Many years ago and the sentiment is still true John Maxwell an analyst on Wall Street said, the cigarette industry said, only the mint makes more money easily than those little white tubes. As an investor those words are music to the ears, as a person in society you may or may not want to invest. We all know cigarettes sell nicotine with the tobacco which makes them addictive and for some to have health problems. In the book Merchants of Death by Larry White, published by William Morrow, New York, 1988 the industry is examined in a less flatteringly way, but reveals some of the classic elements of monopoly control.

For years, people knew cigarettes were additive but few knew why. People who smoked found it very hard to stop smoking and the health affects were years in advance. When filters were invented and put on the market, people felt the companies were trying to ensure their health was protected. It turns out, filters did not help as much as people thought they did. Essentially one cigarette is the same as another – it really depends on which additives are added, but because of advertising people believe brands are different. From the companies stand point – one person said I like cigarette advertising. It’s advertising in the purest sense – no product difference but a perception of difference in product. To achieve this perception difference for many years the cigarette companies were the biggest advertisers in the US. In 1984, the companies spent over $ 2 billion on advertising or $ 35 for each of the nation’s 56 million smokers. The good news was smokers tend to stay with one brand for their lifetime. Advertising has two purposes: brand competition and increasing the total number of consumers of a product. The companies looked to women and children who when they started were not likely to stop.

To combat the potential lost of advertising, the companies tried a variety of strategies. If an ad does not look like an ad, is it an ad? The constitution was brought forth – is advertising protected by the First Amendment? or wrap yourself in the flag. The companies ensure some of the advertising went to non-profits in arts and culture. The companies sponsored university research or the science to show cigarettes may not be the only problem, but what if it was linked to other things a consumer did?  In addition the company always used the term good corporate citizen, as well as use some of the billions to try diversification (although from an economic point of view the majority of profit was and still is comes from cigarettes). One affect was very few advertising companies did  anything against them – for they knew what side of the bread was being buttered.

Linking to dividend paying stocks, the tactics used by the cigarette companies are the same used by large companies everywhere when faced with potential legislative changes. The companies have the ability to spend money on strategies of delay until the problem is less and their penalties are reduced. While as investors we hope our companies do little wrong, sometimes they do but it is legal.

There are more questions than answers, till the next time – to raising questions.