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Politics and Government

Emails show negotiations involving Colorado governor, cigarette giant that led to tobacco tax hike

The emails obtained by The Sun were included in lawsuits filed in Denver District Court and federal court against Gov. Jared Polis and backed by the discount cigarette company Liggett Vector Brands Inc. seeking to invalidate a minimum-price clause in Proposition EE

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Gov. Jared Polis’ office was asked to meet several conditions insisted upon by Altria in exchange for the cigarette giant agreeing not to fight legislation that put a question on the November ballot asking voters to raise tobacco and nicotine taxes in Colorado, emails obtained by The Colorado Sun show.

One of those conditions included adding a minimum-price clause to the measure that requires a pack of cigarettes to be sold for no less than $7 starting this year. The emails show Polis’ office was warned the provision could help Altria, which owns the Marlboro brand and is heavily invested in the vaping company JUUL Labs, dominate the cigarette market in Colorado by boxing out discount competitors.

“It’s like forcing our Honda to sell for the same amount as Mercedes,” Craig Hughes, a high-powered Democratic political consultant, wrote about the minimum-price clause in a June 3 email to Cary Kennedy, a senior adviser to Polis. “It’s a lower-quality product, priced as such, which is how it gets its market share. If we forced Honda to increase their price to (the) same as Mercedes, no one would buy it. … Are we literally writing into state statute something that creates a Colorado monopoly for higher-end Altria products?”

Also on June 3, Hughes sent an email to David Oppenheim, Polis’ legislative chief, saying Altria was requiring the minimum-price clause to be included in the policy. 

“They insisted on ‘price floors’ for a pack of cigarettes,” wrote Hughes, who was working for groups pushing for the new taxes. “Seems to be a distinct competitive advantage for Altria.”

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

The legislation, House Bill 1427, passed with the minimum-price clause in the final days of Colorado’s 2020 legislative session. Voters then overwhelmingly approved the ballot question, Proposition EE, in the November election.

The emails obtained by The Sun were included in lawsuits filed in Denver District Court and federal court against Polis that seek to invalidate the minimum-price clause in Proposition EE.

Both legal actions are backed by the discount cigarette company Liggett Vector Brands Inc., which gave millions of dollars to the unsuccessful campaign to prevent Proposition EE from passing. The state lawsuit was filed by a Colorado smoker who is being represented by Liggett’s attorneys; the company is listed as the main plaintiff in the federal case.

The lawsuits remain pending, though a federal judge last week rejected Liggett Vector’s request for a preliminary injunction that would have temporarily invalidated the minimum-price provision.

Liggett Vector’s lawyers are arguing in state court that Proposition EE violates Colorado’s single-subject rule in the state constitution, which requires legislation to address only one topic at a time. In federal court, the company is arguing that the ballot initiative violates interstate commerce laws.

MORE: Discount cigarette makers file federal lawsuit seeking to invalidate part of Colorado’s Proposition EE

The emails obtained by The Sun shed light for the first time on why House Bill 1427 was written the way it was. The Democratic state lawmakers who championed the measure have refused to answer questions about the legislation and, specifically, the minimum-price clause, citing the ongoing lawsuits.

The correspondence also makes it clear that the governor’s office was very involved in the measure. Kennedy, the governor’s senior adviser for fiscal policy, and one of her staffers provided analysis of the bill, including the price-floor provision, for Oppenheim and Polis’ chief of staff, Lisa Kaufmann. 

Polis, a Democrat, supported Proposition EE. The millions of dollars in new, annual tax revenue it will generate will help expand preschool education in Colorado, one of the governor’s key policy promises. The initiative also was backed by health advocates who have for years cited studies showing increasing taxes can decrease the use of tobacco and nicotine products, especially among teens.

Colorado Gov. Jared Polis greets the crowd in the Colorado House chambers as he exits the room after delivering his second State of the State address at the Colorado Capitol on Jan. 9, 2020 in Denver. (Kathryn Scott, Special to The Colorado Sun)

In response to questions from The Colorado Sun, including about whether Proposition EE created an unfair advantage for Altria and whether Polis feels the ballot initiative would have passed had the company fought it, the governor’s office provided a written statement.

