Regulatory Loophole Spurs Increased Sales, Threatens Public Health, Siphons Taxes
(SACRAMENTO) – Attorney General Bill Lockyer today announced he has petitioned the federal government to close a regulatory loophole that has increased youth and adult smoking of cigarettes disguised as “little cigars,” and allowed the manufacturers to evade marketing restrictions and higher taxes that apply to cigarettes.
“The manufacturers of so-called ‘little cigars’ are deceiving and endangering consumers and our children, and federal rules allow them to get away with it,” said Lockyer. “These products are made like cigarettes, their smoke can be inhaled like cigarettes, and they present the same serious health risks as cigarettes. Yet federal regulations allow the makers to call them cigars and sell them as cigars. That allows them to evade marketing restrictions and higher taxes that apply to cigarettes, and increases youth access by lowering the prices. The federal government should close this dangerous loophole.”
Lockyer and the Attorneys General of 38 other states and Guam petitioned the federal Alcohol Tobacco Tax and Trade Bureau (TTB) to adopt rules revising the definitions of cigars and cigarettes. The goal is to ensure that “little cigars” – which actually are cigarettes wrapped in brown paper – are classified, taxed and priced as cigarettes.
“Little cigars” appeal to youths because they often are sold individually or in “kiddie packs” of less than 20, which makes them cheaper, and because in many cases they are sweetened with flavors such as chocolate, vanilla, strawberry, cinnamon and spearmint. Some of the more popular brand names include Winchester, Smoker’s Choice, Prime Time and Cheyenne.
Federal law defines cigars as tobacco wrapped in leaf tobacco or substances containing tobacco. Federal and state laws, including California’s, generally define cigarettes as tobacco wrapped in paper or other substances not containing tobacco. State and federal statutes also define cigarettes as tobacco wrapped in any substance that includes tobacco, if its appearance, the type of tobacco used in the filler, or its packaging and labeling, indicate it will be sold and purchased as a cigarette.
The problem stems from a rule issued by the TTB that sought to clarify the federal definitions. Under the rule, if manufacturers label their products cigars, the presumption is the products will not be sold or bought as cigarettes. Essentially, the rule allows the tobacco companies to self-classify their products as cigars.
Selling their brown cigarettes as cigars provides substantial benefits to manufacturers. It allows them to pay significantly lower taxes and avoid the requirement under most state laws that cigarettes be sold in packs of at least 20 sticks. In combination, those two factors permit dramatically lower prices. For example, the taxes on a carton of “little cigars” in California total $3.77, compared to $16.76 for a carton of cigarettes.
Cigar makers also do not have to abide by the youth and other marketing restrictions imposed by the Master Settlement Agreement reached in 1998 between tobacco companies and 46 state Attorneys General. And most cigar makers do not have to place federal health warnings on their products.
Tobacco companies have exploited the regulatory loophole in recent years, which have seen an explosion in little cigar sales and production. Between 2000 and 2004, while taxable sales of cigarettes declined 13 percent, taxable sales of little cigars increased 51 percent. Similarly, from 2000 to 2005, little cigar production rose 71.8 percent, while cigarette production fell 18.9 percent.
Consumption of “little cigars” also has exploded. From 1998 through 2005, consumption of the products increased by more than 2 billion sticks, from 1.638 billion to 3.772 billion, according to the U.S. Department of Agriculture.
Some data suggest “little cigars” are enjoying rising popularity among younger smokers. A study of college freshmen found that students who said they smoked were more likely to smoke little cigars than cigarettes or regular cigars. Two other studies published in 2004 and 2005 found that high school students in New Jersey and Cleveland, Ohio smoked cigars more often than cigarettes. “While public health organizations and states have been successful in lowering cigarette smoking rates among teens, little cigar and cigar use is threatening to reverse these gains and plunge another generation into tobacco addiction,” said the Attorneys General in their petition to the TTB.
Youths may mistakenly believe they are smoking a product that poses less health risks because it’s labeled a cigar. But the products are made to be smoked and inhaled just like cigarettes, which means they present the same addiction and health dangers.
Additionally, while the makers call these products cigars, their advertising actually aims to sell consumers on the concept that the products are just like cigarettes, only cheaper. “So much like cigarettes, it’s hard to believe they are cigars,” proclaims one ad. The tobacco companies have made their strategy clear. As the petition to the TTB notes, Harry Preston, national accounts manager for J.C. Newman Cigar Company, has sugested that convenience stores display little cigars near the register and instruct their clerks to tout them as an alternative to cigarettes.
The rule proposed by the Attorneys General would eliminate the current loophole by stripping manufacturers of the ability to self-classify their products as cigars. Instead, tobacco products would be deemed cigarettes if the tobacco filler or packaging possess any one of several specific characteristics, or if “the product is marketed or advertised to consumers as a cigarette or cigarette substitute.”