Smokeless Tobacco Now Being Targeted
Despite the decline of cigarette consumption in the United States, sales of smokeless tobacco have grown at an approximate rate of 7% annually in recent years, and an overall growth of over 55% in the last decade has increased the market from approximately 4 million consumers to over 6.2 million. This has led to the acquisition of some smokeless companies by major manufacturers which will allow their businesses to continue to grow and drive cigarette smokers to smokeless products, primarily moist smokeless tobacco. Some companies are now cutting wholesale prices on premium smokeless brands by 20% or more to incentivize loyalty from consumers and keep them from switching to less expensive brands. Other measures however are now also being undertaken.
In a number of states, including Maryland, where the legislature is currently considering tax changes on smokeless products, efforts are underway to restructure the traditional taxing methodology for a percentage levy on the package's wholesale pricing to a specific tax amount per ounce of tobacco. In Maryland the proposal is to change the current 15% levy on the package's wholesale price to a 75 cent tax per ounce of tobacco. This would obviously decrease the cost of premium brands and increase the cost of less expensive brands, pitting in Maryland, the Skoal brand against other brands such as Grizzly.
The more aggressive attempts, however, to significantly change and impact competition in the smokeless tobacco market are now being raised and seen in legislation such as that introduced and being debated in the Oregon Legislature. House Bill 2672, if enacted, would effectively create amendments to the Smokeless Tobacco Master Settlement Agreement ("STMSA") by statute. Unlike the Tobacco MSA, the STMSA was signed and agreed to by only one manufacturer of a smokeless product and there were no non-participating manufacturers (NPMs), subsequent participating manufacturers (SPMs), or any escrow obligations. Under H.B. 2672, that would change. Effective from the proposed date that the Bill, if passed, would become law, it would be a class A misdemeanor to sell any smokeless product in Oregon, (or possess such product with the intent to sell), unless the smokeless manufacturer entered into the STMSA and undertook the financial obligations of paying settlement funds to the state, or certified to the Attorney General that the required escrow payments had been deposited. Effectively the bill creates NPMs status for all manufacturers of smokeless products since there is currently one and only one signatory to the STMSA. The Bill further mirrors the current laws for cigarette manufacturers and would require annual certification to the Attorney General that smokeless products are compliant with all Oregon laws, that the product is properly listed on the Attorney's General directory, and that all required payments or escrow deposits have been made. If the product is not properly certified on the Attorney's General directory then it cannot be sold in the state and would be considered as a contraband product.
It is obvious what costs these provisions would have on a manufacturer's product and how they would impact pricing to the consumers. It is also obvious, since there is currently only one manufacturer who is a signatory to the STMSA, what impact this Bill would have on the market shares of smokeless tobacco among all such manufacturers. Yet again the State's financial issues are coming to bear and legislation is being proposed that directly impacts the current market--a market that is currently subject only to the supply and demand vicissitudes and whims of the free market place. The Oregon proposal is a template that we will see in numerous states yet to come.