Secret deal between lawmakers and Philip Morris in Colorado

In Colorado, three tobacco companies are filing lawsuits to block a new tax increase, which they say was negotiated behind closed doors between lawmakers and Philip Morris.

The lawsuit was filed Thursday by Liggett Group, Vector Tobacco, and XCaliber International, who are seeking to invalidate a measure deemed anticompetitive. The measure, known as Proposition EE, would set the minimum price of a pack of cigarettes at $7 and include a new tax on vaping products, if state voters approve it in the coming weeks.[1]In fact, such a decision would represent a significant increase in the price of cheap cigarettes, which currently sell for between $3.80 and $5.32 in Colorado. At the same time, the measure would have a much smaller impact on a brand like Philip Morris's Marlboro, which sells for $6.55 a pack.

Buy Philip Morris Neutrality

According to the information available to date, this secret agreement was negotiated with the aim of ensuring Philip Morris's non-opposition to these measures. The agreement thus made it possible to buy the tobacco giant's neutrality and avoid defeating the regulation, as the company had previously done in Colorado, thanks to a multi-million dollar opposition campaign. Thus, Governor Jared Polis, Attorney General Phil Weiser, and the Legislative Council of the Colorado State Assembly are among the defendants. Philip Morris, however, is not being prosecuted.[2].

Understanding the Issue of Tobacco Taxes

The issue of tax increases is crucial for the tobacco industry. A significant and repeated increase remains the most effective lever for reducing the number of smokers. However, the choice of tax structure is also a decisive element, and can affect two tobacco brands very differently. Thus, the application of a fixed tax will have the effect of reducing the price difference between brands, in favor of the most expensive ranges, because they are positioned in a so-called " premium " At the same time, cheaper brands will lose their price advantage. This is what this example in Colorado reminds us of. Conversely, applying a proportional tax, based on a percentage of the price, will increase the price gap between the most expensive and the least expensive brands. As a result, they will have much less impact on brands with a discount positioning.

Keywords: Colorado, Taxes

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1] Discount cigarette companies sue Colorado over tobacco tax ballot measure, alleviate “backroom deal” with Philip Morris, The Denver Post, 10/16/2020, (accessed 10/19/2020)