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WHAT’S AT STAKE IN WASHINGTON |
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 Plus: Imperial’s acquisition of Altadis apparently on track
Los Angeles, September 20 – With the House Democratic leadership moving towards the Senate’s version of a bill to fund the State Children’s Health Insurance Program, the impact on the entire tobacco industry could be devastating.
If passed by the Congress and approved by President George W. Bush – who is promising a veto – the Senate’s provisions to tax tobacco products to pay for this program would include, according to a table furnished by the National Association of Tobacco Outlets, the following:
• Cigarette taxes to go from 39 cents per pack today to $1.00 per pack, an increase of 256%.
• Large Cigar taxes to go from 20.719% of the manufacturer’s price with a cap of 4.875 cents per cigar to 53.13% of the manufacturer’s price (+ 256%) with a cap of $3.00 per cigar (a 6,154% increase).
• Little Cigar taxes to go from 4.0 cents per pack to $1.00 per pack, a 2,500% increase.
• Pipe tobacco taxes to go from $1.0969 per pound to $2.8126 per pound (+256%).
• Chewing tobacco taxes to go from 19.5 cents per pound to 50 cents per pound (+256%).
• Snuff taxes to go from 58.5 cents per pound to $1.50 per pound (+256%).
• Roll-Your-Own tobacco taxes to go from $1.0969 per pound to $8.9286 per pound (+814%).
• Cigarette papers taxes to go from 1.22 cents per 50 papers to 3.13 cents per 50 (+256%).
• Cigarette tube taxes to go from 2.44 cents per 50 tubes to 6.26 cents per 50 (+256).
The raise of 256% in the tax rate is fairly uniform across the board except for Little Cigars (+2,500%) and Roll-Your Own (+814%). But large cigars are hit worst of all with a 6,154% raise in the cap to $3.00 each.
Here’s the impact: for a premium cigar which today:
• Retails for $3.00 (like a Gispert Lonsdale Maduro), the price will likely go to $4.60 before state tobacco taxes are included. Or from $75.00 per box of 25 to $115.00 before state taxes.
• Retails for $5.00 (think H. Upmann Vintage Cameroon Lonsdale), the price will likely go to $7.66 before state tobacco taxes are included. Or from $125.00 per box of 25 to $191.50 before state taxes.
• Retails for $7.50 (Romeo y Julieta Vintage II), the price will likely go to $11.48 before state tobacco taxes are included. Or from $187.50 per box of 25 to $287.00 before state taxes.
• Retails for $10.00 (a Montecristo Churchill is $10.25), the price will likely go to $15.31 before state tobacco taxes are included. Or from $250.00 per box of 25 to $382.75 before state taxes.
• Any cigar which retails for $11.29 or more will reach the cap of $3.00 each, not including state tobacco taxes and increase the price to at least $17.30 or higher, before sales tax.
So not including the burden of state tobacco taxes – which can be calculated on the manufacturer’s price, including the new federal tax – you’re looking at a 50% or more increase in the price of premium cigars. That’s what could happen starting January 1, 2008 if the current compromise bill becomes law. Now you know.
Imperial Tobacco on target with Altadis acquisition:
Britain’s Imperial Tobacco issued a note indicating that it expects to meet its profit goals for the year and that the acquisition of Altadis S.A. is expected to be approved soon.
Imperial’s statement noted that “We await approval of our offer document from the CNMV, the Spanish market regulator, which is expected in the next few weeks.” The deal for Altadis is currently valued at $17.4 billion U.S.
Although smoking bans that are sweeping across Europe are a worry, Imperial’s statement also included this interesting item: “Bans on smoking in public places have been introduced in Wales, Northern Ireland and England during the past six months. As anticipated, these have resulted in an initial decline in cigarette market volumes. We expect this impact to diminish over time.
“We have continued to grow our cigarette volumes and margin in the second half with particularly strong performances from our key brands Davidoff, West and JPS.”
Tobacco growing again:
In case you missed it, the much-anticipated death of tobacco farming in the U.S. has been put on hold . . . for a long time.
The Wall Street Journal lengthy, page-one story entitled “U.S. Farmers Rediscover the Allure of Tobacco” noted that after the tobacco quota system of price supports was ended in 2004, the crop was supposed to disappear from fields across the country.
And in 2005, tobacco acreage dropped by 27 percent. Since then, it’s risen 20 percent and is heading toward quota-era levels. The Journal cited the experience of Illinois farmer Martin Barbre, who nets $1,800 per acre of tobacco compared to $250 from corn. “There’s just too much money in tobacco,” he said.
The expanding consumption in cigarettes in China, Russia and Mexico, among other countries, is driving the demand up for U.S. tobacco that is considered to be of high quality. And tobacco is being planted in places it had disappeared, like Illinois, as well as expanding in states like Pennsylvania.
Barbre told the newspaper that tobacco has helped his income by more than a third since he started planting it three years ago. “Somebody’s going to grow it,” he said. “People are smoking it.”
~ Rich Perelman
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