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May/June 2007

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TMA Plans Tobacco Talk

Top industry issues will be discussed at a meeting in Williamsburg, Virginia.

Public health and tobacco industry scientists and government affairs personnel will discuss evidence-based science and tobacco harm reduction on May 7 and 8 at the Tobacco Merchants Association’s (TMA) 92nd annual meeting and conference in Williamsburg, Virginia.

“Our plan is to have representatives from several of the cigarette and smokeless manufacturers present their evaluation models for determining risks across tobacco product categories and within such categories,” says Farrell Delman, TMA’s president. “Renowned public health scientists... will present their views on the model’s usefulness in assessing the relative harmfulness of tobacco products.”

The discussion will be taking place against the backdrop of proposed Federal legislation mandating FDA regulation of the tobacco industry. “While the proposed FDA legislation would, in principle, enable ‘reduced risk’ claims, what this means in practice needs to be fleshed out,” adds Delman, who notes that alternative forms of regulation will also be discussed, including elements of the World Health Organization’s Framework Convention on Tobacco Control and the European Smokeless Tobacco Council’s model law for the European Union. FDA legislation itself will be discussed by European and U.S. public affairs professionals, including Scott Ballin of AHEAD and Bill Godshall of SmokeFree Pennsylvania.

Experts will also address other timely industry issues, including the proposed Federal redefinition of little cigars; whether U.S. states should tax smokeless tobacco on a weight or value basis; world leaf supply and demand, and TMA’s new government-industry database of all those licensed in the U.S. to sell tobacco products from import and manufacture through retail. •

USSTC Names Vice President

Kevin E. Freudenthal will lead sales organization.

U.S. Smokeless Tobacco Company named 20-year company veteran Kevin Freudenthal as vice president of sales in March. Freudenthal, who joined the company in 1986, has held several leadership positions in the organization, including field sales, sales operations and communications, and trade development.

His most recent position was as vice president of field sales. Based in Dallas area, he was responsible for the company’s sales activity in Texas, Louisiana, Mississippi, Arkansas, Oklahoma, and New Mexico. Freudenthal is a graduate of the University of the Pacific in Stockton, California, and a member of the board of directors for the Texas Grocers & Convenience Association. •

States Vote on Cigarettes Measures

MD and NJ examine legislative moves.

The Maryland House of Representatives reportedly passed a bill that would double the state’s cigarette tax to $2 per pack, with the additional revenue earmarked for expanding Medicaid eligibility. The measure must next be passed by the Senate, where there’s more opposition.

New Jersey lawmakers voted to require that only self-extinguishing cigarettes be sold in the Garden State, according to newspaper reports. The state assembly passed the measure last year and the Senate recently approved the bill, which the governor is expected to sign into law.

The proposed New Jersey law would be similar to those in other states which require “fire safe” cigarettes, including California, Illinois, New Hampshire, New York, and Vermont. •

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AWMA Objects to Proposed Rules

The association files comments on a proposal to classify cigars and cigarettes.

Proposed rulemaking on classification of cigars and cigarettes fails to take into account the requirements and costs to the wholesale distributors that will result from a change in the tax treatment of this major product category, charges the Fairfax, Virginia-based American Wholesale Marketers Association (AWMA). The national trade association, which represents wholesale distributors of consumer products to the convenience store industry, submitted comments on March 26, 2007 objecting to the proposal offered by the Alcohol and Tobacco Tax and Trade Bureau (TTB) of the U.S. Department of the Treasury.

AWMA member companies in the tobacco distribution trade contract with state agencies to affix revenue stamps and collect taxes due. The AWMA comments note that any changes in the economics of tobacco distribution and sale have a substantial impact on the wholesale distribution industry, because the retail sales of cigarettes through convenience stores constituted over 63 percent of retail cigarette sales in 2005. Gross retail sales of cigarettes in the convenience sector came to over $52 billion in 2005, with cigarettes accounting for more than 34 percent of total convenience store sales in 2005.

The association disagreed with the TTB’s conclusion that “the proposed rulemaking will not have a significant economic impact on a substantial number of small entities.”

“Our members anticipate substantial increases in costs arising from the proposed change, yet the proposed regulations fail to address the potential economic effects on the distributors and retailers of tobacco products,” says an association spokesperson.

What’s more, the Administrative Procedure Act, Sec. 603, requires that TTB conduct an initial regulatory flexibility act analysis to assess the impact on small businesses. “There is no indication... that a regulatory flexibility analysis was conducted,” notes the spokesperson. “Instead, these statutory requirements have just been summarily dismissed as being irrelevant. Nothing could be further from the truth. There is no mention of wholesale distributors or retailers, nor any acknowledgement that these proposed changes would have any effect on the companies in the distribution chain.”

According to the AWMA, its tobacco distributor members—some 350 companies—will suffer substantial additional costs if these proposed changes are adopted. “We anticipate that the proposed change in definitions would result in a number of tobacco products now labeled and sold as ‘cigars’ will be classified as ‘cigarettes,’” says the spokesperon. The proposed definition of “cigarette,” for example, includes any product containing burley tobacco filler. The Cigar Association of America estimates that over 20 percent of large cigars contain burley tobacco filler. These cigars are known as pipe-tobacco cigars. It is unlikely that stamping machines designed for cigarettes could even be reconfigured to stamp such products. The only other alternative would be manual stamping, a cost prohibitive process.

“This has the potential to be a very costly change for the distribution industry which is unique to tobacco products,” says the AWMA spokesperson.

The possible burden arises from the tax stamping process. The distribution industry has developed highly specialized and highly efficient machines, each costing well over $100,000, to uniformly affix revenue stamps to packages of cigarettes, with a very low rate of error. The process is largely automated, using specially designed machines to open 10-pack cartons of cigarettes, affix a stamp on every pack, and close the carton. The efficiency of the machines relies upon on the uniformity of the product.

Unlike cigarettes, the packaging of small cigars are not uniform. If the packs of small cigars vary in dimension, they cannot go through the stamping machines, or they can be handled only after time-consuming alterations to the machines. The adoption of the proposal will necessitate hiring employees for additional shifts or purchasing additional costly stamping machines. These economic factors were not considered by the TTB when the proposal was issued.

“What is the purpose or goal of these proposed changes, i.e., the benefit to be gained?” asks AWMA’s spokesperson. “While TTB suggests there is ‘confusion’ about the definitions of cigarette and little cigars which may result in ‘possible revenue losses,’ no evidence of revenue losses suffered by the Treasury Department or by any state agency is offered. Without evidence of a real problem, of significant proportions, the disruptions and dislocations that this change would cause are not justified and should not be pursued.” •