A proposed Utah bill banning the sale of flavored tobacco products and novelty nicotine candies could lead to a lawsuit. A similar ban passed in New York City is being contested by several subsidiaries of Altria. Spokesman David Sutton says the lawsuit against the ban passed in the Big Apple argues regulating tobacco flavors is the purview of the federal government.

“The Food and Drug Administration has overall authority for tobacco product regulation in the United States,” Sutton says. “And we think very distinctly that any additional regulation of tobacco product flavor varieties should occur only at the federal level.”

The FDA banned the sale of flavored cigarettes last fall, but exempted menthols. Sutton says states and cities can’t weigh in on flavored tobacco, since the federal government already has.

Sutton says bans on flavors are unfair to adults. And he says bans aren’t as effective as responsible marketing and retailing, such as displaying these products behind the counter and ensuring stores aren’t selling to minors.

“The bottom line with this,” Sutton says, “is that the prohibition of all tobacco products with characterizing flavors other than tobacco is simply not the most effective method of addressing underage tobacco use.”

Sutton says a judge rejected a request to halt the New York City ban, and a hearing for the case is expected shortly. Maine and New Jersey have also passed similar bans.

Canadians, Americans and Britons widely support the notion of their governments enacting regulations that curb smoking, cigarette sales and tobacco advertising, according to a new poll.

The Angus Reid Public Opinion poll found that most respondents supported the laws that ban smoking indoors, in a vehicle that has a child present and in bars, restaurants and casinos.

The poll, which was released on Wednesday, questioned 1,000 Canadians, 1,013 Americans and 2,023 Britons.

Canadians led the other two countries in supporting the crackdown on sales.

About 75% of Canadians supported banning cigarette sales at stores that contained a pharmacy while 63% of Brits and 43% of Americans did.

Meanwhile, 86% of the Canadians polled supported banning the sales at post-secondary institutions compared to 66% of the American respondents and 79% of the British respondents.

The majority of respondents also supported printing hazard warnings on tobacco packaging with Americans at 91% and Canadians and Britons at 88%.

But only about 50% of respondents from each country thought that images of people smoking should be kept off TV and film.

The majority also opposed making smoking illegal in their respective countries. About 57% of Canadians were against the idea while 61% of Americans were opposed to the move and 54% of Britons.

The survey has an error margin of plus or minus 3.1% in Canada and the U.S. and 2.2% in the UK.

PETROL giants trying to make up lost revenue from falling cigarette sales are to turn the weekly price cycle on its head.

Cheap Tuesday, once known for its long queues at petrol stations across Sydney, is about to become the most expensive day to buy petrol.

NRMA data collected since June 1 showed the most expensive time of the week to buy unleaded petrol had moved from Sunday morning, to Sunday afternoon, to Monday morning and now Monday afternoon.

Industry sources said petrol companies were shifting the weekly price cycle after losing millions as a result of the Federal Government’s 25 per cent tax rise on cigarettes in April.

“So much of the retail side of our business was cigarettes but we just can’t compete with the big supermarkets. They are undercutting our prices by $3 or $4 for a packet,” the source said

“The only way we can make more money is to sell more petrol at a higher price.”

The rise added another $2.16 on a pack of 30 cigarettes.

The NRMA said it was clear the retailers had again shifted the weekly price cycle.

“Saturday morning is still the cheapest point of the weekly price cycle,” NRMA economic adviser Wal Setkiewicz.

But the most expensive time to buy petrol was moving dramatically. During June it was on Sunday, and it moved to Monday morning in July.

“What has changed over the past weekly cycle is that Monday afternoon is the now dearest point,” he said.

NRMA data last year found more than half of all motorists still believed Tuesday was the cheapest day to buy petrol.

The motoring body said motorists were likely to be confused about when to buy petrol with the cheapest day of the week changing seven times over the past year.

The cost of a packet of Winfield Blue 25 cigarettes yesterday ranged between $16.50 and $18 at service stations, compared to $14 if bought in a carton at Coles or Woolworths.

From 2012, cigarette companies will only be allowed to print their brand name in a standard style and graphic health warnings will remain on the packets.

The tax rise and the plain packaging were recommendations of the Preventative Health Taskforce, which handed down its findings last September.

Thailand Tobacco Monopoly officials have been accused of accepting bribes of over US$1.93 million (62 million baht) from US-based companies to ensure Brazilian-grown tobacco was sold locally, says the US Justice Department.

The accusations came after two American tobacco companies agreed on Friday to pay nearly US$30 million to settle charges that they bribed foreign officials to get lucrative overseas tobacco sales contracts.

Local officials could not be reached for comment yesterday.

Universal Corp of Richmond, Virginia, and Alliance One International of Morrisville, North Carolina, face civil and criminal charges from the Securities and Exchange Commission and the Justice Department.

Universal was accused of bribing officials in Thailand, Malawi and Mozambique, while Alliance One was accused of bribing officials in Thailand, China, Greece, Indonesia and Kyrgyzstan.

Alliance One pleaded guilty to three counts of conspiring to violate the US’s Foreign Corrupt Practices Act (FCPA).

“The charges relate to bribes paid to Thai government officials to secure contracts with the Thailand Tobacco Monopoly, a Thai government agency, for the sale of tobacco leaf,” the Justice Department said.

Alliance One was formed in 2005 from the merger of Dimon Incorporated and Standard Commercial Corporation, two tobacco wholesalers.

It buys, processes and sells tobacco to manufacturers worldwide.

The guilty pleas relate to the conduct of employees and agents of foreign subsidiaries of both Dimon and Standard prior to the 2005 merger, the US Justice Department said.

The department said that it had also filed two counts against Universal Brazil for conspiring to violate the FCPA by paying bribes to Thailand Tobacco Monopoly employees for the sale of Brazilian tobacco.

It didn’t say how many Thai officials were involved.

The Justice Department said that from 2000 to 2004, Dimon, Standard and Universal Brazil sold Brazilian tobacco to the Thailand Tobacco Monopoly.

No Thai officials were named by the department.

“Each of the three companies retained sales agents in Thailand, and collaborated through those agents to apportion tobacco sales to the Thailand Tobacco Monopoly among themselves, co-ordinate their sales prices, and pay kickbacks to officials of the Thailand Tobacco Monopoly in order to ensure that each company would share in the Thai tobacco market.

“To secure the sales contracts, each company admitted it paid kickbacks to certain Thailand Tobacco Monopoly representatives based on the number of kilogrammes of tobacco sold to the Thailand Tobacco Monopoly.

“To obtain these contracts, Dimon paid bribes totalling $542,590 and Standard paid bribes totalling $696,160, for a total of $1,238,750 in bribes paid to the Thailand Tobacco Monopoly officials during the course of four years.”

Universal admitted paying $697,000 in kickbacks to the monopoly officials, the Justice Department said.

It had agreed to pay a $4.4 million fine and retain an anti-corruption monitor for three years.

Universal Corp said the company voluntarily reported the problems to authorities and that it has cooperated with the investigation.

“We have absolutely no tolerance for this type of activity,” chief executive officer George C Freeman III said.

Lorillard, Inc. (NYSE: LO) today announced its plan to launch a non-menthol variety of its flagship Newport(R) brand in November 2010. Newport(R) Non-Menthol will be a premium product with broad competitive consumer appeal that delivers the high quality tobacco taste that adult smokers have grown to expect from Newport.

Newport, Lorillard’s menthol-flavored premium cigarette, is the second-largest brand in the industry and is the top selling menthol brand. Lorillard believes it will further strengthen its competitive position and its Newport brand family with the national introduction of Newport Non-Menthol to adult non-menthol smokers on November 1, 2010.

“We are excited to leverage Newport, one of the most recognized names in the cigarette industry,” stated Martin Orlowsky, Chairman, President and Chief Executive Officer. “With the introduction of Newport Non-Menthol, Lorillard will be afforded greater opportunity to compete in the largest segment of the U.S. cigarette market, as the non-menthol category represents approximately 70 percent of total industry volume.”

About Lorillard, Inc.

Lorillard, Inc. (NYSE: LO) is the third largest manufacturer of cigarettes in the United States. Founded in 1760, Lorillard is the oldest continuously operating tobacco company in the U.S. Newport, Lorillard’s flagship menthol-flavored premium cigarette brand, is the top selling menthol and second largest selling cigarette in the U.S. In addition to Newport, the Lorillard product line has five additional brand families marketed under the Kent, True, Maverick, Old Gold and Max brand names. These six brands include 41 different product offerings which vary in price, taste, flavor, length and packaging. Lorillard maintains its headquarters and manufactures all of its products in Greensboro, North Carolina.

Forward-Looking Statements

Certain statements made in this press release are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (the “Reform Act”). Forward-looking statements include, without limitation, any statement that may project, indicate or imply future results, events, performance or achievements, and may contain the words “expect,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “may,” “will be,” “will continue,” “will likely result” and similar expressions. In addition, any statement that may be provided by management concerning future financial performance (including future revenues, earnings or growth rates), ongoing business strategies or prospects and possible actions by Lorillard, Inc. are also forward-looking statements as defined by the Reform Act.

