When Coloradans fill out their ballots over the next three weeks and vote on Proposition EE, they will decide whether to significantly raise taxes on cigarettes and other tobacco and nicotine products.
That is, with one big exception.
The ballot question, if passed, would actually reduce the taxes — at least for the next six years — on one special subset of items, called modified-risk tobacco products.
Modified-risk tobacco products — or MRTPs — are determined by the Food and Drug Administration to have lower risks of certain health effects using the products compared to smoking cigarettes.
There aren’t many products with the designation, first awarded to a tobacco manufacturer in October 2019 — a few types of smokeless tobacco and a device used to heat rather than burn tobacco. But one notable company is behind a third of the items on the MRTP list: Altria, one of the world’s largest tobacco conglomerates and the maker of Marlboro cigarettes.
Altria helped negotiate the language in the legislation, House Bill 1427, passed by Colorado lawmakers in June during the final hours of the 2020 lawmaking term and which placed Proposition EE on the November ballot. And the MRTP tax break isn’t the only part of the ballot question the company stands to benefit from; another provision would require that cigarettes be sold for no less than $7 a pack starting in January, giving Altria an advantage over its competitors, particularly those who sell discount cigarettes.
Critics have alleged that House Bill 1427 was written to benefit Altria because its lobbyists were heavily involved in discussions about the measure with Democratic state lawmakers, health advocacy groups — including Healthier Colorado — and Gov. Jared Polis’ office before the legislation was introduced.
The bill was hastily introduced and passed, and some legislators complained along the way that they didn’t have enough time to go through the measure. It was dropped 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.
At least one stakeholder who worked on the bill says Altria’s high-powered lobbyists at the Capitol required that the MRTP tax break be included.
“It was something they were very, very protective of and it seemed like it was a very high priority for them,” said Amanda Wheeler, who leads the Rocky Mountain Smoke Free Alliance, a trade group representing independent vape shops.
Wheeler, whose group opposes Proposition EE, said she wanted the MRTP provision taken out of the bill because she worried it would cut into vape-shop profits.
“Altria flat out refused, because they said that’s a very high priority to them because that’s kind of what’s in their future,” she said.
Altria, which also holds a major stake in the vaping company Juul Labs, was neutral on the bill as it passed through the legislature. And it is staying out of the political battle over Proposition EE despite four years ago spending some $16 million in Colorado to fight a cigarette tax increase. Altria was successful in preventing the increase from passing.
Democrats and health advocates pushed for the bill because they say increasing tobacco prices will drive down use. Polis also is using the measure to accomplish his 2018 campaign promise of expanding preschool slots in Colorado by directing the bulk of the new tax revenue that would be generated by EE’s passage to that cause.
Tobacco products in Colorado are currently taxed at 40% of the manufacturer’s list price. Under Proposition EE, the tax on modified-risk tobacco products would fall to 35% starting next year and gradually rise to 41% on July 1, 2027.
Taxes on all other tobacco products would increase to 50% of the manufacturer’s list price starting next year under Proposition EE, eventually hitting 62% on July 1, 2027.
Only two tobacco companies — Swedish Match USA and Philip Morris, an Altria subsidiary — are behind the 12 products that have been awarded an MRTP designation by federal regulators.
Four of the products are made by Philip Morris and centered around the company’s IQOS system, which is a kind-of cross between a traditional cigarette and a vape device. It works by heating tobacco sticks to the point where nicotine vapor is released, but the tobacco isn’t actually burned.
As cigarette sales have declined, especially during the pandemic, Altria is pushing IQOS products as its future. IQOS still contains nicotine and is addictive, but is advertised as significantly reducing “the production of harmful and potentially harmful chemicals.”
“We built the world’s most successful cigarette company,” Nicholas Rolli, Philip Morris’ vice president of investor relations, is quoted as saying on the company’s website. “Now we’re building our future on smoke-free products that are a much better choice than smoking.”
Philip Morris IQOS application for MRTP status with the FDA was still pending when House Bill 1427 was being debated by Colorado lawmakers. The designation was approved in early July.
“Altria’s tobacco companies oppose excise tax increases, but we’re pleased that some aspects of this measure are focused on tobacco harm reduction and may help transition adult smokers to a non-combustible future,” David Sutton, a spokesman for Altria, said in a written statement.
Sutton said that if a tobacco product “meets the steep hurdle” of being an MRTP, “tax policy should reflect this science and evidence-based conclusion to support adult smokers switching to products authorized as modified risk. That’s why we see this provision as important.”
Connecticut, Kentucky, North Carolina, Washington and Utah tax modified-risk tobacco products at a discount, according to the Tax Foundation. The intent of the lower tax rate is to encourage users to switch from traditional tobacco products, to modified-risk tobacco products.
In Washington, Altria also was part of the negotiations that led to the legislation reducing taxes for modified-risk tobacco products.
But the FDA still warns that modified-risk tobacco products carry risk.
“While we are authorizing these specific modified-risk tobacco products, it’s important for the public to understand that all tobacco products — including these — pose risk. Anyone who does not currently use tobacco products, especially youth, should refrain from doing so,” Acting FDA Commissioner Ned Sharpless said in a written statement last year when the first MRTP designation was awarded.
Michele Ames, a spokeswoman for the “Yes on EE” campaign, acknowledged that modified-risk tobacco products are unsafe. But she defended the decision to reduce taxes on them.
“These products do go through FDA approval processes,” Ames said. “The way that they are labeled is sanctioned by the government and is scientifically proven. … They are not escaping the tax altogether. It’s just a break in the full tax.”
But Wheeler, with Rocky Mountain Smoke Free Alliance, says she thinks the MRTP provision was aimed at helping boost Altria’s bottom line.
“They kind of played off the legislature’s poor knowledge of federal regulations,” she said. “I think it was kind of a trick that Altria used to benefit themselves.”
An IQOS device. (Via Business Wire)
Altria didn’t respond to a question from The Colorado Sun about whether they required the MRTP tax provision in House Bill 1427.
State Rep. Yadira Caraveo, a Thornton Democrat and pediatrician who led the push for House Bill 1427, declined to comment on the legislation, citing advice from the legislature’s lawyers since a discount cigarette brand — the Liggett Group — has threatened to sue over the measure. Liggett is specifically focused on the minimum-price provision and whether or not it’s legal.
Healthier Colorado, which was also part of negotiations on House Bill 1427, referred questions about how the policy was drafted to Ames, who said she couldn’t comment on the negotiations that resulted in the measure because she wasn’t involved.
Updated on Monday, Dec. 28, 2020 at 3:22 p.m.: This story was updated to correct when Altria spent $16 million to block a cigarette tax increase in Colorado. The money was spent four years ago.