New York’s attorney general has issued subpoenas to the makers of 5-Hour Energy, AMP and Monster (MNST) energy drinks. The subpoenas were disclosed earlier this month in SEC filings and first reported by The Wall Street Journal.
The gist of the probe seems to be this: Energy drink makers have claimed that their products, which boost energy, also contain healthy doses of B-vitamin, taurine and ginseng. New York is calling foul on these supposed benefits, suggesting they are overstated, and that the amount of caffeine is understated.
The state is therefore examining how the drinks are made and marketed to decide if the industry has been deceiving customers with misleading and gimmicky statements about the supposed health value.
Targets of the probe include Monster, Living Essentials LLC, maker of 5-Hour Energy, and PepsiCo Inc. (PEP), maker of AMP energy drinks.
Consequences
Energy drinks are highly unregulated and labels don’t quantify the overall amount of caffeine in the beverage. And while the FDA is ultimately responsible for regulating energy drinks’ ingredients and labeling, state attorneys general have the powers to regulate almost any product sold within their state boundaries.
“If energy-drink makers are found to have violated certain New York state laws regulating food and drugs, they could be forced to pay civil fines and penalties, and to change their labeling and marketing,” reports the Wall Street Journal.
Business Section: Investing Ideas
Energy drinks are a multibillion dollar industry. According to Beverage Digest, energy drinks are “among the fastest-growing products in the beverage sector. U.S. retail sales of the drinks rose 16% last year to $8.9 billion, accounting for 12% of the carbonated-soft-drink category”
Who knows – If NY decides to lower the amount of caffeine allowed in energy drinks sold in the state, perhaps sales will double as consumers try to get the same overall effect. Or, it could scare a large percentage of consumers away from the products.
Realistically, civil fines and penalties won’t have much impact on these large companies. But a required change in marketing, or a few well aimed headlines could cause some damage to the industry’s growth. Indeed, Michael Lewis of the The Motley Fool believes Coke and Pepsi have more than enough products to make up for any loss in energy drink sales.
With this in mind we list below some players in the energy drink industry. Do you think any will see an impact?
1. Monster Beverage Corporation (MNST, Earnings, Analysts, Financials): Market cap at $10.59B, most recent closing price at $60.03. The company distributes its products principally under the Monster Energy, Monster Rehab, Monster Energy Extra Strength Nitrous Technology, Java Monster, X-Presso Monster, Worx Energy, Peace Tea, Hansen’s, Hansen’s Natural Soda, Junior Juice, Blue Sky, Hubert’s, and Vidration brands.
2. Pepsico, Inc. (PEP, Earnings, Analysts, Financials): Engages in the manufacture, marketing, and sale of foods, snacks, and carbonated and non-carbonated beverages worldwide. Market cap at $113.87B, most recent closing price at $73.17. Maker of AMP Energy Drinks.
3. The Coca-Cola Company (KO, Earnings, Analysts, Financials): Distributes, and markets nonalcoholic beverages worldwide. Market cap at $171.84B, most recent closing price at $38.17. Coke sels the popular Burn Energy shots, and various energy drinks including Mother and Gladiator.
Written by Rebecca Lipman
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Interesting… NY’s Attorney General is the City Atty General?
That’s a new one.