor Bloomberg banned trans fats, strong-armed companies into reducing salt levels in their products, required food-service vendors to post calorie counts on their menus, considered banning "happy hours," and did ban giving leftover food to the homeless because he couldn't monitor their fat intake.

Taking their lead from the city's temperance leader, Suffolk County health-care leaders are urging county lawmakers to ban sale of energy drinks to anyone under 19. Soon, Red Bull, Rock Star, and Monster Beverage's (Nasdaq: MNST  ) line of Monster drinks will go the way of cigarettes and alcohol. They're already positioning themselves for lawsuits down the road.

Smoke 'em if you got 'em
(NYSE: MO  ) , Reynolds American (NYSE: RAI  ) , and Lorillard (NYSE: LO  ) were required to place warning labels on their packaging and were banned from advertising on TV, while sales to minors were prohibited -- yet years later they were still attacked with class action lawsuits. Reynolds, in particular, was excoriated for its Joe Camel advertising that anti-smoking crusaders charged was really targeted at making smokers out of kids.

Energy-drink makers have already "voluntarily" adopted warning labels on their bottles, and health-care advocates want to prohibit the drinks from being marketed toward kids. How long before the ads are stopped and the lawsuits start?

As the American Beverage Association points out, a typical energy drink has less than half the caffeine content than that found in a cup of Starbucks (Nasdaq: SBUX  ) coffee. If the sale of energy drinks to minors is banned, does Starbucks, Caribou Coffee (Nasdaq: CBOU  ) , or even Teavana (NYSE: TEA  ) stand to be regulated next? Tea can have as much caffeine as a cup of instant coffee, and PepsiCo's (NYSE: PEP  ) Mountain Dew can have as much as regular black tea. There's a reason the ABA says it's a slippery slope, but as Mayor Bloomberg has proved, duplicitousness by politicians is an inherent trait, and they can simply ignore one favored class of beverage over another.

A fond farewell
Like the anti-smoking lobby, health crusaders often believe that so long as their cry is "it's for the children," then all manner of regulation and intrusion is permissible. The FDA is already on the case at the national level, investigating their safety after several deaths were reported. In particular, they point to 13 deaths associated with 5-Hour Energy and five deaths linked to Monster Energy. Just this past October, Monster saw its stock drop 10% after a 14-year-old girl died after consuming two 24-ounce energy drinks in a 24-hour period.

The fact that she was aware she had an underlying heart condition, and that the energy drink warns such people against drinking the beverage, didn't stop the family from filing a lawsuit against Monster.

Although the tobacco companies today are as profitable as they ever were, there was a period when investors wouldn't touch them. If social activists and lawmakers are able to get the proverbial camel's nose under the tent by banning sales of energy drinks, we may enter a period where investors won't want to touch Monster or other caffeinated-drink makers with a 10-foot pole.

Supersize me
The stakes are high for Monster Beverage these days. The stock had been nothing short of a rocket, but recent developments have sent shares spiraling downward. Health scares sparked a number of investigations at the state and federal level into the energy drink's role in several fatalities. With the company's value slashed in half, investors are wondering whether Monster Beverage is a value or a bust in the fast-growing energy drink category. Find out now in our brand-new premium research report, which details all the ins and outs you need to know about Monster Beverage, and even comes with a full year of updates to boot. Click here now to claim your copy and start reading today.

Read/Post Comments (4) | Recommend This Article (3)

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 December 04, 2012, at 10:48 AM, DSmod wrote:

    I agree with your conclusion that Monster and its peers are doomed. I entirely disagree with your sentiment that this a bad thing. Loaded with refined sugars, we're talking about some terribly unhealthy stuff they're peddling, laced with caffeine to make sure kids get addicted--a very similar template to cigarettes. Are you seriously going to try to tell me that cigarettes shouldn't be regulated too?

  • Report this Comment On December 04, 2012, at 12:04 PM, huntermike96 wrote:

    I would agree that the energy drink mfg's have a bumpy road ahead, whether or not they are doomed is still unknown. But to compare energy drinks to coffee is plain stupid. And only a fool would continue to write articles with the same foolish argument.

    Here's a real fact for you to ponder: Coffee just has caffeine, energy drinks are also loaded with a "Proprietary Energy Blend", these cocktail of ingredients amplify and change the effect of caffeine in a drink. That's why you're not seeing reports of people dying from drinking a cup of Starbucks coffee from the FDA. Think about it for a moment. Where are the reports? There aren't any.

    So to say that coffee should also be included in the fight that energy drinks are facing is just bad reporting. Come on Fools, lets get smart about what type of information you're providing to investors.

    And yes, the energy drink mfg's might have voluntarily placed warning labels on the cans but they do in fact still do target and market directly to children. So if you market and target children than you are liable for not standing by your warning label. It doesn't work that way.

    How do these guys market to children? They sponsor childrens events run by their athletes. They spend large amounts of money on things like the Monster Army where the majority of the profiles are of children.

    Might be wise for the Fools to do some research and homework on this category as opposed to just regurgitating the same thing.

  • Report this Comment On December 04, 2012, at 1:52 PM, beefangusbeef wrote:

    It is truly foolish to take anything Mayor Bloomberg says seriously. This "nanny" state mentality is the bane of any company that does not make a "socially" acceptable product. Better short everything this side of Whole Foods....

    I hope that MNST goes the way of MO, PM, etc. They've all done killer (pun intended) despite their opponents attempts to stop them.

  • Report this Comment On December 04, 2012, at 2:10 PM, DSmod wrote:

    It is interesting that there are certain ways the government looks out for our well-being (military protection, seat-belt laws, drinking age limits, taxation on cigarettes, etc. etc.) which the majority of folks accept, but the instant some one suggests regulating or taxing soft drinks (or whatever screwed up concoctions people like Monster are selling) in the same way, people cry "Nanny State!". This is in spite of the fact that more and more evidence mounts every day about how dangers these products pose to people are every bit as serious as cigarettes, underage drinking, etc. It simply does not make any sense. I'd rather a few of Monster's or Coke's (and their investors) dollars be lost than continue to see our collective health care cost balloon due to people's inability to practice moderation. So yes, I want the government to regulate and send signals to help people get healthier. That's not "nanny". It is a government doing something positive for it's people's health and pocket books.

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