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Monthly Archives: July 2011

Can Cigarette Brands Use Green Marketing?

natural tobacco

Forget the FDA’s graphic cigarette packaging planned to scare American smokers. R.J. Reynolds wants smokers to think more positively… about the environment.

Santa Fe Natural Tobacco Co., a subsidiary of the U.S. tobacco giant, has been buying magazine ad space in magazines such as Esquire, Elle, Wired, and Marie Claire to advertise its “earth-friendly,” “additive-free,” organically-grown Natural American Spirit cigarettes.

Eco-friendly cigarettes? The process to make them is plenty green – wind-powered, few chemicals used, recycled packaging materials, a salesforce equipped with hybrid cars — but the smokes themselves are just as likely to cause lung cancer as the nonorganic ones, USA Today reports.

“It’s an egregious ad. It’s trying to greenwash a deadly and addictive product,” says Vince Willmore of the Campaign for Tobacco-Free Kids, to USA Today.

“When you hear a product is eco-friendly, you think it’s better for you,” he adds, pointing out that cigarettes are a major source of litter.

The company, however, says the goal isn’t to mislead, saying it’s aware that the cigarette itself isn’t “green.”

“We try to be good stewards of the environment,” responds spokesman Seth Moskowitz to USA Today.

“This is a perfect example of why green marketing is broken,” says Joel Makower, executive editor of GreenBiz.com, according to USA Today. “Products that harm people should not be marketed as green. … The average person is going to look at that ad and ask, ‘What are they smoking?’”

The tobacco company has faced similar complaints before. In 2000, after advertising its cigarettes as free of additives, the Federal Trade Commission negotiated a settlement that required it to include this statement: “No additives in our tobacco does NOT mean a safer cigarette.” In 2010, after marketing its “organic” tobacco, 33 state attorneys general demanded the company include a statement saying the cigarette was not safer as a result.”

Meanwhile, R.J. Reynolds, the second-largest tobacco manufacturer in the country, is facing a battle in another forum: the Mississippi courts. Forbes reports that judge there will figure out if the company “shortchanged the state of Mississippi when it failed to report profits from the sale of 7.8 billion cigarettes made for Star Tobacco.”

The state is arguing that Reynolds did not report 7.8 billion cigarettes manufactured between 2000 and 2005 that should have been made known due to the 1997 tobacco-industry settlement, Forbes reports.

Check out the full ad (via) below, and tell us what you think: is touting environmentally-friendly manufacturing acceptable for some brands and not others?

Turkmen Officials More Than Triple Cigarette Prices

ASHGABAT — Turkmen officials have raised the price of cigarettes by some 350 percent in the past two months in an effort to curb smoking, RFE/RL’s Turkmen Service reports.

Prices were initially increased by 50 percent after the country acceded in May to the World Health Organization’s (WHO) Framework Convention on Tobacco Control.

In early July, the average price for a pack of cigarettes on Turkmenistan’s tightly regulated market rose to the equivalent of $3.50 after two successive price increases. Before the price hikes, the average cost for a pack of cigarettes was about $1.

The WHO’s tobacco-control convention stresses that using taxes to increase the price of cigarettes is an effective means of reducing tobacco consumption and thus lowering the mortality rate from cancer.

But Ahmed, 32, a frequent smoker who lives in Ashgabat, told RFE/RL that people now just tend to buy cheaper brands of cigarettes.

“I know many people who want to give up smoking, but I haven’t seen a single one of them succeed,” he said. “Of course, some people now try to smoke less [because of the increased prices], but they become more stressed out. Some buy cheaper cigarettes…which are much more harmful [to one’s health] than luxury brands.”

Bayram, 29, a taxi driver in Ashgabat, told RFE/RL that preventing people from starting to smoke would be more effective than trying to force smokers to quit. He said he smoked his first cigarette in the military, where many smokers say they first picked up the habit.

Turkmenistan banned smoking in public places in 2000. But local observers say cigarette consumption has not declined despite that restriction.

The overwhelming majority of smokers in Turkmenistan are men.

E-cigarettes, not as safe as it promised

RESEARCHERS have warned of the health risks of electronic cigarettes, increasingly popular among smokers who want to quit the e-cigghabit or at least smoke less. E-cigarettes look like the real thing but consist of a rechargeable battery, a cartridge and a mouthpiece. The e-cigarettes are said to have no tobacco, offering an alternative to the nicotine patch or gum.

With the US Food and Drug Administration deciding that e-cigarettes will be labelled as tobacco products and not as drug-delivery devices, manufacturers will be able to sell the products straight to consumers, according to a report published in the latest issue of the New England Journal of Medicine.

It was written by Nathan K Cobb, a pulmonologist and assistant professor at Georgetown University Medical Center and David B Abrams, an executive director of the Schroeder Institute.

They also said that prominent cigarette manufactures such as Philip Morris International and British American Tobacco are likely to come out with even more sophisticated nicotine inhalers in the future.

They also noted that the cartridge can be replaced by the user giving he or she control over the amount of nicotine put in.

Supporters of the e-cigarette argue that the products help people avoid smoking regular cigarettes. But scientists and consumer groups have raised concerns about their potential harm to health. The electronic butts produce a propylene glycol mist and include other chemicals which have not been tested properly

Quake Disruptions Hit Japan Tobacco Results

TOKYO—Japan Tobacco Inc. on Thursday reported year-to-year revenue and operating profit declines in the first quarter due to the disruption of its tobacco sales in the wake of the March 11 disaster. But the company doesn’t expect there to be a prolonged impact and forecasts full-year profit gains on its solid performance overseas.

The company, commonly known as JT, also separately said it agreed to buy a leading tobacco maker in Africa, in a deal valued at $450 million, marking the company’s latest steps to ramp up its global presence.

The world’s third-largest tobacco company by sales volume after Philip Morris International Inc. and British American Tobacco PLC, said its group operating profit declined 9.5% to ¥71.98 billion ($922.9 million) in its fiscal first quarter.

While JT was already suffering from year-to-year declines in sales in volume after a tobacco tax rise took effect Oct. 1, the March earthquake and tsunami took a further toll on its performance. JT had to temporarily suspend shipments of all its cigarettes brands due to a shortage of filters and other supplies. It resumed tobacco shipments with a focus on certain key brands from April.

Since then it has then streamlined its lineup to a total of 73 brands, compared with 97 previously. All 73 brands will be available without shipment limitations from Aug. 1.

The company’s net profit rose 2.4% to ¥22.71 billion in the April-June quarter from a year-earlier profit of ¥22.18 billion. But the gain was somewhat exaggerated by a lower corporate tax burden.

JT posted revenue of ¥588.18 billion for the quarter, showing a 0.1% decline from ¥588.55 billion a year earlier. Effective from the just-ended quarter, JT has decided to provide revenue data excluding the tobacco tax, which makes up a large proportion of tobacco prices and often helps distort the size of its business. Tobacco taxes currently make up about 60% of the price of a ¥410 pack.

Meanwhile, JT said it will acquire Haggar Cigarette & Tobacco Factory Ltd., which has more than 80% market share in the Republic of Sudan, aiming to tap into demand in a market with potential for growth. Hagger Cigarette & Tobacco also has a presence in South Sudan. The deal will be completed in November.

JT, which previously didn’t issue a detailed full-year earnings outlook, said it now estimates an 11% rise in net profit to ¥161 billion and a 0.5% gain in revenue to ¥2.446 trillion for the fiscal year ending March 2012.

“We recognize the quake impact was only a one-off, special factor for this fiscal year and the impact was mostly realized in the first quarter,” said JT’s executive deputy president, Munetaka Takeda.

JT estimates its global operations centered on flagship brands such as Winston and Camel will continue to serve as its profit engine for the full year. Its April 2007 purchase of Gallaher, which owns the Benson &Hedges and Silk Cut brands, helped the company in markets such as Russia and the Middle East.

Mr. Takeda also said a share buyback is an option that JT would take if the Japanese government, the biggest shareholder of JT, moves to sell its stake.

His comments come amid talks in political circles that the ruling Democratic Party of Japan is leaning toward unloading a portion of its 50.01% stake in JT, to fund quake and tsunami reconstruction. Some lawmakers have also said that the government may consider another tobacco tax increase.

JT has said it will use retained earnings to repurchase its own shares with the aim of broadening its management options, leaving open the possibility that it will go ahead with a share buyback to avoid share dilution should the government sell its JT shares.

By Hiroyuki Kachi
hiroyuki.kachi@wsj.com

Smokers in emerging markets lift BAT

An increase in prices and a focus on smokers in developing markets has helped British American Tobacco shrug off a decline in volumes.

The maker of Dunhill and Lucky Strike cigarettes also offset the effects of a tobacco price war in Spain to boost turnover by 2 per cent to £7.4bn ($12bn), encouraging the FTSE 100 group to increase its interim dividend by 15 per cent.

An 8 per cent jump in prices helped BAT also boost profit in spite of a 1 per cent fall in volumes to 344bn cigarettes “as the overall market share of the group increased and industry volume decline moderated”, the London-based company said.

Adjusted profit rose 12 per cent to £2.8bn at BAT, which also makes the Kent and Pall Mall brands, beating analysts’ consensus estimates of £2.7bn.

“With continued pricing momentum, an increase in market share and the rate of volume decline moderating, we are on track for another good year,” said Richard Burrows, BAT chairman.

