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