Could you imagine what would happen to Coca-Cola stock if the government banned sugar? That's exactly the situation Lorillard
Menthol is a compound found naturally in mint plants. According to The Wall Street Journal, menthol "acts as a local anesthetic and provides a cooling sensation in the mouth and throat, similar to that of a mentholated cough drop. Critics say the flavoring masks the harsh take of cigarettes, making them more appealing to young people. A federal survey published in 2009 showed that 45% of smokers aged 12 to 17 use menthol brands."
Critics such as the Centers for Disease Control and Prevention also argue that "menthol can make it easier for a smoker to inhale deeply, which may allow more chemicals to enter the lungs. Menthol in cigarettes does not make smoking safer. In fact, menthol may even make things worse."
Next week, a special Food and Drug Administration tobacco advisory committee will review data on menthol products. In March, the panel will recommend whether to ban menthol cigarettes completely if such prohibition would be appropriate for the public health.
Now a recommendation to ban menthol is just that, a recommendation. The FDA still has final say as to what will happen and doesn't have a deadline to make any decisions. So the company is safe for at least a little while. However, in the long term if the FDA bans menthol, it would be a disaster for Lorillard.
Lorillard's largest brand is Newport, a menthol-flavored cigarette that accounts for more than 90% of the company's sales. If the company is forced to switch to regular cigarettes, it's bound to lose tons of customers and take major losses, and will have to restructure to meet the new requirements. Reynolds American
That said, this episode illustrates why I believe Philip Morris
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Dan Dzombak hopes Mac Miller quits smoking. Dan owns shares of Phillip Morris. Coca-Cola is a Motley Fool Inside Value selection. Philip Morris International is a Motley Fool Global Gains recommendation. Coca-Cola is a Motley Fool Income Investor selection. The Fool owns shares of Altria Group, Coca-Cola, and Philip Morris International. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.