Menthol Ban Could Significantly Affect Lorillard

Published on August 6th, 2013 00:00

It has eventually occurred. The FDA has lastly begun to severely increase the issue of a complete ban on menthol smoking products. Even so, before it becomes effective, the current administration has made a decision to conduct additional research and gather public comment on the issue.

The latest FDA analysis on menthol tobacco products came out to demonstrate that there are no substantial hazards to smokers from lighting up menthol cigarettes in comparison to regular tobacco products. On the other hand, the FDA mentioned that because of the minty flavor and softer taste of the menthol smokes, smokers are much more likely to begin smoking and thus less likely to quit than with regular tobacco products. This is a serious problem for cigarette company Lorillard, which relies upon menthol cigarette sales for about 90% of its profit. Only Lorillard's Newport menthol brand makes up about 35% of the market, besides its new Kent Convertibles.

Despite the fact that these studies are negative, particularly to Lorillard, there is still a considerable amount of doubt ahead. The FDA is not suggesting any modifications to the law till additional research is finished, mainly public comment, which can be put forward within 60 days. Still, several months ago in a separate research, the FDA discovered that menthol smokers are at a lower risk of suffering from diverse diseases in comparison to non-menthol smokers- one more contradictory and puzzling opinion. Any limitations will considerably influence Lorillard. As the company receives 90% of its profit from the sales of menthol and makes up 35% market.

Reynolds American also keeps 3% of the US menthol market due to its Camel menthol and Pall Mall brands. About 30% of Reynolds' sales involve menthol products, so it can be assumed that Reynolds will lose about $1 billion and $2 billion in sales annually. Moreover, Reynolds' menthol products are its best-growing range. In contrast, Altria, which is currently in a better situation want suffer greatly from a menthol ban.  Even if Altria does produce menthol cigarettes and any ban would cause a quick drop in earnings, the company might probably observe a tendency toward its menthol snuff products. So, over the long run, Altria could face a boost in earnings because of the ban. Furthermore, Atria is better placed than Lorillard or Reynolds to overcome any cigarette bans throughout the country as Altria is also engaged into beer, wine and smokeless-tobacco products.