Tobacco Ruling May Simply Delay the Inevitable
The Supreme Court's ruling yesterday saved the tobacco industry from regulation imposed by the Food and Drug Administration. But the momentum for some type of federal regulation of tobacco products remains powerful, and it is not coming only from anti-tob
Industry executives, the justices themselves and at least one presidential candidate made clear yesterday that they believe that cigarettes and other tobacco products should be regulated by the federal government, though perhaps not as the FDA proposed.
There is little expectation that Congress will take up the issue this election year, despite calls yesterday from many legislators and the Clinton administration for an immediate response. Senate Majority Leader Trent Lott (R-Miss.) told reporters he does not favor new FDA legislation now. "FDA has a very broad jurisdiction as it is, and I don't think they do a very good job of what they're supposed to be doing now," Lott said.
But tobacco legislation could be high on the agenda of the next Congress. The reaction to yesterday's ruling from Steven Parrish, senior vice president of the Philip Morris Cos., illustrates why.
"We're pleased the Supreme Court agreed with us in saying there is no sense to regulating cigarettes as pharmaceutical products," he said. "But just as important, we think this is an opportunity to proceed with discussions on what is the right way to come up with a tough, sensible, common-sense approach to the regulation of cigarettes."
Parrish, whose company is the nation's largest tobacco producer and is the industry trendsetter, said he is open to regulation by the FDA "if that's what Congress decides."
The R.J. Reynolds Tobacco Co. made similarly conciliatory statements, with Executive Vice President Charles A. Blixt saying, "We are willing to begin a dialogue with Congress on reasonable options for additional regulation of the design and manufacture of cigarettes at the federal level."
The tobacco industry has compelling reasons to want some kind of federal regulation. It is being battered by potentially ruinous jury decisions--most recently on Monday in San Francisco--and the companies' stock prices have plummeted as a result. Yesterday's ruling pushed the major tobacco companies' stock prices up slightly, but they remain near 52-week lows.
"The reality is that [the tobacco industry] is facing potential bankruptcy," said former FDA commissioner David A. Kessler, who remains an anti-tobacco advocate. Like many others, he expects a Florida jury in a class-action suit of smokers to come back next month with an award of damages in the tens of billions of dollars.
"They don't have an endgame, and I think that's why they've come out in favor of FDA regulation," Kessler said. "In a funny way, they need regulation."
"The bottom line is that the industry wants peace--they want their stocks to be stable," said Mary Aronson, a longtime tobacco analyst in Washington who advises institutional investors. "The only way they see to an end of the litigation threat is if Congress is reinvolved. So I think the industry is positioning itself so it can go to Congress and ask for some kind of protection from tobacco litigation in exchange for regulation."
"I have no doubt that in the next two or three years there will be an overhaul of the entire regulatory environment for tobacco," said Martin Feldman, tobacco analyst for Salomon Smith Barney. "The fact the industry won the Supreme Court claim will in the long run make very little difference."
The shape of any potential regulation remains a highly political issue. Vice President Gore, the presumptive Democratic presidential nominee, responded to the Supreme Court ruling by calling on the Republican-led Congress and Texas Gov. George W. Bush to "show their independence from Big Tobacco and do the right thing."
Bush, the presumptive Republican nominee, said Congress should "pass tough laws to keep tobacco out of the hands of kids similar to strict anti-teen smoking laws . . . signed in Texas." Bush's carefully drafted written statement did not take a position on whether tobacco should be regulated as a drug. The Texas measures included compelling minors caught smoking to attend education sessions and pay fines and fining retailers up to $1,000 for selling tobacco to minors.
But as the politicians debate the future federal role in tobacco regulation, analysts say tobacco's immediate financial future will be decided in courtrooms, where some believe yesterday's ruling could have an immediate negative impact on tobacco companies.
Richard Daynard, an anti-tobacco advocate at the Tobacco Litigation Group at Northeastern University, said he expects attorneys in the San Francisco and Florida smoking cases to argue that because of the gridlock in Washington over tobacco, jurors should send a loud--and expensive--message with their penalty decisions.
"The courts are there as emergency brakes when the rest of the government can't control a situation," Daynard said. "It seems quite possible that while the tobacco companies may have avoided FDA control for now, they may also have weakened their case before the juries that will be actually determining their future."