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Marlboro’s owners negotiated Colorado’s proposed tobacco tax hike — and it could help them dominate the cigarette market

The ballot question, if approved by voters in November, would require a pack of cigarettes to be sold for no less than $7 starting in January. That could effectively hand more market share to Altria.

The cigarette and vaping display at a convenience store in Denver's Capitol Hill neighborhood on April 30, 2019. (Eric Lubbers, The Colorado Sun)
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The maker of Marlboro cigarettes spent more than $16 million to block a tobacco tax increase in Colorado four years ago. Now it could benefit from the passage of a question on the November ballot that would dramatically increase the price of cigarettes — a question the company helped write.

The company, Altria, was part of the negotiations that led to 11th-hour legislation — House Bill 1427 — that placed the question on the 2020 ballot. If passed, it will raise taxes on nicotine products across the board over the next several years, including more than tripling the taxes on a pack of cigarettes.

The question also would require retailers in Colorado to sell cigarettes for a minimum of $7 a pack, or $70 a carton, starting in January. Then, in 2024, that price-floor mandate rises to $7.50 a pack and $75 a carton.

The discount tobacco company Liggett Group, which makes the cigarette brands Pyramid and Grand Prix, is slated to contend the change will give Altria a major sales advantage and wipe away its market share.

If all cigarettes cost the same, the lure of discount cigarette brands, like those made by Liggett, would fade. After long battling against tobacco tax increases in Colorado, this year Altria is neutral, the company says. It hired lobbyists from the powerful firm Brownstein Hyatt Farber Schreck to work on the legislation.

Liggett’s attorneys are preparing a possible legal challenge and have been sending letters to state lawmakers and Gov. Jared Polis asking them to retain records ahead of a potential lawsuit.

“It is highly irregular that the bill was passed a day before the session concluded with virtually no debate,” Len Feiwus, an attorney for Liggett, said in a written statement. “We also want to understand why key elements of the bill have been omitted from the description that will be presented to Colorado voters in November. Colorado voters have a right to know what they are voting on.”

The letter also raises questions about how the ballot measure was crafted that could affect its support and further complicate the years-long effort by health advocates and Democrats in Colorado, including Polis, to raise the cost of cigarettes and other tobacco products to encourage people to quit. One of the reasons Democrats are so fervently pushing for the tax hikes is because they want to use the millions of dollars they would generate to pay for their policy priorities, namely funding preschool education.  

Their efforts last failed in 2019, when Democrats in the state Senate rejected a proposed ballot question in large part because of a pricey lobbying and public relations effort from Altria

This year, however, House Bill 1427 easily won approval. But it passed under unusual circumstances: The measure was introduced in the final hours of the 2020 legislative session and so hastily brought that lawmakers didn’t have a copy of the measure before its first committee hearing began. 

Rep. Yadira Caraveo, a pediatrician and Thornton Democrat who was a prime sponsor of the legislation, admitted at the time that it came “fast and furious.” The bill was introduced on the day before the legislature was set to adjourn ahead of schedule because of the pandemic, in part leading to a multi-day extension. 

The bill was negotiated by lawmakers, Polis’ office, health advocates, Altria and other tobacco interests. It replaced an effort by health advocates to collect signatures to ask voters to approve a similar ballot initiative, though it would have imposed the taxes faster.

Lawmakers gather in the Colorado Senate on Friday, June 12, 2020. (Jesse Paul, The Colorado Sun)

Unlike the bill, the proposed ballot initiative pushed outside the Capitol called for an immediate increase in tobacco taxes and did not include the minimum-price provision.

But House Bill 1427, in addition to the minimum price clause, asks voters to gradually increase taxes on cigarettes and other tobacco and nicotine products over the next seven years.

A package of cigarettes is currently taxed at 84 cents in Colorado. If the ballot question passes, that amount would jump to $1.94 starting next year. In July 2024, the tax would rise to $2.24 a pack and then to $2.64 a pack in July 2027.

Nicotine products, including vaping devices and fuel, would be taxed at 30% of their manufacturer’s list price starting next year if voters sign off on the ballot question. By July 2024, that would rise to 56% of the list price and to 62% in July 2027.

Vaping products aren’t currently taxed in Colorado. Altria also is heavily invested in JUUL Labs, which controls the majority of the vaping market.

The price-floor provision also was not part of a 2019 bill from Polis and statehouse Democrats seeking to raise taxes on cigarettes and other tobacco products in Colorado — the one altria lobbied heavily to defeat — though that measure called for an immediate increase on cigarette and other tobacco taxes. 

The economic crunch from the coronavirus crisis has cut into Altria’s profits.

In an April earnings call, Altria Chief Executive Billy Gifford warned that the economic effects of the pandemic had led people to buy more discount cigarettes, which was cutting into the company’s market share, according to The Wall Street Journal.

Altria reported that Marlboro’s U.S. cigarette market share fell half a percentage point to 42.8% in the first quarter of 2020.

It’s not clear how the price-floor provision came to be added into House Bill 1427. 

State lawmakers who sponsored the measure say they have been told by the legislature’s lawyers not to comment on the measure because of the possible litigation by Liggett.

“I’ve been advised as of this morning that I should not talk about the current issues surrounding the referred measure,” Caraveo said in a text message to The Colorado Sun on Monday. “I am confident in the intent of the legislation, however, which is to decrease the use of nicotine products in kids.” 

Sen. Dominick Moreno, a Commerce City Democrat and fellow prime sponsor of House BIll 1427, declined to answer questions about the measure for similar reasons Monday. But in a brief interview on Friday, he said price-floor policies are common in other states and tobacco products are bad for people no matter the cost. 

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Altria, in a statement to The Sun, pointed out that it was neutral on the legislation. “Altria was pleased to be a stakeholder in this process on behalf of Colorado adult tobacco consumers,” said George Parman, a spokesman for the company. 

When asked about whether the company advocated for the price-floor provision, Parman did not directly answer. He said that Altria monitored the bill as it made its way through the legislative process.

Altria’s high-powered Brownstein Hyatt Farber Schreck lobbyists in the Colorado Capitol did not respond to requests for an interview.

Polis’ office declined to answer questions about negotiations over the bill. “We will not comment on anything related to the litigation,” said Conor Cahill, a spokesman for Polis.

Liggett’s records retention letter, sent from a New York law firm, asks lawmakers and the governor’s office to keep any documents identifying lobbyists who worked on the measure and contributions from them, as well as documents pertaining to Altria surrounding the sales, taxes or prices of tobacco products. 

MORE: Read the records retention letter.

Jake Williams, executive director of Healthier Colorado, said he is happy that the price-floor provision was added to House Bill 1427. His group was one of the measure’s main proponents.

Williams said that sometimes when taxes are raised tobacco companies will come  up with discounting or coupon strategies to drop prices and keep people consuming cigarettes at the rate they were before. Minimum-pricing provisions help block those strategies.

“I imagine different tobacco companies have different points of view and their own internal squabbles,” Williams said. “What we’ve cared about the entire way is improving public health. And so we wanted this provision in the bill because of public health. Whether or not any other stakeholder might benefit, I don’t know and, honestly, I don’t care. We only care about saving lives, and that’s what this would do.”

Williams pointed to studies showing that minimum-price laws have been used elsewhere in the U.S. and have been shown to reduce socioeconomic and racial disparities in tobacco use and prevent kids from starting to use cigarettes. 

But at least one of the articles he referenced also says that the policies also “may price discount brands out of the market.”

Rising Sun