Forward-looking statements are based on current expectations and projections about future events and are inherently subject to a variety of risks and uncertainties, many of which are beyond our control, that could cause actual results to differ materially from those anticipated or projected. Information describing factors that could cause actual results to differ materially from those in forward-looking statements is available in Lorillard, Inc.’s filings with the Securities and Exchange Commission (the “SEC”), including but not limited to, our Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. These filings are available from the SEC over the Internet or in hard copy, and are available on our website at www.lorillard.com. Forward-looking statements speak only as of the time they are made, and we expressly disclaim any obligation or undertaking to update these statements to reflect any change in expectations or beliefs or any change in events, conditions or circumstances on which any forward-looking statement is based.

SOURCE Lorillard, Inc.

A federal judge granted a temporary restraining order Monday allowing a Seneca Nation mail-order cigarette retailer to supply tobacco products across the country without having to meet the requirements of a new federal law that took effect at midnight.

District Judge Richard J. Arcara granted the motion as part of the retailer’s lawsuit against the U.S. government. The retailer, Red Earth, which does business as Seneca Smokeshop, has asked the court to declare the Prevent All Cigarette Trafficking Act unconstitutional.

Seneca Smokeshop, a 10-year-old business, employs 17 people and sells cigarettes in 46 states. It is owned by Aaron J. Pierce, a member of the Seneca Nation of Indians.

Without the restraining order, the law would have immediately crippled the business, said Lisa A. Coppola, the retailer’s lawyer.

“It’s no small thing for him to lose his business entirely,” Coppola told Arcara during a hearing Monday afternoon in federal court.

The so-called PACT Act, signed into law in March, bans the U.S. Postal Service from shipping cigarettes and affects the mail-order cigarette business in other ways.

It requires those selling cigarettes on the Internet to pay all federal, state, local or tribal tobacco taxes, and to affix tax stamps before delivering any tobacco products to any customer.

Retailers also have to register with the state where they are based and make periodic reports to state tax collection officials. Sellers also must check the age and identities of customers when tobacco products are purchased and when they are delivered.

The restraining order will remain in effect for 14 days, unless the court rules earlier on the retailer’s motion to keep the federal government from enforcing the new law throughout duration of the lawsuit. The judge ordered both sides to return to court July 7 for a hearing on that request.

In seeking the restraining order, lawyers for Seneca Smokeshop did not address the Postal Service ban, but focused on how the retailer would have to contend with thousands of state and local taxing jurisdictions while selling cigarettes across the country.

“We’re not talking about only 46 states or a couple of taxing jurisdictions,” Coppola told Arcara.

“There are extraordinarily serious problems with the act that have nothing to do with the Postal Service,” Coppola said after learning of Arcara’s ruling.

Arcara found the smoke shop demonstrated it would have suffered irreparable injury without the restraining order. The judge also found the retailer demonstrated a likelihood of success on the merits of its claim that the PACT Act violates various provisions of the Constitution, including the commerce clause, the 10th amendment, the due-process clause and the equal protection clause.

In his written order, Arcara said he acted “in the public interest because the public favors restraining enforcement of statutes that appear to violate provisions of the Constitution.”

Arcara noted the U.S. Attorney’s Office had failed to file a timely response to the retailer’s motion for a restraining order.

The retailer’s lawyer filed court papers Friday afternoon, both in Buffalo and Washington, D.C.

Assistant U.S. Attorneys Richard D. Kaufman and Mary Fleming asked Arcara to hold off on ruling for at least a couple of days so they could better prepare a response.

“He’d only lose a couple of days of business,” Kaufman said about how such a delay would affect the retailer.

“How would you like to lose a couple days of pay, Mr. Kaufman?” Arcara replied.

Coppola, meanwhile, stressed the immediate danger the smoke shop faced as the effective date for the new law approached.

“If this law goes in effect at midnight, it essentially closes down our client,” Coppola said. “This product my client is selling is a legal product, and that should count for something.”

Arcara’s order is limited in scope, restraining the federal government from enforcing the federal law against specifically the Seneca Smokeshop and Pierce — but not mentioning other cigarette mail-order retailers.

During Monday’s hearing, Coppola said the smoke shop has been working to arrange delivery of cigarettes by a private carrier, at least in this state, Pennsylvania and New Jersey, where most of its customers live.

Coppola said she had not spoken with Pierce about the ruling, so she did not know if the smoke shop will resume mailing the cigarettes while the restraining order is in effect or proceed with another form of delivery.

By signing the law, President Obama angered business people from the Senecas and other tribes that sell tobacco products.

But other organizations, including the Campaign for Tobacco-Free Kids, rejoiced, calling the law a landmark step in preventing youngsters from obtaining cigarettes and in averting billions of dollars in tax evasion.

Along with the constitutional arguments, Pierce’s lawyers also claimed that the new law violates four different treaties, all signed between 1784 and 1842, granting sovereignity to the Senecas and other tribes.

“The act is overbroad, unduly burdensome and impermissibly vague,” Coppola said in court papers. “Among other things, it requires out-of-state retailers (even those without a physical presence in the state) to collect the sales and use taxes of states and localities in which they have no presence.”

By Patrick Lakamp and Dan Herbeck
Buffalonews: June 28, 2010

Cigarette companies are hard-pressed to find new markets. Somebody at Marlboro had an idea and now Philip Morris International, maker of the famous cowboy-branded brand, has launched a clove cigarette in Indonesia.

Indonesia is the fifth-biggest tobacco market, fifth only to China, the U.S., Russia, and Japan. And while smoking, Indonesians adore clove cigarettes, which simultaneously numb their throats and deliver that nicotine kick. They rather scorn regular smokes, which they call “whites”.

Now that Americans and Europeans are, gradually, turning up their noses at the habit, Indonesia stands out for its taste for tobacco – and gigantic potential.

Last year Philip Morris bought the controlling interest in Sampoerna from the Sampoerna family, prompting speculation that the billionaire business barons had scented the end of an era approaching. The American company paid $5.2 billion, the largest takeover deal ever by a foreign investor in Indonesia.

Almost two-thirds of adult males in this country of 230 million people smoke and growing numbers of females are joining them, Reuters quoted analysts.

Not only do Indonesians smoke a lot: 90% of them choose kreteks, which are cigarettes in which the tobacco is blended with cloves and another flavoring sauce. Americans are more familiar with the spice in their apple pie. Now Indonesians have a Marlboro version.

The Marlboro Mix 9 is the strongest Marlboro currently on the market, packing 1.8 milligrams of nicotine and 30 milligrams of tar. That is comparable to other full-strength kretek on sale in Indonesia, but twice as much as regular Marlboros on sale elsewhere in the world – Martin King, Sampoerna’s president director, told The Associated Press in an interview.

Mumbai: Rattled by competition in the foreign premium cigarettes segment, market leader ITC Ltd is launching its major shareholder British American Tobacco’s (BAT) popular cigarette brand Lucky Strike in India.

BAT owned nearly 33% in ITC as of March-end.

Sources close to the development said ITC will roll out Lucky Strike in New Delhi, Mumbai and Pune by the end of this month.
Its major stockists in these cities have been apprised of the launch, but will receive despatches only a few days prior to actual launch.

The cigarette will be priced at Rs110 for a pack of 20 sticks, thereby positioning it at a premium to Philips Morris’ premium cigarette Marlboro—now being sold under licence by Godfrey Phillips—but at a discount to US-based Imperial Tobacco Group’s super-premium cigarette Davidoff.

Imperial Tobacco has priced Davidoff cigarettes in India at around Rs 120-125 per pack of 20 sticks, according to retailers.

Although Davidoff was already being sold through the grey market in India, Imperial Tobacco in May tied up with Barakat Food & Tobacco to “officially” import and distribute the cigarettes in India.

Barakat earlier distributed Marlboro in India on behalf of Philip Morris, before the latter signed a licensing agreement with Godfrey Phillips.

Last month, Godfrey Phillips launched an upgraded variant — Marlboro Gold Advanced—but retained the price at Rs 98 for 20 sticks, in a bid to improve its market share.

Godfrey Phillips has a market share of 8% in the branded cigarettes segment, and Marlboro cigarette has made significant inroads, said retailers.

ITC is the leader with 80% share of the segment.

But a bulk of this is driven by its mid-market and upper-market brands Classic and Gold Flake.

In the premium segment, its current offerings are Benson & Hedges and 555 State Express, which are also BAT brands sold under licence by ITC.

Indonesia will ask the World Trade Organization on June 22 to rule on its complaint that a US ban on clove cigarettes aimed at preventing teenagers from starting to smoke is discriminatory.

“We will ask the panel of judges and experts to rule in favor of our complaint and also ask the organization to issue a directive demanding that the United States withdraw its discriminatory regulation on clove cigarettes,” Deputy Trade Minister Mahendra Siregar told the Jakarta Globe on Sunday.

The complaint, Indonesia’s second against the United States and its fifth since joining the WTO in 1995, says tobacco legislation signed by US President Barack Obama last June is unfair because it bans cloves and not the mint used to make menthol cigarettes.

