New Hampshire’s Irresponsibility on the Smoking Behavior

In a new fiscal adventure, Republicans in Concord this week voted to reduce tobacco taxes by a dime per pack of cigarettes. The thinking: Out-of-state smokers will flock to New Hampshire to load up on Bond cheap smokes and, while they’re here, buy who knows what other products to bring about a retail boomlet.
The politicians, apparently taking the fictional part of Reaganomics for real, say that the tax cut will cause state revenues to grow. Time will tell. For what it’s worth, in a fiscal no te to House Bill 156, where the tax cut originated, the Department of Revenue Administration predicts that state tobacco tax revenue in 2012 could fall by more than $7.5 million if the levy is cut from the current $1.78 per pack to $1.68.
But assume the Republicans are right in their expectations of more revenues. Does that make the tax cut the responsible thing they say it is?
It does not, for a larger reason. The tax cut strategy is to draw smokers from neighboring states that, unlike New Hampshire, are making an effort to discourage tobacco consumption among their people on the grounds that smoking is a public health menace; the New Hampshire strategy would reduce the flow of cigarette tax dollars to those states, which run tobacco-education programs. Here are the facts:
Vermont, which levies a tax of $2.24 per pack, is spending $4.5 million of its own money this year on anti-smoking programs for its citizens.
Massachusetts, which levies a tax of $2.51 per pack, is spending $4.5 million of its own money on anti-smoking programs for its citizens.
Maine, which levies a tax of $2 per pack, is spending $9.9 million of its own money on anti-smoking programs for its citizens.
New Hampshire, which may soon have a tax of $1.68 per pack, spends zero dollars of its own money on anti-smoking programs, though annually 1,700 of its adults die from smoking-related illnesses and many more Granite Staters are exposed to tobacco smoke.
The only money spent in this state to discourage smoking comes from the hated feds: $1 million this year from the Centers for Disease Control to draft anti-smoking policies and messages, plus about $800,000 from the federal stimulus to help fund such things as a telephone-based service for people who want to quit smoking, in addition to $56,815 from last year’s heath reform bill to discourage pregnant women from smoking.
There you have it. New Hampshire, which ranks dead last among all states in trying to reduce smoking among its own citizens, sees a fiscal bounty in robbing other states of the resources that they would use to minimize the danger of the habit among their citizens.

How Big Tobacco’s Trying to Regain Lost Ground in the U.S.

With the Big Apple in the grip of a new anti-smoking law enacted late last month, some Red & White cigarette makers are seeing an opportunity to shore up their top lines — a smokeless opportunity.

Quick to capitalize on the situation, Reynolds American has launched print-ad campaigns in some national newspapers to promote Camel Snus, for those who love tobacco but hate smoke.

In an environment that’s becoming increasingly hostile toward smoking, Reynolds America knows that clever marketing is key to an intelligent, sustainable, and successful business strategy. Other tobacco giants are following suit quickly.

Tobacco in the no-smoke zone
Cigarette makers have long been testing out alternative tobacco products. Today, they’re plunging even deeper into it — perhaps out of necessity, but also because that’s where the most innovation is taking place.

This segment is stacked with competition. British American Tobacco sells similar products, and it says that Swedish and Norwegian adults alone consume more than 240 million cans of smokeless tobacco every year.

Thanks to a large takeover several years back, Altria’s U.S. Smokeless Tobacco Company is the world’s leading manufacturer of moist smokeless tobacco. When reporting their first-quarter results, U.S. Smokeless Tobacco and Philip Morris USA said they believed volumes within the smokeless category to have grown by an estimated 7% in the first quarter of 2011.

A company seemingly on the cutting edge of the industry, Star Scientific, markets dissolvable smokeless-tobacco products, the first of their kind on the commercial market.

This is a very competitive industry that may get even more competitive in the near future.