BAT’s exposure to developing markets has reassured investors about the prospects for tobacco companies after a report published in January by Citigroup analysts that forecast the end of smoking in the western world by 2050, which led to a brief drop in tobacco stocks.

The tobacco company has aggressively promoted its brands in emerging markets, attracted by increased disposable incomes.

In the six months to June 30, sales of Pall Mall cigarettes rose by 14 per cent year-on-year, with growth in Pakistan, Turkey, Russia, Ukraine and Romania, which was partially offset by declines in Mexico, Italy and Spain.

Volumes of Lucky Strike increased by 8 per cent, driven by growth in Japan, Germany, France, Italy, Chile and Argentina. Shipments to Japan were buoyed by a disruption in production by local cigarette companies following the country’s tsunami and earthquake in March.

However, Spain continued to prove a weak spot after BAT this year moved to take market share from rivals including Imperial Tobacco by not passing on a tax increase to customers.

The decision sparked a price war, which was exacerbated by Spain’s recent ban on smoking in public places, as well as the country’s weak economy leaving smokers with fewer euros in their pockets to fund their habit.

BAT is also fighting government moves in Australia – where it controls 40 per cent of the market – to introduce uniform olive-green cigarette packaging.

As a result BAT has turned its attention to emerging markets, and in May purchased Productora Tabacalera de Colombia – Colombia’s second-biggest cigarette maker – for $452m to become the second-largest tobacco group in Colombia after Philip Morris.

The group is the maker of Mustang cigarettes, the second-most popular brand in the South American country, with an 18 per cent market share.

As well as price rises, BAT aims to profit by pushing smokers towards premium brands, and the company has also started a subsidiary devoted to developing non-tobacco nicotine products.

In the six months to June 30 BAT revenues rose from £7.3bn to £7.4bn, whilst pre-tax profit increased from £2.3bn to £2.8bn. Diluted earnings per share were up from 76.5p to 94p and an interim dividend of 38.1p, up from 33.2p, was proposed.

BAT shares, which have risen by more than a quarter during the past 12 months, on Wednesday rose 37½p, or 1.3 per cent, to £28.99.

By Mark Wembridge

Zippo vs Bic: The lighter wars

Zippo:lighter

Zippo is a private company that does not release specific financial figures such as profit, but it says sales for this year so far are up 18% on last year’s approximate $200m (£124m). Forty per cent of its business comes from the US, which produces 12 million Zippo lighters a year. Sales in India grew 69% last year, while over the past 10 years, China sales have increased 30% year on year.

Sales in the UK last year increased 5% year on year – 80% came from lighters and 20% from its range of lifestyle products.

Bic:

The Bic group reported sales of €409.9m (£359.5m) for the first quarter of this year, up 6.6%. Bic’s stationery division brought in €127.7m, up 9.4% and spurred by a strong South American market.

Sales of its lighters came in at €122.9m, an increase of 10.3%, thanks to growth in developing markets. And sales of Bic razors totalled €76.7m, an increase of 11.9%, with growth coming evenly from across the world.

While revenues from Bic’s promotional products business of third-party branded items decreased 8.8%, overall gross profit was up 17.7% to €211.2m (£185.2m).

Eco-friendly cigarette ads make tobacco foes fume

A green cigarette? New magazine ads touting cigarettes with “additive-free” organic tobacco use the term “eco-friendly,” prompting anti-smoking natural-cigarettesactivists to fume.

The ads for Natural American Spirit cigarettes make the claim next to a list of environmental efforts by the manufacturer, Santa Fe Natural Tobacco Co. They began appearing in March in magazines such as Esquire, Field & Stream, Wired,Mother Jones,Elle and Marie Claire.

“It’s an egregious ad. It’s trying to greenwash a deadly and addictive product,” says Vince Willmore of the Campaign for Tobacco-Free Kids, adding research shows cigarettes also are the No. 1 source of litter. “When you hear a product is eco-friendly, you think it’s better for you.”

The tobacco company, owned by Reynolds American Inc., says it’s not saying its cigarettes are safer but that its manufacturing is greener. It says its facilities are wind-powered, its farmers use fewer chemicals and 70% of its sales staff drive hybrid vehicles.

“We try to be good stewards of the environment,” says spokesman Seth Moskowitz. Noting concern about littering of cigarette butts, he says a sister company helps fund Keep America Beautiful.

The magazine ads reflect the surging popularity of green marketing as more than 100 eco-related product labels are now used in the USA.

“This is a perfect example of why green marketing is broken,” says Joel Makower, executive editor of GreenBiz.com, which covers business environmental efforts. He says marketers latch on to anything that can be considered green so the term becomes meaningless.

Makower says the company may be accurate in describing its greening initiatives, which he welcomes, but adds, “Products that harm people should not be marketed as green,”

The tobacco company has faced similar complaints before. In 2000, after advertising its cigarettes as free of additives, the Federal Trade Commission negotiated a settlement that required it to include this statement: “No additives in our tobacco does NOT mean a safer cigarette.” In 2010, after marketing its “organic” tobacco, 33 state attorneys general demanded the company include a statement saying the cigarette was not safer as a result.

The new ads include such disclaimers, but Willmore’s group is again appealing to the attorneys general to take action.

“It is misleading to talk about being eco-friendly in a cigarette ad,” given the problems of littering and secondhand smoke, says Jeanne Finberg, a deputy attorney general in California who focuses on tobacco litigation.

Says Makower: “The average person is going to look at that ad and ask, ‘What are they smoking?'”

By Wendy Koch, USA TODAY

Spanish price war drags on Imperial Tobacco

Spain’s tobacco price war is continuing to drag down profits at Imperial Tobacco, in spite of the cigarette maker winding back forecasts of the impact from intense competition.

In June, Imperial, which owns the Davidoff, West and Gauloises cigarettes brands, warned that full-year adjusted operating profits in the region could be as much as £110m ($180m) lower than previously forecast.

But on Tuesday, the FTSE 100 group said an improvement in prices in the region and a one-off £20m saving at its logistics arm would lessen the full-year impact of the price war to £70m.

In January, Spain became the latest European country to implement a ban on smoking in public places. The country’s struggling economy further compounded the situation for tobacco companies, with smokers having less disposable income to fund their habit.

In response, Imperial was forced to cut its prices in Spain to compete with British American Tobacco’s drive to promote its Pall Mall cigarette brand, resulting in Imperial’s profit warning last month.

Updating the market for the nine months to June 30, Imperial on Tuesday said that tobacco net revenue had risen by 2 per cent, in spite of a 3 per cent fall in cigarette volumes.

Increases in volumes of habanos cigars and cans of snus – powdered tobacco that is placed between the teeth and lip – failed to prevent the group reporting a slip of 2 per cent in total stick equivalent volumes.

“We grew volumes of our global strategic cigarette brands Davidoff, Gauloises Blondes and West with good performances in emerging markets and we also achieved further excellent progress with JPS,” said Alison Cooper, chief executive.

“We made strong fine cut tobacco gains in a number of EU markets and we also increased volumes of our luxury Cuban cigars, despite difficult conditions in Spain.”

Davidoff volumes rose by 6 per cent, driven by increased popularity in Taiwan, Ukraine, Saudi Arabia and Russia.

Imperial recently brought forward plans for share buy-backs and in May announced the launch of a programme to repurchase £500m of shares a year.

Analysts had expected the tobacco group to begin buybacks in 2012, after it had paid down debt related to its 2007 purchase of Altadis to about 2.5 times earnings before interest, tax, depreciation and amortisation. At the end of last year, net debt stood at 2.9 times ebitda.

Shares in Imperial Tobacco, which have risen by 15 per cent over the past 12 months, was down 4p at £21.48 in London on Tuesday.

By Mark Wembridge
Financial Times

Bulgaria’s Top Tobacco Maker Posts Profit Ahead of Sale

Bulgartabak Holding (57B), the Bulgarian state tobacco company being offered for sale, reported a net income of 34.1 million lev ($25.3 million) in the first six months because of increased sales and cost cutting.

The profit compares with a 577,000 lev loss a year ago, the Sofia-based company said in a stock exchange filing today. Revenue rose 78 percent to 46 million lev in the first half of the year from the same period a year ago. Exports rose 29.5 percent to 7.36 million cigarettes. The company didn’t report second-quarter results.

Bulgaria’s asset-selling agency admitted three candidates to buy an 80 percent Bulgartabak stake in the country’s fourth attempt in a decade to sell it. British American Tobacco Plc (BATS) and Austrian-registered BT Invest GmbH, are the only two companies that bought tender documents to submit binding bids by Aug. 29, the Sofia-based agency said in an e-mailed statement today.

Bulgaria, the European Union’s poorest country, is recovering from its worst recession in more than a decade and needs to raise cash to narrow its budget deficit and meet increasing social benefits payments ahead of October presidential and local elections.

Moody’s Investors Service raised the nation’s debt rating on July 22 to Baa2, the second-lowest investment grade, from Baa3, citing the government’s tight spending policy and “relative resilience” to debt crisis contagion from neighboring Greece. Bulgaria will need to raise some 500 million euros ($718 million) to refinance global bonds maturing in 2014, Bulgarian Finance Minister Simeon Djankov said in July 22 interview.

Bulgartabak aims to keep its 30 percent share of the domestic market, it said. It started exports to Poland, Croatia, Israel and Turkmenistan earlier this year. The tobacco-maker is in talks to expand exports to African and Middle Eastern countries. It has six units, including four cigarette makers and a trading division.