US tobacco companies told the Food and Drug Administration on March 31 that adding menthol did not make cigarettes more harmful or addictive.

“The United States must stop its discrimination against clove cigarettes. What we want is to have clove cigarettes treated with the same regulation as other cigarettes,” Mahendra said.

Menthol-flavored cigarettes that are produced by US manufacturers such as Altria Group Inc.’s Philip Morris USA and Lorillard Inc. were exempted as part of a 2008 compromise by lawmakers that led Altria to back the legislation. Menthol cigarettes, the most popular flavor, constitute 20 percent of the US market, according to Federal Trade Commission data.

Washington is almost certain to block the June 22 WTO request, after which Indonesia can make a second appeal that cannot be thwarted.

“We’re optimistic that the WTO will rule in our favor,” Mahendra said. “Indonesia and the United States are both WTO members, and there is no reason for the organization not to support us. We want equal standing on this matter.”

Indonesia is the world’s largest producer of clove cigarettes, produced by companies such as PT Gudang Garam and exports $500 million worth annually, a fifth of that to the United States.

Indonesia is the world’s fifth-biggest tobacco market, and clove cigarettes still account for most of that. The upstream and downstream industries employ 6.1 million people. Exports of cigarettes and cigars totaled $358 million in 2008, the last year for which data is available.

Only a relatively small number of clove cigarettes are exported, and they are coveted by some young people in the United States who see them as an alternative to more conventional brands.

The Indonesian government recently reorganized its road map for the tobacco industry through 2020, shifting priorities from revenue, health and workers, to the new order of workers, revenue and, finally, health.

The United States’ FDA banned cigarettes with fruit, confectionery or clove flavors last September, arguing they were particularly attractive to children. But the US ban does not include menthol-flavored cigarettes smoked by about 19 million Americans. Indonesia thinks the clove ban is unfair considering menthols are allowed.

Studies show that 17-year-olds are three times as likely to use flavored cigarettes than people over 25, according to the FDA.

Supervising the consultations with Indonesia will be one of the first tasks of the new US ambassador to the WTO, Michael Punke, whose Senate confirmation was held up for six months by Republican senators from the tobacco-growing state of Kentucky.

By Faisal Maliki Baskoro & Bloomberg

WASHINGTON – On Monday, NACS learned of two important decisions that the Food and Drug Administration (FDA) has made in the implementation of the Tobacco Control Act. Yesterday, NACS Daily reported on a larger guidance document regarding Regulations Restricting the Sale and Distribution of Cigarettes and Smokeless Tobacco To Protect Children and Adolescents issued late last week.

First, FDA staff has determined that retailers may still offer free matches with the purchase of cigarettes. As NACS previous guidance on this issue reflected, there was a great deal of uncertainty on this point, because the new law generally bans free “gifts or items” with the purchase of tobacco products. The FDA’s interpretation now explains that retailers can continue giving away free matches.

Second, the FDA issued guidance regarding so-called “descriptors” on cigarette packages, such as light, low or mild. Under the Tobacco Control Act, manufacturers may no longer use these descriptors in manufacturing cigarette packages beginning June 22, 2010.

In its guidance, the FDA has clarified that retailers may still sell cigarettes with these descriptors so long as they were manufactured prior to June 22, and put into commerce before July 22. In other words, there is an unlimited “pass through” for cigarettes delivered to retailers so long as the products meet these conditions.

NACS will be updating its tobacco Web site materials relating to the implementation of the Tobacco Act rules frequently in the run up to June 22, when the final rules take effect.

An order requiring tobacco companies to print graphic health warnings on cigarette packs is contrary to law, the Philippine Tobacco Institute (PTI) said on Thursday.

Complying with the health department’s administrative order will be a violation of the Tobacco Regulation Act (TRA) of 2003, the group said in a statement.

The law prohibits the printing of any other health warning on cigarette packs other than those specified by law, the group said.

Under Section 13 (g) of the law, “no other printed warnings, except the health warning and the message required (by the law) shall be placed on cigarette packages.”

“If AO 2010-13 [on the picture warnings] is implemented, cigarette manufacturers, exporters, and importers will be violating the TRA, which has penal provisions that could land them in jail and be meted heavy fines,” said the group, which includes Philip Morris-Fortune Tobacco Corp., the Philippines’ largest cigarette firm.

As a result, the PTI called on Health Secretary Esperanza Cabral to withdraw the said order, saying it is “defective” and “deplorable.”

Cabral and other health officials counter that the Philippines is one of the 168 signatories of the World Health Organization’s Framework Convention on Tobacco Control (FCTC), which requires parties to the convention to “implement large, rotating health warnings on all tobacco product packaging and labelling.”

At least 38 countries and territories — including neighboring countries Thailand and Singapore — have already implemented the printing of picture-based warnings of cigarette packs, while 27 other member-states of the European Union has also recommended its implementation.

A powerful lobby in the Philippines, with cigarette magnate Lucio Tan a major donor to political campaigns, the tobacco industry has decided to fight back. “Secretary Cabral has wrought much confusion in taxation and regulation in the last days of this administration… We call on Secretary Cabral to immediately withdraw her defective administrative order and not embarrass her president any further,” the PTI said in its statement.

The PTI is a group of local cigarette manufacturers which include the Philippines’ biggest tobacco firm, Lucio Tan’s Philip Morris-Fortune Tobacco Corporation, and other corporations like the Anglo-American Tobacco Corporation, La Suerte Cigar and Cigarette Manufacturing Inc., and Mighty Tobacco Corporation.

The FTI likewise accused Cabral of “arrogantly flaunting her powers” by issuing the order and by-passing Congress, which the group said should be issuing legislation regarding these graphic warnings.

“Congress did not pass such a law, after long consultations with all stakeholders, so Secretary Cabral usurped legislative powers and issued her own diktat. This arrogant flaunting of the law and arrogation of powers not hers to exercise should be condemned by all law-abiding citizens of this country,” the group said.

Cabral issued last week an administrative order requiring the printing of graphic warnings on the bad effects of tobacco smoking on cigarette packs, saying it was in accordance with an international treaty ratified by the Philippines back in 2005.

Comply or find alternative industry, Cabral says

However, Cabral remained firm about implementing the administrative order this month, saying tobacco companies can easily alter product packaging since they provide similar packages to other countries.

“These tobacco manufacturers are the ones who print and export packages with graphic warnings to other Asian countries. They can very well comply with the order,” she said in a phone interview with GMANews.TV.

The health department has given tobacco companies enough time to change their current packages and even invited them to a dialogue before the order was released, she said.

“We invited them, but nobody came except for one person,” she said.

The health secretary also said her administrative order does not violate any law, since RA 9211 only covers textual warnings.

“We consulted our legal experts here, and they said the order is well within the law. What we want now are graphic warnings, not textual ones,” she said.

Cabral likewise said that she expected strong opposition from tobacco firms after she released the order, but withdrawing her directive is not an option.

“In other countries, this order has also been met with opposition. Tobacco companies kept threatening to sue. It really depends on the political will,” she said.

“Natatakot ako, pero trabaho ko ito. Kung matatakot ako at hindi na magtatrabaho, I might as well resign,” she added.

Cabral had some stern advice for the tobacco industry.

“To the tobacco companies, I think they should start thinking of an alternative industry because we won’t stop until we put an end to smoking here in the country,” she said.

Cabral’s confidence may sound ironic, since she may be vacating her position on June 30, at the same time as her boss, President Arroyo. Some sectors are clamoring for her retention.

There has been no response to the clamor so far from presidential frontrunner Noynoy Aquino, an inveterate chain smoker under pressure to quit smoking from clergymen and anti-smoking advocates, including Cabral herself.

If the cigarette companies are eventually forced to put the frightening images of cancerous smokers on cigarette packages, the tobacco lobby may find comfort in the contrasting image of a president and idol of the youth lighting up and saying it relieves him of stress.

Wellington – Tobacco companies are using at least eight ways to persuade women to smoke cigarettes, 10 years after a law restricting advertising was introduced, a group of New Zealand researchers said Friday.

The Health Ministry said that while only 1-in-5 adult New Zealanders smokes, half of all indigenous Maori women use cigarettes regularly with negative impacts on children, including infant mortality, premature births, low birth weights, asthma and sudden infant death syndrome.

Researchers from the University of Otago and Whakauae Research for Mori Health and Development released their study ahead of Monday’s World Smokefree Day.

They said tobacco companies used female-oriented cigarette brand names such as Cameo Mild, Vogue Bleue and Topaz and packaging and colours designed to appeal to women.

Foreign fashion magazines contained cigarette advertising directed at women and girls, showing women smoking brands available in New Zealand and continued to use deceptive terms such as “light” and “mild” in online advertisements contrary to a ruling by the watchdog Commerce Commission in 2008, their study found.

The researchers said the use of words like “subtle” and “mellow” to describe brands formerly called “light” in New Zealand and menthol cigarettes were aimed at female smokers who may delay quitting because they believed they were less harmful.

