IW 50 Best: Menthol Smokes on the Black Market?

Dec. 3, 2010
Lorillard warns of such a scenario if menthol cigarettes are banned.

Imagine armed gang members lurking in alleyways selling packs of smokes to teenagers or anyone else who craves the minty taste of a menthol cigarette.

However unlikely such a scenario may seem, tobacco products manufacturer Lorillard Inc. says it's possible if the Food and Drug Administration has its way. The FDA is examining the potential health impact of menthol cigarettes and is considering a ban on menthol-flavored smokes.

If that happens, Lorillard stands to lose a considerable amount of sales. The No. 1-ranked IW 50 Best Manufacturer for 2010 produces top-selling menthol brand Newport. The company on Nov. 18 released results of a study it commissioned that concludes a ban on menthol cigarettes would create a black market that could be worth upwards of "double-digit billions of dollars a year."

The study conducted by Chicago-based consulting firm Compass Lexecon cites cigarette black markets in New York state and Canada where tax hikes were imposed as evidence that a ban could lead to similar criminal activity nationwide. In Canada, contraband sales in some provinces have reached almost 50% of total cigarette sales, the study's authors say.The black market could reach 70% of the current market by actual cigarettes sold and 85% of the current menthol sales revenue, Lorillard says. Current menthol cigarette retail sales are approximately $26.2 billion.

"Our best estimate is that a complete menthol cigarette ban would not dramatically reduce overall cigarette consumption and could lead to a black market where illicit sales could represent a significant portion of current menthol sales," said Fredrick Flyer, a senior vice president of Compass Lexecon. "Additionally, there could be large unintended consequences such as a significant growth in organized crime activity and greater youth access to cigarettes."

The FDA says it will not comment on individual studies while it's evaluating the public health impact of menthol use.

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