Thank you for not smoking
The market for snus and snuff is already big, with the United States and Scandinavia being the largest regional markets. Swedish Match has estimated that more than 1.5 billion cans are sold annually, with around 30 million to 40 million in the U.S. market. Slap on an average price tag of roughly $5 per can (my own estimates), and you can see how big a business this really is.

In terms of overall share in the U.S. market for snus and snuff, Altria claimed an estimated 56% by volume in 2010, while Reynolds stood at 30.3%.

The market for smokeless tobacco in the United States is forecasted to grow at a compounded annual growth rate of 7% between 2010 and 2012. Considered together with the government’s increased emphasis on stricter smoking bans, this segment should continue to grow.
While cigarette volumes have declined in the U.S., moist snuff volumes grew at an average rate of around 6% annually in the past five years. Even better, moist snuff products generally render higher profit margins than cigarettes do. Combined with tougher regulations in their core businesses, this reality explains why more and more tobacco companies are interested on focusing on such smokeless products.
The key lies in how well the companies market these products and generate profits from their sales.
New York’s citywide smoking ban makes smoking illegal in the city’s 1,700 public parks and beaches, along with several plazas. And at the national level, the FDA is continuing to study measures to curb tobacco use. In the past few months, the agency has contemplated limiting or banning menthol and other mint-flavored cigarettes. Such a move would hit companies heavily reliant on menthols, including Lorillard.
Amid stricter regulation and even outright bans on smoking, it makes a lot of sense for the tobacco companies to diversify their product base. Keep an eye on Reynolds by adding it to your watchlist, so you can watch future developments in the industry.

Tobacco Agreement Funds Being Abused

Tobacco companies have been giving Pennsylvania $350 million dollars a year for the past 10 years and will continue to do so for 15 more. But Auditor General Jack Wagner says $1.3 billion has floated away in recent years as lawmakers raided an unprotected pot of money. ”The general assembly during a recession was looking for money in every way, every direction they could find it,” said Wagner.
Wagner says tobacco money should be funding Adultbasic health insurance, and he points to Cigaronne smoking cessation programs that got $50 million eight years ago.
“Have any of you in the media seen an ad in the newspaper radio or TV related to smoking prevention and cessation?,” asked Wagner. “I would challenge you…I haven’t in recent memory…it’s because there’s no more funds devoted to the program.”
Wagner says trailer bills with convoluted language let Governor Rendell and lawmakers raid the fund. And he criticizes Governor Corbett for moving the money to the general fund.
“That is a major change in how those dollars are utilized moving forward,” Wagner said.
But House Republican Spokesman Steve Miskin says the money will still fund health programs -it’ll just be streamlined.
“These are programs that everyone feels is appropriate for state to fund,” he said. “Just putting it all in the general fund…how many budgets should there be?”
Corbett will also use tobacco money to create a liberty loan fund for investment in health-related industries. Wagner has his doubts.
“To take the majority of those dollars away from health purposes and put them in a so-called loan fund is not in the best interest of Pennsylvania,” Wagner said.

Smoking More Dangerous for Diabetics

Cigarette smoking causes many health problems that can even be more serious for people with diabetes enhancing their risks to heart disease and amputation. An article that has appeared in the latest edition of Diabetes Digest, a publication of Diabetic Association of Pakistan warned diabetics to particularly detest from smoking Davidoff as it shrinks the way blood flows through the body and aggravate complications of diabetes.
Heart disease and amputation of leg are the commonest risks for the people with diabetes, warned the expert Dr. Abdus Samad Shera.
To further substantiate the fact, he maintained that smoking damages the blood vessels that makes it harder for the human body to heal ultimately causing infection in legs and feet.
Similarly smoking severely hampers oxygen flow inside the human body and can cause heart attack or stroke.
A diabetic who also smokes is more likely to get nerve damage and kidney disease. Moreover, smokers also contract colds and respiratory infections more easily.
These, he mentioned are besides the fact that smokers in general are more vulnerable to cancers, breathing problems and impotence. Children are more likely to start smoking if their parents smoke, warned the senior health expert.
The good news, he writes, is the fact that no matter how long a person may have smoked his health would start to improve right after he or she quit or cut down a lot on the amount they smoke.
Kicking the habit is hard to do – but worth it and that there are many ways to quit it.

