Energy drinks brace for caffeine crash

January 23, 2013: 8:47 AM ET

Could an FDA investigation mean trouble for energy drink makers?

By Kurt Wagner, reporter

130118040522-monster-energy-drink-gallery-horizontalFORTUNE -- In October, parents from Maryland filed a wrongful death lawsuit against Monster Beverage Corp. after their 14-year-old daughter died of cardiac arrest. She had reportedly consumed two 24-ounce cans of Monster Energy within a 24-hour period. In mid-November, the FDA opened an investigation into 5-Hour Energy to determine if the energy shot was linked to a reported 13 deaths over the past four years.

Could an FDA investigation mean trouble for energy drink makers, whose products are full of caffeine but lack extensive regulation? An FDA letter written to Sen. Dick Durbin (D-IL) confirmed that the agency is taking "science-based actions" in order to determine the possible risks associated with energy drinks, which are often consumed by teenagers and young adults. The letter, a late-November response to Durbin's expressed concern over energy drinks, says the FDA will consider requiring product labels to advertise caffeine content as well as warnings about possible effects. Federal laws do not currently require labels to carry actual caffeine content or warnings about possible negative effects.

But in regulating an industry that survives by jolting users to increase energy, the FDA appears to be dragging its feet. The amount of research that has been done on energy drink use is far from sufficient, says Dr. Byron Lee, M.D., a cardiologist and professor at the University of California, San Francisco School of Medicine. Even with a "recommended dose" people drink too much, or mix it with alcohol. (Vodka Redbull anyone?) Preexisting health conditions—heart trouble in particular—can quickly become fatal with a sudden rush of caffeine, added Lee. This problem is particularly pertinent among young adults; a 2011 study published by the journal Pediatrics found that 46% of the nearly 5,500 caffeine overdoses in 2007 occurred in people younger than 19 years old.

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Many energy drinks compare their caffeine levels to that of a cup of coffee, though the statistic can be misleading. A recent study from Consumer Reports found that 8-oz energy drinks like Monster (MNST) (92 mg of caffeine) and Red Bull (83 mg) were comparable in caffeine levels to a typical 8-oz cup of coffee (100 mg), but cans often come in much larger sizes, like Monster's 24-ounce can. 5-Hour Energy, which does not classify itself as an energy drink, but rather a dietary supplement, came in at 215 mg of caffeine for a 1.9-oz shot. Of the 16 products tested that did include caffeine content on labels, five of them contained 20% more caffeine per serving than advertised.

People like a buzz, and the high caffeine levels have been a boon: Energy drinks constitute a $9 billion industry in the United States and made up 12% of the carbonated soft drink sales in 2011. Concerns about the industry have caused Monster stock prices to fall substantially—over 40%—since last summer, when they reached nearly $84 per share. Since late-October, both Monster and 5-Hour Energy have responded to the FDA reports in press releases. (They declined to comment for this story.) In November, Monster CEO Rodney Sacks discussed the ongoing investigation with investors during the company's 3Q conference earnings call. "First and foremost, we reiterate that our products are safe," Sacks said. "Tens of billions of energy drinks manufactured and distributed not only by us but by other companies have been sold and safely consumed worldwide for 25 years." And they don't look to be stopping, regardless of investor concerns.

Red Bull sold more than 4.6 billion cans worldwide in 2011, an 11% increase over 2010, including an 11% increase in U.S. sales. While Monster's stock price has shrunk considerably since June, it's actually up nearly 18% since the company's Oct. earnings report. 5-Hour Energy, which is owned by Living Essentials, LLC, announced in October that it would expand by adding 200 employees. In 2011, 5-Hour Energy sales hit $1.3 billion, nearly double the $700 million the energy shot brought in just two years prior in 2009.

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Despite record sales, the whole picture for energy drinks, which have become a part of the American consumer's diet, is more complex. Rockstar Energy and Jolt Energy make energy gum, and there's even a caffeinated maple syrup, Wired Wyatt's, which boasts it has "more caffeine than most energy drinks!" in every serving. "I don't think [energy drinks] will disappear," says Lee, "and they may, in some ways, serve a purpose in our culture." Energy drink companies often market products toward young adults, where the drinks are used to help prepare for tests, or gear up for events like concerts and parties. Rockstar's annual Mayhem Festival, a multi-city music event started in 2008, hit 26 separate venues during its 2012 tour.

Regardless of the industry's foothold, the health concerns tied to energy drink consumption, merited or not, will drive forward a more tightly regulated industry as science and the FDA catch up. Warning labels on cans and the disclosure of caffeine content may very well be required once FDA investigations come to a head sometime in 2013. Studies on the effects of caffeine in teenagers are out there, including many on sleep deprivation linked to caffeine intake, but the culture and prevalence of energy drinks may require more specific attention. "If [young people] are drinking in ways in which they get large doses of [caffeine]," says Lee, "then we ought to be studying what large doses of caffeine means in young people's bodies."

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