“Proposition EE is a win-win for the state of Colorado,” said Maria De Cambra, Polis’ director of communications. “We are able to fund free universal preschool for every child while protecting children and other vulnerable populations from cheap, harmful and addictive nicotine products. The governor is extremely proud to have delivered on his promise to provide this long overdue support for Colorado families.”

Polis and the health groups failed to pass a similar tobacco and nicotine tax increase bill in 2019 in large part because big tobacco interests successfully lobbied against the measure. 

The emails obtained by The Sun about the 2020 legislation, including one labeled as a “draft term sheet” and marked “highly confidential,” show Altria was negotiating the measure with Polis and health groups. One condition on the term sheet was for Polis not to pursue any more tobacco tax increases for the rest of his gubernatorial term if House Bill 1427 passed. 

In exchange, Altria agreed not to fight House Bill 1427 in the legislature. The company also vowed not to spend any money fighting Proposition EE, according to the draft term sheet. 

Altria did not respond to a request for comment last week, but the company had a neutral stance toward House Bill 1427 and did not spend money for or against Proposition EE. It’s not clear if there were changes made to the draft term sheet before it was finalized.

“The governor’s staff were kept aware of the negotiation and policy parameters,” De Cambra wrote to The Sun. “Our interest was to ensure the final legislation met the twin goals of reducing teen smoking and vaping and providing revenue to support universal preschool in Colorado. There were various proposals that were laid out and the administration did not agree to any proposal that would bind the governor for the remainder of his term.”

In 2016, Altria spent more than $16 million to block a tobacco tax increase that was on the ballot in Colorado. Hughes acknowledged Altria’s deep pockets in an email to Oppenheim, calling them the “biggest spender” against tobacco and nicotine tax increases in Colorado. 

The cigarette and vaping display at a convenience store in Denver’s Capitol Hill neighborhood on April 30, 2019. (Eric Lubbers, The Colorado Sun)

Advocates of Proposition EE have said the minimum-price provision is good public health policy because studies have shown that, as tobacco and nicotine prices rise, use goes down. 

“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,” Jake Williams, who leads Healthier Colorado, an organization that spearheaded the ballot initiative, told The Sun in August.

But Liggett Vector Brands Inc. contends that the provision is illegal.

The early June emails between Hughes and Oppenheim also indicate that the legislature’s attorneys, as well as lawyers from the Colorado Attorney General’s Office, warned that coupling the minimum-price clause with the tax hike portions of House Bill 1427 may violate the single-subject rule.

“That will have to move separately,” Hughes wrote. “And, I’ll be honest here, not sure how it survives. The good news is if it does pass, it is not part of our ballot (measure) so we don’t need to defend it to the voters. But if Altria can’t get that the deal might be in jeopardy, so it’s complicated.”

The minimum-price clause was included with the rest of House Bill 1427 despite the concerns.

The marquee part of House Bill 1427 and Proposition EE raised taxes on a pack of cigarettes to $1.94 starting this year from 84 cents. In July 2024, the taxes will rise to $2.24 a pack and then to $2.64 a pack in July 2027.

Nicotine products, including vaping devices and fuel, have not previously been taxed in Colorado. But now, under Proposition EE, they are taxed at 30% of their manufacturer’s list price. By July 2024, that would rise to 56% of the list price and to 62% in July 2027.

While Proposition EE raises taxes on most tobacco and nicotine products in Colorado, it actually slashes them for so-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 compared to smoking cigarettes. Only a limited number of products have achieved that designation, but a number of them are marketed by Altria.

Altria sees those products, which are part its IQOS system, as its future. The system is a kind-of cross between a traditional cigarette and a vape device. 

MORE: Proposition EE will raise taxes on tobacco products in Colorado — with one very big exception

Vaping shops objected to the MRTP discount, saying they lack the resources to seek an MRTP designation for their merchandise from federal regulators and that Altria would be given another market advantage.

The emails reviewed by The Sun show that Hughes and the governor’s office were aware of the objections to the MRTP provision and understood how it could benefit Altira.

“Pretty interesting comments from the vape side about MRTP favoring large … companies (Altria),”  Hughes wrote in an email chain that included Oppenheim, the governor’s legislative chief, and Kennedy, the senior adviser to Polis. “Not surprised, frankly.”

The minimum-price provision dictates that after the price of a pack of cigarettes is raised to no less than $7 this year, it will go up to no less than $7.50 in 2024.

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