Reynolds launches campaign to push smokeless product

R.J. Reynolds Tobacco Co. is attempting to make lemonade out of the outdoor smoking ban that begins Monday in New York City.

The company is launching a major advertising campaign for Camel Snus next week in hopes of getting smokers to try the smokeless product “and reclaim the world’s greatest city.”

Reynolds is the first large U.S. tobacco company to encourage smokers to quit smoking by urging them to switch to a smokeless product, said Bill Godshall, the executive director of SmokeFree Pennsylvania. The ads do not make any claims of reduced health risks with a potential switch.

The New York City law is considered one of the largest outdoor smoking bans in the country. There also are bans affecting Los Angeles city parks and Chicago parks with playgrounds. The goal in each instance is reducing second-hand smoke.

New York City violators could be subjected to a fine of up to $100 for each instance by the city’s parks department, but police will not enforce the ban.

Two ads will run in the New York Daily News, New York Post, Newsday and some New York weeklies, as well as nationally in USA Today and Wall Street Journal. The New York Times does not take tobacco ads, Reynolds spokesman David Howard said.

One ad features the image of a flame holder with the tagline “NYC Smokers: Enjoy freedom without the flame.” The other ad is in the shape of the Empire State Building with the tagline “NYC Smokers: Rise above the ban.” Both ads feature health warnings.

“We thought this was a good opportunity to communicate with adult smokers in New York City, and across the country, to inform them of a smoke-free, spit-free tobacco option they might want to consider switching to,” Howard said.

The campaign also includes point-of-sale advertising, interaction with age-verified and certified adult tobacco consumers, messages on packs and an age-restricted website.

“Camel is transforming to meet demand from adult tobacco consumers, as well as societal changes,” Howard said. “We wanted to raise awareness of another tobacco product that doesn’t produce second-hand smoke.”

Since Reynolds agreed to participate in the landmark 1998 Master Settlement Agreement that restricted its advertising options, the company has tried to walk a fine line in marketing to young adults.

As expected, the Camel Snus campaign drew criticism from anti-tobacco advocates.

“These ads continue Reynolds’ irresponsible marketing of snus as a way for smokers to get their nicotine fix in the growing number of smoke-free places,” said Vince Willmore, a spokesman for the Campaign for Tobacco-Free Kids.

“The goal is to discourage smokers from taking the one step that would truly protect their health, which is to quit entirely. Once again, Reynolds is putting its bottom line ahead of public health.

“It’s also deeply offensive Reynolds is using iconic New York City images to market a harmful and addictive products, especially in a city that is a global leader in fighting tobacco use,” Willmore said.

Reynolds has not run cigarette ads in newspapers and consumer magazine in 3½ years.

But it has been aggressive with its Camel Snus advertising, including in magazines such as Entertainment Weekly, People, Sports Illustrated, Time and US Weekly, as well as free and alternative publications.

The New York City campaign also is Reynolds’ latest attempt to connect its brands with specific geographic regions and landmarks.

For example, Reynolds conducted a 10-week “Break free adventure” marketing campaign from November through January that had participants guess which trendy destinations the Camel mascot was visiting before coming home to Winston-Salem. Destinations included Austin, Texas; Brooklyn, N.Y.; New Orleans; Las Vegas; San Francisco; Seattle; and Sturgis, S.D.

Anti-smoking groups and health and government officials protested the campaign for using well-known images of the destinations behind the Camel logo. Reynolds distributed packs bearing the images nationally in December and January.

“The Camel advertising is simultaneously both pragmatic — it is concerned with practical consequence — and yet an auger for the slow but steady change in tobacco-use habits,” said Stephen Pope, an industry analyst and the managing partner of Spotlight Ideas in England.

