Herzog: Menthol Ban 'Extremely Unlikely'

Published in Tobacco E-News

Wells Fargo analyst outlines more realistic scenarios, effect on industry

By  Melissa Vonder Haar, Tobacco Editor

NEW YORK -- At last month's NATO Show, Mitch Zeller, newly appointed director of the Center for Tobacco Products at the U.S. Food and Drug Administration (FDA), cited menthol as one of the "very critical, urgent issues" of the agency and indicated that the FDA was very close to announcing its plans for the segment (read full story  here). Not surprisingly, these sentiments--along with Zeller's vow that the FDA will move more quickly under his regime--has caused those in the industry to speculate about what, if any, menthol regulations will be proposed.

"Given Mitch Zeller has recently been more vocal on reiterating the outstanding menthol decision is an FDA priority, we believe we may hear some feedback relatively soon," wrote Wells Fargo senior analyst Bonnie Herzog in a report titled "Menthol News Could be the Next Catalyst."

"We continue to believe an outright ban on menthol is extremely unlikely," Herzog continued.

Given the fact, however, that the FDA's Tobacco Products Scientific Advisory Committee (TPSAC) issued a 2011 draft report to the agency that recommended removing menthol cigarettes from the marketplace, it's entirely possible that Zeller and the FDA could issue some form of regulations on menthol products.

"We do believe a more realistic, worst-case scenario is if the FDA recommends that menthol levels in all cigarettes be reduced over a number of years," said Herzog.

Such a move could have some impact on Greensboro, N.C.-based Lorillard Inc., whose product portfolio includes the popular Newport menthol brand.

But Herzog said that she believes the effect would be more on the investment side, rather than sales. "Were that recommendation to be made, [Lorillard's] stock could have a 'knee-jerk' negative reaction, which we believe would be an overreaction and a buying opportunity for investors, all else being equal," she said.