Regulator’s Remarks Hit Tobacco Stocks
Tobacco stocks fell Monday after a flurry of reports last week condemning cigarette makers was capped by a federal regulator’s suggestion that tobacco be regulated as an addictive drug.
Shares of Philip Morris Cos., the nation’s largest cigarette company, fell $2 to close at $56 in heavy trading on the New York Stock Exchange. The company’s brands include Marlboro, the world’s best-selling cigarette, Benson & Hedges 100s, Merit and Virginia Slims.
The stock of RJR Nabisco Holdings Corp., the No. 2 U.S. cigarette maker, dropped 37.5 cents to close at $6.875. It was the most actively traded NYSE stock, with nearly 4.5 million shares changing hands.
Friday, Food and Drug Administration chief David Kessler raised the possibility that drug regulations might be applied to cigarettes because of their nicotine content, a move that could force them off the market and possibly behind drugstore counters.
Urging on the FDA, an anti-smoking group Monday asked the agency to regulate cigarettes as a drug or medical device.
The group, Action on Smoking and Health, said the tobacco industry deliberately adds nicotine to tobacco used in cigarettes, which shows that the firms intend the nicotine to either cause an addiction or satisfy an existing one.
The tobacco giants Monday jumped to their own defense.
Philip Morris and RJR separately said they do not increase nicotine in their tobacco blends above what naturally occurs. They said their manufacturing processes result in lower nicotine levels in cigarettes than those found in unprocessed tobacco.
“The claims that RJR increases the nicotine in its products is false,” the company said.
Among other reports hitting the industry last week, U.S. Surgeon General Joycelyn Elders accused cigarette makers of targeting young people with marketing tactics such as RJR’s Joe Camel mascot.
Also, McDonald’s Corp. banned smoking from the more than 1,400 restaurants it directly owns.
Industry analysts said they doubt cigarettes will ever be regulated to the same degree as drugs and said the FDA’s statement poses more of an opportunity for investors to buy tobacco stocks. But some warned that the industry’s reputation could be further damaged.
Emmanuel Goldman, an analyst at Paine Webber, said the FDA should have trouble proving tobacco addiction.
“It is Congress’ domain of whether cigarettes are viewed as an addictive drug,” said Barry Ziegler of A.G. Edwards. “And I do not think Congress will go along with that.”
