Box them around the ears enough times and maybe you'll get action. That's apparently the thinking behind Democratic Senators Dick Durbin and Richard Blumenthal badgering the Food & Drug Administration three times to investigate energy drinks despite having been told twice before there are no health risks to take action on. After the third letter to the regulatory agency, the FDA gave in and said it would study the issue with an eye toward regulation if the events warranted it.
Considering that new regulations became effective this year in Canada that limit the amount of caffeine contained in a drink to 180 mg, the politicians may become more emboldened to foist new rules on the drink industry south of the northern border. Drink makers from Monster Beverage (MNST 0.24%) to Starbucks (SBUX -0.35%) should be concerned.
Packing a wallop
While many drinks will pass muster with the 180 mg limit -- despite its name, PepsiCo's (PEP -2.97%) AMP Energy Drink contains just 142 mg of caffeine in a 16-oz container, according to the EnergyFiend website -- the same size cup filled with a Starbucks Grande coffee contains on average 330 mg. The 12-oz tall has 260 mg, while the 8-oz short just makes it at 180 mg.
Rockstar energy beverages as well as Monster drinks regularly exceed those guidelines, while Coca-Cola's (KO 0.15%) NOS Energy has 260 mg in a 16-oz container and Dunkin' Brands (DNKN) Baskin-Robbins Cappuccino Blast has 234 mg in 24 oz.
Canadian health officials recommend no more than 400 mg of caffeine per day for adults, and the American Academy of Pediatrics says children shouldn't ingest more than 100 mg. It's clear that if similar Canadian-style regulations were imposed here in the U.S., a lot of companies would have to reformulate their drinks.
A stimulating discussion
The high-profile death in 2011 of a teenager who consumed two 24-oz energy drinks in a 24-hour period once again brought renewed interest to regulating the drinks and the ingredients they contain. Because it's not just the caffeine that gets the advocates exercised, but inclusion of natural supplements like taurine and guarana that have them worried.
The ingredients are likened to the natural stimulant ephedra, which was ultimately banned in 2004 after a decade-long battle following the death of a Baltimore Orioles pitcher who overdosed on the substance. Yet we can look back longer in history to a time when Coke was investigated for having other substances in its recipe, and when Coke, Pepsi, and Dr Pepper Snapple (DPS) regularly advertised their drinks as energy boosters.
Getting smoked
I noted last month that energy drink makers are on a slippery slope by agreeing to incremental regulation of their industry, much as the cigarette makers were when warning labels were placed on a pack of smokes (there are warning labels on energy drinks, too). It didn't stop the activists from seeking more and greater regulation or the government from trying to bankrupt them with lawsuits. As regulation grows, the risks rise as well.
Energy drinks are safe as long as they're not abused, but that won't stop those who want to see them gone. For the senators, the third time was the charm, and perhaps the FDA is just oiling the squeaky wheel by agreeing to investigate the matter at last though they ultimately won't decide to regulate. While the energy drinks are the ones in the crosshairs at the moment, it's easy to see how coffee, tea, and other beverages could easily be the next target.
Revenues and earnings at Monster are up 24% over the last 12 months and it's been able to grow sales at a 20% annualized clip over the past five years. But shares are down 38% from their 52-week highs, and at 22 times earnings estimates they may still be carrying a premium considering that the mood for regulation could change quickly.
