Transcript No Slide Title

Under Our Radar:
Increases in Cigar Consumption in
the United States
Cristine D. Delnevo, PhD, MPH
UMDNJ-School of Public Health
Supported in part by R03CA119799
Large and Small Cigars
Large
• Wide variety of cigar
products
• No universally accepted
classification system
• Large cigars weigh > 1.36
grams
• Federal tax rate five cents
per each large cigar
Small
• Small cigars weigh less
than or equal to 1.36
grams
• Features common to
cigarettes, such as shape,
length (70 to 100 mm),
and use of filter tips
• Federal tax rate four
cents per pack of 20
47 states tax cigars, almost all are lower than the cigarette tax
Billions of Cigars
Consumption of Large Cigars in the US: 1950-2006
SGR
10.0
9.0
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Increased
Cigar
Marketing
1950
1955
1960
1965
1970
1975
1980
Year
Source: U.S. Department of Agriculture, Tobacco Yearbook
1985
1990
1995
2000
2005
Past month cigar use by age and
gender, 2000 and 2005, NSDUH
Males
Females
20
20
15
15
10
10
5
5
0
0
12-17
yrs
18-25
yrs
26-34
yrs
2000
2005
35+
yrs
12-17
yrs
18-25
yrs
26-34
yrs
2000
2005
35+
yrs
“Flavor Trends Drive Sales”
“The growth in the flavored cigar
marketplace is described as anywhere
from "steady" to "explosive," Smokeshop
“Major flavor strides are fueling cigar
growth. New flavors like peach,
chocolate, honey and strawberry are
propelling sales ..” – NACS Magazine
“strong demand for various types of
flavored cigars, a trend that Swedish
Match has been able to successfully
exploit, particularly in the US.”Swedish Match
AMARETTO
APPLE
BANANA
BLACK 'N CHERRY
BLACK CHERRY
BLACKBERRY
BLUEBERRY
BOURBON
CHERRY
CHOCOLATE
CINNAMON
COCONUT
COGNAC
GRAPE
HAZELNUT
HONEY
HONEY BERRY
ICY MINT
IRISH CREAM
MINT
APPLE BANANA
SAMBUCA
MOCHO MINT
PEACH
PINA COLADA
PINEAPPLE
RUM
SOUR APPLE
STRAWBERRY
STRAWBERRY DAIQUIRI
STRAWBERRY MARGARITA
SWEET CHERRY
CHERRY VANILLA
TEQUILA
VANILLA
WILD APPLE
WILD BERRY
WILD CHERRY
MANGO
ANISETTE
WATERMELON
CHOCOLATE STRAWBERRY
PEACH RUM
WET MANGO
Flavored and Single
• Single stick sales
continue to grow
– from 26% (2005) to 30%
(2006) of total cigar
revenue
• During the last half of
2006– 46% of all single
stick sales were flavored
• Often retail for ~$1.00
Source: AC Nielsen
Blunt use: Past month blunt use by usual cigar
brand, 2005 NSDUH
100%
80%
72%
55%
60%
54%
50%
37%
40%
33%
27%
20%
0%
Dutch
Masters
White Owl
Phillies
Optimo
Garcia y
Vega
Backwoods Black & Mild
Billions of Cigars
Consumption of Small Cigars in the US: 1950-2006
loophole in
Federal law
banning
cigarette ads on
TV/radio
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
1950
1955
1960
1965
1970
1975
1980
Year
Source: U.S. Department of Agriculture. Tobacco Yearbook
1985
1990
?
1995
2000
2005
The “birth” of the little cigar and its proud
parent, RJ Reynolds
Bates No. 501516765
RJR “voluntarily” withdraws Winchester from TV
• RJR was concerned that market advantages (i.e.,
broadcast advertising and price) were in jeopardy
– Exploited price differential at point of sale
• Regulatory efforts to re-define cigarettes to include little
cigars introduced January 1973
• Document suggest that RJR was highly motivated to
avoid a reclassification and likely maneuvered to protect
the little cigar’s crucial tax status by its voluntary
withdrawal from television February 1973
Source: Delnevo & Hrywna Am J Public Health. 2007
Deju Vu?