By Elizabeth Konstantinova
ekonstantino@bloomberg.net

British American Tobacco’s Dividend Is Safe

As a dividend investor, it pays to follow how much of a company’s money goes toward funding its dividend. A nice yield now won’t matter much if the company can’t keep making those payments going forward.

Here, we’ll highlight a given company and its closest competitors to see just how safe their dividends are, with a little help from three crucial tools:

  • The interest coverage ratio, or earnings before interest and taxes, divided by interest expense. The interest coverage ratio measures a company’s ability to pay the interest on its debt. An interest coverage ratio less than 1.5 is questionable; a number less than one means that the company is not bringing in enough money to cover its interest expenses.
  • The EPS payout ratio, or dividends per share divided by earnings per share. The EPS payout ratio measures the percentage of earnings that go toward paying the dividend. A ratio greater than 80% is worrisome.
  • The FCF payout ratio, or dividends per share divided by free cash flow per share. Earnings alone don’t always paint a complete picture of a business’s health. The FCF payout ratio measures the percent of free cash flow devoted toward paying the dividend. Again, a ratio greater 80% could be a red flag.

Each of these ratios reflect dividends paid in the trailing twelve months while yields are the expected forward yield. Let’s examine British American Tobacco and three of its peers.

bigtobcacco

With an interest coverage of 8.5, British American Tobacco covers every $1 in interest expenses with more than $8 in operating earnings. Given that its EPS payout ratio is below 80%, and its FCF payout ratio is below 70%, you shouldn’t have to worry that Valero will need to cut its dividend anytime soon.

Another tool for better investing
Most investors don’t keep tabs on their companies. That’s a mistake. If you take the time to read past the headlines and crack a filing now and then, you’re in a much better position to spot potential trouble early. We can help you keep tabs on your companies with My Watchlist, our free, personalized stock-tracking service.

Companies Get Tougher with Employees Who Smoke

Many companies use quiet incentives to encourage desired employee behavior, such as losing weight. Not Macy’s. Beginning on July 1, workers at the department store chain who admit to using tobacco will be surcharged $35 a month, or $420 a year, for health coverage. The extra cost will be deferred only if smokers enroll in a free quit-smoking class. Their progress will then be reviewed after six months.

Instead of using carrots to encourage smokers to kick the habit, businesses increasingly are wielding sticks. At PepsiCo, smokers pay an annual $600 insurance surcharge, while publisher Gannett charges $60 a month. Some go even further: Union Pacific and Scotts Miracle-Gro refuse to hire smokers.

Between medical spending and productivity losses, smoking costs the U.S. more than $193 billion a year, says the U.S. Centers for Disease Control and Prevention. Tobacco use is responsible for one in five U.S. deaths. For employers, a smoker is 18 percent more expensive than a nonsmoker, says Cathy Tripp, a consultant at Aon Hewitt.

That cost gap likely will widen beginning in 2018 when, under a provision of health reform legislation passed last year, companies with health plans that spend way more than average will have to pay an additional federal tax. That may push some to reduce employee coverage. “Employers have two choices: cut benefits or cut the trend” of rising medical costs to avoid the levy, Tripp says. “It has made all of them a lot bossier when it comes to employee lifestyle choices.”

Businesses also are looking at how they can get workers to keep closer tabs on their health. Scotts Miracle-Gro cuts insurance rates up to $60 monthly for workers and spouses who get their weight, cholesterol, and blood pressure checked regularly. Union Pacific offers free fitness club access.

Michael Wood, a benefits consultant at Towers Watson, says smoking is employers’ most effective “wellness” target since smoking cessation programs have a relatively high 25 percent success rate. “Employers see wellness as one of the last levers they can pull to try to control health-care spending,” Wood says. “You have to get to the root causes of the spending if you want to cut the trend from the 7 or 8 percent [increases] many employers see annually to something closer to the 2 to 3 percent inflation in consumer spending.”

The tough tactics can have an impact: Scotts Miracle-Gro says its health premiums have risen at about half the U.S. average since implementing the smoker hiring ban. The strategy can also ruffle feathers. “Some people like the carrot, and some like the stick,” says Ken Bordieri, president of Local 1-S of the Retail, Wholesale and Department Store Union that represents Macy’s employees in New York-area stores. “I wish Macy’s had stuck with carrots.”

Policies that block employment to smokers or charge extra for insurance discriminate against low-income and less-educated workers, says Dr. Cheryl Healton, head of the American Legacy Foundation, the health advocacy group created as part of the civil settlement between cigarette makers and 46 state attorneys general in 1998. The smoking rate is four times higher among teens not bound for college than for those pursuing higher education, and lower-income and less-educated adults also are more likely to smoke, she says.

The Society for Human Resource Management estimated that 59 percent of companies offered wellness programs in 2010; 28 percent paid bonuses for quitting smoking, losing weight, or achieving health goals; and a 10th provided insurance discounts for not smoking, getting a health risk assessment, or joining a weight-loss program.

Health-care companies have been among the most active at tackling smoking. The Cleveland Clinic banned the use of tobacco in 2005 and stopped hiring smokers two years later. Job candidates, including doctors, must have their blood tested for nicotine. Says Toby Cosgrove, chief executive officer of the clinic network: “If we want to be a model of health care, then we as an organization need to show our patients what a healthy lifestyle means.”

Copyright © 2011 Bloomberg L.P.All rights reserved.

Tobacco fix to end shutdown may be costly

MINNEAPOLIS — The budget deal that ended Minnesota’s government shutdown comes with a hefty price: It relies heavily on borrowing $640 million against money from the state’s 1998 tobacco settlement, but may cost that same amount in interest — plus a substantial annual revenue loss for years to come.

Still, it allowed Democratic Gov. Mark Dayton and Republican legislative leaders to avoid $640 million in spending cuts or tax increases.

“From the Republican standpoint, it is considered better than a tax increase. I would presume from the governor’s standpoint it makes money available to support critical programs,” said Tom Hanson, who was the state’s finance commissioner under former Gov. Tim Pawlenty. “The downside is it’s money that’s not going to be available in the next biennium … but the spending expectations will probably be there.”

All 50 states reached settlements with the major tobacco companies in 1998 to recover billions of dollars in costs incurred from treating smoking-related illnesses. Forty-six states signed a master agreement with the industry while Minnesota was one of four states that negotiated separate deals. Minnesota’s settlement was expected to bring the state $6.1 billion over 25 years, with payments continuing into perpetuity.

About 20 states have issued bonds backed by future tobacco settlement revenues to meet more immediate needs, according to Arturo Perez, a financial analyst with the National Conference of State Legislatures. Some states have done so more than once. This will be Minnesota’s first time, although the idea has been floated at the Capitol before, most recently in 2009 when Pawlenty was unable to get support for a tobacco bond issue.

The budget deal calls for $1.4 billion from tobacco bond proceeds and delayed payments to schools. Minnesota gets about $160 million a year from the cigarette makers, so it’s expected to receive about $320 million in the two-year budget period that began July 1. The loss of an as-yet unknown portion of that revenue in future budgets means lawmakers may have to find a way to plug that gap.

“They’re going to have the same debates two years from now,” Hanson predicted. “ … Hopefully the economy will grow and the revenue will grow faster than the obligations for the programs.”

The special session tax bill Dayton signed Wednesday leaves it up to his finance commissioner to work out most details of how to structure the bond sale. The bonds won’t be guaranteed by the state.

As a general rule, said Bill Marx, a fiscal analyst for the Minnesota House of Representatives, the final cost to the taxpayers could be 150 percent to 200 percent of the bonds issued. By that math, a $640 million tobacco bond issue could cost almost $1 billion to close to $1.3 billion.

Reynolds American 2Q Profit Slips 11% On Cigarette Volume Decline

“Reynolds American 2Q Profit Slips 11% On Cigarette Volume Decline,” published at 7:40 a.m. EDT, incorrectly stated that the company’s net sales declined in the fourth paragraph and that net sales in the RJR Tobacco unit declined in the six paragraph. The correct version follows:)

DOW JONES NEWSWIRES

Reynolds American Inc.’s (RAI) second-quarter earnings slipped 11% on a litigation charge and as a decline in cigarette volumes offset higher pricing and volume gains in moist snuff.

Looking ahead, the company raised the low end of its forecast for full-year per-share earnings by 2 cents, estimating $2.62 to $2.70 a share.

The company has in recent years shifted its focus to a few key brands and consolidated production. As cigarette smoking continues to decline, the company has diversified into other offerings, like smokeless tobacco.

Reynolds reported a profit of $304 million, or 52 cents a share, down from $341 million, or 58 cents a share, a year earlier. Excluding litigation charges and implementation costs, adjusted earnings rose to 67 cents a share from 66 cents. Net sales edged up 1% to $2.3 billion.

Analysts polled by Thomson Reuters had expected earnings of 71 cents a share on $2.27 billion.

The R.J. Reynolds Tobacco division’s top line rose 0.7%. Total R.J. Reynolds domestic volume fell 4.4%. Total market share, excluding private label brands, was unchanged from a year ago.

At the American Snuff unit, which makes Grizzly- and Kodiak-brand moist snuff, revenue fell 16%. Volume rose 3.6%.

Shares of Reynolds were recently off 1% to $38.13 in premarket trading. Through the latest close, the stock is up 18% since the start of the year.

