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Tobacco companies mired in legislation and taxes

Tobacco companies mired
Tobacco companies are finding it difficult to endure the slew of proposed legislation and increased taxation slapped against them worldwide. They are already plagued with high levels of taxation as they are increasingly blamed for soaring healthcare-related costs.

The proposed tax hike on cigarettes in California, if passed, would see the excise taxes rising to $1.87 per cigarette pack. Public figures like Lance Armstrong have pledged their support for the proposed tax hike.

To oppose the increase in excise tax, tobacco companies, led by Altria Group (MO +0.53%) and Reynolds American Inc (RAI -0.21%), have spent more than $40 million on lobbying. Altria alone has put in more than $27 million.

We have a $32.60 price estimate for Altria, which is in line with the current market price.
Internationally, New Zealand plans to become the first smoke-free country by increasing the tobacco taxes by 40% over the next four years, with an increase of 10% each year. Smoking rates are down from 30% in 1986 to around 20% currently, and the country plans to kick out tobacco consumption by 2025.

Altria recently introduced a new product called Verve — a chewable, spit-free, oral product that contains nicotine but no tobacco — in select U.S. markets. The move is in line with the company’s policy of developing lower risk, smokeless products.

The company has even entered into an agreement with Okono, an affiliate of Fertin Pharma, to develop innovative non-combustible nicotine-containing products. Smokeless tobacco products are generally perceived to be less harmful than cigarettes and attract lower excise duties. However, even the smokeless tobacco products have come under the scanner of late with a key advisory to the U.S. Food and Drug Administration (FDA) suggesting that tobacco companies have no sufficient evidence to prove that these products are any less harmful than cigarettes.

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