Cigarettes & Sour Grapes

Published in CSP Daily News

Tobacco group points finger at R.J. Reynolds for increased costs; RJR plays equity card

NASHVILLE, Tenn. -- Regardless of how or why a bill supporting an equity assessment on cigarettes got as far as it did in the Tennessee legislature, the state's least-expensive cigarettes will see a price increase if the governor signs the bill into law. The bill will tack an extra 50 cents on the price of a pack and $5 on a carton of cigarettes made by cigarette-makers that have not joined the Master Settlement Agreement (MSA), thus raising the hackles of those companies.

The Council of Independent Tobacco Manufacturers of America (CITMA) is pointing [image-nocss] its finger squarely at R.J. Reynolds Tobacco Co. as the key promoter of Senate Bill 2002, which would affect many of the council's members. Meanwhile, RJR is defending its position as necessary to level the field of cigarette pricing following an inequity created by the MSA.

If you look at the exponential growth in market share that [non-MSA] manufacturers have experienced in recent years, one can point to the price differentiation that was created from the MSA [as the cause], RJR spokesperson David Howard told CSP Daily News. The [Tennessee] legislators realized that the state had a vested interest in this because these [manufacturers] are not paying into the MSA, and also are carving into the market share of the manufacturers who are making MSA payments. [The MSA-compliant manufacturers are] thereby seeing volume declines, and therefore MSA payments are declining.

Clark Corson, chairman of the CITMA, sees the bill as a much more pointed attack, however. In Tennessee, R.J. Reynolds successfully promoted the concept that the smallest manufacturers should pay a discriminatory fee to the stateon top of the $4.05 these small companies already have to pay into escrow as a requirement of the MSA, Corson said in a press release. This means Tennessee's lowest-income adult smokers will now have to pay 50 cents more for their favorite pack of discount cigarettes.

Howard admitted RJR supported the bill and said the company will support similar bills if they come up in other states. We certainly supported the bill and supported the equity assessment and felt it was something that needed to be addressed. A price advantage was not the intention of the MSA, he said. I expect this will come up [in other states], and certainly, as we did in Tennessee, we would support legislators to at least consider this type of legislation.

Howard said he is not aware of any retailers contacting RJR to voice support or opposition to the bill. As of yesterday, Senate Bill 2002 was on Tennessee Governor Phil Bredesen's desk, awaiting his signature. A similar bill was signed into law in Michigan.