Tobacco Regulation Update

Modi offers insights into RYO, menthol, other legislation in exclusive CSP webinar (Part 2)

OAK BROOK, Ill. -- Menthol, RYO and graphic warnings: these were the three regulatory issues UBS senior tobacco analyst Nik Modi predicted the tobacco industry would be talking about in 2012.

"There's no real sense of urgency," on the part of the U.S. Food & Drug Administration (FDA), Modi said during last week's Tobacco Update CSPNetwork CyberConference regarding the agency's lack of movement on menthol regulation.

Although a stance on menthol regulation has been expected for some time, the only clue to the government's thinking so far has come through their response to a World Trade Organization (WTO) complaint about clove cigarettes. The State Department justified the United States banning cloves but not menthol because the two are not "like products."

"What I found interesting about the response from the Obama administration was it basically confirmed their concerns of banning menthol," Modi said. Such concerns include the idea that clove and menthols attract different consumers--cloves drawing in beginners, menthols being popular amongst established smokers--and the possible emergence of a black market were menthols banned. Based off this response, Modi doesn't expect a menthol decision to come any time soon.

[To view an OnDemand replay of the Tobacco Update CSPNetwork CyberConference sponsored by Swedish Match and presented by Modi and Joe Teller, please click here. The program is free for retailers and wholesalers; others, $49.]

On the other hand, Modi expects to see lots of movement on roll-your-own (RYO) regulation. As of last Wednesday, when Modi presented, Arkansas, South Dakota, Virginia and Wyoming had all passed laws classifying RYO machine operating retailers as manufacturers and Tennessee had passed a bill requiring RYO machine operating retailers to pay an annual licensing fee and collect state excise tax on store rolled cigarettes.

Just one day later, Tobacco E-News and NATO learned that Iowa, Washington State and Oklahoma all had passed RYO regulation over a 24-hour period (see Related Content below for previous coverage, including a video on RYO).

Modi was quick to note it's not just states that are coming down on RYO, Congress is currently debating a bill that would classify RYO machine operating retailers as manufacturers, forcing them to pay a $1.01 federal cigarette tax per pack in addition to the applicable state taxes.

"It looks like this is coming to an end," Modi said of the success of the large RYO machines. "This is a trend that's likely to fade."

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The graphic warning label debate continues to rage on, with the FDA asking for a joint ruling on both the Warning Label Size and Compelled Speech appeals. While Modi is certain the issue will ultimately end up in the Supreme Court, he highlighted many interesting points from the ongoing battle.

"I think everyone knows tobacco is a harmful product at this point," Modi said. "The question from a legal perspective is 'how far is too far?'"

Modi referenced Judge Janice Rogers Brown, who went on the record asking "could the government mandate a cigarette warning that said 'Stop! If you buy this product, you are a moron'? Where does this stop?"

Should graphic warning labels be upheld by the Supreme Court, Modi doesn't see it having much impact. Countries that have employed similar warning labels have not seen significant change in cigarette sales.

One possible explanation? "There is a part of the brain (the Nucleus Accumbens) that, when a health warning is used, actually stimulates the brain's desire to smoke," Modi said.

With a decision not likely in the near future and data from other countries suggesting no real impact, Modi sees little cause for concern on graphic warning labels. "I don't think it's going to happen, but if it does, I'm not really worried."

See Related Content below to read Part 1.

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