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LONDON – Imperial Tobacco's U.S. venture with its recently acquired Commonwealth Brands, might hit a roadblock if proposed new laws that allow the Food and Drug Administration (FDA) to regulate the tobacco industry come to fruition, reported The Times Online.
Imperial, Britain's second largest cigarette company, acquired Commonwealth, the fourth-largest cigarette maker in the U.S., for $1.9 billion earlier this month. Imperial gained USA Gold and Sonoma brands with the acquisition of Commonwealth, the eighth and fourteenth bestselling brands respectively, and with them, 3.7 percent of the U.S. cigarette market, the report stated.
However, new bills that were introduced in the U.S. House of Representatives and the Senate would give the FDA the authority to regulate the tobacco industry, which puts a damper on the British company's plans to expand its business through the U.S., the report stated.
"It could lead to a more complex tobacco regulatory climate," Imperial said in a statement to The Times.
While there are 45 million smokers in the U.S., proposed regulation from the government, which is supported by many democrats, could lead to changes that would undermine the profitability of the U.S. tobacco business. Possible restrictions could fall on advertising, bans of "light" or "low tar" products, larger warnings, changes to packaging and additional rules on the marketing of tobacco to children.
If the bill passes, such changes would affect smaller tobacco companies more than larger ones, the report stated. Philip Morris, the largest tobacco company with more than half of the U.S. cigarette market, would benefit from the extra costs, advertising restrictions and other regulations imposed on companies, as it would be tougher for its competition to develop new brands, the report stated. Philip Morris supports the new legislation.
The regulations may just be a bump in the road for the company. The company said in a written statement that it was "used to successfully developing our business" in tightly regulated environments and added that it was "confident of achieving similar results in the US regardless of who regulates the industry."
RJ Reynolds told the Times that it would oppose any legislation that it believed "conveys an unfair advantage on the largest manufacturer," and that the proposed legislation could create an anticompetitive environment in the U.S. cigarette market.
An earlier attempt in 2000 to introduce FDA regulation on the tobacco industry failed when the tobacco companies sued and the Supreme Court overturned the Bill.