Tuesday, January 30, 2007

The Booming Cigarette Business

The NY Times, on how capitalism isn't good for the lungs:
For all the industry’s apparent troubles, however, the future of cigarettes appears to be brighter than ever.

That at least is the message investors are sending as the Altria Group — the company once known as Philip Morris and the maker of the world’s most popular cigarette, Marlboro — prepares to split itself by spinning off its Kraft Foods division to shareholders and become, once again, primarily a tobacco company. Today, Louis C. Camilleri, the chief executive of Altria, is expected to set a timetable for completing the spinoff.

It is a move that Wall Street is responding to with the equivalent of a standing ovation, but it is not because Kraft Foods, the world’s second-largest food company, after Nestlé, will finally shed the taint of tobacco.

Investors are glad that Altria will finally be rid of Kraft Foods, the maker of Oreo cookies, Velveeta and Tang. Since October, when the company announced its plan for the move, its shares have risen 10 percent.

Why is Wall Street so infatuated with cigarettes? Cigarettes have certain advantages over other consumer products, not the least of which is that they are addictive. They are inexpensive to make, require almost no innovation, there is a global market for them, and cigarette makers can raise prices without seeing much of a drop in business.

On top of all that, a recent string of court decisions has convinced investors that the worst of the litigation against tobacco companies is over.
"Certain advantages" indeed. Despite decades of litigation, and one horror story after another of the tobacco companies' collective efforts to hide the addictive properties of nicotine and the dangers of cigarette smoking, business is still booming. The only answer to this is regulation. Now.

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