Monday, November 15, 2010

Health Agencies Boast of Dramatic Impact of New Cigarette Warning Labels

The FDA last week announced a series of new, graphic warning labels that will soon appear on cigarette packs and advertisements. These warning labels are mandated by the Family Smoking Prevention and Tobacco Control Act enacted by Congress in 2009.

In announcing the new warning labels, both the FDA and its parent agency - the Department of Health and Human Services - widely proclaimed that this intervention would have a dramatic effect on both youth and adult smoking.

The head of the Department of Health and Human Services proclaimed: "Today marks an important milestone in protecting our children and the health of the American public."

A press release from the Department of Health and Human Services stated that "these health warnings on cigarettes and in cigarette advertisements will be the most significant change in more than 25 years."

The head of the FDA boasted that: "When the rule takes effect, the health consequences of smoking will be obvious every time someone picks up a pack of cigarettes."

The Rest of the Story

In my view, while these warning labels may have a marginal effect in terms of stimulating some smokers to quit, the overall impact will be minimal. Smokers are already aware of the harmful consequences of smoking and lack of knowledge of the health effects is not a significant factor in explaining why millions of Americans continue to smoke or why youths begin smoking. Research shows that warning labels have a limited impact on smoking behavior.

By the time smokers see the warning labels, they have already made the decision to smoke and are already highly addicted to cigarettes, for the most part. Reinforcing the adverse health consequences does very little to enhance the smoker's ability to overcome this addiction.

Financial analysts appear to agree with my assessment, rather than with that of the federal government. According to an article at, a number of stock analysts all agree that the warning labels are going to have a marginal effect, at best, on cigarette sales:

"Morningstar (MORN) analyst Philip Gorham doesn’t expect the rules to speed up the 3%-a-year decline in tobacco sales. "Obviously this isn't a good development for the tobacco industry," he said. "But if you take the U.K. as an example -- where such warning signs have been on packs for a while, even including pictures of diseased lungs -- then it doesn't affect demand all that much."

"Schaeffer's Research analyst Ryan Detrick said smoking addiction can't be broken with the addition new warning labels. "I don't see how this will change smokers' perceptions." Middleswart doesn’t expect the rules to hurt sales at companies such as Altria, Lorillard (LO) and Reynolds American (RAI), which have been carrying less-graphic warning labels for years. Philip Morris International (PM), which sells cigarettes outside the U.S., is also likely to be unscathed."

"Gorham said the labels aren't the best strategy for curbing smoking. "The single most effective way to reduce smoking is still through raising prices," he said."

Congress, of course, eschewed the strategy that Gorham called most effective - raising the cost of cigarettes and allocating the revenues to aggressive anti-smoking media campaigns - and instead chose to work around the margins. This was a well-chosen political strategy, as it protects cigarette sales, ensuring that cigarette tax revenues and tobacco company settlement payments to states will remain high, while making it appear that politicians actually care about reducing youth and adult smoking.

Philip Morris has been quite silent regarding the warning labels. Obviously, the company is not too concerned about the impact of these new labels on cigarette sales. In fact, these warning labels provide an immense benefit to the tobacco companies: virtual immunity from new lawsuits. With these graphic warning labels on the packs, no jury will find it necessary to impose punitive damages on the cigarette companies. This essentially ends the litigation threat and is a major reason why Philip Morris was willing to allow the warning label provision in the FDA tobacco legislation.

The real threat to the tobacco industry would have come from eliminating the warning labels on the packs, and thus opening up the companies to devastating lawsuits. Congress chose the weaker approach of requiring mildly stronger warning labels but completely immunizing the tobacco companies from any prospect of serious financial damage in future litigation.

While the FDA and HHS had nothing to do with the decision to enact this weak national tobacco control strategy, it is unfortunate that they join the politicians in spewing out this exaggerated rhetoric about how these marginal policies represent a huge milestone in protecting our children and the health of the American public. What they help to protect are the profits of Philip Morris and other major cigarette companies.

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