While doing their due diligence, sin stocks investors express concern that governments will legislate these stocks out of existence. I don’t think it will happen. Here’s why…
Governments complain about cigarettes, they fund programs to help people quit smoking, they legislate that health warnings must take up a certain percentage of cigarette package and cigarette advertisement. Governments claim to hate cigarettes and they take action to back up their claim.
But the reality is: If governments REALLY wanted to, they could end production of tobacco sin stocks tomorrow, making cigarettes illegal to manufacture, distribute, sell, and smoke. However, they know that two things will happen if they do that:
1. Cigarette Prohibition
By making cigarettes illegal they will basically drive its manufacture, distribution, sale, and consumption underground. That will create a shadow economy of secret cigarette “companies” that can no longer be monitored for consumer safety. So safety is one issue.
2. They will lose MILLIONS in tax revenues. Check out this chart (from 2010) below…
Source: Free Tax Filing, Efile Taxes, Income Tax Returns – TurboTax.com