New Zealand Proceeds With Plain Cigarette Packaging Plans

Tobacco makers faced yet another jolt after companies in New Zealand were asked to remove logos from cigarette packets and also enlarge the health warnings posted on the their packages.

Under the regulation, still in the draft stage, cigarette packages should be plain with graphic warnings covering at least 75% of each side of the pack.

The law is expected to be passed in 2016 and enforced by early next year.

Not only that, the government of New Zealand has recently announced a tax hike for cigarette makers. This is expected to raise the price of a cigarette pack to about 30 New Zealand dollars ($20), one of the highest in the world.

New Zealand expects to eliminate smoking by 2025 and .is working towards it for long. In 2013, the company first announced plans to pass a law regarding the use of plain packaging of cigarettes by tobacco companies. In 2012, the Australian government was the first to propose plain packaging.

The ruling was enforced by The World Health Organization which had pleaded that countries consider the plain packaging norm.

The move was vehemently opposed by tobacco sellers like Philip Morris International Inc. (NYSE:PM) and British American Tobacco (LON:BATS) Plc. (NYSE:BTI) as these companies rely on packaging to build their brand and draw consumer attention. Packaging was the last resort for advertising after the government put a ban on tobacco advertising by placing ads in magazines, billboards and TV.

Tobacco companies have been penalized for taking recourse to any kind of advertising or packaging that flouts the laws, to boost sales. The global tobacco industry has been facing severe advertising and packaging restrictions on their products for some time.

Meanwhile, governments around the world are imposing restrictions on tobacco makers which, in turn, are lowering cigarette consumption and affecting margins. The U.S. Food and Drug Administration (FDA) has made it mandatory for tobacco companies to use precautionary labels on cigarette packets to dissuade customers from smoking.

A regulatory warning issued by the FDA in Aug 2015 against four of R.J. Reynolds’, a subsidiary of Reynolds American Inc. (NYSE:RAI) , cigarettes forced the company to stop sales and halt further distribution, marketing and promotion of the products.

Moreover, the European Union and the FDA have proposed a ban on menthol in accordance with the Tobacco Control Act, which essentially states that menthol cigarettes have an adverse impact on public health. Moreover, this ban will create a serious black market for these products, which would be detrimental to all tobacco companies.

Further, the Indian government has imposed plain packaging rules on tobacco makers who are required to cover 85% of the cigarette packets with pictorial warnings.

The regulatory authorities have imposed marketing and product regulations on e-cigarettes as well. Also, there is not much scientific evidence to back their ability to help smokers quit or smoke less. Putting such a regulation into effect is expected to impact the e-cigarette business and the top line of the tobacco companies in the coming quarters.