GREENSBORO — Pierre Lorillard could hardly have imagined that the small tobacco company he started 250 years ago in New York City would ship 36.3 billion cigarettes a year in the 21st century, 87 percent of which would be flavored with menthol.
But the little ingredient found naturally in mint oils poses a serious threat to his legacy: a $3.8 billion cigarette colossus that employs 1,800 people in Greensboro.
Lorillard Tobacco Co. makes more than 91 percent of its revenue from Newport menthol cigarettes.
On Tuesday, however, Lorillard announced the first nonmenthol version of Newport in the brand’s 53-year history.
Although Lorillard makes other nonmenthol brands, including Kent, it has specialized in Newport and sells 35 percent of all menthol cigarettes — a niche that accounts for 29 percent of all cigarettes sold in the country.
The Food and Drug Administration is working on a report about the risks of menthol in cigarettes. Specifically, it wants to know how the companies use menthol in their cigarettes, what research they’ve done on the physiological impact of menthol and details on how the companies market the products.
Although the inquiry will concentrate on scientific issues, there also are sensitive matters that involve the people who smoke menthol cigarettes. Among menthol smokers, there are twice as many white smokers as African American smokers. Among African American smokers, however, 75 percent prefer menthol cigarettes.
Analysts say the FDA will surely try to determine what factors are behind that trend.
Lorillard, the No. 3 cigarette maker in America, and the two other major companies — No. 1 Altria Group and No. 2 Reynolds American — submitted their answers to a list of questions from the FDA committee last month.
The FDA could make its ruling later this month, but analysts say a delay of 90 days or more is likely.
A restriction or outright ban on menthol, say analysts, would be a big problem for Lorillard — one of Greensboro’s top employers.
The company built its plant here in 1955 and moved its headquarters from New York here in 1997. It’s the last vestige of a shrinking industry, along with Reynolds, that still flourishes in the Triad.
The FDA earned the right to regulate cigarette ingredients when President Barack Obama signed the Family Smoking Prevention and Tobacco Control act in 2009.
Analysts for FitchRatings, an investor service, say the FDA could take one of four options with its review of menthol:
- Study the issue further.
- Restrict marketing of menthol.
- Begin a partial or phased ban of menthol.
- Completely ban the product simply because of the demographic profile of its smokers.
Bob Bannon, Lorillard’s director of investor relations, says that the expansion of Newport is the company’s way of seizing growth in the nonmenthol market, not a defensive maneuver against menthol regulation.
“We do have other nonmenthol brands that the company has sold for many years,” Bannon said. But he said he understands “it is difficult to entirely disassociate the concept of a nonmenthol product in the context of what’s going on with the FDA.”
One analyst said a company that makes even a small change in its top brand is taking a major step.
“Since it is a core product and a core feature of a core product, even subtle changes in the product could have significant impact,” said Richard Hastings, a macro and consumer strategist for Global Hunter Securities of Newport Beach, Calif.
Imagine, for example, that the government was investigating some ingredient in the secret formula for Coca-Cola.
“How would that change the perception of the core product?” Hastings asked. “What would investors think? What would analysts think? How would you build a marketing program to get through that? That’s a way of looking at it.”
Bannon declined to speculate about how Lorillard would devise a marketing plan to expand nonmenthol brands in the event of a potential ban of menthol.
But Hastings said Lorillard is clearly opening its options while still marketing menthol as a natural and benign substance, as it does in its website http://understandingmenthol.com.
It’s a big step for Lorillard, but not a radical one yet.
“I wouldn’t say it’s like taking the oats out of Cheerios,” Hastings said.
Lorillard’s report to the FDA says in great detail that the company uses menthol only as a flavoring that smokers prefer.
Some scientific reports have concluded that menthol makes it harder for smokers to quit the habit. One study asserted that because menthol makes cigarette smoke seem less harsh, a smoker inhales it more deeply.
A report from the University of Medicine and Dentistry of New Jersey reported that the director of a tobacco dependence program, Jonathan Foulds, said: “These results build on growing evidence suggesting that menthol is not a neutral flavoring in cigarettes. It masks the harshness of the nicotine and toxins, affects the way the cigarette is smoked, and makes it more deadly and addictive.”
Lorillard has a distinctly different view based on its own research, presented in detail to the FDA and on http://understandingmenthol.com.
“The science is clear and compelling,” William R. True, senior vice president of research and development for Lorillard, writes on the site. “The best available scientific evidence demonstrates that menthol cigarettes have the same health effects as nonmenthol cigarettes. Menthol neither causes people to smoke, nor deters them from quitting. A menthol cigarette is just another cigarette — and should be treated no differently. Menthol cigarettes simply give adult smokers a taste choice.”
Further, according to True, “the evaluation of menthol provides an important opportunity for the FDA to follow sound science exclusively, and not pay heed to political or anti-tobacco influences. Regulators have a responsibility to understand the facts about menthol as they consider this important decision.”
But FitchRatings analysts write that the FDA could see science in a different way: “The risk for tobacco companies lies in the FDA potentially choosing to give more weight to studies that find menthol cigarettes harmful for reasons of better data collection, better study methodology, or other factors.”
CRE Comment: Whether or not FDA decides that the referenced studies have “better data collection, better methodology”–will be dependent upon compliance with the Data Quality Act. It is for this reason that CRE is analyzing FDA referenced studies with respect to compliance or non-compliance with the DQA. Please see the analyses in the Studies Forum of this Interactive Public Docket.
Contact Richard M. Barron at 373-7371 or richard.barron@news-record.com