Judge Blocks Tobacco Warning Laws - Analyst Blog
November 09 2011 - 10:29AM
Zacks
Tobacco companies heaved a sigh of relief as a federal judge
blocked the rule that mandated tobacco warning labels on the
cigarette packets. The images and texts or the health warnings,
which were designed by the Food and Drug Administration (FDA), were
considered to violate these companies’ right of free speech and
have been blocked by U.S. District Judge Richard Leon in
Washington.
Tobacco giants, Reynolds American Inc. (RAI),
Lorillard Inc. (LO), Ligget Group, Santa Fe
Natural Tobacco, and Commonwealth Brands, filed a case against the
FDA for imposing labels that concentrated to chop down the number
of smokers rather than helping consumers make a free choice.
The interpreter noted that the ruling of the FDA, which
compelled the tobacco giants of United States to print the latest
design set by the council on their cigarette packets containing
graphic design of a dead body, cancerous lungs and rotten teeth,
may “unconstitutionally compel speech.”
According to Judge Leon, the images were digitally enhanced to
provoke an emotional response rather than being "purely factual."
However, the ruling has not been entirely washed out; the judge
only postponed the Sept. 22, 2012, deadline for the regulations to
take effect until he finishes reviewing the rulings of the FDA.
The labels had been designed keeping in tune with the ‘Family
Smoking Prevention and Tobacco Control Act’ to convey the health
hazards of smoking. The council selected nine images out of 36
proposed last year. The warnings will occupy the entire top half,
both front and back, of a pack of cigarettes. They must also
constitute 20% of all advertisements.
The act provides the FDA with the authority to restrict the
tobacco industry’s efforts to tap children, ban the
introduction of flavored tobacco products, cut out misleading terms
such as “light and “low.” Additionally, the FDA looked set to
propagate larger and more effective warning labels and ask for
detailed information about all ingredients as well as
additives.
The FDA estimates to cut the smoking population by 213,000 in
2013, by using labels that would induce fear and disgust among
Americans and discourage them from lighting up.
In America, the smoking population has shrunk dramatically since
1970, from nearly 40% to about 20%. But the declining rate appeared
to stall since 2004, with about 46 million adults still into
smoking. Analysts feel that the rate hasn't budged owing to the
tobacco companies’ discount coupons on cigarettes and lack of
funding for anti-smoking programs.
In recent years, more than 40 countries or jurisdictions have
introduced labels similar to those created by the FDA. After a
survey in countries using graphic labels, The World Health
Organization revealed that the visibility of the label was much
higher and almost 25% had responded by opting to quit.
United States had been using some of the most weak cigarette
warnings in the world, unlike other big nations like Uruguay,
Brazil and Canada. After Canada issued the first-of-its-kind law in
2000 about affixing warnings in cigarette packs, smoking rate fell
to 20% from 26%.
Reynolds American holds Zacks #4 Rank, which translates into a
short-term Sell rating and Lorillard holds Zacks #3 Rank, which
translates into a short-term Neutral rating.
LORILLARD CO (LO): Free Stock Analysis Report
REYNOLDS AMER (RAI): Free Stock Analysis Report
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