FDA to strip-search cigarettes

Will cigarette-ingredient discovery lead to a ban on sales?

By Jamie Dlugosch Jan 19, 2010 12:51PM

Cigarettes. Credit: (© Martin Diebel/Getty Images)The hit television show "Mad Men" fictionalizes the advertising business of the early 1960s. Part of the lure, I suspect, is the glamorized life of nice suits, three-martini lunches and, of course, smoking in the office.


What they don’t tell you is that these characters in real life would now be fighting lung cancer, emphysema and other illnesses associated with smoking or secondhand smoke. Or they'd be dead by now.


Thankfully, the federal Food and Drug Administration (FDA) is finally taking steps to reveal the ingredients in a cigarette. Soon, the FDA will require that tobacco companies disclose their formulas, and much to their chagrin, smokers will finally know the ccontent of what they are inhaling and just how dangerous the habit can be to your health.


How the industry survived this long without divulging the ingredients is a testimony to the power of cash in our system of government (10 Stocks Not Reliant on Government Influence). For years and years, the tobacco lobby kept the consumer in the dark about exactly what is put into a cigarette.


The reason for this is obvious: Smoking is a cash cow that must be preserved at all costs. Over the last 10 years, the power of tobacco has weakened. It was not that long ago that smoking in buildings or restaurants was finally banished.


The big blow to the industry came from litigation and the massive payments made to governments including dollars for public relation campaigns fighting against tobacco use.


Despite this hit to the bottom line, tobacco companies are still alive and well.


Last week, a former chairman of Altria Group (MO) made the case for tobacco companies as investments (post continues after video):

I’m not sure I buy his argument. The industry is a huge target for government taxes and forces prices on its products higher. At some point, demand will collapse under the weight of higher prices.


More importantly, many buy tobacco stocks for the dividend and a piece of near-certain cash flow. In my opinion, if we learn the real identity of the ingredients in a cigarette all bets are off. Smoking will be dealt another huge blow.


This is no growth industry, and not even the dividends are safe given the efforts of the FDA. (Turbo-Charge Your Dividend Investing)


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