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New FDA Warnings Troubling Tobacco Makers?

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Tobacco biggies have always been penalized for any form of advertising or packaging that flout laws to increase sales. Per media reports, the Food and Drug Administration (FDA) recently warned three tobacco companies including Reynolds American Inc. , owner of Natural American Spirit; Imperial Tobacco PLC, owner of Winston; and Sherman’s 1400 Broadway N.Y.C. Ltd., which owns Nat Sherman cigarettes for using the terms ‘additive free’ and ‘natural’ on cigarette packages.

Per the FDA, tobacco companies have to prove that they are additive free or natural, which means that they pose lower risk to become a “modified risk tobacco product” seller to be able to use the terms “additive-free” or “natural” on packages or advertising.

The regulatory body has allowed a grace period of 15 days to the tobacco majors to submit their plans regarding the labels, failing which they may face monetary penalties, criminal prosecution or seizure.

Reynolds commented that it was reviewing the FDA letter, while ITG Brands LLC, stated that it will discuss with the regulatory watchdog before responding.

The Winston brand was passed on to ITG when in an attempt to ease antitrust issues regarding its merger with Lorillard Inc, Reynolds divested several of its key brands like blu eCigs, Winston, Kool, Maverick and Salem to ITG Brands, LLC, a subsidiary of the U.K.-based tobacco maker, Imperial Tobacco, for $7.1 million in cash.

The warning issued by the FDA closely follows a letter submitted by several health groups and anti-tobacco activists regarding the tobacco majors using phrases like “additive-free natural tobacco” and “organic tobacco” on the labels of several cigarette brands. More than two dozen groups signed the letter urging the FDA to take actions against these companies.

Governments around the world are imposing restrictions on tobacco makers which, in turn, are lowering cigarette consumption and affecting margins. The FDA has made it mandatory for tobacco companies to use precautionary labels on cigarette packets to dissuade smokers. Moreover, the FDA banned menthol-flavored cigarettes as it has been noted that these cigarettes are more lucrative to starters and hence, will trigger a rise in smoking population in the nation.

Additionally, the governments of the U.K. and Australia have imposed regulations for plain packaging for cigarettes. These rules will pose a significant problem for tobacco makers, like Philip Morris International Inc. (PM - Free Report) , Reynolds, Lorillard Inc. and Altria Group Inc. (MO - Free Report) , that are already reeling from the effect of anti-smoking campaigns worldwide.

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