Colorado sued for an alleged back-room deal with Philip Morris USA.
Proposition (Prop.) EE, a ballot initiative on this coming November ballot, is a “specific anti-competitive” and an “anti-consumer provision” that would increase the minimum price of a pack of cigarettes to $7.00 per pack which begins on January 1, 2021, if the voters adopt the proposition. In total, the proposition proposes a $294 million tax hike.
“We are deeply concerned that Colorado politicians have agreed to price-fixing in what has been reported as a “back-room deal” with Philip Morris to secure its support for a tax increase,” said Nicholas Anson, the president, and chief operating officer of Liggett Group.
Liggett Group is the fourth-largest privately held tobacco company in the United States.
The company is headquartered in Durham, North Carolina, but has a hefty business within the state limits of Colorado. Vector Group, a subsidiary of Liggett, was also named in the lawsuit, including Xcalibder International.
“The price-fixing component of Proposition EE would not only benefit Philip Morris and hurt value-conscious consumers, it was intentionally omitted from the ballot question, leaving Colorado voters in the dark about this unconstitutional proposal,” Liggett added.
More of the nitty-gritty
The legal complaint also alleges that Philip Morris USA and its owner, Altria Group, are implicated in a scheme to fix cigarette prices for premium products, which eliminates the market for discount cigarettes across the state.
The company agreed not to oppose the cigarette excise tax increase of $1.10 per pack for the protection of its current market share. Other calculations include a higher tax rate per pack (see below). Prop. EE will double the price of cigarette brands, and therefore creates a controversial environment for sales for consumers of discount cigarettes. The State Treasury will only see half of the funds generated by the state-imposed price increase.
“Retailers will therefore be able to sell fewer discount cigarettes at higher profit margins,” the lawsuit said, via reporting by The Denver Post. “This comes at the expense of the Plaintiffs and other out-of-state cigarette manufacturers, who will lose sales, profits and market share as a result.”
Discount cigarettes sell in Colorado at about $3.80 to $5.32 per pack, notes the lawsuit. Marlboro packs sell for about $6.55. The tax hike will impact discount cigarettes through dramatic price increases. Cigarette taxes would rise by at least $1.94 from 84 cents each, additionally notes the lawsuit and the Post.
Prop. EE arrived on the November ballot after the Colorado state legislature passed House Bill 1427 during the 2020 legislative session. Altria negotiated the terms in the law on behalf of much of the industry with Democratic legislative leadership, health advocacy organizations, and the office of Gov. Polis.
Prop. EE will also apply to electronic cigarettes and other vaping products.
The “A Bad Deal for Colorado” committee organized the lawsuit, through counsel provided by Kasowitz Benson Torres LLP and the Denver, Colo.-based Maven Law Group.
The case was filed with the U.S. District Court for the District of Colorado.
Just like for reporting by The Denver Post, Associated Press, and Bloomberg News, the office of Gov. Polis declined to comment for us, Vaping Post, on pending litigation.
This is a developing story. Results of Prop. EE will be reported on Election Day, Nov. 3.
Note: The author of the report is a Colorado resident and engages with some of the organizations mentioned in this report through a consulting capacity. He has no commercial interest in these organizations, nor is he a consumer of these products.
You can email Michael McGrady at [email protected]