The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from PR Newswire

Study: Large Black Market Would Quickly Emerge if Menthol Cigarettes Banned

Monday, January 10, 2011

Study: Large Black Market Would Quickly Emerge if Menthol Cigarettes Banned15:32 EST Monday, January 10, 2011Final Report on Contraband Presented to FDA Panel TodayGREENSBORO, N.C., Jan. 10, 2010 /PRNewswire/ -- Under any reasonable assumptions, banning menthol cigarettes would create a substantial black market in the United States, substantially mitigating any decline in cigarette smoking and inspiring a "significant increase in organized crime activity," and potentially increasing youth access to cigarettes, according to an independent economic analysis submitted today to a Food and Drug Administration (FDA) advisory committee. "Following a ban, a sizable black market would likely quickly emerge to satisfy the demand for menthol cigarettes," the report by Compass Lexecon, a Chicago-based economic consulting firm, concluded.  Findings from the study, commissioned by Lorillard, Inc. (NYSE: LO), were presented today to the FDA's Tobacco Products Scientific Advisory Committee.   The authors presented preliminary findings to the Committee in November.In the event of a ban, the quandary for U.S. policymakers "will be whether to heighten enforcement, which likely would lead to higher street prices that could reduce menthol consumption, but also would make organized crime more lucrative," said Ronald S. Milstein, senior vice president, external affairs, for Lorillard.  The study was presented by Dennis A. Carlton, a senior managing director of Compass Lexecon and a former deputy assistant attorney general in the Antitrust Division of the U.S. Department of Justice. "Final findings of this study reinforce our belief that a ban on menthol cigarettes cannot be justified," Milstein said. The FDA advisory committee has been mandated by Congress to examine the potential for a contraband market as part of its report and recommendation to the FDA on the use of menthol in cigarettes.The study's main finding:Current menthol smokers largely would turn to the black market for menthol cigarettes and for non-menthol cigarettes. Black market cigarettes currently exist and likely would expand quickly in response to surges in demand for these cigarettes.  Thus, a ban likely will not eliminate most of the cigarette consumption by menthol smokers in the U.S.The ban may have the unintended consequences of increasing criminal activity and allowing greater youth access to unregulated cigarettes.The study found that a 10 percent increase in the effective price of illegal menthol cigarettes would lead to an initial decline in overall smoking of only about one percent and black market sales would be about 87 percent of current menthol sales.  Prices 25 percent higher would lead to menthol sales of about 72 percent of the current size of the current sales, and total smoking would initially fall by about two percent. The "effective price" cited in the study includes not only the money paid but the effort required and the reluctance consumers must overcome to purchase on the black market."These estimates imply that black market sales and lost governmental tax revenues would be measured in the billions of dollars," Milstein said.The final study will be made available at www.understandingmenthol.com,  a website sponsored by Lorillard.  About Lorillard, Inc.Lorillard, Inc. (NYSE: LO) is the third largest manufacturer of cigarettes in the United States. Founded in 1760, Lorillard is the oldest continuously operating tobacco company in the U.S. Newport, Lorillard's flagship menthol-flavored premium cigarette brand, is the top selling menthol and second largest selling cigarette in the U.S. In addition to Newport, the Lorillard product line has four additional brand families marketed under the Kent, True, Maverick, and Old Gold brand names. These five brands include 43 different product offerings which vary in price, taste, flavor, length and packaging. Lorillard maintains its headquarters and manufactures all of its products in Greensboro, North Carolina. Forward-Looking StatementsCertain statements made in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, or the Reform Act. Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words "expect," "intend," "plan," "anticipate," "estimate," "believe," "may," "will be," "will continue," "will likely result" and similar expressions. In addition, any statement that may be provided by management concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects and possible actions by Lorillard, Inc. are also forward-looking statements as defined by the Reform Act. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to a variety of risks and uncertainties, many of which are beyond our control, that could cause actual results to differ materially from those anticipated or projected. Information describing factors that could cause actual results to differ materially from those in forward-looking statements is available in Lorillard, Inc.'s filings with the Securities and Exchange Commission (the "SEC"), including but not limited to, our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. These filings are available from the SEC over the Internet or in hard copy, and are available on our website at www.lorillard.com. Forward-looking statements speak only as of the time they are made, and we expressly disclaim any obligation or undertaking to update these statements to reflect any change in expectations or beliefs or any change in events, conditions or circumstances on which any forward-looking statement is based. CONTACT:  Gregg Perry, +1-401-331-4600, gperry@perrypublicrelations.comSOURCE Lorillard, Inc.For further information: Gregg Perry, +1-401-331-4600, gperry@perrypublicrelations.com, for Lorillard, Inc.