(FROM THE WALL STREET JOURNAL 5/27/15)
By Mike Esterl
It took Coca-Cola Co. years to decide to buy a stake in Monster
Beverage Corp. Now as it prepares to assume 16.7% of the edgy
energy-drink company early next month, it's easy to see why.
Last month, Monster settled two wrongful-death lawsuits, and
another suit involving the death of a 14-year-old could reach a
jury this summer. It faces at least five product-liability
lawsuits.
The Food and Drug Administration is investigating whether energy
drinks are riskier than other caffeinated products. A civil case
against Monster by the San Francisco city attorney is scheduled for
trial in February. The New York state attorney general has alleged
in an ongoing investigation that Monster paid college "ambassadors"
to encourage underage freshmen to mix Monster with alcohol and
supplied company-branded funnels for rapid consumption.
Monster says its drinks, which also contain the amino acid
taurine, and other ingredients, are safe. It says the lawsuits lack
merit; it doesn't expect any material impact. At least three
lawsuits accusing Monster of misleading marketing have been
dismissed since 2013.
Coke says it did due diligence on the Corona, Calif., company's
legal proceedings and that energy drinks have been consumed
world-wide for more than 20 years.
Still, the legal challenges highlight the business risks dogging
the $10 billion U.S. energy-drink market just as Coke prepares to
take part ownership of Monster. They also raise questions about how
energy drinks will fit with Coke's apple-pie image. Coke's $2.15
billion deal announced last August is expected to close in early
June.
Coke weighed buying Monster for several years, attracted to
Monster's rapid growth as soda sales slowed. When Coke opted last
year for the minority stake, it was "about protecting the [Coke]
brand and the image of the company," said a person close to
Coke.
An August trial is scheduled in the civil case of 14-year-old
Anais Fournier, who died of cardiac arrest in 2011 after drinking
two Monsters within 24 hours, according to the complaint. The
Maryland teen had gone with friends to the mall where she bought
Monster at a candy store before coming home Dec. 17 and collapsing
around 9 p.m. She never regained consciousness.
Monster said the lawsuit, filed by the family, "is completely
unfounded" and that Miss Fournier had serious health problems. The
teen's mother, Wendy Crossland, confirmed her daughter had been
diagnosed with Ehlers-Danlos syndrome, a connective tissue
disorder, and mitral valve prolapse but said she didn't have
physical restrictions and hadn't missed school.
Ms. Crossland believes her daughter would be alive if energy
drinks had better warnings. Her daughter was "obsessive" about
reading labels, she said.
Monster isn't the only energy drink drawing fire. Red Bull GmbH,
the global top-seller, agreed to pay more than $13 million last
year to settle allegations that it misled consumers by exaggerating
the lift gotten from the drink. It says its drinks are safe and
denies wrongdoing. Living Essentials LLC, the distributor of 5-Hour
Energy, has been sued by five state attorneys general over
marketing. It also defends the safety and marketing of its energy
shots.
Monster, whose black can features a neon-green claw-ripped "M,"
had a leading 38.9% share of the U.S. market by volume last year,
according to industry tracker Beverage Digest. Its revenue rose
9.7% to $2.46 billion in 2014.
The FDA is reviewing about 300 "adverse event" reports received
since 2004 allegedly linked to energy drinks, including 31 deaths
and heart problems or convulsions. Of those, 142 were filed between
October 2012 and April 2015, according to the FDA, responding to a
Freedom of Information Act request. Eighty-nine reports involved
5-Hour Energy; Monster was named in 40 reports; seven involved Red
Bull.
In 2013, the American Medical Association warned that high
levels of caffeine may cause heart problems and supported banning
energy-drink marketing to those younger than 18. The drinks
typically contain 10 milligrams of caffeine per ounce, roughly
three times more than cola but half that of an ounce of Starbucks.
Less is known about the combined impact of other ingredients found
in energy drinks, although there is no evidence they are dangerous
on their own.
Monster cans caution the product is "not recommended for
children, pregnant women or people sensitive to caffeine" and have
carried warning labels since launching in 2002. It says reaction to
caffeine is a function of weight, not age.
The company has toned down marketing in recent years. It still
touts "a smooth easy drinking flavor" on its website, for instance,
but no longer says consumers can "really pound down" the product.
It began listing the amount of caffeine on cans in 2013.
Monster says it doesn't promote mixing alcohol with energy
drinks. It says college ambassadors are required to contractually
agree to written guidelines, including making sure a system is in
place to adhere to minimum drinking-age laws.
The company also says it doesn't market to children, which it
defines as younger than 13. Yet, in a court filing last month in
San Francisco, that city's attorney alleges Monster has sponsored
sports competitions for children as young as four and that its
social-networking website had more than 2,400 members younger than
13 before the company restricted access in 2013.
For 2014, Monster reported $43.8 million in professional service
expenses, including accounting and legal costs, up from $38.7
million in 2013 and $19.7 million in 2012.
Monster has settled three civil lawsuits, two alleging wrongful
death. The other case, settled last August, involved Jason Hamric,
who suffered a non-fatal heart attack in 2011, when, as a
16-year-old, he collapsed at an Oklahoma church after drinking at
least one can of Monster, according to his family. Monster argued
there was no evidence linking its drink. Neither side would discuss
settlement details.
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