Dr Heather Gifford from the Whakauae group called for tighter marketing controls pending a phase-out of all tobacco sales in 10 years.

Out of the 6.8 billion people on this planet, a whopping 1.1 billion consider themselves smokers. And despite what the Surgeon General wants you to believe, that number is rapidly growing. By 2025, an estimated 1.6 billion will be smokers — a 45% increase. Once you drill down to specifics, these stats are even more shocking.

The World Bank estimates that between 82,000–99,000 young people start smoking every day — roughly 85% from mid- or low-income countries, specifically in Asia.

Unfortunately, this trend isn’t likely to slow down in the foreseeable future. As emerging economies around the world begin to see an expanded middle class, tobacco use skyrockets.

In India, one of the fast-growing BRIC countries, 37% of all men smoke bidis, a smaller, cruder type of cigarette. About 60% of all males over age 20 smoke in China. And an incredible 80% of males in Indonesia — the world’s fourth largest population — smoke. Compare that to the 23% of the male population that smokes in the U.S.

Judging by these numbers, smoking isn’t going away anytime soon. Philip Morris Intl brought in $62 billion last year. Its former parent company, Altria, brought in $23.5 billion. And British American Tobacco saw revenue near $22 billion.

The amazing part about this story is how these companies do it – you see, in the tobacco industry there are a number of different niches, each with its own benefits for investors.

With the exception of British American Tobacco, large cigarette manufacturers are only good at two things: rolling a massive volume of cigarettes and selling them. They are usually classified under the tobacco industry, but they shouldn’t be. All these companies do is roll tobacco into cigarettes.

However, there’s not much money in tobacco farming. The industry deals with high costs, large debt loads and extreme risks. A single storm can wipe out an entire crop. That’s all of a farmer’s assets gone in a heartbeat. That’s why these massive corporations stay out of tobacco growing, for the most part.

Renegade Holdings Inc. received some breathing room last week — at least for the short term — regarding its cigarette brands.

In a case that could affect at least 520 Triad employees of smaller tobacco manufacturers, a U.S. District Court judge approved a stay Wednesday that prevents the Food and Drug Administration from enforcing a rule it adopted March 19.

The rule does not allow a manufacturer to use a brand name it began marketing after Jan. 1, 1995, if that name is also used as a brand by another company for a nontobacco product.

The FDA planned to begin enforcing the rule June 22. FDA officials could not be reached for comment yesterday.

Examples include Renegade’s Tuscon, Tracker and Barton brands — all registered as trademarks after September 2004. In addition to the cigarette brands, there is an automobile brand named Tuscon, a handheld computer for playing bingo called Tracker, and an alcoholic beverage called Barton.

Such tobacco brands would be considered as “misbranded” by the government, with products subject to seizure and destruction. There also could be civil and criminal penalties against manufacturers and sellers of those products.

“This was a major victory for our little company against the FDA’s heavy-handed control of the industry,” Mike Mebane, the president of Renegade, said yesterday. Seneca-Cayuga Tobacco Co. of Oklahoma joined Renegade in the lawsuit, filed May 7.

Renegade has 140 employees in Mocksville.

Also affected is General Tobacco Co., with 120 employees in Mayodan, and Commonwealth Brands Inc., with about 260 employees in Reidsville.

Congress denied a similar regulatory effort by the FDA in 1996, saying that the agency did not have oversight over tobacco. After the FDA was given that oversight last year, it essentially revived its 1996 regulation.

Renegade said it could face claims of $3.5 million for goods that could be designated as misbranded. It also would be forced to write off $1.2 million in finished goods and raw materials.

“These factors will force Renegade to stop doing business and close its doors,” the company said.

The vast majority of cigarette brands used by Philip Morris USA, R.J. Reynolds Tobacco Co. and Lorillard Inc. debuted before Jan. 1, 1995 — thus they are not subject to the rule.

However, for most manufacturers not participating in the initial Master Settlement Agreement, their brands debuted after that date. The plaintiffs said that the regulation, if permitted, should be enforceable after March 19, 2010, not Jan. 1, 1995, thus not giving the major manufacturers a competitive advantage by limiting, if not eliminating, the product mix of many discounters.

Mebane said that “it would take an impossible amount of time and cost to attempt to obtain the regulatory approvals necessary to introduce a new brand. There are so many road blocks that regulators would erect that I doubt you would ever get one approved.”

The judge requested that the FDA consider amending the rule. If the FDA chooses to enforce the original or amended regulation, it must give Renegade 90 days notice of its action.

Casey Francis, a spokeswoman for Commonwealth, said that the company “would like to think that the industry as a whole will receive a notice of 90 days before the FDA commences on any action.”

“However, it is one month away, and we still have heard nothing.” Francis said.

By Richard Craver
Journalow, May 25, 2010

Ploom Inc., a San Francisco tobacco company, unveiled a series of products designed as alternatives to smoking.

The company makes a tobacco “vaporizer” that heats tobacco in a “pod,” creating “a satisfying vapor” that the smoker inhales.

Because this process takes place at low temperature, there’s no smoke. Ploom compares the experience to that of “established smoking rituals such as hookah.”

Adam Bowen, Ploom’s CEO, said this invention is “an opportunity to reimagine the smoking ritual in a way that emphasizes the social experience it has been for centuries without many of the negative aspects that have relegated it to the sidewalks and curbsides.”

Ploom sells different pods for its vaporizer: four contain tobacco and two don’t.

The company was started in 2007.

Read more: S.F. tobacco company Ploom makes ‘alternative’ cigarettes – San Francisco Business Times:

J. Conrad Seneca started selling cigarettes in the late 1980s out of a little trailer alongside Route 20 as it runs through the Cattaraugus Seneca Indian Reservation.

Today, he employs 120 people, most of them non-Indians who live near the reservation about 25 miles southwest of Buffalo.

On the land where Seneca’s trailer was once parked, he now has his Native Pride Travel Plaza, including a smoke shop and convenience store, full-service gasoline station and restaurant. Out back are his U.S. Customs-bonded warehouse for cigarette imports, Six Nations Manufacturing cigarette factory, licensed stamping operation for his sales in Florida, and a trucking company that delivers cigarettes and motor fuel.

Like many Native American entrepreneurs, Seneca, 50, took advantage of a situation in which New York state doesn’t collect taxes on the sovereign territories of the Indian nations within its borders. That’s a big advantage now that state taxes are $2.75 a pack.

In recent months, though, the state has been working to end that advantage and find new revenue, echoing the efforts of three former Albany administrations. A comment period ended late last month on proposed regulations that would limit the numbers of cigarettes that wholesalers could deliver to reservations without state taxes, but the regulations haven’t been issued or enforced yet.

And history suggests it’s questionable whether these latest ones will be, either.

“For over 25 years we’ve had various administrations and various legislatures promulgate regulations. It’s made a lot of lawyers rich and the state hasn’t collected a nickel,” said Syracuse attorney Joseph Heath, who represents the Onondaga Nation.

Non-Indian convenience stores, health-related organizations, state legislators and even major cigarette companies all support the latest effort to collect taxes on Indian cigarette sales to non-Indians. Their arguments include the need to create a “level playing field,” provide financial incentives that discourage smoking and generate much-needed tax revenue.

The Seneca Nation of Indians is leading the campaign against the effort, citing federal treaties that arguably prohibit the collection of state taxes on Indian lands.

“We have our treaties with the United States that guarantee us certain rights. It doesn’t matter whether a treaty was made in 1842 or 1794, or New York state is $8 billion in the hole,” said Seneca, who is a member of the Seneca Nation’s council and the son of a former Seneca Nation president. “It doesn’t say in the treaty ‘until New York state needs money from you.’”

The Seneca Nation alone is already paying the state more than $500 million a year from its gambling operations, Seneca noted. “For them to say we have to pay our fair share — it’s insulting and ridiculous.”

Huge incentive

By at least one estimate, half the cigarettes consumed in New York are purchased from Native Americans who don’t collect and pay state taxes. Seneca, who is a spokesman for the Seneca Nation on this issue, specializes in discount brands that sell for as low as $21.50 a carton. He also carries premium name brands for about $50 a carton. The same cigarettes would cost 50 percent more off reservations.

That price difference is a huge incentive for smokers, said James Calvin, president of the New York Association of Convenience Stores. Every time the state has raised its tax on cigarettes, non-Native American convenience stores felt an “immediate and dramatic” impact, with sales of their cigarettes tumbling 25 percent to 40 percent, he said.

“If the tax rate has increased five-fold, I think it’s reasonable to assume that the tax evasion has increased five-fold,” Calvin said.

Estimates of how much potential revenue the state is missing vary wildly. The state’s estimates range from $90 million to $220 million a year, the latter figure supplied by the Department of Taxation and Finance.

Julianne Hart, New York advocacy director for the American Heart Association, uses a figure of $600 million a year. And Calvin, asserting that the economist his organization hired is the most accurate, puts the figure at $1 billion a year. Calvin said the state is using old formulas, tabulated when taxes were a fraction of today’s.

“The tax department is long on trying to discredit our economists’ estimate, but they’re short on backing it up with their own math,” he said.