By Mia Lamar, Dow Jones Newswires
212-416-3207
mia.lamar@dowjones.com

BAT Australia is offering free luxury holidays in Fiji to shopkeepers who push its products

The tobacco company offered 100 holidays on the Coral Coast, Fiji’s most exclusive enclave, to IGA stores and other retailers to sell more cigarettes.

To be eligible, the shopkeepers had to sell at least 10,000 cigarettes between 11 April and 5 June – or lift sales by five per cent.

To win, retailers also had to promise never to run out of stock of BATA cigarettes. With pictures of sandy beaches, golf courses and exotic Fijian dancers, the BATA competition promises winners “guest speakers and industry experts from the world of retail, themed dinners, a range of great activities, five-star luxury accommodation plus opportunities to win other amazing prizes.”

The holiday is taking place this weekend, from 22-25 July.

It is illegal for tobacco companies to advertise directly to consumers or run consumer competitions – but they can run promotions for retailers, in what anti-smoking groups say is a “loophole” that must be closed.

BATA are the makers of Winfield, Dunhill, Benson & Hedges, hot-cigs.biz/cigarettes/pall-mall and Holiday. Anti-smoking group Ash Australia described the promotion as exploitation of retailers by the tobacco industry. Ash chief Anne Jones said: “The retailers are being used as the front line for the tobacco industry. These are incentives for retailers to sell products that cause disease, and they should be banned.”

However, BATA spokesman Scott McIntyre said the promotion was legal. He added: “BATA values the relationships we have with our retailers – which is why we have organised a number of industry experts and guest speakers to engage with them about best-practice retailing, improving customer service and growing their business.

“The program applies to 100 of the 30,000 plus retailers in Australia.”

The Sunday Telegraph can also reveal rival tobacco giant Imperial has given retailers a “cheat sheet” on campaigning against the federal gov- ernment’s proposed plain-pack laws, due to be voted upon in August.

The Imperial Tobacco pamphlet urges retailers to claim they are afraid of the plain-pack laws being extended to other products.

“Next could be food and drink. Where will it stop?” the Imperial pamphlet asks in a series of pointers for retailers to include in their submissions to a House of Representatives committee presently considering the plain-pack laws.

“When sending your submission, you may choose to include views such as: There is no evidence anywhere in the world that plain packs will work (and) if cigarettes are not on display, plain packaging does not make sense and is bureaucracy gone mad,” the pamphlet said.

Imperial did not respond or comment on The Sunday Telegraph’s questions.

By Claire Harvey
The Sunday Telegraph

El Salvador bans public-area smoking

SAN SALVADOR, El Salvador — El Salvador’s congress has overriden a veto by President Mauricio Funes and approved a ban on smoking in closed public spaces.

The law explicitly bans smoking in work places, public transport and public areas where children gather.

It also bans the sale of single cigarettes and requires warning messages on cigarette packs.

Congress approved the law Thursday, after Funes had vetoed it on the grounds that it excessively regulatied private activities.

In February, neighboring Honduras passed an even tougher anti-smoking ban that allows family members to call the police on people who smoke at home.

That law requires smokers to stand at least six feet away from nonsmokers in any open space

African Americans and tobacco: Statistics

“Big Tobacco” may be on the ropes again after a recent court ruling requiring that one company, Lorillard, pay out $152 million in a wrongful death suit. A Massachusetts court has ruled in favor of the family of Marie Evans eight years after she died from lung cancer. The case was strengthened by documents used in the trial that showed Lorillard purposely marketed its Newport cigarettes to African Americans such as Evans when they were teenagers.

Another document in the case, a Lorillard company memo stated, “the base of our business is the high school student.” Court testimony revealed Lorillard gave out sample packs of its menthol-flavored cigarettes to teenagers in minority enclaves such as Roxbury in Boston. That included giveaways outside of neighborhood middle schools. Lorillard is appealing the decision.

It’s not surprising that tobacco companies such as Lorillard gave away menthol cigarettes. According to a recent FDA report, menthol-flavored cigarettes can be more addictive. That’s because menthol acts as an anti-irritant and also masks tobacco’s unpleasant taste. That also makes the cigarettes more appealing to kids.

Studies, such as one published in Addiction, have shown African Americans and young adults are the biggest menthol smokers. Studies also have shown menthol cigarettes are harder to give up than non-menthols. One study of 7,000 smokers recently published in Preventive Medicine showed that 62 percent of African Americans and 61 percent of Hispanics who attempted to quit smoking non-menthol cigarettes did so. Yet only 44 percent of African Americans and 48 percent of Hispanic menthol smokers could quit.

All that marketing – an explanation

According to study co-author, Dr. Cristine Delnevo, tobacco companies target minority populations when marketing menthols. So although minorities smoke at about the same rate as Caucasians, more smoke harder to quit menthol cigarettes. Dr. Delnevo also thinks that helps explain why minorities suffer higher rates of tobacco-related disease and death.

Big Tobacco is facing a possible FDA ban of all menthol cigarettes. Makers of menthols have been arguing against the ban. In March, the FDA’s own Tobacco Products Scientific Advisory Committee failed to make a clear recommendation on the proposed ban. One reason was the tobacco company claim that a ban could lead to a black market demand for the cigarettes.

The decision is now up to the FDA. But from a sales standpoint, tobacco companies have a lot to loose. Menthols make up a third of the U.S. Market. One study showed 40 percent of menthol smokers would quit if they were banned. The National Cancer Institute estimates that by 2020, a ban would result in 17,000 fewer premature deaths and 2.3 million fewer smokers.

As Delnevo noted, minority populations suffer higher rates of tobacco-related disease and death. A recent study may help explain some of the reasons for the “survival gap” – that mistaken attitudes on lung cancer have a negative effect on survival. Published in the journal Cancer, researchers surveyed the attitudes of 1500 African Americans and whites with lung cancer, a very deadly form of cancer. It revealed that African Americans had a “mistaken, fatalistic” belief about lung cancer that may have delayed diagnosis and treatment. The African Americans in the study tended to wait until obvious lung cancer symptoms such as pain and coughing-up blood appeared. Unfortunately, a delayed diagnosis makes it more difficult to treat lung cancer successfully.

Cancer misconceptions

The study also showed that African Americans “grossly underestimated” the seriousness of lung cancer. And after diagnosis, they were more pessimistic about survival outcomes. That may have interfered with them choosing aggressive treatment. The researchers noted the African-American community needs to be educated on the actual risks of lung cancer and the importance of early diagnosis and treatment.

Smoking and joints

It’s a well-established fact that smoking can cause lung cancer. What is not so well known is that smoking also contributes to the development of rheumatoid arthritis (RA). Now a study shows that for African Americans, that is also the case. The study, published in Arthritis & Rheumatism, compared the rates of RA among never smokers with smokers. The study showed the African Americans in the study with RA were more likely to be smokers. The rate of RA was strongly related to smoking more than 10 years.

Scare the smoke out of you

Perhaps you’ve heard about the new, frightening, cigarette warning labels. The FDA recently announced what these labels will look like.

So why the scare tactics?

One reason is because they work. According to a CDC report on graphic cigarette warning labels in countries where they’ve been used for years, they make people seriously consider quitting. Of course in many of those countries the warning labels are more gruesome than those that will grace American cigarette packages. Halloween is a ways off but you can check out some of the warning labels from those countries at www.smoke-free.ca.

Dissolvable Tobacco Product Raises Concerns Over its Usage

While the tobacco industry advertises lozenges like Ariva and other smokeless products as safer alternatives to smoking, public dissolvable-tobacco-producthealth officials and anti-smoking advocates say they fear the products will appeal to a much younger crowd, the Los Angeles Times reports.

“Because it has a mild taste, we’re concerned dissolvable tobacco will be a starter product for kids,” Matthew Myers, president of the Washington-based anti-smoking group Campaign for Tobacco-Free Kids, told the Times. “Traditionally, girls have not used smokeless tobacco products. But this product does not have a substantial smell or require spitting. There is a real concern that this product will appeal to adolescent girls, particularly those concerned about weight.”

But Sara Troy Machir, vice president of communications and investor relations at Star Scientific Inc., maker of Ariva and another dissolvable tobacco product called Stonewall, told the Times, “We have absolutely no interest in recruiting another generation of tobacco users.”

Star Scientific applied to the FDA last year for approval to market Ariva BDL, a newer version of the dissolvable lozenge, as a “modified risk tobacco product.” The FDA announced in March that Ariva BDL was not subject to regulation under the 2009 Family Smoking Prevention and Tobacco Control Act, which gives the FDA the authority to regulate tobacco products.

According to the Times, twelve senators have since asked the FDA to reverse its decision.

In April, the FDA announced it was developing a strategy to regulate additional categories of tobacco products and that it would review information on dissolvable tobacco from published studies, manufacturers’ research and the advisory committee meeting this week.

The FDA is expected to eventually close loopholes that might prevent dissolvable tobacco products from escaping its regulatory power.

By Roberta Seldon

Navajo casinos exempt under commercial tobacco ban

FLAGSTAFF, Ariz. — Navajo Nation lawmakers have voted to prohibit smoking in public places on the vast reservation with an exemption for tribal casinos.

The lawmakers heavily debated the measure before voting 14-5 in favor of it Wednesday. Under the bill, the Tribal Council can reconsider the casino exemption once gaming officials pay off their financing debts.

Some lawmakers saw smoking or chewing tobacco as a personal right that shouldn’t be regulated by the tribal government and argued that a ban would inhibit gaming revenue. Critics said no one should be exposed involuntarily to secondhand smoke and that any exemption sends the wrong message to Navajo youth.

