Cigarette excise taxes

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Jane Jiang

In the U.S., tobacco products and especially cigarettes are often taxed at both the federal and state levels. The aim of the tax is both to raise government funds and to discourage smoking, especially among minors. However, raising excise taxes isn't always bad for cigarette companies--Philip Morris is one example of a company that took advantage of recent tax increases in Japan to spike prices above the level of the tax increase, using the tax as an excuse to raise profit margins [1]. (Altria's official policy states that it is in favor of increased governmental regulation of cigarettes.)

Critics of the excise tax cite its flat nature--because all smokers must pay the same amount of tax in the price of each pack of cigarettes, impoverished smokers are hit hardest and feel the tax's effects most.

Who loses from cigarette excise tax increases?

• Altria Group's Philip Morris, Reynolds American, Loews' Carolina Group (CG), Star Scientific (STSI), Gallaher Group (GLH), British American Tobacco Industries (BTI), and Imperial Tobacco Group (ITY) are all examples of major cigarette companies who may find that increased taxes decreases sales.
• Universal (UVV) is a leaf tobacco merchant and processor that supplies tobacco to many of the companies listed above.
• Schweitzer-Mauduit International (SWM) is an international paper maker with a focus on fine/high porosity papers for the tobacco industry. They also produce reconstituted tobacco leaf, used in some cigarettes. A decrease in demand for cigarettes could translate over to lower purchase levels of cigarette paper from industry giants.

Who wins from cigarette tax increases?

• Synergy Brands (SYBR) bases on of its major businesses in the premium cigar industry. If tax increases reduce cigarette popularity, cigars and other tobacco products may pick up the slack.
• UST (UST) makes smokeless tobacco products that may also win favor if the cigarette tax proves discouraging for cigarette smokers. However, UST is susceptible to increases in excise taxes, as many states and the U.S. federal government levy excise taxes on chewing tobacco products as well.
• Altadis SA (ALTDF) owns the Bugler brand of roll-your-own loose cigarette tobacco and cigarette papers. As taxes increase on traditional pre-made cigarettes, smokers may be pushed towards cheaper and more lightly taxed roll-your-own varieties.