Calvin said the 7,500 non-Indian convenience stores in the state have experienced devastating effects from the tax inequity. However, he couldn’t provide any statistics to support that claim, including fluctuation in numbers of stores or membership in his trade association. But he did say that nationally, convenience stores make 35 percent to 40 percent of their non-gasoline profits from cigarettes, while New York stores make only 10 percent to 15 percent.

Getting more to quit

The American Heart Association, Lung Association and American Cancer Society have issued a joint statement urging taxation of Native American cigarette sales, saying some smokers would quit if they had to pay the full tax.

“Raising prices discourages … consumption, it discourages youth from even getting started,” Hart said.

For every 10 percent price increase, overall consumption goes down 4 percent, she said, translating to about 100,000 fewer smokers in New York.

Calvin, meanwhile, challenged any suggestion that more than 3 percent of smokers would quit if they had to pay the full tax. (Everyone has to pay federal taxes, a much smaller portion of the tax on cigarettes.)

Seneca likens the business he and many other Native American vendors do in cigarettes to “stimulus” money. At the Seneca territories, some 1,000 mostly non-Indian people are employed in the cigarette businesses, and they spend most of their income off-reservation.

While four state administrations haven’t yet collected taxes from Native American cigarette dealers, they have affected their business, whittling away at delivery methods, stamping agents and use of credit cards for Internet sales. Some sellers went out of business, but Seneca diversified. Half of his sales are now in Florida, where regulations are friendlier, and he makes 1,000 to 2,000 cases of cigarettes a month at Cattaraugus.

Lately, he has been putting together mixed martial arts bouts (there’s one scheduled for tonight at the Seneca Niagara Casino in Niagara Falls), an interest that grew out of his own search for better health after developing diabetes. Cigarettes, though, are the majority of his considerable income, which he won’t divulge.

“I wanted to put my destiny in my own control,” Seneca said of his diversification. “To do what I needed to do to protect (my business) so I could sustain any encroachment from an outside interest, such as New York state.”

It takes some doing to have a worse reputation than Goldman Sachs at the moment, but companies including British Airways, Royal Bank of Scotland and the owner of the Daily Mail have managed just that.

The image of the American investment bank is in tatters after US financial regulators charged it with a $1bn (£660m) fraud, but a survey saw it score better than some of the UK’s largest companies after scandals, strike action and shoddy service stuck in consumers’ minds.

Utility companies Thames Water, Severn Trent and Scottish and Southern Energy, the state-controlled RBS and Lloyds TSB and British American Tobacco (BAT) and Imperial Tobacco, came bottom in the survey of 6,000 consumers by the Reputation Institute. The bottom 10 also included National Car Parks (NCP), Phones 4U and Daily Mail & General Trust.

The top 10 was dominated by big high street names, with Boots the Chemist the most admired and John Lewis Partnership, Marks & Spencer, Debenhams and Morrisons close behind. Dairy Milk-maker Cadbury, bought by American conglomerate Kraft earlier this year, came third.

Researchers found that the recent strike action by BA cabin crew had weighed on consumers minds with the airline ranking 114th – below Eurostar which was heavily criticised for its treatment of passengers stranded in the Channel tunnel.

“Companies are quick to champion their customer service but it is clear events like striking staff and poor service stay in the mind of the public,” said Reputation Institute UK managing director Seamus Gillen. “The aftershocks of the banking crisis have also been felt since our last report, leading many people to lose their trust in some of the country’s biggest brands.”

Loathed by drivers around the country, NCP only just escaped bottom place thanks to cigarette giant BAT – and was just ahead of RBS, which received billions of pounds after the excesses of former chief executive Fred “the shred” Goodwin brought it to its knees.

Oil giant BP was ranked in mid table alongside the likes of Vodafone and the London Stock Exchange but after the Gulf disaster is likely to take a tumble if the exercise is repeated next year.

According to the research British Sky Broadcasting (BSkyB), which brings us Premiership football and Hollywood blockbusters, is held in lower regard than the Royal Mail which delivers our post. BSkyB also ranks below its free-to-air rival ITV, which with hit shows such as X Factor and Britain’s Got Talent came in the top 25.

NEW YORK – In its continued mission of providing to retailers a “total tobacco” approach, R.J. Reynolds Tobacco Co. and American Snuff Co., the largest operating companies of Reynolds American Inc., are focusing on their other tobacco products (OTP) offering with the launch of a new moist smokeless tobacco product, new packaging and more, company executives recently told CSNews Online.

In the first quarter 2010, Reynolds American’s American Snuff Co., formerly known as Conwood Corp., launched Grizzly 1900 long cut, a natural moist smokeless tobacco (MST) product that features more dark fired tobacco, providing a more robust tobacco flavor, according to company officials. The premium-tasting product is value-priced and available nationally. It is aimed at adult MST consumers looking for a product with a bolder, more traditional tobacco taste, officials said.

The “1900″ is a nod toward the founding year of American Snuff Co. The original factory is also portrayed on the package.

Meanwhile, all Grizzly and Kodiak brand MST saw a packaging update in the first quarter to embossed metal lids. The new lids were rolled out for the Grizzly brand in February and the Kodiak brand in March, officials noted, adding the packaging is a cue towards to products’ premium quality.

And R.J. Reynolds Tobacco Co. (RJRT) is “pleased” with the progress of its Camel Snus — a smokeless, spitless tobacco product available nationwide, according to company officials, who noted Camel Snus currently represents 90 percent of the snus market in the U.S. And for the first quarter of 2010, Camel Snus had a 0.2 share of market on a cigarette-equivalent basis, according to the company’s first quarter earnings report.

In addition, RJRT continues to gain learnings from its pilot of its dissolvable line of products in three U.S. test markets. The Camel Sticks, Strips and Orbs are currently available in Columbus, Ohio, Indianapolis and Portland, Ore.

Moving forward, RJRT will be “deliberate” in its expansion, similar to what the company did when testing its Camel Snus product, officials told CSNews Online. The company will gain learnings and feedback from both adult tobacco consumers and retailers, as well as continue to educate adult tobacco consumers and increase awareness by working with its retail partners.

The emphasis RJRT is putting on its alternative tobacco products aligns with its mission to be what officials call a “total tobacco company,” and help keep the tobacco category a viable one for convenience retailers, officials said.

By Mehgan Belanger
Csnews, May 4, 2010

The world’s third largest tobacco company by sales volume, Japan Tobacco Inc, has invested $65 million (Rs 293 crore) in its Indian unit without increasing its shareholding, just days ahead of a government decision to ban foreign direct investment (FDI) in cigarette manufacturing.

Japan Tobacco holds 50 per cent equity in JTI India, a joint venture with a Mumbai-based law firm, the Thakkar family. The company manufactures several popular cigarette brands, such as Benson & Hedges and Camel, and other tobacco products like cigars.

Japan Tobacco had been wanting to infuse fresh capital in the Indian unit for some time. The company had earlier sought permission of the Foreign Investment Promotion Board (FIPB) to increase its stake in the Indian venture from 50 per cent to 74 per cent. FIPB, however, put the proposal in “abeyance”, where it has remained for more than a year.

JTI India, sources said, has issued fresh equity of Re 1 each to the Japanese company at a premium Rs 298, amounting to Rs 293 crore. It has issued an equal number of shares to its Indian partners, the Thakkar family, which paid only Rs 1 crore for the shares, as they were issued at par.

By issuing the shares on a differential basis, the company has ensured infusion of more capital from the foreign partners without any increase in their shareholding.

The popularity of brands such as Lucky Strike and Pall Mall cigarettes continues to boost sales at British American Tobacco, although the company said that a shrinking tobacco market and cash-strapped consumers were denting cigarette volumes.

“Our consumers are finding economic conditions difficult and volumes suffered as a result of market size declines,” said Paul Adams, chief executive of British American Tobacco.

“However, there was continued pricing momentum and good growth in market shares, leading to solid revenue growth. We remain on track for the year.”

Sales volumes of Lucky Strike grew by 8 per cent in the three months to the end of March, whilst Pall Mall grew by 10 per cent. The Dunhill brand increased volumes by 24 per cent, after BAT changed the brand of its Carlton cigarettes in Brazil to “Carlton by Dunhill”.

In the three months to the end of March, revenues in constant currencies grew, helped by the acquisition last year of the Indonesian tobacco group Bentoel Internasional Investama, although BAT declined to give figures for the increase in turnover.

However, in spite of this sales growth and the gains made in its major brands, total cigarette volumes fell in the period, with organic volumes down 4 per cent, whilst volumes from BAT’s subsidiaries down by 1 per cent.

BAT attributed some of the decline in volumes to a reduction in the size of the overall tobacco market, with total tobacco consumption falling fastest in the markets of Brazil, Japan, Ukraine and Romania.

Notwithstanding a reduction in the size of the Japanese tobacco market, Asia Pacific was the only region in the world where BAT increased its sales volumes, with the group selling 45bn cigarettes, up 5 per cent on the same period last year. The region now accounts for 25 per cent of sales volumes.