The bill now heads to tribal President Ben Shelly, who urged lawmakers this week not to approve it but hasn’t said whether he would veto it once it reaches his desk.

The situation was different three years ago when Shelly’s predecessor, Joe Shirley Jr., struck down a bill to implement a smoking ban. Neither bill prohibited commercial tobacco sales on the reservation that are taxed by the tribe or put limits on the use of tobacco in traditional ceremonies.

Anti-smoking advocates like Patricia Nez Henderson say they’ll now lobby the lawmakers to make sure that a veto she anticipates from Shelly sticks. She said lawmakers have exposed Navajos to deadly toxins “just to earn a buck.”

The legislation acknowledges the health effects of secondhand smoke, but its sponsor pointed to thousands of jobs casinos create through construction and permanent employment and touted it as a compromise. The Navajo Nation operates two casinos in New Mexico and has broken ground on what will be its largest facility east of Flagstaff.

Gaming officials told lawmakers that business at the casinos would suffer if patrons couldn’t smoke, and financing for planned casinos would be in jeopardy should a smoking ban include casinos. They expect to repay an estimated $200 million in debt in about seven years.

“We’re trying to mitigate our business risks associated with a 100 percent smoking ban, provide the jobs and revenue that the Navajo Nation so badly needs and at the end of the day become entirely smoke-free for our people,” said Sean McCabe, chairman of tribe’s gaming board.

“Once we eliminate that debt, pay off that debt, our business risk is gone,” he said.

Under the legislation, smoking is allowed only in designated areas of the casinos like at slot machines, and in outdoor areas and golf courses. Lawmakers also amended the bill to set aside $150,000 annually from gaming revenues for anti-smoking education.

Shelly said the measure doesn’t go far enough to protect the health of Navajos. In a letter to lawmakers, he said the measure is an unfunded mandate to tribal health and public safety officials who are tasked with enforcing it. Anyone found violating the measure faces a fine of up to $100 for the first offense and up to $500 on the third offense.

Cigarette or cigar smoking is not a common sight on the reservation, but Shelly and other health advocates say they want to be proactive.

“We all know smoking is not good for our people,” said Delegate Katherine Benally. “By supporting this legislation, we will say that it’s OK.”

Marlboro Leadership Price

RICHMOND, Va. — The Marlboro Leadership Price (MLP) option, which has been the topic of much discussion in tobacco retailing, has been meeting Altria Group Inc.’s expectations, Mike Szymanczyk, chairman and CEO of the company said in the company’s second-quarter earnings call Wednesday.

Retailers participating in MLP forgo part of their typical markup in exchange for incentives. And Szymanczyk said MLP is an evolution of a program approach the company has had for more than a decade. “So what happens when we make evolutionary changes in these programs is we always have a group of customers that jump on them immediately, and then we have other customers who don’t see that program as a strategic fit for their business. And then we have customers who watch what happens in the marketplace, and come on to the program over time.”

While he declined to discuss what percentage of Marlboro’s volume is part of the program, he said, “I would say in this particular case, we’ve had broad acceptance and participation in this program and that’s occurred pretty rapidly.”

He added, “We evolve these programs; we’ll evolve this one as time goes on. But so far, it’s pretty much in line with what we would have expected it to do, and it’s pretty consistent with the way these programs have functioned in the past.”

As for revenue per pack for the quarter, Szymanczyk said that relative to the cost side of the business, MLP really didn’t have an impact. “So it’s transitioned from one program to another. And when you look at our total value spend, as a percentage of our total revenue, that’s remained pretty flat as well both for the quarters relative to the previous year.”

“So I can’t tell you that that carves out a significant impact,” he said. “More the impact is really in how retailers have chosen to compete in the marketplace.”

Nik Modi of UBS wrote: “As expected, Marlboro gained share sequentially (likely due to benefits from the MLP program), but lost share year over year (Marlboro share was up over 1 point a year ago).”

And Bonnie Herzog of Wells Fargo wrote: “Despite PM USA’s Marlboro Leadership Price (MLP) program and line extensions that were in place during Q2, Marlboro retail share declined slightly on a [year-over-year] bases as we expected; however, on a sequential basis, Marlboro’s 2Q retail share increased slightly (up 0.4 points).”

Other highlights of the earnings call:

  • Cigarettes. Marlboro’s sequential retail share growth of 0.4 points brought it to 42.6%. “Marlboro’s performance was driven in part by growth in Marlboro Menthol and the continued success of Special Blend, which launched two new packings last quarter,” Szymanczyk said.
  • Smokeless. Copenhagen increased its retail share 1.1 percentage points vs. the prior year, and .7 sequentially. Skoal gained sequential retail share for the second consecutive quarter as it benefited from first-quarter 2011 introduction of Skoal X-tra and Snus.
    “Copenhagen remains on a nice growth trend. And I think while it’s early on Skoal, the signs are right,” Szymanczyk, said, adding that there is still some remodeling to do on that franchise. “It has a lot of SKUs and so as we adjust the franchise, we’re also pruning some of that, so we’ll continue to have some effect from that kind of activity and we’re also migrating share a bit from the discount portfolio that had been built up in USSTC before we acquired it.”
    As for the “snus phenomena,” he said, “I tend to see more interaction relative to total pouch segment of the total smokeless business, which would include snus and MST pouches as time goes on–more so than seeing snus as kind of a separate business relative to the MST pouches business, which is larger.”
  • Cigars. Black & Mild’s retail share grew .9 of a share point vs. last year. Szymanczyk said John Middleton Co. has been investing in promotional resources for Black & Mild and launching new products. Middleton has also entered into a contract manufacturing arrangement to source a portion of its cigars outside of the United States.

Raleigh company gets 2 tobacco brands

Raleigh-based CB Holdings has reached an agreement to buy the assets of Renegade Holdings, a cigarette manufacturer in Davie County.

Renegade Holdings is the privately held parent of Renegade Tobacco and Alternative Brands. Its products include Tucson cigarettes and Murano cigars.

Financial terms of the deal were not disclosed. The combined company will employ about 150 people, according to a statement issued by CB Holdings.

The Raleigh company, which is owned by Bill Barker and Charles Fuller, owns the tobacco brands Palmetto and Proud Smoke. It also owns a manufacturing facility in South Boston, Va., a sales and distribution company in Raleigh and an organic coffee company, Cherokee Coffee.

According to a statement issued by CB Holdings, the company has been working on the acquisition for more than a year and expects the deal to close in October.

Health Benefits of Smoking

Who says smoking cigarettes is so bad … well, aside from the World Health Organization, Food and Drug Administration, the Centers for Disease Control and Prevention, and every medical board and association on the face of the Earth?

But should smokers be fortunate enough to dodge all that cancer, heart disease, emphysema and the like, they will be uniquely protected — for reasons unexplained by science — against a handful of diseases and afflictions.

Call it a silver lining in their otherwise blackened lungs. Although long-term smoking is largely a ticket to early death, here are (gulp) five possible benefits from smoking. Breathe deep.

1. Smoking lowers risk of knee-replacement surgery

While smokers might go broke buying a pack of cigarettes, they can at least save money by avoiding knee-replacement surgery. Surprising results from a new study have revealed that men who smoke had less risk of undergoing total joint replacement surgery than those who never smoked.

The study, from the University of Adelaide in Australia, appears in the July issue of the journal Arthritis & Rheumatism. What could be the connection? Knee-replacement surgery was more common among joggers and the obese; smokers rarely jog, and they are less likely to be morbidly obese.

After controlling for age, weight and exercise, the researchers were at a loss to explain the apparent, albeit slight protective effects of smoking for osteoporosis. It could be that the nicotine in tobacco helps prevent cartilage and joint deterioration.

2. Smoking lowers risk of Parkinson’s disease

Numerous studies have identified the uncanny inverse relationship between smoking and Parkinson’s disease. Long-term smokers are somehow protected against Parkinson’s, and it’s not because smokers die of other things earlier. [10 Easy Paths to Self-Destruction]

The most recent, well-conducted study was published in a March 2010 issue of the journal Neurology. Far from determining a cause for the protective effect, these researchers found that the number of years spent smoking, more so than the number of cigarettes smoked daily, mattered more for a stronger protective effect.

Harvard researchers were among the first to provide convincing evidence that smokers were less likely to develop Parkinson’s. In a study published in Neurology in March 2007, these researchers found the protective effect wanes after smokers quit. And they concluded, in their special scientific way, that they didn’t have a clue as to why.

3. Smoking lowers risk of obesity

Smoking — and, in particular, the nicotine in tobacco smoke — is an appetite suppressant. This has been known for centuries, dating back to indigenous cultures in America in the pre-Columbus era. Tobacco companies caught on by the 1920s and began targeting women with the lure that smoking would make them thinner.

A study published in the July 2011 issue of the journal Physiology & Behavior, in fact, is one of many stating that the inevitable weight gain upon quitting smoking is a major barrier in getting people to stop, second only to addiction.

The relationship between smoking and weight control is complex: Nicotine itself acts as both a stimulant and appetite suppressant; and the act of smoking triggers behavior modification that prompts smokers to snack less. Smoking also might make food less tasty for some smokers, further curbing appetite. As an appetite suppressant, nicotine appears to act on a part of the brain called the hypothalamus, at least in mice, as revealed in a study by Yale researchers published in the June 10, 2011, issue of the journal Science.

