Little Cigars Michael G Hering NAAG Tobacco Project

Little Cigars Michael G. Hering NAAG Tobacco Project Counsel FTA Tobacco Tax Conference Big Sky, Montana September 13, 2005

Little Cigars • Cigars or Cigarettes in disguise? FTA Tobacco Tax Conference Big Sky, Montana September 13, 2005

FTA Tobacco Tax Conference Big Sky, Montana September 13, 2005

Cigarettes vs Little Cigars FTA Tobacco Tax Conference Big Sky, Montana September 13, 2005

Differences in the way Cigarettes and Little Cigars are treated • Taxation – Federal Excise Tax – State Excise Tax • MSA & State Escrow Statutes • Warnings – FCLAA (Federal Cigarette Labeling and Advertising Act • Other Federal Laws – – Ingredients Reporting Contraband Cigarette Trafficking Act Imported Cigarette Compliance Act Jenkins Act FTA Tobacco Tax Conference Big Sky, Montana September 13, 2005

Cost Gap • Large and rising - $8 and up per carton • Since 2002 more than two thirds of States have had excise tax increases on cigarettes • OTP excise tax has not kept pace, and has even declined in some States FTA Tobacco Tax Conference Big Sky, Montana September 13, 2005

Cigarettes vs Little Cigars • Cigarettes – total of $23. 02 per carton • Little Cigars – total of $4. 40 per carton FTA Tobacco Tax Conference (*Using MA State tax rate) Big Sky, Montana September 13, 2005

Sales are on the increase • From 1993 to 1998 little cigar sales were up 76% - not including imports • Large cigar sales were up only 34% including imports • Little cigar imports up 500% for same period • For first 5 months of 2005, little cigar imports up 47% FTA Tobacco Tax Conference Big Sky, Montana September 13, 2005

Public Health Impact • Some smokers are self-identifying little cigar brands as cigarettes • Among youth, cigarette consumption continues to decline, but cigar consumption does not mirror that trend • For the first time ever, more high school males reported smoking cigars compared to cigarettes FTA Tobacco Tax Conference Big Sky, Montana September 13, 2005

Federal Definition of Cigarette. -- "Cigarette" means (1) any roll of tobacco wrapped in paper or in any substance not containing tobacco, and (2) any roll of tobacco wrapped in any substance containing tobacco which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by; consumers as a cigarette described in paragraph (1). Identical definitions for a cigarette in the FCLAA (15 U. S. C. § 1332), the Contraband Cigarette Trafficking Act (18 U. S. C. § 2341), and the Internal Revenue Code (26 U. S. C. § 5702). FTA Tobacco Tax Conference Big Sky, Montana September 13, 2005

Federal Definition – ATF Ruling 73 -22 • The Wrapper – Paper 2/3 or more tobacco – Tobacco Character • The Filler – Type of tobacco used – Added flavorings • Product Marketing – Packaging – Declaration of “Little Cigar” – Marketing and Advertising FTA Tobacco Tax Conference Big Sky, Montana September 13, 2005

FTA Tobacco Tax Conference Big Sky, Montana September 13, 2005

Michael Hering mhering@naag. org FTA Tobacco Tax Conference Big Sky, Montana September 13, 2005