John Sweeney, the director of the sports-communication program at UNC Chapel Hill, said that the campaign may succeed in attracting new users among smokers.

“It will only get long-term success if it captures a loyal, enthusiastic following,” Sweeney said. “It will only do that if it provides a truly satisfying experience to the current smoker.”

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Roll your own, avoid tax; you make the smokes at local business

The big wood-paneled box at Discount Smokes is a tobacco-rolling machine. Into it go loose pipe tobacco and rolling tubes. With a rattling and

The RYO Filling Station machine processes pipe tobacco and rolling tubes into "smokes." Customers have to load the machine and start it.

grinding of gears, out of it come “smokes” – 190 guaranteed to fill a 200-count box and designed to match the flavor of popular cigarette brands.
The machine also is a number-cruncher. As it whirs and grates inside an East Wisconsin Street building that once housed an H&R Block office, it keeps out the state and federal excise taxes that go along with purchases of manufactured cigarettes.
For a carton purchased in Wisconsin right now, that’s an additional $35.21 past the base price: $2.52 per pack for the state and $1.01 per pack for the federal government. Instead of charging $60 or more for a brand-name carton, as convenience stores must, Discount Smokes offers a deal that results in a price of $29.99 a box.
The tax arithmetic at Discount Smokes, owned by Kirk Burnstad, Randy Heinzel and Lon Chester, all of Portage, depends greatly on careful attention to order of operations – but not parentheses, exponents, multiplication, division, addition and subtraction. The key is who does what.
“They manufacture the product. We don’t do it,” Burnstad said of customers.
“We sell them tubes. We sell them tobacco,” Heinzel said.
In mid-April, a first-time customer walked into Discount Smokes, and the owners walked him through the process, starting with picking the brand he wanted to match. Discount Smokes keeps two columned, plastic-covered pages posted on a wall. One column lists popular brands – Salem Full Flavor, Virginia Slim Light and Newport, for example – and other columns list the inputs. For Pall Mall Menthol Ultra Light, that’s 2 oz. Blue, 6 oz. Platinum and a menthol tube.
The owners next directed the customer to the tobacco bins and told him to weigh 8 ounces onto a small postal scale. A cassette of rolling tubes went into the machine, the tobacco went into a hopper, and the customer followed directions on a small screen. Every step of the way, the owners demonstrated and directed.
What they pointedly were not doing was any of the work themselves. If they did, the owners said, they’d be manufacturers. Instead, they sell materials and rent the use of the machine to customers in a package deal. Their caution extends to language. For legal reasons, they said, they identify the machine’s output as “smokes,” not “cigarettes.” The containers the “smokes” go into likewise are “boxes,” not “cartons.”
The machine started and immediately began filling tubes and otherwise processing raw materials. “Smokes” soon spit out of a dispenser, and the customer was packing a box. He said the box would last him a week. At that rate, it would save him about $120 a month in taxes.
How much does the machine cost, the customer asked.
“It’s pricey,” Chester said.
How many years before you get your investment back?
“Don’t know yet,” Chester said.
“Well, I’ll be letting my friends know,” the customer said as he walked out.
Rolling your own
Smokers have long “rolled their own” and avoided excise taxes. The machine at Discount Smokes takes the concept to a new level. It’s called an RYO Filling Station and is produced by a company of the same name in Girard, Ohio. RYO claims to have more than 1,000 of the machines in 35 states. At least 43 are within 250 miles of Portage, according to the company website, and the Discount Smokes partners said they know people in Reedsburg and Richland Center who planned to set up RYO stations. Tomah already has one.
“We’re the eighth machine in Wisconsin,” Burnstad said.
The machines use pipe tobacco, not roll-your-own tobacco. The step saves serious money: When the federal government raised tobacco taxes in 2009, it raised the roll-your-own tobacco tax from $1.09 per pound to $24.78 per pound but made the tax on pipe tobacco $2.8311 per pound.
