New law will have gradual effects; smokers will not pay much more; small manufacturers to be hurt most
Jump to full article: Winston-Salem (NC) Journal, 2009-06-23
Author: Richard Craver * Journal Reporter
Intro: Smokers and tobacco users will have to wait months, perhaps up to three years, to feel a substantial impact from federal oversight of the tobacco industry, analysts say. . . .
FDA regulation is likely to spur consolidation by driving up compliance costs for smaller discount manufacturers.
"It will force them to register with the FDA and test their products," said Adam Spielman, an analyst with Citigroup Global Markets Inc. "It probably will make it impossible to launch new brands and lines without a series of tests that will be expensive for them.
"It probably will require them to use tobacco that has been treated in complicated ways to reduce certain constituents."
All of which could add tens, if not hundreds, of thousands of dollars in expenses, Spielman said.
"Due to lesser-scale efficiencies, these manufacturers could either be forced to take meaningful price increases -- lower price gaps for premium brands -- or be forced out of business due to the costs of new labeling costs of compliance with FDA standards and more complex inventory management," said Nik Modi, an analyst with UBS.
Calvin Phelps, the chairman and chief executive of Renegade Holdings Inc. of Mocksville, said that it will take years of FDA regulation to determine how much of an impact it will have on the industry. . . .
Bill Godshall, the executive director of SmokeFree Pennsylvania, said that where Reynolds could be impacted is in its elaborate cigarette packaging compared with Marlboro.
"Whereas most Marlboro smokers know that a red Marlboro box means regular, gold means light and silver means ultra light, there is no similar color coding for Camel," Godshall said.
Some analysts said that there's no guarantee that the law will fulfill the far-reaching promises touted by anti-tobacco groups.
For example, UBS research found that in four of five countries that have regulatory warnings covering most of the cigarette pack -- Australia, Brazil, Canada and United Kingdom -- sales dropped only between 0.8 percent and 2.4 percent in the first three years. In India, sales increased by 0.5 percent.
"None of the goals envisaged will be achieved as similar provisions in other countries have failed," said Anthony Hemsley, a vice president of Commonwealth Brands
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