Big Sky, Montana September 13, 2005 FTA Tobacco Tax Conference Little Cigars Michael G. Hering NAAG Tobacco Project Counsel

Big Sky, Montana September 13, 2005 FTA Tobacco Tax Conference Little Cigars Cigars or Cigarettes in disguise?

Big Sky, Montana September 13, 2005 FTA Tobacco Tax Conference

Big Sky, Montana September 13, 2005 FTA Tobacco Tax Conference

Big Sky, Montana September 13, 2005 FTA Tobacco Tax Conference Cigarettes vs Little Cigars

Big Sky, Montana September 13, 2005 FTA Tobacco Tax Conference Differences in the way Cigarettes and Little Cigars are treated Taxation –Federal Excise Tax –State Excise Tax MSA & State Escrow Statutes Warnings –FCLAA (Federal Cigarette Labeling and Advertising Act Other Federal Laws –Ingredients Reporting –Contraband Cigarette Trafficking Act –Imported Cigarette Compliance Act –Jenkins Act

Big Sky, Montana September 13, 2005 FTA Tobacco Tax Conference Cost Gap Large and rising - $8 and up per carton Since 2002 more than two thirds of States have had excise tax increases on cigarettes OTP excise tax has not kept pace, and has even declined in some States

Big Sky, Montana September 13, 2005 FTA Tobacco Tax Conference Cigarettes vs Little Cigars Cigarettes – total of $23.02 per carton (*Using MA State tax rate) Little Cigars – total of $4.40 per carton (*Using MA State tax rate)

Big Sky, Montana September 13, 2005 FTA Tobacco Tax Conference Sales are on the increase From 1993 to 1998 little cigar sales were up 76% - not including imports Large cigar sales were up only 34% - including imports Little cigar imports up 500% for same period For first 5 months of 2005, little cigar imports up 47%

Big Sky, Montana September 13, 2005 FTA Tobacco Tax Conference Public Health Impact Some smokers are self-identifying little cigar brands as cigarettes Among youth, cigarette consumption continues to decline, but cigar consumption does not mirror that trend For the first time ever, more high school males reported smoking cigars compared to cigarettes

Big Sky, Montana September 13, 2005 FTA Tobacco Tax Conference Federal Definition of Cigarette Cigarette. -- "Cigarette" means (1) any roll of tobacco wrapped in paper or in any substance not containing tobacco, and (2) any roll of tobacco wrapped in any substance containing tobacco which, because of its appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be offered to, or purchased by; consumers as a cigarette described in paragraph (1). Identical definitions for a cigarette in the FCLAA (15 U.S.C. §1332), the Contraband Cigarette Trafficking Act (18 U.S.C. §2341), and the Internal Revenue Code (26 U.S.C. §5702).

Big Sky, Montana September 13, 2005 FTA Tobacco Tax Conference Federal Definition – ATF Ruling The Wrapper –Paper 2/3 or more tobacco –Tobacco Character The Filler –Type of tobacco used –Added flavorings Product Marketing –Packaging –Declaration of “Little Cigar” –Marketing and Advertising

Big Sky, Montana September 13, 2005 FTA Tobacco Tax Conference

Big Sky, Montana September 13, 2005 FTA Tobacco Tax Conference

Big Sky, Montana September 13, 2005 FTA Tobacco Tax Conference

Big Sky, Montana September 13, 2005 FTA Tobacco Tax Conference Michael Hering