RAI Reynolds American (delisted)

Five tobacco giants across the globe have together voiced against the forceful use of horrendous labels on the cigarette packets. Reynolds American Inc. (RAI), Lorillard Inc. (LO), Ligget Group, Santa Fe Natural Tobacco, and Commonwealth Brands all have filed a case against Food and Drug Administration (‘FDA’) for imposing labels that are more probable of cutting down smokers rather than helping consumers make a free choice.

The companies are of the opinion that the labels not only scare smokers but also incur huge printing expenses. The FDA also issued that the nine warning labels should be rotated so that all the companies have all the labels printed on their packs periodically.

This will require the companies to arrange for new equipments so that they can switch between nine labels as per need, and also arrange designers who would do it all keeping in mind federal requirements while maintaining some distinction among brands.

The FDA had passed a ruling in June 2011 with an aim to cut the smoking population by 213,000 in 2013. Further smaller additional reductions are expected through 2031.

The labels were designed keeping in tune with the ‘Family Smoking Prevention and Tobacco Control Act’ to convey the health hazards of smoking. The act gives FDA the authority to restrict the tobacco industry’s efforts to tap children, ban the introduction of flavored tobacco products, erase misleading terms such as “light" and “low,” propagate larger and more effective warning labels and ask for a detailed information about all ingredients as well as additives.

The labels depict disturbing images such as a corpse, diseased lungs, rotting teeth, a man suffering a stroke and another of a man exhaling smoke through a hole in his neck. The companies claim that images were manipulated to create few unrealistic ones. The photo of the corpse has been claimed to be that of an actor with a fake scar.

Tobacco giant Lorillard feels that while the labels mirror the government’s anti-smoking campaign, they have hurt the brand image of many cigarette companies of late.

Although a federal law upheld many parts of the FDA’s ruling, companies have appealed to at least delay the enforcement of the new law. Philip Morris International Inc. (PM) has also joined the fight recently.

However, Reynolds American and Lorillard holds Zacks #3 Rank, which translates into a short-term Hold rating, Philip Morris holds a Zacks #2 Rank, translating into a short-term Buy rating.

 
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