Use access key #2 to skip to page content.

The media gets it wrong, the government screws up, the sky is blue, and grass is green

Recs

33

June 23, 2009 – Comments (14) | RELATED TICKERS: MO

Most CAPS players are well aware of how terrible the mainstream media is.  Once again, the headline writers at many major publications have gotten the story wrong.  Today, President Obama signed new tobacco legislation into law that puts the industry under the control of the Food and Drug Administration.  Many newspapers are hailing this new legislation as a huge win against "Big Tobacco."

Obama signs landmark law to regulate tobacco

New Yorkers Applaud New Anti-Smoking Legislation

Historic tobacco legislation a long time in coming

Big win over big tobacco

Ahhhhh, right.  That's why the biggest player in the industry, Altria (MO) supports the legislation.  I don't think so.  In reality, the new law is actually a good thing for large tobacco companies like Big MO.  The law actually eliminates the threat of competition for Altria.  All existing companies that sell cigarettes in the United States will be allowed to continue to do so, but no new companies can enter the market. 

Furthermore, the bill limits the amount of money that cigarette companies can spend on advertising.  Once again, this is good for Altria, whose brands like Malboro already have a huge market share and brand recognition.  With its competitors unable to advertise, this provision will enable Altria to save money on advertising and circle the wagons to boost cash flow in the slowly eroding U.S. cigarette market.

The new legislation doesn't ban the sale of menthol cigarettes or smokeless tobacco.  Heck, the bill actually mandates that the FDA cannot remove force cigarette companies to remove nicotine from their products.  Sure, the new law bans cigarettes from containing candy additives, like strawberry, cinnamon or grape that might target children, but give me a break.  Does anyone really think that tobacco companies would get away with coming out with something like this in the U.S. today.

Banning smoking would go a long way towards the government's efforts to reduce healthcare costs.  Some estimate that over $100 billion is spent annually on smoking-related illnesses.  However, I am not a big fan of the government infringing upon my right to choose whether or not to do something as a responsible adult.  Besides, the government realizes that in a time when tax revenue from just about every source is dropping, they can't afford to kill the golden tax goose that is tobacco.  They need the money too much.  In fact, many states have even taken the money that they are receiving from the huge master settlement that they won from the industry years ago and are selling bonds based on that stream of revenue.

I don't smoke, I'm not a big fan of cigarette smoke, and I don't have a huge investment in U.S. tobacco so I really don't care, but this bill is yet another example of how the government usually messes things up when it gets involved in them.  

I don't have any moral issues with investing in companies like Altria.  Yes, cigarettes are addictive, but so are a lot of other things like alcohol.  No one is holding a gun to anyone's head and making them smoke.  I personally prefer Philip Morris International (PM), the company's spun-off international operations, to Altria as an investment, but I do have a small position in MO that I treat almost as a bond.  I realize that cigarettes in the U.S. is a slowly dying industry so I pocket the 7.8% dividend that my Altria stock pays me and invest it in other things rather than reinvesting it in the company.

Deej

14 Comments – Post Your Own

#1) On June 23, 2009 at 11:34 AM, TMFDeej (99.40) wrote:

As if the new tobacco bill in its current form wasn't toothless enough, I cam across an interesting NYT article this morning about how the marketing and advertising restrictions in the tobacco law that Congress passed last week are likely to be challenged in court as a violation of the first ammendment.

The courts will likely side with the Administration in any sort of case, but if the restrictions upon tobacco advertising were found to be unconstitutional it would make this law almost completely worthless from an anti-tobacco standpoint.

Tobacco Regulation Is Expected to Face a Free-Speech Challenge  

Deej

Report this comment
#2) On June 23, 2009 at 11:47 AM, foolishdoog (< 20) wrote:

with ever more increasing taxes on cigaretts and continually less people smoking, you would think that libs would do some math on tax revenue cost-benefit.

Report this comment
#3) On June 23, 2009 at 12:06 PM, JakilaTheHun (99.94) wrote:

I agree with you completely.  Great blog.  I'm glad someone is willing to take on the media's BS spin on this.

 

Banning smoking would go a long way towards the government's efforts to reduce healthcare costs.  Some estimate that over $100 billion is spent annually on smoking-related illnesses.  However, I am not a big fan of the government infringing upon my right to choose whether or not to do something as a responsible adult.

