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DEMOCRATS PUSHING HARD ON SCHIP II

Plus: how Philip Morris will likely broaden distribution of Black & Mild

Los Angeles, November 7 – Congressional Democrats are trying hard to cajole enough House Republicans into voting for a modestly-modified form of the State Children’s Health Insurance Program (SCHIP) to override a certain Presidential veto.

The Senate passed the latest form of the bill (H.R. 3963) last Thursday by a 64-30 vote, just enough to override a veto and it could be sent to the White House for a certain second veto by President George W. Bush.

However, Democrats are negotiating with a group of moderate Republicans to try and craft a compromise – which may entail another vote – to try and get a bill which enough Republicans will support to override the President in the House.

One Democratic committee chair, Frank Pallone of New Jersey, said Bush’s stand against the bill and against funding it via tobacco taxes “basically means he is no longer a player in this.” He told the Congress Daily that “The effort really has to be to find enough Republicans to override his veto. We're obviously going to try, either in one week or six months, to override the veto.”

However, the Associated Press reported that a Republican proposal on the bill submitted in the course of the negotiations contained no mention of tobacco taxes as a funding mechanism.

Time is running short, as the funding extension for the insurance program will run out on November 16. Another temporary extension could be passed, which would start negotiations again on a third edition of the bill.

The White House has said it is confident that another Presidential veto would be upheld.

The stakes for cigar smokers continue to be high, as the SCHIP bill would increase the federal tax cap on cigars from about five cents each to a maximum of $3.00, as well as increasing the tax rate from 20.719 percent to 52.988 percent. The federal tax rate on little cigars would soar, too, from $1.83 per thousand to $50.00 per thousand.

California joins the tax-tobacco movement:
California’s thirst for money from tobacco continues unabated. Assembly Speaker Fabian Nunez and Senate President Pro Tem Don Peralta announced Tuesday their plan to introduce a bill to buy health insurance for all Californians, funded in significant part by a new tax of $2 per pack of cigarettes that is projected to yield a “stable” amount of $2 billion per year.

California’s current per-pack tax is 87 cents and the state’s voters narrowly defeated, 52-48%, last November’s Proposition 86, which would have increased the per-pack tax by $2.60.

Public information about the plan, which has drawn preliminary support from California Governor Arnold Schwarzenegger, mentions funding from “A $2 per pack increase in the tobacco tax” along with employer contributions and a four percent tax on hospital revenues.

That language, clearly aimed at cigarettes, makes it unclear whether cigars, pipe tobacco and other tobacco products would also be included in the tax scheme, and, as yet, the legislative bill or ballot proposition language has not been made public. Left unclear, of course, is what will happen to this funding mechanism, if adopted, when legal cigarette consumption declines and the revenues available from tobacco taxes decline.

Philip Morris planning more shelf space for Black & Mild:
The trade magazine Brandweek had an interesting take on how Philip Morris would use its marketing and distribution muscle to increase the visibility of John Middleton, Inc.’s Black & Mild brand cigars, which it agreed to acquire last week for $2.9 billion in cash.

“As the No. 1 cigarette brand with 41.1% of the U.S. market as of the third quarter, Marlboro is a powerful lure in the ‘Retail leaders’ program. The merchandising plan gives participating store operators financial incentives to pass along discounts to consumers in exchange for prominent shelf space and signage. So far the program pertains only to Philip Morris cigarettes.

“Inevitably analysts and trade source expect the tobacco company will roll other products into that plan. So in theory, if a retailer wanted the off-invoice price for Marlboro cigarettes, Philip Morris could use that leverage to take a coveted spot on the counter from U.S. Smokeless Tobacco’s Skoal and Copenhagen. It could then use it for one of Marlboro’s snuff and Snus products. The same scenario could be applied to its cigar products.”

That would make the already-popular Black & Mild brand potential as ubiquitous as Marlboro cigarettes. According to the acquisition announcement, Altria (parent of Philip Morris USA) estimates that Black & Mild has 23 percent of the retail market share for machine-made large cigars in the U.S.

How’s this for a humidor?
Lew Rothman, founder of cigar retailing giant J-R Cigars, sent along a link to a short promotional video of the world’s largest humidor, the 128,000 square foot J-R warehouse in Burlington, North Carolina.

At nearly three acres in size and 24 feet high, the J-R warehouse comprises 3.07 million cubic feet of space and holds millions of cigars, although Rothman would not say exactly how many.

If you’ve ever wondered about what such a place looks like, or how an order gets filled, you can see the video by clicking here.
~ Rich Perelman

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