In eastern Europe, however, sales volumes fell 7 per cent to 25bn cigarettes, with volumes also falling in western Europe, Africa, and the Middle East, although stable in the Americas.

Shares in British American Tobacco fell 14½p to £21.26 on Wednesday.

By John O’Doherty
Ft, April 28 2010

TOBACCO giants are using Facebook to subvert bans and international conventions against cigarette advertising, a study by University of Sydney researchers published in the British Medical Journal has found.

”We have gathered here to pay homage to Lucky Strike, the bestest cigarette in the whole widest world,” says one Facebook page administered by an employee of the tobacco company RJ Reynolds highlighted by the study.

Other Lucky Strike pages, one with tens of thousands of members, had images of old and new tobacco ads and various Lucky Strike tobacco products and merchandise. The report also found employees of British American Tobacco Australia had established similar pages.

In a statement BAT Australia’s managing director, David Crow, said: ”It’s absolutely not our policy to use social networking sites such as Facebook to promote our tobacco product brands. To do so could breach local advertising laws.

”Our rules mean that employees should not post branded material on social networking sites, blog sites, chat forums or other ‘user-generated content’ sites such as YouTube – whatever the intention in posting the material may be.”

The statement said ”if we find group employees have posted material that they shouldn’t, perhaps out of naivety, we will be telling them to remove it”.

The study says that according to Facebook rules the creator of a page must certify that they are ”an official representative of this brand, organisation, or person and that you are permitted to create a Facebook page for that subject”. This suggested only BAT employees and authorised representatives could create such pages.

The study found more than 500 networks for BAT employees, but noted there was no way of knowing if these were a form of promotion. The next most common type of group was for BAT cigarette brands. ”Twenty-six BAT cigarette brand groups were found as part of the search and of these, five had members who were part of the BAT network.”

One large group appeared to be promoting Kent cigarettes and had been established by a Belgium BAT employee.

Six of the brand groups are designated as “health and well-being” types of group, the study said.

The article’s lead researcher, Becky Freeman, a PhD student at the university’s school of public health, said the Facebook pages appeared to break not only domestic laws against cigarette advertising but Australian commitments to the World Health Organisation treaty against the practice. Facebook was unable to comment.

There are fewer retail outlets for tobacco products in Finland than before. When the sale of tobacco became subject to a licence, many businesses opted to stop selling it rather than go through the expense and bother of acquiring a licence. The trend is for even greater restrictions on the availability of cigarettes.

New legislation came into effect last summer, requiring all businesses selling tobacco products to apply for a special licence. A number of businesses, especially restaurants and cafes, preferred to stop selling cigarettes altogether.

“It’s not worth it. There are costs, and filling out the application is fairly painstaking,” says Vilhelmiina Ihamäki, who works at the Meritähti restaurant in Helsinki.

Before the new regulations went into effect, the Ministry of Social affairs and Health expected applications from more than 30,000 businesses for tobacco licences. Ultimately only about 10,000 applications came. In Helsinki a licence costs 100 euros, in addition to an enforcement fee of 150 euros a year.

“As there is not much of a profit margin in tobacco sales, many businesses have calculated that it is no longer worth their while”, says Ismo Tuominen, an official at the Ministry of Social Affairs and Health,

Further Restrictions Possible

More restrictions on tobacco sales could be on the way. Parliament is considering legislation that would require that tobacco products be sold from beneath the counter, and should not be openly on display.

“In some countries there is talk of restricting sales of tobacco to a very narrow system, such as pharmacies, or in Finland, to sales outlets of Alko [the Finnish alcohol retail monopoly]. It has also been suggested that buying tobacco might be restricted to those with a licence. That is, if a person wants to smoke, he or she should register for permission to buy tobacco,” Tuominen explains

Discouraging smoking is seen to be in society’s interest, as treatment of tobacco-related diseases is very expensive. Health officials have a long way to go – about one in five Finns over 15 years of age continue to smoke daily.

Reynolds American posted a sharp increase in first quarter profit Thursday as higher prices, growth in smokeless tobacco and lower costs offset a continuing decline in cigarette volume.

Reynolds /quotes/comstock/13*!rai/quotes/nls/rai (RAI 55.77, +0.36, +0.65%) earned $82 million, or 28 cents a share, on the period, up from $8 million, or 3 cents a share, in the same quarter of 2009. On an adjusted basis, the company would have earned $1.11 a share.

Sales rose 3.4% to $1.99 billion from $1.92 billion.

The average estimate of analysts polled by FactSet Research had been for the company to earn $1.07 a share on sales of 1.91 billion.

But while Reynolds’ cigarette market share increased 0.2 share points to 27.9%, volume fell 2.5% — slightly higher than an estimated industry-wide decline of 2.4%.

“It’s important to note that first-quarter comparisons benefited from unusually low cigarette and moist-snuff shipment volume in last year’s first quarter, as wholesalers and retailers significantly reduced inventories ahead of federal excise-tax increases that took effect last April,” said Susan Ivey, chief executive, in the earnings report.

She added that the company managed to boost profit “in a challenging environment, marked by significant competitive promotional activity and product introductions in both the cigarette and moist-snuff categories” along with “consumer spending patterns [that] continued to be affected by the ongoing impact of higher tobacco taxes and the weak economy.”

The company’s American Snuff unit posted a shipment volume increase of 12.2%, helped by easier comparisons but it noted that “on a consumer off-take basis, which better reflects retail sales, American Snuff Co.’s volume increased about 6.7%.”

Looking ahead, the maker of Camel, Pall Mall and other smokes, said that it still expects to earn $4.80 to $5.00 a share on an adjusted basis for the full year.

By William Spain, MarketWatch

Domestic market

KT&G’s brand portfolio retains a 63% of market share in Korea.

Its major brands include: Esse (17% market share), The One (6.9%), Raison (6.0%), This Plus (5.1%), This (2.2%), Season (1.9%), Time (1.8%) and Bohem (1.7%). The company controls 80% of the super slim segment, 67% of the slim and 40% of the king size segments.

Domestic manufacturing is carried out at four high-technology KT&G factories in Korea producing 140 billion pieces of cigarettes annually, and these factories account for 50% of the world’s super slim cigarettes.

The addition of new cigarette factories in Turkey, Iran and Russia (to be opened this year), along with the constant process of automation and facility upgrades will strengthen KT&G’s production capacity globally.

Packaging innovations

Packaging is an important medium for Korean consumers and manufacturers strive to create striking and effective solutions to appeal to customers. Cigarette packaging reflects this preference in Korea, and KT&G has made great efforts to create appropriate packaging for its brands.

“A lot of special packaging or edition products with various design and function, have been already introduced in the market,” a KT&G spokesperson told Tobacco Asia. “Special edition products are often offered in metal packaging to enhance a premium image. Also, the slide pack was introduced in year 2003 for the Zest brand, a major innovation over previous pack design. With regards to developing packaging, since it is most important for us to source materials that are suitable for the concept and which contribute to the desirability and value of each brand, we do not put importance on where materials are coming from. They could be either produced in-house or outsourced.”

Growth segments

Korea’s domestic market has shown a growing preference for super slim and low tar products, and KT&G is strong in both these segments. Demand for both super slim and low tar products will most likely keep on growing, which will help KT&G to maintain its lead.

“Since the segment grew fast from the beginning on account of health concern and the perceived well-being of Korean smokers, we anticipate that the super slim and low tar segment will enjoy steady market expansion,” KT&G told Tobacco Asia.

New technology

KT&G has not been slow in developing and embracing new technology to further the growth of its brands.

Innovations that have been introduced recently include the development of various types of filters with specific inherent function, such as the tube filter, a bamboo charcoal filter, the three-layered cavitec filter and so on.

Research and development of ultra low tar brands (cigarettes with tar levels as low as 0.5mg or even 0.1mg) and innovative less smoke smell (LSS) cigarettes is well under way, and we can expect to see initial offerings in these segments presented quite soon, according to the company.

“There are several steps for new products to be launched in market,” KT&G said. “Various surveys are performed prior to launching, and marketing strategies that are developed in accordance with 4P mix are articulated in order to create smoker/market-oriented products.”

Distribution and suppliers

KT&G operates it own direct sales distribution force all across the country covering various channels, and it has developed a formidable domestic supply chain.

“Regardless of type of material, high quality is the most important thing we look for in any supplier,” the company said.

The company sources much of its leaf tobacco domestically, with flue-cured leaf sourced primarily in the Chunbuk, Kyungbuk region and burley from the Geonnam, Geonbuk area.

“KT&G deals with farmers directly and it is the exclusive buyer from the farmer,” the spokesperson told us. “Farmers try their best to produce good leaf quality and meet KT&G’s standard for tobacco leaves. KT&G supports Korean tobacco farmers through various training programs.”

Rules and regulations

The Korean government has various programs regulating tobacco production, sales and consumption, including the Tobacco Business law, the Health Promotion law, and a Youth Protection law. Recent legislation has expanded smoke-free areas and most buildings are divided into smoking and non-smoking areas. Some buildings have been declared smoke-free areas in their entirety. Health Promotion Funds, levied on tobacco, are utilized for non-smoking education, to finance stop smoking campaigns and no smoking ads. Most recently, warning messages on cigarette package have been expanded to list potentially cancer-causing ingredients.

