Tobacco industry has been facing several challenges of late in the form of higher excise tax imposed by governments around the world, declining volume and worldwide anti tobacco campaigns to curb smoking. Last week, it received another blow as the European Parliament as imposed stronger rules on manufacture, sale and marketing of the tobacco products. The newEuropean Union (EU) Tobacco Products Directive is a revised version of the original Tobacco Products Directive issued in 2001.
The new rule has banned the sale of flavored cigarettes and roll-your-own-tobacco in EU region. However, Other Tobacco Products, such as cigars, cigarillos and smokeless products are exempted from the ban.
Moreover, the directive requires the tobacco companies to include both pictorial and text warnings on the cigarette packs to dissuade smokers. The law also requires the warning to cover more than 65% of both the front and back covers.
Member states have also been allowed authority to ban online sales of tobacco products in their respective regions.
Moreover, the new rule states that e-cigarettes, with nicotine strength of more than 20 milligrams per milliliter, would need authorization as a medicine. Moreover, curative or preventive qualities of these products need to be proved. E-cigarettes below this level will face the same regulations as conventional tobacco products if their usage as a medicinal product cannot be proved.
These rules will pose a problem for the tobacco biggies like Philip Morris International Inc. (PM - Analyst Report), Reynolds American Inc. (RAI - Analyst Report), Lorillard Inc. (LO - Analyst Report) and Altria Group Inc.’s (MO - Analyst Report) will be adversely affected by this decision. They are facing challenges from the strict anti-smoking campaigns launched by governments around the world. Tobacco companies are increasingly relying on packaging to build brand loyalty and grab consumer attention, especially after the government curbed advertising in magazines, billboards and on TV.
Philip Morris, which carries a Zacks Rank #4 (Sell), opines that the new rule will disrupt the tobacco market and encourage illicit trade.