Menthol Cigarettes Could Lose FDA Exemption, Lorillard May Be Hit Hard

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The U.S. Food and Drug Administration (FDA) today published an agency review on the health effects of menthol and nonmenthol cigarettes. Menthol currently enjoys exemption from an FDA rule prohibiting flavored cigarettes.

Menthol cigarettes account for about a third of all cigarettes purchased in the U.S., and the company that leads the menthol market is Lorillard Inc. (NYSE: LO), maker of Newport cigarettes. But virtually all makers have a menthol-flavored cigarette available: Altria Group Inc. (NYSE: MO) sells Marlboro and other menthol brands and Reynolds American Inc. (NYSE: RAI) sells Kools menthols.

The FDA’s study seems to both support a ban on menthol cigarettes, not because they are more harmful than unflavored cigarettes, but because they increase smoking in young people, among other things:

Further, the data indicate that menthol in cigarettes is likely associated with greater addiction. Menthol smokers show greater signs of nicotine dependence and are less likely to successfully quit smoking. These findings, combined with the evidence indicating that menthol’s cooling and anesthetic properties can reduce the harshness of cigarette smoke and the evidence indicating that menthol cigarettes are marketed as a smoother alternative to nonmenthol cigarettes, make it likely that menthol cigarettes pose a public health risk above that seen with nonmenthol cigarettes.

Lorillard’s shares closed down 4.5% today at $44.08 in a 52-week range of $36.70 to $46.81.