If you have a pension fund, target date fund, market index, or many variety of diversified products in an IRA, 401k, or similar retirement account, you almost assuredly have money invested in tobacco.
If you look at history, nicotine has been nearly unstoppable. If one cigarette company stops selling them, they will simply cede market share to another. If all stop selling, it would inevitably create a massive black market - there are specific markets that attempt prohibition, you can see what happened historically.
Instead, isn't it rational to be realistic and aim for harm reduction? If Consumers can receive a satisfactory nicotine experience from a product that is going to be far less harmful, isn't that still a net positive?
There will always be many things in this world. I don’t have to directly support them though. Tobacco companies do not care about harm reduction, they care about money. The way they make money is to sell a product which is objectively harmful.
I’m not saying they won’t exist, I am choosing to not support them though. I am realistic. But I’m not going to compromise what I believe in to ride on the back of their success in hurting millions of people on the plant, many of whom are not making an informed choice. Every child in a smoking household did not get a choice. Pets too.
"It may be noted that here the parties themselves made no reference to secrecy in either the 1881 or the 1885 agreements. The word "secret" is not used anywhere in either of them. It is true that I have assumed during this discussion that the plaintiff is correct in its contention that what Lambert bargained for was a "secret" formula. But that in *666 no way justifies the further assumption that he also bargained for continuing secrecy or that there would be failure of consideration if secrecy did not continue."
"Thus, I hold that under the agreements in suit plaintiff is obligated to make the periodic payments called for by them as long as it continues to manufacture and sell the preparation described in them as Listerine."
The judge recognized that it was not just the mere formula, but rather the brand name, that supports the value of the product and thus royalty agreement.
It's in J&J's best interest to sell under the brand name, which is the #1 in the world, and simply pay the royalties.
If you enjoyed the article, you might be happy to know there are several other analysis pieces on the Invariant Substack that cover specific companies and walk through valuation methodologies. There will also be many more pieces like this in the future.
Please sub and comment on the Listerine piece, as I'd love to correspond on the platform, and I'd be happy to provide guidance/answer further questions regarding valuation. If you provide any kind of identifier for your sub email, I'm also happy to answer questions and bounce idea via email. I'm always looking to connect with other curious people that love finance.
You're smart to think of how it could be gamified.
However, the product is tightly regulated and has stiff competition. The brand name is a huge driver of sales. Anything that could impair the brand image, like dilution of product, would cause more long-term value destruction.
If you'd told me stocks in high street shops would be a risk investment because of online shopping when Amazon started I would have laughed in your face. They are not immensely un-risky holdings any more, because people's shopping habits moved. Look at Macy's value. It's way down from peak.
Revlon is a major consumer brand. How many people know about its involvement in haemophilia treatment, and the downside risks? Its in bancruptcy. How can a brand with that kind of recognition, which also owned Elizabeth Arden, tank?
I love listerine strips. I use them all the time. I haven't used TCP mouthwash since a big panic around phenols, and TCE in the 80s. I think the market moved. I certainly don't use Listerine any more, or use "fishermens friends" mouth lozenges which have chloroform in then (or used to)
The risk isn't "cancer" its "ohmygod cancer" headlines.
I appreciate the pushback, and love how you're thinking about this.
Negative press can always be a head headwind.
I'd counter, if you look across the world, as oral hygiene has become a greater focus as we learn to appreciate it's importance in overall wellness, there is a huge positive trend: Health organizations and governments are spending huge amounts of money to support the adoption and frequent use of products like antiseptic mouthwash.
Bad headlines can certainly stifle volumes a bit, but long-term I am not sure they'd ever be enough to counter the concentrated efforts of so many major establishments.
"It cannot be guaranteed that the use of mouthwash represents an independent risk factor for the development of head and neck cancer. However, the risk does increase when it occurs in association with other carcinogenic risk factors."
Yes, exactly. The statement contradicts the author's position that is "exceedingly unlikely" to be a cause of oral cancer. Taken together with the medical consensus that alcohol itself is a considered to be a cause of oral cancer I have to wonder why anyone would be completely surprised by the conclusion that alcoholic mouthwash also increases the risk of cancer.
"Listerine also has years of comprehensive clinical research supporting the health benefits, as well as potential risks, of its use. This should greatly reduce concern around the possibility of future product lawsuits."
I should have elaborated in my previous comment - I don't think there is zero risk. When I said exceedingly unlikely, I meant as an overall material risk.
If you do hold the belief the risk is material, you can factor a scenario analysis and create a blended EV to apply to valuation approach. This would help reflect the risk when trying to price the royalties.
I appreciate the criticism! Love reading all these different perspectives.
Additionally, the driver for the huge volume increase was partly Listerine going down market from an expensive medicine to a mass market product. $20 in 1881 is apparently equivalent to $580 now. J&J probably only get around $200 revenue for each gross of Listerine sold now (a guess based on retail prices and markups), suggesting that despite inflation the royalty is still a respectable 10% but implying the 1881 price must have been much higher, in real terms, than Listerine costs now.
If you look at history, nicotine has been nearly unstoppable. If one cigarette company stops selling them, they will simply cede market share to another. If all stop selling, it would inevitably create a massive black market - there are specific markets that attempt prohibition, you can see what happened historically.
Instead, isn't it rational to be realistic and aim for harm reduction? If Consumers can receive a satisfactory nicotine experience from a product that is going to be far less harmful, isn't that still a net positive?