No respectable doctor would recommend smoking for weight control, given the toxic baggage accompanying cigarettes. This recent Yale study, however, does offer an inkling of hope for a safe diet drug to help obese people control their appetites.

4. Smoking lowers risk of death after some heart attacks

Compared with non-smokers, smokers who have had heart attacks seem to have lower mortality rates and more favorable responses to two kinds of therapy to remove plaque from their arteries: fibrinolytic therapy, which is basically medication; and angioplasty, which removes the plaque by inserting balloons or stents into the arteries.

There’s a catch, though. The reason why smokers have heart attacks is that smoke scars the arteries, allowing fat and plaque to build up in the first place. So, one theory as to why smokers do better than non-smokers after such therapies is that they are younger, experiencing their first heart attack approximately 10 years before the non-smoker.

A study published in an August 2005 issue of the American Heart Journal, however, states that age alone is not enough to fully explain the survival differences and that “the smoker’s paradox is alive and well.” No alternative theories have been put forth since.

5. Smoking helps the heart drug clopidogrel work better

Clopidogrel is a drug used to inhibit blood clots for those patients suffering from coronary artery disease and other circulatory diseases leading to strokes and heart attacks. Smoking seems to help clopidogrel do its job better.

A study by Korean researchers in the October 2010 issue of the journal Thrombosis Research builds upon work by Harvard researchers published in 2009 that demonstrates the benefit of smoking at least 10 cigarettes a day. It seems that something in cigarette smoke activates certain proteins called cytochromes, which convert clopidogrel into a more active state.

Again, no respectable doctor is encouraging patients to start smoking to get the most out of clopidogrel. But this and the other four “benefits” of smoking reveal how tobacco — perhaps not unlike other potentially toxic plants — might contain certain chemicals of real therapeutic value.

Christopher Wanjek is the author of the books “Bad Medicine” and “Food At Work.” His column, Bad Medicine, appears regularly on LiveScience.

Coffee without Tobacco?

MANILA, Philippines – Here is a question for the coffee drinking addicts who are smokers as well. Can you drink coffee without the usual companionship of a cigarette? For some it could be but what is the ratio of coffee drinkers who want a cigarette to go with their favourite brew?

The MMDA is aggressively on the prowl to curb down the millions of smokers in Metro Manila and while the drive has been supposedly limited to public places, it seems that the initiative has extended up to establishments which normally welcome smokers but place them in a dedicated place known as the smoking section or better yet, outside the premises.

The MMDA’s campaign is anchored in the provisions of Republic Act (RA) 9211 or the Tobacco Regulation Act of 2003, and the smoking prohibitions of the Land Transportation Franchising and Regulatory Board (LTFRB) and similar ordinances and issuances of local government units (LGU).

Coffee shops were the first in mind when it comes to how the no smoking policy would affect their customers but it looks like some of the coffee bars have chosen to support the call and go as far as banning smokers from puffing their cigarettes even in the outskirts of their store.

This makes you think, wouldn’t this be a big risk of losing customers who smoke and drink coffee at the same time? Not all coffee hangouts have heeded to a total smoking ban in their area and with that in mind, the thought of losing your customers to coffee-serving competitors does seem apparent.

Curbing down and promoting a smoke-free Philippines is indeed something that will benefit every Filipino and help them avoid cigarette-related diseases like cancer or respiratory problems. But like a drug, smoking is a habit that is not easy to kick.

Hence if you think about it, the Smoke-Free Philippines campaign addresses two things: to help prolong the lives of people by reducing nicotine intake and making air breathable and healthier for people who end up being victims of passive smoking at one time or another.

For coffee shops, it is admirable that they do support this healthy cause. However, similar to smokers who will have difficulties living each day without a cigarette puff, coffee shops will have to realize the fact that life without cigarettes will have consequences.

And these consequences will eventually become windows of opportunity for small coffee shops who want to build their niche. A dirty tactic if you may but in business, you take all the opportunities you can get.

By BRIAN YALUNG

Tobacco’s influence runs deep

SACRAMENTO — When Assemblyman Isadore Hall shelved a bill last week that would have required most workplaces to be smoke-free in California, it was just a small example of the tobacco industry’s long reach into the California Legislature.

Hall, chairman of the Government Operations committee, killed the bill, SB 575, when the author, Sen. Mark DeSaulnier, D-Concord, objected to an amendment that tobacco companies sought: an exemption for employer-owned businesses.

Hall, a Los Angeles Democrat, has received $7,800 in campaign contributions from tobacco companies.

Though the amount in campaign contributions from tobacco companies to Hall was a relative pittance, his relationship with lobbyists was probably the more important factor, said Tracy Westen, CEO and founder of the Center for Governmental Studies.

“Campaign contributions open the door, and once the door is open, it’s a full-court press,” Westen said. “And tobacco lobbyists present some of the most sophisticated arguments you’ll find.”

A report released Tuesday by the American Lung Association in California showed that large tobacco companies wielded their influence in subtle and blatant ways as they tried to maintain their grip on the state’s booming cigarette market.

Over the past decade, Big Tobacco — led by Philip Morris — spent nearly $100 million lobbying legislators and contributing to campaigns in California. A large chunk of that — $62 million — went into defeating Proposition 86 in 2006, a statewide initiative that would have imposed a $2.60 tax on each pack of cigarettes.

Tobacco spending, while significant, pales in comparison to the expenditures of the California Teachers’ Association, which threw $211.8 million into campaigns from 2000-2009, according to a report by the Fair Political Practices Commission. The California State Council of Service Employees spent $107.5 million, and Pharmaceutical Research and Manufacturers of America spent $104.9 million.

The difference is that tobacco is protecting a single product, while teachers and unions have a varied slate of issues they pursue, Westen said.

“This is the most highly regulated product in terms of safety — we know more about its dangers than virtually any other product,” Westen said. “The more we know its dangers, the more they feel they have to spend to convince us we ought not to regulate or tax it.”

Philip Morris USA spokesman David Sutton declined to comment on the report.

Over the most recent two-year election cycle, from 2009-10, tobacco interests spent $9.3 million on lobbying and campaign contributions in California. Most of the recipients are Republicans — all 54 current legislators who have never taken money from tobacco interests are Democrats.

But tobacco companies know the value of winning over Democrats, who have wide majorities in both houses of the Legislature.

DeSaulnier, the author of the smoke-free workplace bill, which was approved in the Senate, said he was surprised when he found it in Hall’s committee, rather than the Labor committee, where it was originally headed.

“He asked for it,” said DeSaulnier, a former restaurant owner who helped write some of the state’s earliest local ordinances against smoking in the workplace as a Contra Costa County supervisor.

DeSaulnier said that he objected to Hall’s amendment because he has seen how larger businesses use the employer-owned exemption as a cover to skirt the law. He had already provided an exemption for tobacco shops.

“I thought that had taken care of that concern,” DeSaulnier said. “To be honest, I don’t know why he inserted that amendment.”

Hall did not respond to a request for an interview.

The main target for tobacco companies is the perennial effort to raise taxes on cigarettes and other tobacco products. Increasing taxes — which is paid for with a higher price tag on cigarettes — reduces consumption and prevents children from starting to smoke, said Paul Knepprath, vice president of advocacy and health initiatives for the American Lung Association in California.

“So they spend heavily to defeat any increases in the tobacco tax,” he said. “They know that California is the No. 1 consumer market for cigarettes in the country. They know we have the ability to set the standard for tobacco policies that reduce consumption and smoking. So, they know it’s important to protect their interests.”

In 2009, as the Legislature considered a cigarette tax increase in budget talks, the tobacco industry spent $750,000 in lobbying expenses in the second quarter alone, from April through June.

It is all being done with the expectation that their interests are covered in the Capitol, said Knepprath.

“The reality is that in politics and in public policy, money talks,” Knepprath said.

“If it didn’t, Big Tobacco would not be spending the way they do to influence the legislative process.”

Philip Morris was also a big player in the voter-approved Proposition 26 ballot initiative campaign last fall, contributing $1.75 million to the measure. It required a two-thirds vote in the Legislature on any attempt to raise fees.

Why was tobacco interested? Perhaps to head off a movement among a number of cities, including San Francisco, to adopt so-called cigarette mitigation fees.

Those fees would have provided revenue to clean up after cigarette butts, which advocates say are proven toxic pollutants.

But they would have resulted in higher prices for cigarettes and reduced smoking — taboo for tobacco companies.

By Steven Harmon
916-441-2101.

Are cigars endangered in our progressive times?

cigars
Are premium cigars next on the federal government’s hit list?

You see, as part of the 2010 Family Smoking Prevention and Tobacco Control Act, the U.S. Food and Drug Administration has the authority “to regulate marketing and promotion of tobacco products and to set performance standards for tobacco products to protect the public health.”

Though the law does not automatically apply to cigars, the FDA can issue new regulations that make cigars subject to the law.

Boy, does that have premium cigar advocates worried.

They say the FDA could force cigar shops to keep cigars under lock and key — maybe even put them behind black curtains, where customers are not permitted to see or touch them.

They say marketing prohibitions could forbid them from handing out samples. Decorative artwork common to cigar boxes could be replaced with dire health warnings.

They say blended cigars could require FDA approval, ingredient disclosure and hefty FDA fees — which will drive costs through the roof.

I smoke a premium cigar maybe five or six times a year. Why? I don’t know. Maybe it’s the manly feeling I get when I see my breath billow out of me like a chimney.