“Korea ratified FCTC in 2005 and has been participating very actively on its implementation since then,” according to our source. “Korea is known as one of the countries with a strong smoking ban policy. The obligatory and advisory articles in FCTC were already implemented in domestic law before the agreement was signed. Since FCTC ratification, the national assembly as well as executives have been paying attention to anti-smoking policy and proposing various bills related to non-smoking and health.”

Tax structures

The Korean government has announced that it believes that raising taxes on cigarettes will serve to reduce the country’s smoking rate through price control.

An tax increase of KW500 (US$0.45) per pack was introduced in December, 2004, and an additional hike was planned. However, there were protests over the sudden price increase of cigarette, and so far the plan has not yet been executed.

“KT&G is expecting a fair decision on reasonable tax increases that conform to a timely schedule that considers the opinions of other producers and consumer resistance, and KT&G will abide by governmental policy to decide the price of its products,” the spokesperson said.

Exports

Exports are a growing factor in KT&G’s growth, and it has enjoyed notable success with several of its products in various overseas markets. The largest market for KT&G cigarettes currently is the Middle East region, including Iraq, Iran and Afghanistan.

“We have also enjoyed rapid development in the CIS region where Esse was accepted very well by female smokers,” we were told. “Esse is our global flagship brand and has enjoyed wide success all across the world. The super slim segment will most likely keep expanding its influence and KT&G plans on developing its Esse brand globally and becoming a household name for super slims.”

Esse is certainly well on the way to achieving this goal as it has already proved itself to be a potent brand.

“Esse is a major success for KT&G and it has targeted a very specific segment of the market, the health-oriented and premium image category,” KT&G told us. “Esse has taken advantage of its position as the first super slim brand in the market in various regions. Esse has enjoyed high performance and has become well-accepted by female smokers, particularly in the CIS and Russia.”

Esse’s success owes perhaps as much to the ground work done assessing the potential market and preparing the product to meet the relevant criteria as anything else.

“Prior to launching products, a consumer survey is always done in order to measure the suitability of the product in a specific market,” the company said. “A brand is developed and tailored for certain markets; it could be adjusted in terms of blending and packaging for different regions.”

Future markets

KT&G is looking forward to introducing its brands to new consumers elsewhere in the world, building on the success of its efforts in existing markets. According to the company, new market development will be focused on Europe and South America.

“KT&G will have its third overseas manufacturing facility soon as its factory in Russia is finished in 2010,” the company said. “Operating a factory in Turkey has made it easier for us to reach out to smokers in Europe where KT&G hasn’t made a breakthrough – yet.”

To ensure the maximum potential for success, it is critical that the right distributor is selected, a process that KT&G takes great care to assess candidates based on its own experience in the domestic market.

“It is critical for KT&G to keep good relations with distributors since they manage and are in charge of our overseas distribution in different regions,” KT&G said. “We have worked closely with several distributors ever since we started global operations. Without a direct sales force in overseas markets, we wish to continue working closely with distributors to reach out to global consumers. It is important that KT&G and its distributors should be able to exchange information about market and to discuss the issues concerning marketing activities in specific regions. However, most important qualification, and an overriding condition in the selection and appointment of any overseas KT&G distributor, is credibility.”

Imperial Tobacco Group Plc, Gallaher Group Ltd. and 10 retailers were fined 225 million pounds ($346 million) for coordinating cigarette prices between 2001 and 2003, a U.K. antitrust regulator said.

Imperial, the maker of the West, Davidoff and JPS brands, received the largest penalty of 112.3 million pounds, the U.K. Office of Fair Trade said today in a statement. Gallaher, a unit of Japan Tobacco Inc., was fined 50.4 million pounds. The fines are the largest of their kind by the regulator.

Wal-Mart Stores Inc.’s Asda unit was fined 14.2 million pounds and The Co-operative Group was fined 14.1 million pounds for their roles in a price-fixing scheme that the OFT says barred retailers from setting their own prices. The affected markets are worth about 13 billion pounds, the regulator said.

“Practices such as these, which restrict the ability of retailers to set their resale prices for competing brands independently, are unlawful,” OFT Senior Director Simon Williams said in the statement. “They can lead to reduced competition and ultimately disadvantage consumers.”

The OFT said it dropped allegations made in 2008 about the relationship between the tobacco companies and Tesco Plc, because it didn’t have enough evidence. The regulator also said it abandoned claims relating to indirect exchanges of proposed future retail prices.

Some of the companies, including Imperial, said they would challenge the fines.

Tactical Decision

Frances Murphy, a competition lawyer at Jones Day in London, said the fine and the decision to drop some claims are “rare” examples of the regulator’s ability to deal with cases swiftly and tactically.

The OFT was “willing to let more serious things go in order to get a quick result, which perhaps points towards the OFT being more tactical and pragmatic in the application of tight resources,” Murphy said.

Imperial denied breaking any laws and said in a statement it would appeal to the Competition Appeal Tribunal. Japan Tobacco views the fine as a “positive” development since the fine has been formally decided, spokeswoman Yuka Sugimoto said.

The OFT issued initial fines in the case two years ago after alleging that some of the same retailers and manufacturers linked retail prices of tobacco brands to those of competing products. The investigation started seven years ago.

William Morrison Supermarkets Plc said it would challenge the fines, saying the OFT’s stance was “illogical and without foundation.” Morrison was fined 2.45 million pounds and Safeway stores, which it acquired, were fined 10.9 million pounds.

Novel Interpretation

“The practices to which the OFT refers were intended to reduce the retail prices charged to consumers, and the OFT has itself acknowledged that its case is based on a novel interpretation of the law,” Morrison said in a statement.

J Sainsbury Plc, the U.K.’s third-biggest supermarket owner, alerted the OFT to the price-fixing arrangement and was the first to apply to the watchdog for leniency. The company received full immunity from fines.

“Sainsbury’s initially alerted the OFT and has cooperated fully with them since March 2003,” a spokesperson for the London-based company said today in an e-mail.

Imperial hasn’t taken any provisions for the fine, and “any appeal to the tribunal will lead to the suspension of the fine,” Imperial Tobacco spokesman Simon Evans said today in a phone interview.

Gallaher, Asda, First Quench Retailing Ltd., One Stop Stores, Somerfield and TM Retail were given reductions to their fines because they admitted liability when they received the OFT’s so-called statement of objections in April 2008.

“These events date back almost 10 years and though we can’t turn back the clock, we recognized there were lessons to be learned,” said Clair Hufton, a spokeswoman for Asda. “As you’d expect we’ve cooperated fully with the OFT throughout its investigation and we regard this matter as closed.”

The retailers “agreed to a streamlined procedure enabling parts of the case to be resolved more quickly,” the OFT said.

Some hopes may have gone up in smoke.
After much deliberation, India has banned further foreign direct investment in the cigarette business.

That seems to be a blow to the likes of Japan Tobacco and British American Tobacco, which were lobbying to expand their small presence in the growing and increasingly affluent market. But the protectionist move should hardly come as a surprise, especially given that ITC, which has nearly 80% of the cigarette market, is 34%-government owned through state-run insurance companies. And it should give companies time to think if they really are missing out.

Despite rapid growth in disposable income and massive migration of people from rural to urban areas, cigarettes are the choice of only a slim segment of Indian tobacco users. Many prefer chewing tobacco. Among those who smoke, hand-rolled leaf tobacco is favored; a mere 15% smoke cigarettes.

And profit margins are tight, in part because of competition from contraband cigarettes smuggled across the borders and illegally made local smokes. Though there are no specific estimates of how many such smokes circulate in the market, ITC says they are its biggest challenge.

On top of that, New Delhi, particularly the Health Ministry, is increasingly vocal about curbing smoking. Even before the formal investment ban, the government had rejected proposals by foreign players to increase their presence in India. Existing rules use licenses to cap the number of cigarettes a company can produce in a year, and there are loud calls for higher tax rates to reduce tobacco use. The country’s tobacco tax already represents 69% of the retail price of a cigarette — among the highest percentages in the region, according to the Tobacco Institute of India, a trade group.

And cigarette makers bear a disproportionate share of the tobacco tax. Though cigarettes represent only about 40% of India’s $12 billion tobacco market, they generated 80% of the revenue collected from the tobacco industry in 2007-08. The non-cigarette industry is fragmented, consisting of many small-scale players.

Certainly, global companies may have hoped a market like India — where cigarette consumption is growing around 5% a year, according to Datamonitor — could offer growth potential they lack at home. Japan Tobacco is hunting for new markets as its domestic market shrinks due to a declining population and fewer people lighting up.

But when the smoke clears, foreign firms may see India’s protected market has its own shortcomings.

The government is expecting a slower annual growth in exports of tobacco and its products from average 18 percent in the past three years to an average of 15 percent growth in the next five years.

Industry Ministry director for beverage and tobacco industries Warsono said Friday the government expected a slower rate of growth as the main cigarette export destinations had introduced stricter controls on smoking.

