Are Menthol Cigarettes Going to Be Outlawed?

Tobacco and the ethics surrounding it is a touchy subject. However, menthol tobacco products are even more controversial. 

Unfortunately, this is bad news for Altria (NYSE: MO  ) , Reynolds American (NYSE: RAI  ) , and Lorillard (NYSE: LO.DL  ) . These groups are committed to the cause of menthol, but the FDA is currently considering taking action against the product.

Plenty to loose
Lorillard stands to lose the most from any form of menthol regulation. Around 90% of Lorillard's sales are menthols, with the company's Newport brand being the top-selling menthol cigarette in the U.S. with nearly 38% of the market .

Meanwhile, menthol cigarettes account for around 20% of Marlboro-maker Altria's sales. Reynolds actually has several menthol brands, including Camel, Kool, and Salem brands, which account for about 30% of overall sales.

The argument
So why are menthol cigarettes such a touchy issue?

Menthol is found naturally in plants and removes much of the harshness of smoking, making smoking more palatable, easier to start, and harder to quit. For this reason, the Family Smoking Prevention and Tobacco Control Act of 2009 banned all flavored cigarettes—except menthol.

Now the FDA is currently considering whether or not to make a move on menthols. The agency believes that the removal of menthols from the marketplace would benefit public health within the U.S. The agency started its investigation last year, inviting comments from the public as well as tobacco companies and health agencies.

Under the Family Smoking Prevention and Tobacco Control Act, the FDA's Tobacco Products Scientific Advisory Committee has to submit a report to the agency for consultation before any action can be taken. This document has been received and the FDA is currently reviewing its contents. In addition, the FDA has received an industry perspective document on the public health impact of menthol cigarettes .

However, the Tobacco Control Act does not set a required deadline or timeline for the FDA to act. This means that it could be some time before the FDA publishes its recommendations. The agency has promised to update stakeholders during the second half of this year.

The race issue
There is also a strong argument that menthol producers are targeting African-American smokers, and this has ignited the race argument. Menthol cigarette use among African-American smokers has jumped from 69% to 85% over the past ten years. What's more, the proportion of black smokers who smoke menthol cigarettes is nearly three times that of white smokers.

It is claimed that the reason for this discrepancy is marketing. With this in mind, a group of present and former health secretaries, surgeon generals, and CDC directors called on the big three tobacco companies to stop selling menthols . Their argument is based on the fact that selling menthols cigarettes is affecting the health of the black community. They argue that if the majority of menthol smokers were white, the FDA would have banned the products years ago.

Foolish summary
It's not possible to guess what the FDA's ruling on this matter will be. However, there are some very powerful and respected figures arguing for the prohibition of menthol cigarettes.

If the FDA does go ahead and regulate menthols, Lorillard has the most to lose as around 90% of the company's sales are menthol products. Reynolds also stands to lose around 30% of sales, while Altria would only lose 20%. It would seem as if Altria is the least worried here, while Lorillard's investors need to keep an eye on how this menthol debate evolves. 

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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 June 26, 2014, at 1:18 PM, binary512 wrote:

    Please look up the word "loose" and then change the word in this article to "lose."

  • Report this Comment On June 26, 2014, at 1:22 PM, binary512 wrote:

    Re: "...arguing for the prohibition of menthol cigarettes."

    We all know how prohibition worked in the 20s. Are we going to repeat the same problems again with cigarettes. Why worry about cigarettes when more states are legalizing pot. We are going backwards with cigarettes but moving full speed ahead with marijuana. This doesn't make any sense.

  • Report this Comment On June 26, 2014, at 1:26 PM, EquityBull wrote:

    I don't see the ban happening. First of all the bon defaults for the states would be huge as they rely on tobacco revenue.

    Second, how do you ban menthol and not regular cigarettes? The argument to ban menthol in cigarettes is the same exact one you could use to ban all tobacco in every form and delivery method. I can't see how you can argue one without the other.

    This to me is grandstanding. It shows the agencies are looking at things and doing something to quiet the public. In the end nothing will be done. Even if it were done the companies could take it to the courts and all the way to the supreme court. We just saw today the giant soda ban ruling held by the supreme NY state court. They said selling giant sodas can't be banned. If you ban menthol the same argument could be made to ban anything that is deemed unhealthy. Alcohol, soda, salty snacks, narcotics, etc

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Rupert Hargreaves

Rupert has been writing for the Motley Fool since December 2012. He primarily covers tobacco and resource companies with a passion for value-oriented investments. .

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