Maybe I want to be in the company of legendary cigar smokers, such as Mark Twain, Winston Churchill and Art Rooney.

Maybe it’s just for the relaxation. There’s something calming about taking a slow, deep drag on a stogie. It’s like male yoga — for males who would never do yoga.

Sure, there are health risks to those who smoke cigars on a daily basis. Such smokers are more prone to cancer of the mouth and other maladies — and fully aware of the risk.

But moderate cigar smokers?

Unlike cigarette smokers, moderate cigar smokers don’t inhale the thick stogie smoke. They don’t become addicted to nicotine. And, at $10 a pop, premium cigars aren’t likely to end up in the hands of underage kids.

That’s why the typical cigar smoker is a middle-aged fellow with a big gut and a big car. He worked hard in his younger years, saved some dough and now he can relax a little.

You see him at picnics and other occasions sipping fine bourbon and enjoying an hourlong smoke of a hand-rolled leaf.

You’d think in a free country such a relatively harmless pastime would be of no interest to the federal government.

But in this nutty day and age, we have our vices all mixed up.

It wasn’t so long ago that smoking was considered just a vice, whereas a fellow who had children with one or more women he was not married to was considered a menace to society.

Not long ago a fellow who took on more debt than he could manage was considered a fool. Now he demands government relief and our sympathy — and gets both.

Not long ago, a fellow who spent every waking moment getting high was called a pothead. Now many are eager to legalize marijuana, so the government can collect taxes from his behavior.

In our progressive times, many bad behaviors are considered mere vices, whereas mere vices, such as cigar smoking, are considered truly evil.

Tobacco smokers are as loathed as mass murderers and other genuinely evil people, whereas truly bad behaviors are given a pass.

So you can see why, in a world turned upside down, the cigar folks are so worried.

Isn’t it just a matter of time before government do-gooders draft nutty Tobacco Act cigar regulations that send the premium cigar industry up in smoke?

Call for councils to remove £1bn in pension funds from tobacco firms

Doctors have claimed that councils are profiting from deaths through smoking by investing tens of millions of pounds of their pension funds in tobacco firms.

They have spoken out after freedom of information requests by a health campaigner in the south-west of England revealed that seven local authorities in that region have made investments of £103.8m. Cornwall council has the most: £24.5m in Imperial Tobacco, Altria Group and British American Tobacco. Devon county council has £20.8m, Gloucestershire holds £16.8m and Dorset has £14.7m.

“I am shocked by the size and extent of south-west local government pension investments in the tobacco industry and I am sure many of those contributing to the funds, as well as those receiving local government pensions, will be as well”, said Dr Gabriel Scally, the NHS regional director of public health for the south-west.

“If it were my pension contributions being invested in an industry whose only product line killed people in the numbers that die from tobacco, I would be absolutely horrified. As a doctor I think it would be completely unethical to have any part in it”, Scally added.

He urged councils to disinvest. “The tobacco industry is destructive, dishonest and deceitful. We need to put them out of business, not invest our hard-earned money in them.”

Dr Vivienne Nathanson, head of science and ethics at the BMA, backed his call. “It’s sad organisations are continuing to invest in tobacco, given that it shortens people’s lives. Obviously, it’s up to them what they do, but it would be good to see their employees putting pressure on them to invest elsewhere,” she said.

Councils across England are estimated to have about £1bn in such investments. If they keep them they could be accused of conflicts of interest when they assume legal responsibility for public health, including anti-smoking work, in 2013 as part of the coalition’s NHS shake-up.

Jo Walker, Gloucestershire county council’s director of finance, hinted at a rethink. “We are currently talking to other councils about the approach local government takes to investing in pension funds. We all have a responsibility to ensure we invest in companies which provide the best value for taxpayers and pensioners’ money,” she said.

By Denis Campbell
The Observer

Imperial Tobacco: Citi ups rating and price target for tobacco firm

Citi group has upgraded its rating and upping its price target for Imperial Tobacco (LON:IMT) as it says a major price risk for the firm has disappeared.

The broker raises Imperial to buy/medium risk targeting a price of 2450 pence (previously the rating was hold/medium risk with a target price of 2260 pence).

The firm is currently trading at 2155 pence.

“Our new price target assumes that in 12 months Imperial’s forward multiple will have improved to 10.5 times as some of its changes become apparent,” said analyst Adam Spielman, in a note.

British American Tobacco has upped prices in Spain (following Imperial and others) leading the broker to believe the price war there is now over and it comes after price skirmishes in Russia, Poland, the Netherlands and beyond.

“A major risk for Imperial has disappeared,” he said.

Spielman adds that there is a good chance that the company will be able to improve its marketing, not least because the management wants to but other firms have shown it is possible to to improve in this area.

“At its investor day, Imperial showed that its new marketing and sales directors are talking the same language as companies like Diageo and BAT.

“While there is no proof this will translate into a better organic performance, we think there is a decent chance it will,” said citi.

State to restrain cigarette tax push

ALBANY – The administration of Gov. Andrew M. Cuomo said Friday that, for the time being, it will not move ahead with new tax-collection efforts against the growing trade in Native American-manufactured cigarettes and emphasized that it has no intention of sending state tax agents onto Indian territories.

Instead, state agents will focus on major brand-name cigarettes, which have generated increased sales tax revenue in the past month since an appeals court gave the approval for the state to end tax-free tobacco sales.

In all, the state contends it will raise an additional $27 million in tax revenue this year by enforcing a long-stalled law to end tax-free sales to non-Indians on Indian reservations.

The collection statistics, revealed earlier this week in The Buffalo News, reflect the administration’s intent to enforce the tax law, Lt. Gov. Robert J. Duffy told reporters Friday in the Capitol.

But Duffy also suggested that the state is seeking to discuss the thorny issue involving Indian-made cigarettes, noting that he had spoken Friday with Seneca Nation President Robert Odawi Porter.

“In areas that there is a clear difference of opinion, our hope is to resolve those quickly, through communication at a table, not negotiate away or negotiate areas we have a clear, legal right to do, but I think we’ve had a very strong relationship [with tribes] and the governor wants that to continue,” Duffy said.

In recent years, Native American tobacco merchants increasingly have sold reservation-made cigarettes at prices far lower than those charged for domestic “premium” brands. At least four manufacturers are operating on Seneca territories, and the Oneida Indian Nation has a production facility on its Central New York reservation.

Since an appeals court on June 21 approved enforcement of a state law requiring all cigarettes sold in the state to have a tax stamp — costing $4.35 per pack — major wholesalers have sharply cut back on supplying brand-name cigarettes to Indian retailers.

In the legal view that Duffy affirmed Friday, Cuomo clearly has argued that all cigarettes — including those made by Indians — are subject to taxation under the new law.

Porter, the Seneca president, said the four manufacturing facilities on Seneca lands are federally licensed and can move their goods without being subject to state taxation. Federal treaty rights, he also maintains, prevent the state from taxing Seneca commerce.

“We will never take any action to collect state taxes or allow the state to do so on our territory. That is not something that’s open for discussion,” Porter said in a statement Friday. Suggesting a new legal battle in the future, Porter noted that courts never specifically have dealt with the issue of taxing cigarettes made on Indian land.

“Finally, the Seneca Nation wants to reiterate that tobacco taxes are not an ‘Indian problem.’ The problem is created by New York’s excessive taxing of tobacco products and its open borders,” Porter said. The state’s cigarette tax is the nation’s highest, resulting, in recent decades, in sharp increases of tax-free sales by Indian tribes, as well as bootleggers who bring in tobacco products from other states, particularly in the South, with lower tax rates.

Friday afternoon, the Cuomo administration also released details of an unusual memorandum of understanding between the State Police and the state Department of Taxation and Finance intended to spell out new protocols for cooperating in the crackdown on the illegal cigarette trade.

In the memo, the tax agency agreed that, if its agents suspect a violation of the tobacco tax law, they will convey the information to the State Police or local law enforcement agencies in a timely manner.

“The [State Police] or local law enforcement will then, within a reasonable time, make a determination as to the appropriate law enforcement response,” the memo says.

In 1997, the last time the state tried to collect the tobacco taxes, then-Gov. George E. Pataki quickly retreated after violent confrontations between Indian protesters and state troopers shut down the Thruway.

A recent internal memo from a top tax department official ordered agents not to seize Indian-made cigarettes leaving reservations in the state.

The Cuomo administration earlier this week distanced itself from the memo, though Duffy and other officials confirmed parts of the strategy Friday.

The administration estimated the tax value of the cigarettes seized in recent weeks at $1.2 million. Since the June 21 lifting of the restraining order, the state, as reported Wednesday in The News, has conducted 357 retail inspections and seized, with federal agents, nearly 20,000 cartons of cigarettes lacking tax stamps or bearing counterfeit ones. The state could not immediately provide a comparison with seizures in the comparable period last year.

State Tax Commissioner Thomas Mattox said no inspections have occurred on Indian reservations.

Duffy affirmed that point, saying, “I don’t think anyone goes on tribal lands to take any enforcement activities at all.”

By Tom Precious
tprecious@buffnews.com

Quit-smoking texts send clear message to outdated health promoters

Smokers who quit with the assistance of a text messaging service are nearly twice as likely to be smoke-free six months later than smokers with no support, according to a study published this week in The Lancet.

This underlines the fact health-promotion agencies need to up their game when it comes to social media to counteract the powerful influence of multinationals.

