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Cost of
cheap cigarettes will rise in Alabama on Nov. 1 SUMMERDALE, Ala. -- The no-frills sign in front of Chuck Tracy's
store must seem too good to be true for smokers used to paying upward of
$27 a carton for cigarettes. discount cigarettes
The wooden placard gets
straight to the point with three words and one number: "Cigarettes" and
"carton + tax," then the kicker, "$12.99," in big, red numbers. cigarettes
"That's the hook -- that's what brings
them in," said Tracy, owner of Cigarette King, an unobtrusive little store
on Alabama 59 in Summerdale, just south of Robertsdale.
Once inside, smokers accustomed to
major brands won't find Marlboros or Winstons or perhaps any other
cigarette they've ever heard of.
Santelmos, made in Uruguay, are Tracy's top sellers, at $13.50 per
10-pack carton. Other favorites include Cowboy and Marathons. Stacked on
the $12.99 table are the cheapest of the cheap: Lobos, Durants, Kingsleys
and Carnivals.
But Cigarette King's
sign will soon become a little a less enticing for smokers trying to save
cash by skipping big-name brands.
On Nov. 1, Alabama --
joining about 17 other states -- will begin enforcing a pair of new laws
designed to increase the cost of what are known as "fourth-tier" and
"taste-a- like" brands, or, legally speaking, cigarettes made by
"nonparticipating manufacturers." cheap cigarettes
The per-carton increase
that will range from about 80 cents to $3.80, depending on the brand, is
not a tax increase, and is unrelated to Gov. Bob Riley's failed revenue
package. buy cigarettes
Nonetheless, it could
add millions of dollars a year to the sums paid to Alabama and other
states by the "participating manufacturers" -- major tobacco companies
that joined in a historic 1998 agreement with the states. cheap cigarettes discount
In 1998, the tobacco
industry agreed to pay the 50 states about $246 billion over the following
25 years to settle lawsuits filed to recoup taxpayer dollars spent
treating tobacco-related illnesses. dute free cigarettes
In order to afford the
twice-annual payments to the states, so-called Big Tobacco increased
prices by about 40 cents a pack, or $4 a carton, within a year of the
settlement. cheap cigarettes
Makers of brands like
Cowboy, because they didn't participate in the settlement, immediately
gained a substantial cost advantage. buy cigarettes
Such companies, some
from other countries, moved quickly to grab the opportunity, said Wade
Hope, an attorney with the Alabama Department of Revenue. cheap cigarettes discount
In 1998, fourth-tier
brands held a market share of less than 1 percent. Five years later, these
brands -- also known as taste-a-likes because they mimic particular famous
brands -- have captured almost 6 percent of the market, according to the
National Association of Attorneys General in Washington. cigarettes
That's been bad for the
states, because the 1998 settlement contained a provision that allowed the
big cigarette-makers to reduce their payments if they lost market share.
cigarettes
In large part because of the rise in popularity of the cheaper
brands, payments to the states fell to 85 percent of the projected total
in 2001 and, last year, to 81 percent, according to a report by the
National Conference of State Legislatures. buy cigarettes
"That has resulted,
since 1999, to about a $5 billion loss to the states, because of the
discount cigarettes," Hope said. Cigarettes Store
Hope said that the
effect on Alabama, which receives a national settlement share of about
1.62 percent, has been significant. Assuming a $5 billion total loss to
the states, Alabama's reduction would amount to about $81 million. buy cigarettes
Alabama uses its tobacco
settlement dollars in a variety of ways, but primarily to fund programs
and provide benefits for children and seniors. cigarettes
The new laws, which
contained a grace period to allow the state Revenue Department and the
cigarette-makers time to prepare, were passed by the Legislature this
spring and signed by the governor on June 23. online cigarettes
If all goes as planned,
cost increases applied to fourth-tier brands will increase the market
share of the name brands. That would raise the amounts those companies pay
the states or at least prevent continued erosion, and, theoretically, lead
to a decrease in smoking as well, he said. Cost increases, he said, are a
widely recognized means of lowering smoking rates. dute free cigarettes
Closing loopholes:
It's not surprising, then, that
fourth-tier cigarettes have become an issue for Big Tobacco.