• USDA estimates consumption of small/little
cigars in 2006 at ~4.5 billion
• Like 40 years ago, there is a marked disparity
between cigarette and little cigar excise taxes
• Average excise tax levied on a pack of cigarettes
in the US more than doubled between 2000 and
2006 ($0.65 to $1.31)
Anecdotal data from Trade Magazines on Cigarette
Pricing’s influence on Small Cigars
“Increased prices on cigarettes have caused the 'little cigar' business
to blossom”
- Barton Laws, American Western Cigars
“Little cigars should be merchandised separately from cigars as they
appeal more to the crossover former cigarette smoker ….”
-Jeffrey Avo Uvesian, International Tobacco Partners
“… some cigarette customers are clearly switching to little cigars as a
more inexpensive way ..”
-Harry Preston, JC Newman Cigar Company
Who uses little cigars?
•
•
•
•
•
•
Males
Whites
Young adults
Less educated
College students
Not employed full time
Preliminary analyses from 2005 NSDUH
Who uses little cigars, but
reports them as “cigarettes”?
Blacks & Hispanics
College students
Small/little cigar market share
Brand
Swisher Sweets, King Edward, Santa
Fe, Swisher Blackstone, Optimo, Pom
Pom
Winchester, Captain Black
Prime Time, Smoker's Choice, Gold
Rush, Havana Honeys, Gold Rush
Sweets
Cheyenne, Derringer, Cheyenne Lights
Muriel, Erik, Phillies, Hav-A-Tampa,
Omega, Dutch Treats, El Producto,
Supre Sweets, Between The Acts, Super
Value
Company
% of Market
Jan-June July-Dec
2005
2006
Swisher International Inc
61%
43%
Reynolds American Inc
14%
13%
Single Stick Inc
9%
15%
Cheyenne International LLC
3%
17%
Altadis S.A.
9%
7%
Source: www.trinketsandtrash.org
the average
wholesale price
for a carton of
Cheyenne little
cigars is $5.50,
compared to
$14.50 per
carton of
Winchester and
$15.50 for
Swisher.
Source: www.trinketsandtrash.org
Little cigars (and large cigars) are unburdened…
• Little cigars are free from the costs and
restrictions imposed on cigarettes by the MSA
– Not required to make MSA or escrow payments
– Some cigarette companies have repackaged
themselves to circumvent escrow payments
• Comprehensive Smoking Education Act requires
cigarette, but not cigar, manufacturers to
disclose ingredients to DHHS
• Proposed FDA Regulation?
Renewed regulatory efforts
• an important factor in determining the tax status
of a product is “whether the product is likely to be
offered to, or purchased by, consumers as a
cigarette” (Federal ATF Ruling 73-22)
• TTB issued a proposed rule to clarify the
definitions of the two products
Response to the TTB proposed rule
• 28 entities, including tobacco manufacturers,
tobacco lobbying associations (e.g., CAA), and
other stakeholders (e.g., distributors,
wholesalers), filed official comments
• Many argued that little cigar must be a distinct
product simply because the product has existed
for more than 40 years
S-CHIP and other initiatives to achieve federal tax
parity on little cigars
• Achieving parity in small cigar/cigarette taxation
will close the gap between the products
• However gaps will still persist, and these gaps in
high cigarette tax states will be considerable
• Almost half of the US population live in states
where the state cigarette excise tax is in excess
of $1.00 per pack - 14 states are $1.50 or more,
8 of which are $2.00 or more
Added costs to cigarettes and little cigars under
tax parity scenarios (NJ tax assumptions)
$4.50
$4.00
$3.50
$3.00
$2.50
$2.00
$1.50
$1.00
$0.50
$0.00
Cigarette
Little
Cigar
Current
Escrow
Cigarette
Little
Cigar
Federal Parity
State excise tax
Cigarette
Little
Cigar
Federal Parity +
increase
Federal excise tax
Conclusions
• Flavored products are driving growth in large and
small/little cigars
• Increase in cheap single stick sales is
concerning and may be tied to blunt use
• Rapid rise in small/little cigars is unprecedented
and tied to price/marketing
• Loopholes for the little cigar must be closed
– Federal tax parity is important, but likely insufficient