It turns out that Big Brother is always watching you, even if you're in a war zone and are craving a smoke after a long day. The Pentagon has recently completed a study arguing that tobacco use should be banned in the military and sales prohibited on government-owned property.
Of course, there will be no military tobacco prohibition in the near future, although folks are talking about the phase-in of new standards over the next 20 years or so. Either way, it's clear that Big Cigs Altria (NYSE: MO ) , Reynolds American (NYSE: RAI ) , and Lorillard (NYSE: LO ) have their work cut out for them as the country moves ahead with tobacco-prevention policies.
Thank you for not smoking
Altria, for one, has been "helpful" in reform efforts with its support of the Family Smoking Prevention and Tobacco Control Act, which enables the FDA to regulate tobacco products and advertising. I wonder how the company would feel about full-fledged elimination of smokes in the military, where 37% of service members are users, versus about 20% of the general American population.
It always pays to follow the dollars, and it's estimated that tobacco-related health issues and lost productivity cost the Pentagon around $846 million annually. In this case, though, the dollars go both ways, with 70% of profit from tobacco sold on bases used to fund military recreation programs -- $88 million in 2005. And although products sold at military stores are tax-free, cigarette prices must be set at market levels, so members of the military are seeing the same price jumps for Marlboros that the general public is experiencing.
Will the smoke clear?
Smoking bans are nothing new; many states have passed legislation prohibiting tobacco use in public places like restaurants and workplaces. With spiraling health-care costs, however, your health is becoming more important to the masses. Any vice that you have, whether it's alcohol, tobacco, or too much food, is coming under the microscope.
Total smoking-related health-care costs in the U.S. are estimated to be some $96 billion annually. In comparison, it's estimated that overeating will cost Americans $147 billion in annual health-care costs, and food producers such as Kraft (NYSE: KFT ) have been hounded to cut unhealthy trans fats from cookies and other snacks. Alcohol-related health-care issues have been estimated to cost Americans around $176 billion annually, but no one's talking about banning Molson Coors' (NYSE: TAP ) products from the barracks. So, if smoking actually costs the nation less -- or at least not more than -- obesity and alcohol-related problems, then why are smokers bearing so much of those costs through higher taxes?
In a word, addiction. Listen, smokers are an easy target, as evidenced by government's pursuit of ever-growing excise taxes. And American cigarette makers aren't alone in dealing with impact of the smoking stigma. Global operators Philip Morris International (NYSE: PM ) and British American Tobacco (NYSE: BTI ) must be cringing as many countries start to enforce public smoking bans in one form or another.
Could prohibition drive demand?
As the recent results at Big Tobacco companies indicate, smokers keep lighting up in spite of massive excise taxes, rising unemployment rates, and a depressing economic picture. Tell them they can't smoke in restaurants and they'll smoke outside. Demand that they don't smoke at work and they'll just smoke in the car during lunch. Smokers will drink at home if you won't let them smoke in bars.
My point here is that smokers are going to keep smoking no matter what. It's long been thought that alcohol consumption actually increased during Prohibition. Might the military's ban on tobacco have the same effect? Instead of purchasing cigarettes from government stores, soldiers could just have them sent from the States, or they could purchase them directly in the country where they are serving. A whole new black market could be formed, driving prices sky-high throughout the entire military.
Hey, maybe Altria's behind the drive to ban tobacco in the military after all. And maybe more of these potential smoking bans could be an Altria investor's dream come true. Or maybe not. Regardless, the government is thinking about a long-term move away from tobacco, and in the end that will mean proportionally fewer consumers for Big Cigs.
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