Lorillard Says Menthol Ban Will Create Black Market

Lorillard Inc., trying to stop the U.S. government from outlawing its Newport cigarettes, will tell a Food and Drug Administration panel tomorrow that banning the mint flavor will create a black market for menthol brands.

The Greensboro, North Carolina-based producer has joined other U.S. cigarette companies this year in telling an FDA advisory panel that most scientific evidence shows menthol cigarettes to be no more dangerous than regular ones. Lorillard now plans to argue that banning menthol would push smokers to regular varieties and create a black market for menthol ones.

Newport generates about 92 percent of Lorillard’s sales. Revenue from the top-selling menthol cigarette totaled about $4.8 billion in 2009. Lorillard introduced a non-menthol version of Newport earlier this month as “we prepare for all outcomes,” Chief Executive Officer Murray Kessler told a Morgan Stanley conference in New York yesterday. He said he doesn’t expect the FDA to ban menthol.

“The black market is likely to be large and the reduction in smoking is likely to be small,” said Rick Flyer, a Chicago- based senior vice president for Compass Lexecon, an economic consulting firm hired by Lorillard to assess the effect of banning menthol. Menthol cigarettes yielded U.S. retail sales of $26.2 billion last year, or 30 percent of total cigarette revenue, according to Lorillard.

FDA Advisory Panel

The FDA’s Tobacco Products Scientific Advisory Committee convenes in Silver Spring, Maryland, tomorrow.

Lorillard provided Bloomberg News with the presentation that Flyer is scheduled to deliver to the panel. The findings are based on smoking patterns in 20 U.S. cities including New York, Philadelphia and Atlanta.

The company fell 9 cents to $86.75 at 4:15 p.m. in New York Stock Exchange composite trading. It has gained 8.1 percent this year.

Many consumers of menthol cigarettes prefer that flavor, raising the possibility that some of them would quit smoking if menthol were banned or restricted, said Matthew Myers, president of the Campaign for Tobacco-Free Kids, an anti-smoking group in Washington.

“Lorillard is concerned about this issue precisely because of its fear that it will dramatically reduce the number of tobacco users,” Myers said. Raising the threat of a black market is “a self-serving mechanism to prevent progress in reducing tobacco use,” he said.

Jeffrey Ventura, an FDA spokesman, declined to comment on Lorillard’s presentation. The panel has until March 2011 to advise the agency on the public-health implications of menthol.

To contact the reporter on this story: Chris Burritt in Greensboro, North Carolina, at 1348 or cburritt@bloomberg.net.

To contact the editor responsible for this story: Robin Ajello in New York at rajello@bloomberg.net.

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