Will Menthol Cigarettes Become Uncool In The U.S.?

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Menthol cigarettes are made from menthol that is extracted from a peppermint mint plant or created artificially. Menthol elicits a cooling sensation in the mouth and throat, and is often used in throat lozenges. It was first used in cigarettes in 1920, to reduce the harshness associated with conventional cigarettes and to enhance flavor. While most cigarettes contain some amount of menthol, certain types of cigarettes use it in higher proportions. At a time when demand for traditional cigarettes is falling, menthol cigarettes may become an important source of revenue for cigarette manufacturers. According to an analysis of the tobacco industry between 1965 and 2000, there are two types of menthol smokers – First, those who use the product to tone down the harshness of traditional smoke, comprising of occasional, inexperienced, or young smokers. Second, there are those who like the strong flavor and the physical sensation, which in the U.S. is comprised predominantly of African-American men. In fact, according to one study, tobacco companies often battle a trade-off regarding the menthol content they should use in cigarettes, i.e. should they increase menthol levels to appeal to long-term menthol smokers, or keep it lower to attract inexperienced smokers. ((Menthol cigarettes and smoking initiation: a tobacco industry perspective)) In this article, we give some insight into the market for menthol cigarettes and what prospects this product holds for tobacco makers in the U.S.

Why are menthol cigarettes an important category for cigarette manufacturers?

First and foremost, menthol cigarettes are more flavorful and exude a more pleasant odor in comparison to traditional cigarettes, apart from being less harsh on the throat. Because of these appealing properties, menthol cigarettes gained popularity among U.S. smokers, with over 30%, or 44 million smokers, opting for them as their preferred cigarette type. [1] Second, these type of cigarettes are particularly popular among younger smokers, with close to 57% of the youth smoking menthol, as opposed to only 35% among the total of both young and adult smokers. [2] While older smokers tend to have settled on a brand of choice, younger smokers tend to waver, and are the target audience for tobacco companies. New users are more likely to both try and appreciate menthol cigarettes for its milder properties, and some studies even suggest that youngsters perceive them to be less harmful. ((Menthol cigarettes and smoking initiation: a tobacco industry perspective)) In this case, menthol brands could be the right tool for tobacco companies to build a wider audience and secure volumes going forward. Third, menthol cigarettes are more prevalent among African-American smokers, with over 80% of them choosing the product. Presently, African-Americans account for close to 13% of the U.S. population. However, they have been undergoing higher rates of population growth, in comparison to the U.S. average, and are projected to increase from 42 million presently to 65.7 million by 2050. [3] Given the high prevalence of menthol cigarettes among this group, these demographics show high potential in the market for the sale of the product. Finally, although overall cigarette consumption has been declining, the fall in the menthol category has been almost half that of the non-menthol category. In this situation, tobacco manufacturers with a strong menthol brand in their portfolio definitely stand to benefit to some extent.

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Are they more harmful than non-menthol cigarettes?

While menthol offerings seem to be more promising than non-menthol ones from a business point of view, they are bereft with health implications that invite equal amount of scrutiny from health advocates and regulatory authorities. Although there is little compelling evidence indicating menthol cigarettes to be more harmful than regular ones, many studies suggest that they may be more addictive. According to Canadian Researchers, menthol users smoke almost double the number of cigarettes a week as opposed to non-menthol smokers. [4] Another study by the University of California, San Francisco finds a correlation between menthol-cigarette use and smoking initiation among the youth, and goes on to suggest that ‘Menthol is a prominent design feature used by cigarette manufacturers to attract and retain new, younger smokers.’ [5] Furthermore, there is evidence suggesting that youth that start smoking menthol cigarettes are more vulnerable to progression to regular smoking and nicotine dependence, in comparison to those who start on non-menthol cigarettes. [6] Hence, although both menthol and non-menthol cigarettes are equally capable of increasing the chances of heart attacks, cancer, and other diseases, one could argue that they are more harmful for the simple fact that menthol cigarettes encourage initiation, addiction, and dependence on the stick.

Possibility of a ban?

The various health concerns associated with menthol cigarettes act as the grounds on which several health advocates around the world have increasingly been appealing for a ban on the product. The first official ban was initiated by Brazil in 2012, following which, the European Union agreed on a directive to phase out all flavored cigarettes (including menthol) by 2022. The latest addition to the list has been Canada, where menthol cigarettes have been banned in Ontario and Nova Scotia.

The U.S. presently has not instituted any ban on the manufacture and sale of menthol cigarettes. In October 2009, the Congress passed the Family Smoking Prevention and Tobacco Control Act, which gave the Food and Drug Administration (FDA) the right to regulate tobacco products. Post this, the FDA put a ban on all flavor additives, based on the premise that they increase appeal for smoking among teenagers, although menthol continued to remain exempt. However, of late, menthol cigarettes have come into criticism, with a 2011 report by the FDA’s Tobacco Products Scientific Advisory Committee concluding that “there is strong evidence indicating that adolescent menthol cigarette smokers are more dependent on nicotine than adolescent non-menthol cigarette smokers.” Furthermore, the increasing use of menthol among the African American community is indicative of a “disproportionate harm to that section of society.” [7] Against these arguments, the FDA said that menthol cigarettes could, in fact, pose to be riskier than normal cigarettes and opened a public consultation period, with the aim of eventually banning the product. While a ban of this nature may be in the public interest, it would significantly hurt sales for cigarette manufacturers.

Considering that approximately 20% of the net sales for Altria come from menthol cigarettes, a possible ban on the sale of these cigarettes could considerably drag down revenues for the company in the coming years. [8] This is because, even though some customers might switch from menthol cigarettes to regular cigarettes, there could be a sizable proportion of customers who decide to quit or decrease consumption significantly in the event of their choice of cigarette being banned. In a follow up article, we will discuss in detail the possible impact of the ban on Altria, as well as other players in the U.S. tobacco industry, especially when the leader in menthol sales, Lorillard, and the second largest cigarette-maker in the U.S., Reynolds, are considering a merger.

We have a price estimate of roughly $47 for the Altria Group, which is slightly below the current market price.

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Notes:
  1. Menthol cigarettes – what’s the big deal? []
  2. Menthol Fact Sheet – American Legacy Foundation []
  3. African American population growth rates higher than U.S. average []
  4. Menthol cigarettes could be WORSE for your health than regular tobacco: Study links them to ‘more severe lung problems []
  5. Menthol cigarettes and smoking initiation: a tobacco industry perspective []
  6. Initiation with menthol cigarettes and youth smoking uptake []
  7. Not Kool – It’s time to ban menthol cigarettes []
  8. Are menthol cigarettes going to be banned? []