Not only that, but the bigger issue is that "banning" smoking merely moves it to the underground economy.  There's a reason why smoking is declining at a rapid rate, while drug usage continues to be a huge problem.  The "Drug War" has been a complete failure that (a) has not alleviated drug usage and (b) has cost the taxpayers a fortune.  Doing the same thing with cigarettes would be wholly unwise IMO.  Let the private sector coupled with select public smoking bans (e.g. in restaurants --- not everywhere) kill off smoking.  Report this comment
#4) On June 23, 2009 at 12:22 PM, Rebkong1 (< 20) wrote:

that's b/c obama smokes and does drugs...:)..im halfway joking and halfway not

Report this comment
#5) On June 23, 2009 at 12:24 PM, Rebkong1 (< 20) wrote:

that's b/c obama smokes and does drugs...:)..im halfway joking and halfway not

Report this comment
#6) On June 23, 2009 at 12:43 PM, leohaas (32.18) wrote:

"Banning smoking would go a long way towards the government's efforts to reduce healthcare costs."

100% true, but it would have the same effect as Prohibition on the sale of alcohol, and our so-called "War on Drugs" on the sale of drugs: drive it into the illegal circuit, financing organized crime. Regulating and taxing is preferable, although you make a good point arguing this regulation is toothless and bought by Big Tobacco.

"However, I am not a big fan of the government infringing upon my right to choose whether or not to do something as a responsible adult."

Another good point. Too bad we are a nation of irresponsible adults. Hence we need regulation (sorry, you vocal minority of ronpauligans...)

Report this comment
#7) On June 23, 2009 at 12:47 PM, tonylogan1 (27.87) wrote:

is it that no new companies can enter the market, or is it just much harder since it is now FDA regulated?

Report this comment
#8) On June 23, 2009 at 12:51 PM, Option1307 (29.70) wrote:

Excellet post Deej!

Report this comment
#9) On June 23, 2009 at 1:32 PM, synergize (30.03) wrote:

everybody screws up...that is why we are who we are right now.

Report this comment
#10) On June 23, 2009 at 1:43 PM, ChannelDunlap (< 20) wrote:

As a smoker I'm just worried their going to add more chemicals to make it safer which are in turn going to make it worse.  Like these cigarettes that [are supposed to] go out on their own.  They're coating the paper with some Alluminum-based compound.  MMMMMM-mmm.  God I can't wait to get in on a class action suit for that one.

And no, the irony of a smoker worried about harmful chemicals is not lost on me.  Is it so wrong to not want more added to whats already there?

And financially speaking, yeah, I doubt this will have much effect on any Tobacco company's business.  Unless they start puting like, black lungs and shriveled fetuses on the packaging.  That could turn some people off.  Or at least get them to invest in a cigarette case.  

Report this comment
#11) On June 23, 2009 at 2:12 PM, rofgile (99.30) wrote:

I agree that this Tobacco Bill sucks.  I also don't see it as a major victory that it is proclaimed to be.  But it is not all negative:

The bill reduces advertising further - good for decreasing cigarette sales, but they should stop the practice of cigarette girls giving away free cigarettes at bars and all other alternative advertising.

It puts cigarettes under the FDA - this is the first step in many to regulation of the cigarette industry. 

FDA can regulate nicotine content - this *could* lead to steadily decreasing amounts of nicotine.  

The FDA can now request all the ingredients of cigarettes and promptly display them on packaging.  That is a plus.

 

Still: 

Cigarette packaging should be forced to be either generic or be like Canada with graphic photos of health effects taking up all the packaging.

FDA should be able to increase taxes on cigarettes or have some other penalty ability.  The FDA should be able to force cigarette packages to include quitting information or have coupons for free quitting smoking services.

These are not amazingly hard ideas to think of - but hard to enact in the US.

 -Rof

 (I still think investing in MO is evil, as you create a demand on the stock that keeps its prices up.  If it was more unpopular of a stock, the price would fall and hurt the companies value, hurt compensations of executives, etc).  It'd be nice if they could prevent cigarrette companies from having dividends.  

Report this comment
#12) On June 23, 2009 at 8:35 PM, TheClub55 (< 20) wrote:

Regardless of what you think of smoking, I would not mind working for the company... I have a friend that works for them and enjoys a great salary, full pension,  an annual profit share into his 401k (its never been less than 15%) and reasonalbe health care costs.

Now this sounds like the employment package of your average spoiled goverment worker, so I guess its only fitting they are basically an extension of the gov w/ the passage of this bill.

 

 

Report this comment
#13) On June 23, 2009 at 11:38 PM, ralphmachio (24.66) wrote:

The willingness of the average 90% of americans, to go along with a system that is to their collective disadvantage if they can individually benefit financially is the root of the problem, as you so well demonstrate club55, as with your friend who sold his soul to who again?

Report this comment
#14) On June 29, 2009 at 8:46 PM, AdirondackFund (< 20) wrote:

http://www.youtube.com/watch?v=gqsT4xnKZPg

Report this comment

Featured Broker Partners


Advertisement