RYO’s website advertises a typical return on investment of 300 percent in the first year of use and a margin of 20 percent to 30 percent per “carton,” as RYO describes the containers. The clear incentive for customers to use RYO machines is the promise of avoiding the federal and state excise taxes. Wisconsin’s tax is among the highest in the nation; neighboring Illinois, Minnesota and Iowa have taxes of $0.98, $1.56 and $1.36 per pack, respectively.
Government’s role
Governments have noticed the spread of commercial roll-your-own machines.
The Tobacco Tax Parity Act of 2010, introduced in the U.S. House of Representatives early last year, would have raised taxes on pipe tobacco to the same level as roll-your-own. It never got out of committee.
In October, the federal Alcohol and Tobacco Tax and Trade Bureau ruled that the rolling machines were being used for manufacturing and should be subject to taxes paid by name-brand tobacco manufacturers.
“The permit requirement is triggered by the manufacture of a cigarette by the commercial cigarette-making machine, which forms the tobacco into the roll and applies the cigarette paper or tube,” the bureau said in its ruling. “The permit requirement is triggered regardless of whether the person operating the machine, by inputting loose tobacco and cigarette tubes, is an employee of the retail establishment or the ultimate consumer of the cigarettes manufactured.”
Late last year, a federal judge in Ohio issued an injunction that prevented the bureau from carrying out its new policy, pending further court action.
On April 13, the New Hampshire Supreme Court heard arguments over a Brookline tobacco retailer’s roll-your-own machine. According to an Associated Press report, lawyers for the state argued that customers left the store with cigarettes that hadn’t existed before they walked in, making the store a manufacturer that should pay into the national fund meant to offset costs of tobacco-related illnesses.
Lawyers for the company, North of the Border, said only customers might be manufacturing cigarettes, not the store, since the customers are paying a fee to use the store’s machine, not buying cigarettes.
Stephanie Marquis, spokeswoman for Wisconsin’s Department of Revenue, said whether excise taxes apply to RYO machines hasn’t been determined but that the department and the state Department of Justice continually review laws to see if updates are needed.
“Those machines are fairly new,” she said. “It’s just an issue that’s beginning to crop up with states.”
Groups gather data
Ryan Sheahan, coordinator for the Tobacco Free Columbia-Dane County Coalition, said he wasn’t sure that the machines would increase the number of smokers but instead might only shift spending from name brands to stores that offer the machines.
The coalition promotes smoking cessation among youths and adults and the elimination of exposure to secondhand smoke, among other things. It conducts periodic compliance checks with tobacco sellers to test whether vendors will sell to youths, for example.
Sheahan said he was aware RYO machines have been moving into Wisconsin and other states. For now, he said, he’ll gather data and consider increasing education efforts toward lawmakers.
“It’s definitely an emerging market that we have to keep track of,” he said.
Before Discount Smokes’ first two weeks had passed, the owners said, they had had 130 runs.
One Discount Smokes customer, Stephanie Loufik of Rio, was described jokingly by Burnstad as “our favorite German customer.”
Loufik said she’d spend about $60 at Kwik Trip for the particular brands of Marlboros she wants, about twice what she pays for a box at Discount Smokes. She noted the particulars of the store’s process.
“You have the push the button as the customer,” she said.
Regardless, the owners said the process was fairly easy to master.
“I had an 82-year-old lady in here the other day,” Heinzel said. “No problem. She loved it.”
The finished products aren’t exactly Marlboros or Pall Malls. The owners said that’s advantageous in some ways. The smokes don’t have formaldehyde or plastics, they said.
“It’s all natural,” Burnstad said.
Heinzel said he switched to the RYO smokes and within a few weeks lost a bad hack. Chester said he doesn’t smoke.
“I’m not against it,” he said. “I just choose not to do it.”
Chester said the three plan to soon open Discount Smokes branches in Baraboo, Wisconsin Dells, Lake Delton and Columbus.