Citi on Friday, January 30, 2009 said that if the FDA begins to regulate the tobacco industry, it would make little difference to shareholders, though it would be unhelpful for sentiment. "Europe has most of the regulations that are proposed already in place, and profitability and volume trends are remarkably similar to those seen in the U.S.," it wrote. Rep. Henry Waxman of California is expected to introduce a bill ensuring that the tobacco industry is regulated by the FDA, a bill Citi expects to pass. Citi said that the bill could lead to a ban on menthol, an action it said could hurt Lorillard (LO.N), which makes more than 97 percent of its earnings before interest and taxes from its menthol-flavored Newports. For the company, "this is potentially a big issue and is certainly likely to create volatility. However, we don't believe that it is practical to ban menthol, which currently makes up about 29 percent of the U.S. cigarette market," it wrote.
Regulation of the tobacco industry is absolutely necessary but let's do it RIGHT this time. It's time to take another look with less input from the major company (Altria controls over half of the U.S. tobacco market) congress is trying to regulate. We learn that the existing bill is a result of face-to-face negotiating sessions and conference calls that were so sensitive that Philip Morris and the Campaign for Tobacco Free Kids refused to tell even their closest allies. As Senator Michael B. Enzi (R-WY) has pointed out, "Poison peddlers shouldn’t get to decide how we as responsible legislators fight the war against their deadly products."
Reference: Waxman Plans New Push for FDA Control of Tobacco by Emily P. Walker, Washington Correspondent, MedPage Today, 1/29/2009; 30Jan2009-Citi: FDA regulation of tobacco co's won't matter, Reuters Messaging: ryan.vlastelica.reuters.com@reuters.net, 1/30/2009.
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