To say the past few weeks have been turbulent for manufacturers of tobacco products would be an understatement.
In Canada, a March 1 ruling upheld the judgment in two 1998 class-action lawsuits that had been appealed by the Canadian subsidiaries of Philip Morris International Inc., British American Tobacco PLC and Japan Tobacco Inc. With damages totaling about C$15.6 billion, the verdict could have a massive impact on tobacco giants' local operations, including possible bankruptcies, analysts said.
Sure enough, Japan Tobacco's JTI-Macdonald Corp. has since sought protection from creditors, while Philip Morris cut its EPS forecast for the 2019 fiscal year as a result of litigation charges in connection with the lawsuit.
Although the three companies plan to appeal the judgment again, the case is a reminder of the complex legal issues that remain from tobacco companies' legacy activities. Their efforts to move into the future with new, potentially less harmful products have also been met with challenges, the most notable being U.S. Food and Drug Administration Commissioner Scott Gottlieb.
Gottlieb has repeatedly criticized tobacco companies for a range of practices, including marketing products to minors, and signaled much stricter legislation. However, the industry was given a surprise boost on March 5 when Gottlieb announced his resignation, leading to a surge in tobacco stocks.
Gottlieb's April departure may not lead to the complete policy reversal some companies might wish for, but analysts believe it could result in adjustments and delays to the current agenda. As CFRA senior equity research analyst Garrett Nelson told S&P Global Market Intelligence: "It's hard to imagine the new FDA chief would be more aggressive than Gottlieb was."
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Food, Beverage & Tobacco
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Analysts: Tobacco giants' Canadian units could face bankruptcy after court case
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Consumer Edge is a weekly collection of critical developments across the automotive; retail; and food, beverage, and tobacco industries that draws on exclusive analysis and value-added content from the Consumer News team at S&P Global Market Intelligence.