“It will be good enough if we can make cigarette exports grow by 15 percent — slower than the 18 percent realized in the past three to five years – because it is becoming harder to export cigarettes nowadays,” he said.

“For example, the United States has banned [clove] flavored cigarettes [to be sold in its domestic market], with the issuance of a new bill, while the European Union (EU) has further limited smoking areas available to the public.”

The US Food and Drug Administration has banned cigarette flavorings, including clove or kretek, cherry and chocolate, since last year as sweet flavors are considered to encourage young people to smoke.

Indonesia is among the world’s five largest cigarette makers, besides China, India and the US, and the world’s largest kretek cigarette producer. Indonesian cigarettes make up 99 percent of the US market for the kretek product.

Indonesia also exports tobacco and tobacco products to the EU (tobacco and cigars) and former Soviet Union countries, as well as other developing countries in Africa and Asia.

According to the ministry’s latest data, in 2008 unprocessed tobacco exports were worth US$151.02 million, while cigarette and cigar exports stood at $357.8 million.

The ministry has forecast tobacco exports will reach $401.7 million and cigarette and cigar exports will reach $1.06 billion by 2015, the data shows.

Warsono said he had yet to receive data on exports of tobacco and its products in 2009.

Meanwhile, the government is limiting the production of domestic cigarettes — only for sale in the domestic market — to promote public health over dangers of smoking.

The government’s limit on domestic cigarette production is set at 240 billion sticks by the end of this year — a decline from 245 billion sticks produced last year.

The limit will eventually reach 260 billion sticks by 2015.

The government also has increased excise tariffs on cigarettes from Rp 65 per stick to a maximum of Rp 320 per stick, depending on whether they are hand-rolled or machine-rolled, to discourage people from smoking.

The regulation came into force on Jan. 1 this year.

The government also has increased import duties to 40 percent and has imposed 40 percent excise tariffs on imported cigarettes for the same reason.

Indonesian cigarette companies employ about 600,000 people with total sales revenues of more than Rp 800 trillion (about $8.8 billion) a year.

The government has issued a ban on fresh flow of foreign direct investment (FDI) into the cigarette manufacturing sector. Contrary to expectations, the ban will be effective in special economic zones (SEZs) as well.

P. Chidambaram, Home Minister, said, “FDI will be prohibited in the manufacture of cigarettes, whether it is for domestic consumption or for exports.” The decision was taken after his meeting with the Cabinet Committee on Economic Affairs (CCEA).

The existing norms permit 100% FDI in cigarette manufacturing, provided other criteria such as industrial license and Foreign Investment Promotion Board approval are obtained. The idea to restrict FDI in the sector was first proposed by the Department of Industrial Policy and Promotion (DIPP) under the ministry of commerce and industry. However, in the first proposal, DIPP had advocated for a FDI ban excluding SEZs. The proposal was aimed at allowing FDI flow to continue in SEZs for export purposes.

This proposal was opposed by the ministry of health and family welfare, which forced DIPP to switch over to a complete ban. The revised proposal has the support of all major ministries such as ministry of commerce and industry, ministry of finance and the planning commission.

This change in policy may adversely impact the future expansion plans of foreign players in the field, though there will be no setback for their existing investments. India has three major players with large investments in the cigarette manufacturing sector – British American Tobacco (BAT), Altria Group and Japan Tobacco.

Both BAT and Japan Tobacco were planning to increase their stake in the Indian companies. This will not be possible with the new policy change.

However, the flipside is that the ban will help cash-rich Indian companies like ITC.

Malawi, the world’s biggest producer of burley tobacco, will probably boost export earnings from the leaf by 20 percent this year as lower output and better quality lifts prices, the Tobacco Control Commission said.

Export revenue from tobacco, which contributes about 60 percent of Malawi’s foreign currency earnings, is expected to rise to $600 million from $500 million last year, Bruce Munthali, chief executive officer of the Commission, said in an interview today in the capital, Lilongwe.

Dry weather has cut this year’s tobacco crop by 6.5 percent to 217 million kilograms (478 million pounds), while at the same time helping to improve the quality of the leaves, which are damaged by wet and mouldy conditions.

The improvement in tobacco earnings will help ease a shortage of foreign exchange and sustain economic growth of more than 6 percent this year, central bank Governor Perks Ligoya, said in an interview on March 29.

“The quality of tobacco is high and volumes have shrunk,” Munthali said. “The rainfall pattern hasn’t been conducive to tobacco production in general.”

Tobacco has fetched an average of $1.50 a kilogram since auctions began on March 15, up from $1.20 a year ago, Munthali said. That will benefit about 80,000 growers, three-quarters of whom operate small-scale farms, he said.

Limbe Leaf Tobacco Co., a unit of Universal Corp., Alliance One Inc., Africa Leaf Malawi Ltd., Premium Tama Tobacco Ltd., Malawi Leaf Co., RWJ Wallace Ltd. and Japan Tobacco Inc. are some of the biggest buyers of tobacco in Malawi. They export the leaves to countries in Europe, Asia and North America.

Tax Earnings

The industry employs 12 percent of the country’s workforce and accounts for a quarter of tax earnings. That makes it a major contributor to the economy in a nation where 40 percent of the population lives in poverty. Malawi is ranked at 160 out of 182 countries on the United Nations’ Human Development Index.

Malawi’s tobacco industry may come under threat from falling consumption as more countries limit smoking, Munthali said. The Framework Convention on Tobacco Control, a treaty of the World Health Organization that came into effect in 2005, aims to restrict demand and supply of tobacco around the world.

“It may impact negatively on our economy,” Munthali said. “It limits the sale of tobacco, impacting on production.”

An anti-tobacco bill passed in Canada last year that prohibits the use of additives in cigarettes may also undermine demand for burley tobacco, which is usually sweetened and blended with other varieties, he said.

Back in April 2009, I pitched Philip Morris International (NYSE: PM) as “the place to be for investors who crave long-term stability.” Shares trade nearly 40% higher today, but are they still a buy?

The good, the bad, and the unfiltered
Valuation is essential when developing an investment thesis, but price-to-earnings ratios are meaningless unless considered in conjunction with a company’s business fundamentals. Below, I’ve highlighted key aspects of Philip Morris’ operations, separated into clear pros and cons.

Burning bright

* My colleague Colleen Paulson recently detailed the beginning of what looks to be the company’s rebound. The main point here is that Big Phil’s cigarette volume rose 0.5% in 2009′s fourth quarter, or 0.4% when excluding acquisitions. Earlier in the year, that metric wasn’t looking so hot.
* The recent volume gain is modestly encouraging in absolute terms, yet it’s a total blowout compared with the mid-to-high single-digit declines turned in by domestic players Lorillard (NYSE: LO) and Reynolds American (NYSE: RAI), and the 11.4% rout suffered by former parent Altria (NYSE: MO).
* In the third quarter of 2009, Philip Morris’ volume performance lagged that of global competitor British American Tobacco (NYSE: BTI), whose markets include the U.S. However, for the full year and the fourth quarter, Philip Morris edged out its rival (based on organic volume), once again proving the benefit of operating with zero exposure to the U.S. consumer.
* Finally, Philip Morris’ recent dividend increase and its massive $12 billion share-buyback program speak to both management’s confidence and the likely stability of future shareholder returns.

Ashes to ashes?
But selling tobacco products on the international stage is not a risk-free enterprise.

* I previously described the demand-killing effects of government-mandated excise taxes — a headwind that Philip Morris, as a global player, is hardly escaping. Since then, Japan has announced a major tax hike, and Philip Morris recently told investors that excise taxes are among the “key factors” influencing net revenue.
* Also acknowledged by management is the threat posed by the World Health Organization’s Framework Convention on Tobacco Control — essentially a worldwide tobacco cessation program that’s expected to prompt “significant regulatory developments” in coming years.
* China, India, Bangladesh, and Vietnam comprise some of Philip Morris’ key growth markets. As such, an investment in Philip Morris is essentially a bet on the ongoing health of these emerging economies. While investors’ expectations for these nations routinely transform the stock performance of commodity names such as Freeport-McMoRan Copper & Gold (NYSE: FCX) and Vale (NYSE: VALE) into a chutes and ladders game, Philip Morris shares should exhibit less volatility. Nonetheless, if emerging-markets growth stalls, I expect that governments will turn to tobacco as a tax cash cow, much as developing Eastern European nations such as the Ukraine have.

Pinning down a price
Management expects currency-neutral earnings-per-share growth of 12% to 15% in 2010, followed by 10% to 12% long-term currency-neutral EPS gains.

Given the external risks — taxes, regulation, and foreign exchange — I’m not comfortable putting anything higher than a 15 P/E multiple on 2010 estimates. Assuming the high end of company guidance, that gives us a target price of roughly $57 a share.

With shares changing hands at $52.50 today, plus the 4.5% dividend yield, investors could pull in a mid-teens total return, versus what I judge to be at least 10% downside in the event of negative developments.

All told, Philip Morris is indeed a buy, although not a strong one.