Wednesday, July 16, 2014

Acquisition of Lorillard Demonstrates that Reynolds American Agrees that Democratic Senators are Full of Hot Air

For several months, a group of Democratic senators - led by Dick Durbin (D-IL), Richard Blumenthal (D-CT), and John Rockefeller (D-WV) - have been blasting the e-cigarette industry for using flavors in their products. This group of senators has called for a ban on flavorings in e-cigarettes, supposedly because of their sincere interest in curtailing "marketing tactics aimed at luring children and teenagers into ... nicotine addiction."

The Rest of the Story has called their bluff, pointing out that what these senators really mean is that they want to stop tactics (flavored e-cigarettes) aimed at luring children into fake cigarette addiction, but not tactics (flavored cigarettes) that are aimed at luring children into actual cigarette addiction. These same senators either supported the menthol exemption to the flavored cigarette ban and/or have failed to introduce or sponsor legislation that would ban menthol flavoring from cigarettes.

In other words, these politicians are full of hot air. They are pretending to be truly concerned about the health of children, but in reality, they are simply trying to score an easy political victory. They want to have the appearance of protecting children from nicotine addiction, while not actually having the courage to stand up against Big Tobacco and pull the plug on menthol. The truth is that they are spineless and disingenuous. Children's health is not their true aim; political victory is.

The Rest of the Story

The acquisition of Lorillard by Reynolds American demonstrates that Reynolds shares my view of these politicians as being merely full of hot air. Specifically, the acquisition shows that Reynolds is confident that these politicians will not push the FDA to ban menthol, nor will they introduce Congressional legislation that would ban menthol cigarettes. The chief asset that Reynolds is acquiring, after all, is Newport. If Reynolds truly believed that there was any risk that Senator Durbin would back up his words with action, then it would never had made this deal. If Reynolds had any real fear that the FDA were going to ban menthol, the acquisition would not have occurred.

One thing we can learn from this deal, then, is that the future of menthol cigarettes is bright and rosy. Even after ditching Blu, the acquisition of Camel and Newport was viewed to be worth billions. Clearly, Reynolds is counting on a continuing profitable market for menthol cigarettes.

I agree with Reynolds' reasoning. The Congress has made its intent clear: menthol cigarettes were exempt from the flavoring ban because there is no real intent among the Congressmembers to actually put a dent in cigarette sales. The Family Smoking Prevention and Tobacco Control Act was window dressing, disguised as a strong anti-smoking measure, but actually doing almost nothing to tackle youth smoking. And the FDA, in five years of jurisdiction over cigarettes, has done next to nothing to reduce youth smoking or to set standards that would make cigarettes safer.

It is safe to say that neither Congress nor the FDA has the guts to actually take on Big Tobacco and ban menthol. At the end of the day, the federal regulation of cigarettes is all about making it look to the public like the federal government has the problem under control. In reality, our government is spending more time trying to keep electronic cigarettes off the market then it is trying to reduce cigarette smoking or to make it safer.

At the end of the day, we can thank politicians like Senator Durbin for providing such a high valuation for Newport that the acquisition became profitable. If these senators actually meant what they are telling the public, then no one would want to touch Newport with a ten foot pole.

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