After a long fight in Congress, legislation is about to pass that would put the FDA into the position of regulating the tobacco industry. The industry has largely been free to operate as it has seen fit, with the major obstacle to profits being periodic lawsuits over health, disability and death resulting from the long-term use of cigarettes.
According to The New York Times, "The Family Smoking Prevention and Tobacco Control Act, as it is called, would empower the F.D.A. to set standards for cigarettes, regulating chemicals in cigarette smoke and outlawing most tobacco flavorings."
The new arrangement also means that advertising and marketing of tobacco products will be strictly regulated, which many industry analysts believe will favor market share leader Altria (MO), the maker of the Marlboro brand. Expert theory is that if marketing is curtailed, the firm with the majority of the sales in the industry will find it easier to hold its lead. However, the analysis is fairly abstract and thus hard to prove.
Reynolds America and Lorillard, which fall far behind Altria in sales, fought the legislation on the premise that it will curtail their ability to market new products and potentially pick up new business. In reality, it will probably save all of the tobacco companies a lot of advertising expenditures.
Douglas A. McIntyre is an editor at 24/7 Wall St.