So far, 17 states have
passed the model legislation, and about eight states already had similar
laws, Hope said. He expects all or most states to pass the legislation
within the next year or so. Cigarettes Store
One of the new laws
creates a registry of brands eligible to be sold in the state. The Revenue
Department will be responsible for Alabama's list, Hope said. online cigarettes
That list will include brands produced
by companies that pay into the national settlement fund, and the
fourth-tier brands that comply with the second of the two laws by
contributing to separate escrow funds. dute free cigarettes
To some degree, the 1998
national settlement anticipated competition from companies not
participating. It contained a provision that required nonparticipants to
pay certain amounts into escrow funds, with one for each state where the
companies sold their products. Cigarettes Store
Those funds are supposed
to serve two purposes: eliminating some of the price advantage of
fourth-tier brands, and creating pools of money in the event the states
later sue those cigarette-makers and win a judgment. discount cigarettes
But, said Hope, some
makers of fourth-tier brands have employed all manner of loopholes to
avoid escrow payments or to legally remove escrow contributions soon after
deposit. buy cigarettes
For example: One method
of determining the per-pack contribution into the escrow fund is based on
a brand's previous year's sales. Some manufacturers have dodged this by
changing the names of their brands every year. dute free cigarettes
It would be a good
thing, Hope said, if payments from the tobacco companies decreased for the
reason that fewer Americans -- and fewer Alabamians -- were smoking. But
fourth-tier brands encourage smoking at the same time that they decrease
payments to the state, he said. marlboro cigarettes
Tracy not going away:
Price is everything in
his business, Tracy said. In order to persuade a smoker to try a
fourth-tier brand, the brand needs to cost at least $2 or $3 less per
carton. cheap cigarettes discount
"I think the ceiling on
these type cigarettes is $18 or $19 a carton, max," said Tracy. buy cigarettes
Most fourth-tier brands
seek to copy Marlboro in style and taste, because it's the biggest seller,
Tracy said. He grabbed a carton of Cowboys, and pointed to a picture of a
cowboy on the front -- a not-too-bad rendition of the Marlboro Man.
Other Cowboys are designed to taste
like other popular brands, such as Newports. Santelmo, his top seller,
specializes in cigarettes that taste like Camels, Tracy said.
Tracy, who is not a
smoker, said his industry believes it can win over customers if it can
only get them to try its product. A two-pack-a-day smoker -- and he says
that covers most smokers -- will save more than $1,000 a year.
"What I've been told is,
if anyone smokes four packs of cigarettes of a different brand, their
taste buds acquire the taste for the brand," Tracy said.
On Friday afternoon,
Earl Thomas came to a Mobile store that sells taste-alikes in search of a
cheaper version of the filterless Camel regulars he has smoked, at about a
pack a day, for 40 years.
"I tried some Marathons,
but they burned up real fast. They didn't taste bad, they just smoked
quick, so I'm going to try these," said the Mobile man, holding up a pack
of Santelmos. Cigarettes Store
He lit one to test it out, savored it,
exhaled the smoke through his nose, then pointed with mild disappointment
at the end of the cigarette. "See how much is gone with one draw?"
he noted. But he'll keep trying. "Since the
popular brand is so high, I can't afford them," Thomas said.
Another customer in the Mobile store,
who declined to give his name, professed himself pleased that Cowboys
taste like his favorite brand, Newport.
In a few weeks, Cigarette King's Tracy
will be removing the $12.99 price on his sign, and doesn't yet know what
he'll be replacing it with. He said he plans to absorb some of the higher
costs to stay competitive. The friendly, 49-year-old businessman
is not entirely without hope. On Thursday, he received a delivery of a new
brand, Ol' Kentucky. The picture on the cartons -- green tobacco fields,
and a barn -- was certainly attractive enough.
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