Will Michael Bloomberg’s Policies Topple the Domestic Tobacco Industry? – Reynolds American, Inc. (RAI), Lorillard Inc. (LO), Altria Group Inc (MO)

Page 1 of 2

If you’re a smoker, you know it’s been a rough ride over the past two decades. Advocacy groups have been increasing awareness regarding the dangers of smoking since the early 1990s, and even more recently, both the Centers for Disease Control and Prevention and the Food and Drug Administration have been tag-teaming the tobacco industry to bring light to these dangers.

Last March, the CDC announced a $54 million, three-month graphic advertising campaign targeting TV, radio, print, billboard, and online viewers in the hope of getting 50,000 smokers to quit. Just weeks later, the FDA hit the tobacco industry with a request to be supplied with the quantities of 20 chemicals in cigarettes known to cause cancer, lung disease, and other health problems, including formaldehyde, carbon monoxide, and ammonia. The FDA plans to release its findings to the public next month in the hope that increased awareness will reduce the amount of active smokers.

Reynolds American, Inc. (NYSE:RAI)Big Tobacco’s big worry
Yet for all of these concerns, none may be more pressing for Big Tobacco companies such as Altria Group Inc (NYSE:MO), Lorillard Inc. (NYSE:LO), and Reynolds American, Inc. (NYSE:RAI) than what mayor Michael Bloomberg is doing in New York City.

In 2011, Mayor Bloomberg passed a ban outlawing smoking on New York City’s beaches, public plazas, boardwalks, and parks. Since then, Bloomberg has taken numerous other supposed “vices” to the woodshed, including sugary drinks, which he banned in any amount greater than 16 ounces within the city, and Styrofoam trays, which were the latest item to fall under his legislative guillotine. Many of you are probably of the opinion that the actions of one little old mayor probably don’t make a lot of difference … until you see Bloomberg’s track record according to Forbes.

In December 2006, a Bloomberg initiative went into effect that required restaurants to include calorie values on menus and menu boards. This was done to combat rising obesity within New York City, and not surprisingly, visible calorie values have become a norm throughout much of the country. Also in December 2006, a Bloomberg initiative to ban trans-fats within the city was passed by the Board of Health and gave restaurants 18 months to completely remove them from their foods. Lo and behold, not only did McDonald’s Corporation (NYSE:MCD) stop using cooking oil that was trans-fat free in New York City by the deadline, but it had also stopped using trans-fat oils throughout North America.

To sum up: When Bloomberg takes action, the result is often much bigger than what occurs within the city of New York.

The question then becomes whether this is a major problem for domestic tobacco companies. I’m going to go out on a limb based on Bloomberg’s previous track record and venture my best guess by saying “yes,” that this has a chance to become a progressively tougher ban that could threaten to sweep to other cities.

Page 1 of 2