Philip Morris Loses Uruguay Case, Must Obey Plain Packaging

Tobacco giant Philip Morris International Inc. (NYSE:PM) has lost the legal battle against the Uruguay government regarding sale of cigarettes in the country. The company would now have to cover its packs with graphic warning labels in order to sell cigarettes in the South American nation.

Philip Morris had appealed to The International Center for Settlement of Investment Disputes against the Uruguay government over strict anti-smoking regulations. However, the appeal was rejected by the regulatory body on grounds of public health.

The anti-smoking rules in Uruguay require 80% of the front and back of cigarette packages to be covered with graphic warnings. Moreover, each brand is allowed to give just one presentation per pack.

The Zacks Rank #3 (Hold) company, however, appealed against the rule citing that it violated a bilateral treaty and also hurt its intellectual property rights and sales.

Notably, several countries around the world are imposing restrictions on tobacco makers which, in turn, is lowering cigarette consumption and affecting margins. The plain packaging concept was first implemented in Australia in 2011 (read: Australia Harsher on Smoking). Ireland was the first European country to adopt plain packaging. The bill was passed on Mar 10, 2015, came into effect in May 2016.

In May 2016, tobacco companies in New Zealand were asked to remove logos from cigarette packets and also enlarge the health warnings printed on the their packages. Also, the Supreme Court of India ordered tobacco makers to exhibit graphic health warnings on cigarette packets in the same month.

The Food and Drug Administration has made it mandatory for tobacco companies to use precautionary images on cigarette packets to dissuade smokers. The labels have been designed in accordance with the Family Smoking Prevention and Tobacco Control Act and depict disturbing images that highlight the health hazards of smoking.

These aforesaid rules are posing significant problems for tobacco majors like Philip Morris., Reynolds American Inc. (NYSE:RAI) , British American Tobacco (NYSE:BTI) and Altria Group Inc. (NYSE:MO) . The companies are already bearing the brunt of anti-smoking campaigns worldwide, which is likely to have an unfavorable impact on their financials, going forward.