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Britain Likely to Ban Branding on Cigarette Packs

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The government of Great Britain is considering a plan to make tobacco companies sell cigarettes in plain packaging, according to Reuters. This comes in the wake of rising concerns over public health and as a step to stop children from smoking. The government believes that smoking rates would fall after the restrictions on packaging and ban on branding are imposed.

The rule, which is still in the drafting stages, will require a final and short consultation. However, per Reuters, the government expects to make it a law before the elections in May 2015. While England and Wales will be consulted on the matter, Northern Ireland has indicated that it will follow suit. Scotland already has plans to introduce plain packaging.

In 2012, the Australian government passed a law forcing cigarettes to be sold in plain olive green packaging with warnings and photos of a gangrenous limb and a cancer victim. However, the law is being challenged at the World Trade Organization and legal proceedings are underway.

New Zealand and Ireland also raised their voice against smoking and introduced plain packaging. However, their governments have not implemented it as law yet. Five other countries have lodged a complaint with the World Trade Organization to try and overturn the law implemented in Australia.

According to the World Health Organisation, tobacco causes 6 million deaths in a year and the number could rise beyond 8 million by 2030, if cigarette smoking is not controlled. Apart from cancer and other chronic respiratory conditions, smoking also leads to cardiovascular diseases. This is the reason why Great Britain plans to introduce plain packaging and ban branding on cigarette packets to make them less appealing to smokers.

However, as per Reuters, the move has been vehemently opposed by tobacco sellers like Philip Morris International Inc. (PM - Free Report) , Reynolds American Inc. , Altria Group, Inc (MO - Free Report) , Lorillard Company and London-based British American Tobacco Plc. and Imperial Tobacco Group. Tobacco companies are increasingly relying on packaging to build brand loyalty and grab consumer attention. It the last resort for tobacco advertising after the government curbed advertising in magazines and on billboards and TV.

The tobacco companies also argue that plain packaging cannot guarantee reduction in smoking rates. Instead it will limit trade, as cigarettes will lose their individual trademark. The standardized packages are also less likely to command high prices. Tobacco firms further argued that plain packaging would encourage counterfeiting and smuggling.

The London-based tobacco firms stated that Britain already has strict regulations related to cigarette packaging. Britain has already banned smoking in public places and also prohibits smoking in cars with children around.

The 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. In Mar 2014, it received another blow as the European Parliament imposed stronger rules for the manufacture, sale and marketing of tobacco products. It has banned the sale of flavored cigarettes and roll-your-own-tobacco in the EU region. However, other tobacco products, such as cigars, cigarillos and smokeless products are exempted from the ban. Moreover, the law 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.

While Lorillard and Reynolds American currently carry a Zacks Rank #3 (Hold), Altria and Philip Morris hold a Zacks Rank #4 (Sell).

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