Success rates for any stop-smoking intervention are never high and just over 10% of smokers in the text message group had successfully quit smoking.

What makes this study so valuable is that text messaging services are a low-cost option that could be used to reach a greater number of smokers than intensive face-to-face counselling or traditional quit-line telephone services.

The explosive growth in people using web-enabled mobile phones and social media means public-health interventions have no choice but to make use of these same tools.

The multinational corporations – tobacco companies, fast-food chains, etc. – that contribute to the global obesity, heart disease, diabetes and lung cancer epidemics have certainly embraced this new media.

Unlike traditional forms of marketing that seek to target customers with advertisements, marketers are increasingly joining online communities to “friend” their customers.

Companies and brands that can successfully engage with vast communities of social network users have the potential to reap significant financial rewards.

A quick search on Facebook for your favourite brand of soft drink, chocolate, fast food, or even cigarette will reveal just how adept companies are at using this forum.

Coke has one of the most popular Facebook pages with more than 31 million fans – that’s more than the population of Australia and New Zealand combined.

As part of my PhD research I studied the activities of British American Tobacco (BAT) employees online and found them to be enthusiastically promoting BAT brands and products on Facebook.

In the official BAT response to my study, it simply stated company policy was to not promote BAT brands online.

Now, in light of the plain packaging debate, the BAT Australia (BATA) CEO, David Crow, has taken to Twitter, not, in his words “to sell or promote BATA products in any way“, but to fight public health efforts to end tobacco brand promotion.

The distinction seems rather subtle.

A major advantage for public health online is that health information is one of the most commonly searched topics on the web.

Dr Google is a likely source of information next time you are feeling under the weather or want to make a change for the better for your health.

It’s no longer enough for health agencies to supply accurate information for health consumers on the web. We expect content to be interactive, shareable, multimedia in format, portable between mobile and other tech devices and easily reached through sites we are most familiar with such as Facebook, YouTube and Twitter.

Health promotion agencies need to take advantage of the fact many of us would prefer to lose a limb than our Blackberry or iPhone, or risk losing the new media war to Big Tobacco and junk food manufacturers.

A recent study revealed credible health groups are yet to design and deploy useful and evidence-based applications such as “quit-smoking” apps.

Yet, a company like Zippo® lighters has a hugely popular and free app available.

Health promotion agencies need to stop dismissing these new technologies as being merely a passing fad or affecting a small number of technology-obsessed teenagers, and start embracing the new health content and traffic that drive these sites.

Discouragingly, many public-health experts are actually banned from accessing these media while at work and have received no training in how best to use these communication tools.

Imagine if health workers were banned from using the telephone or reading the newspaper to better understand the health threats and challenges facing the community.

One of the central tenets of any health promotion initiative is to go where your target audience is – they’re online, they’re on mobile phones and no poster or pamphlet is going to reach them there.

By Becky Freeman
Public Health Researcher at University of Sydney

Smokes, tobacco in shops to be hidden in NZ

Tobacco products and advertisements will have to be kept out of sight in shops under a law passed by Parliament yesterday.

All but three Act MPs voted for the Smoke-free Environments (Controls and Enforcement) Amendment Bill, which gives retailers until next July to hide away cigarettes and tobacco.

Associate Health Minister Tariana Turia said the tobacco industry used displays to prey on young people.

“No longer will people go into a dairy for milk and a newspaper only to be confronted by a wall of cigarettes.

“These ‘power walls’ not only encourage young people to try smoking, they also make it harder on those attempting to quit.”

Her next move is a bill for plain packaging for tobacco, saying it was another “biggie” that the tobacco industry strongly resists.

“It sends a very clear signal to the tobacco industry just how serious we are. In an ideal world this is not a product that should be sold at all. So I’m going to continue to press to pass legislation that hopefully means by 2025 there will be no tobacco in Aotearoa.”

Act MPs Sir Roger Douglas, Heather Roy and Hilary Calvert voted against the bill on the grounds of rational personal choice. However, all other MPs supported it.

Mrs Turia also acknowledged the role of Hone Harawira in forcing a select committee inquiry into the tobacco industry.

Mr Harawira had hoped to vote for the bill after being sworn into Parliament, but was denied the chance after the Speaker ejected him for delivering the wrong oath.

Labour MP Iain Lees-Galloway called on New Zealand to be as brave as Australia in moving to plain packaging. Vending machines should also be targeted.

National’s Paul Hutchison said it was also good the bill covered herbal products which also could harm health.

The internet, duty free stores and sponsored events were all covered by the change in the law and there was evidence it would make a difference, he said.

Action on Smoking and Health director Ben Youdan welcomed the law, saying it was particularly pleasing that it got such widespread support in Parliament.

CBD STREET BAN RULED OUT

Auckland Council leaders have quickly snuffed out a councillor’s bid to have smokers banned from gathering in front of CBD buildings.

Penny Webster, who is acting mayor while Mayor Len Brown and Deputy Mayor Penny Hulse are overseas, said any ban would impact on Auckland’s image.

“What are we trying to say? Are we saying: ‘Well, Auckland is not a fun city’. What are you going to look at next? Sex between consenting adults in the bedroom?” she said.

Mrs Webster’s dismissal showed how upset council leaders were by community safety forum chairman George Wood saying in yesterday’s Herald that he wanted a smoking ban bylaw for streets outside CBD buildings, because other footpath users were breathing in their smoke.

Mr Wood was confident of getting support from councillors for a penalty-based ban. He welcomed Auckland Transport’s investigation into a bylaw to ban smoking in open bus shelters.

But he was disappointed when most forum members rebuffed his call for the promotion of smoke-free public places and for work towards a strategic commitment to a smoke-free city.

Councillor Cameron Brewer was concerned that smokers were being treated like lepers and pushed outside. Giving them nowhere to go would drive them back into the family home and family car.

“I think that’s more damaging to their family and friends than standing on Queen St.”

But councillor Richard Northey said people had the right to breathe without being subjected to passive smoke.

At some council events, like concerts in the Auckland Domain, people had no choice but to have someone smoking near them; smoking in public places should be discouraged.

– Wayne Thompson

WHAT DOES THE NEW LAW DO?

  • Bans advertising from shops.
  • Bans display of tobacco products.
  • Increases fines for those who sell to under-18s.

WHAT COULD BE NEXT?

  • Plain packaging for cigarettes – strongly resisted by the tobacco industry.

WHAT IS THE AIM?

  • Bill architect Tariana Turia wants tobacco use ended by 2025.

By Claire Trevett

Cigarettes, liquor, even soda: Problems that can be shutdown solutions

In 2005, then-Gov. Tim Pawlenty had a revenue problem, created largely by his pledge against any additional tax increases. State government was in shutdown (though less fully and seriously than now).

Taxes, according to the new Republican orthodoxy, were an unacceptable means of supporting the functions of government. So a “health impact fee” on tobacco products was proposed to avoid the tax tag.

The health impact fee on a pack of cigarettes was and remains 75 cents. It passed and established a Republican precedent of such fees as a response to budget shutdowns.

These fees are recurring money and do not rely on phony shifts of costs to school districts, municipalities, or the elderly and disabled.

While poor people may smoke, drink and engage in other unhealthy behavior more than the rich (including food choices leading to obesity), causing such fees to be regressive, these decisions are voluntary and consistent with a Republican free-to-choose ideology.

In the current impasse, resulting largely from the same rigid antitax ideology, we should consider broadening the Pawlenty precedent of health impact fees to alcohol and soda drinks. Apart from a consensus on the health risks of tobacco, the evidence in favor of the health benefits of reduced alcohol consumption, especially of distilled spirits, needs no repetition.

As the Mondale-Carlson Task Force noted in its recommendations last week, the fee on distilled spirits has not been raised since 1987. In deference to brewing and wine drinking (one for the ballpark, the other for the opera), beer and wine might be exempted.

Finally, Minnesota could again establish itself as a national trendsetter with the first substantial soft-drink health impact fee in the nation. Virtually every study of the impact of soft drinks on childhood and adolescent obesity has found a clear link. Any measure that would induce substitution of fruit juices or milk is a nutritional step in the right direction.

Based on Minnesota Department of Revenue estimates from 2009-10, an increase in the Pawlenty health impact fee on cigarettes of another 75 cents, and in tobacco excise taxes from the current 48 cents to a dollar, would generate $393 million in recurring revenues over the two-year budget cycle, after adjusting for a reduction in consumption due to the higher prices (what economists call the price elasticity response).

An increase in the tax rate on distilled spirits from $1.33 per liter to $2 (exempting beer and wine) would generate another $101 million over the biennium. Finally, adding a health impact fee of 5 percent on a one-dollar, 12-ounce can of soda would generate $36 million in new revenues to state coffers.

These additions add up to $530 million, or more than half a billion dollars in recurring revenues, not simply end-of-session accounting gimmicks. Each of them discourages behaviors that add to the costs of health and human services, due to the serious and expensive private and public consequences of smoking, alcohol abuse and obesity.

If, in their myopic conception of revenue generation, those opposed to these health impact fees prefer to support continued lung and heart disease, traffic fatalities, and cirrhosis, type-2 diabetes and childhood obesity, let this be their choice.

But the time for constructive efforts to generate revenues is now, and health impact fees are the answer.

C. Ford Runge is Distinguished McKnight University Professor of Applied Economics and Law at the University of Minnesota. This article reflects his opinions and not those of the University of Minnesota.