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Tobacco Companies Face Another Potential Blow

The FDA's Tobacco Products Scientific Advisory Committee has been meeting this week with a focus on determining whether "dissolvable tobacco products" should be regulated or restricted by the FDA. Previous hearings conducted by this group have focused on whether tobacco products containing menthol should be banned or restricted.

This article highlights the positions of the proponents and the tobacco companies concerning dissolvable products www.npr.org/blogs/health/2012/01/20/1454...

The take home message is that the "assault" continues, thus bringing into question tobacco's ability to deliver revenue, earnings, and dividend growth, and consequently keeping pressure on stock prices. Negative action by the FDA will undoubtedly affect stock prices, and as with past negative developments in the tobacco industry, this may well present investors with a "buying opportunity."

The number of smokers is declining, thus it is only natural that tobacco companies would look to develop alternative "delivery devices." In addition, tobacco has become a "cash cow" for governmental taxing entities. Thus, an outright ban of tobacco products seems unlikely. But the power to tax is the power to destroy, and the power to regulate can also turn a profitable industry into a pile of ashes.

Will the FDA resist the temptation to saddle tobacco with harsh, destructive regulations? It is likely that there will be "some" regulation coming out of all of this. It is difficult to imagine in this era of government intrusion into all aspects of our lives that the FDA will follow the sage advice to "Don't just do something... stand there!" The issue thus becomes whether the impact of their action will make investments in tobacco companies unattractive.

Stay tuned for developments, as they will surely follow as night the day.