Stogie Commentary: Questions for the Future
2 Apr 2009
With the economy still struggling and the SCHIP taxes taking effect this week, I’ve been thinking what the future might hold for the cigar industry. Here are a few of the questions I have:
1. Will General and Altadis move to increase their market shares? The two giants already control a large share of the market and have expanded their reach in recent years to include huge retailers, a magazine, distributors, and who knows what else. I would be flabbergasted if we don’t see more buyouts, especially of boutique manufacturers.
2. Will more states seek revenue by collecting sales taxes from online transactions? This, too, seems likely. Cigars are a miniscule component, but such a move would probably serve the interests of B&Ms, who’ve always had to collect the money.
3. Will Florida and Pennsylvania impose taxes on cigars and will low-tax states ratify increases? Taxes in Pennsylvania and Florida—both of which are considering taxes—would have an extraordinary impact on major online operations, as would boosts by low-tax states, such as North Carolina. Just think of how many operations are in those states (Cigars International, Famous Smoke Shop, JR Cigars, Holts, Thompson). Again, this would at least somewhat level the playing field for local shops and Internet sellers, but the end result would be higher prices for consumers.
4. Will cigar makers begin to pare back? Fancy boxes and intricate bands would be my candidates for extinction as costs go up. More limited editions could supplant introductions of new lines because of the need for less inventory.
5. Will the industry and its related organizations work to change the image of cigar smokers? The perception that cigar smokers are $10,000-watch-wearing, first-class-flying, Wall-Street-worshiping, wine-sipping snobs makes it easy to single them out for taxes. Getting out the truth about the vast majority of people who actually enjoy cigars would certainly help.
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I don't know a lot about what's going in in Pennsylvania, but the AP ran a story yesterday, quoting many widely known industry figures, on the propsed tax situation in Florida you might find interesting: http://www.google.com/hostednews/ap/article/ALeqM…
By the way, in the AP story, be sure to read the quote from the Cancer Society spokesman, especially with regard to my question number 5.
It’s possible more states could go after online sellers, but Internet commerce taxes is a huge problem not easily solved and I don’t think most states will have a lot of success.
Last I read, the cigar taxes in FL and PA were unlikely to go anywhere, even if cigarette taxes go up.
Overall cigar sales will stay healthy, alothough all tax hiked depress volume somewhat. I don’t see a shift to cheap bands and boxes.
And I say the cigar industry has already had some success, based on the reduction of SCHIP’s cap from $10 to 40 cents.
Thanks. Anti-smoking groups never met a tax hike they didn't like, which is one reason why tobacco will never be banned outright. I'm not surprised at his comments.
I didn't see anything in that AP story about Florida starting a cigar tax, although I know it has been discussed. I did read Gov. Crist, who is apparently coming around to some sort of a cigarette tax hike, quoted as saying he would rather not hit the state's historic cigar makers with a tax.
I have not checked on PA lately, but the state's small number of tobacco growers are disproportionally powerful as a lobbying group. Gov. Rendell keeps proposing taxes on chew and cigars and they never get traction.
Here's part of an e-mail CRA sent recently:
CRA News Alert – April 2, 2009
Florida State Senate Attacks Cigars With New Taxes
A new shell bill (SB 2438) introduced by Florida Senator Thad Altman was unanimously approved by the State's Senate Finance & Tax Committee; which Sen. Altman chairs.
SB 2438 is an act relating to taxes on cigarettes and other tobacco products (cigars) and would increase taxes on cigars at a rate of $1.00 per ounce!
What does $1 per ounce translate to per stick? Obviously it varies by size, right? Double coronas taxed higher than coronas?
I found the story on Florida's governor opposing the cigar tax hike:
Gov. Charlie Crist’s hostility toward a looming tax hike on cigarettes has slowly waned over the past few weeks. … But Crist was more clear in saying he opposed an increase of $1 per ounce increase on cigars. The Senate has proposed a $1 per pack increase on cigarettes that also includes the per ounce increase on smokeless tobacco and cigars.
Asked specifically about the cigar tax, Crist said that, “my understanding is there wasn’t discussion that related to cigars until maybe yesterday. Obviously that’s an industry in Florida that has great tradition, especially in the Tampa Bay area and probably other parts of the state. I would rather see that removed."