Taxation and new products
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Taxation and New Products. Gregory N Connolly DMD, MPH National Smokeless and Spit Tobacco Summit September 22,2009. New Smokeless Products and Acquisitions by the Cigarette Industry. Swisher $4.5 Billion RRJ – 2005 PM Acquired USSTC $16 Billion 2008

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Taxation and New Products

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Taxation and new products

Taxation and New Products

Gregory N Connolly DMD, MPH

National Smokeless and Spit Tobacco Summit

September 22,2009


New smokeless products and acquisitions by the cigarette industry

New Smokeless Products and Acquisitions by the Cigarette Industry

  • Swisher $4.5 Billion RRJ – 2005

  • PM Acquired USSTC $16 Billion 2008

  • PM – Swedish Match International Joint Venture

  • Introduction of New Forms: Snus, Dissolvables ?

    Today 88% of the Smokeless Market Owned by the Cigarette Industry


Components of a tin of moist snuff and a pack of cigarettes 2008

Components of a Tin of Moist Snuff and a Pack of Cigarettes (2008)

P=Premium brands

Sources: FTC Reports, Annual Report of Altria and USSTC, Tax Burden on

Tobacco, NAAG, USB.


Tobacco products sales

Tobacco Products Sales


Taxation and new products

  • “This flurry of smokeless category activity reflects the overall strength and growth of the OTP market. In addition to smokers’ desire for new smokeless alternatives, that growth is driven by new product introductions and flavor innovations.”

    www.awmanet.org/dc/dc_cover0706.html


Dual users are a big driver of current mst growth

Dual Users are a Big Driver of Current MST Growth

  • “Based on our research, we believe the bulk of smoker migration into MST is coming from dual users (consumers that dip and smoke). We estimate that about 30% of dippers also smoke. The proliferation of smoking bans has effectively increased the number of dipping occasions.

Source: UBS Research, 2007, Nat’l Tobacco Incidence Study [UST]


Effective prices of other tobacco products and cigarettes per alternative tax rates

Effective Prices of Other Tobacco Products and Cigarettes per Alternative Tax Rates

Data sources: Average price (except for cigarettes) from AC Nielsen ScanTrak; Average cigarette price from Tax Burden on Tobacco (2008). State tax rates from Tobacco Free kids. Federal Tax Rates from U.S Department of Treasury


Recent changes in federal excise taxes for smokeless other tobacco products

Recent Changes in Federal Excise Taxes for Smokeless Other Tobacco Products


Smokeless tobacco prices data sources acnielsen scan track orzechowski walker 2008

Smokeless Tobacco – PricesData Sources: ACNielsen Scan Track; Orzechowski, Walker (2008)

Prices and taxes are based on the following units:Moist snuff (1.2 oz); Dry Snuff (1.0 oz); Skoal Bandits (1.2 oz); Camel Snus (20 pouches); Camel Orbs (15 tablets); RYO (20 pieces); Small Cigars (20 pieces); Cigarettes (20 pieces)


Taxation and new products

Weight-based Taxation of New versus Traditional Smokeless Products

TFK


Quotes

Quotes:

  • Moist smokeless tobacco volume is increasing faster in the nine US states that have a weight-based tax than in those with a percentage tax based on the wholesale price, indicating “there’s a latent growth in the category that may be realized if states convert to a weight-based tax.” – Retail and foodservice consulting firm, Willard Bishop.


State weight based and ad valorem smokeless tobacco taxes number of states

State Weight-based and Ad Valorem Smokeless Tobacco Taxes(Number of States)

Pennsylvania currently has no tax on non-cigarette tobacco products. Kentucky taxes snuff 19 cents per unit.


Current moist snuff among youth ages 12 17 years

Current Moist Snuff Among Youth Ages 12-17 Years

Data source: U.S. Substance Abuse and Mental Health Services Agency, National Survey on Drug Use and Health, 2002 - 2007


Taxation and new products

*Note –Sales and price data were derived from ScanTrak scanner data licensed from ACNielsen, a global provider of marketing research information services, in US food stores with at least $2 million in annual sales, US drug stores with at least $1 million in annual sales and all US mass merchandisers, with the exception of WalMart.


Taxation and new products

“New Snus Products not Expected to Hurt Cigarette Volumes

The majority of our survey respondents (64%) do not believe either of the new snus products will affect cigarette volumes by promoting current smokers to quit at a faster rate. Rather, the new snus product will most likely (1) attract smokers that have previously quit, (2) that are currently using moist snuff, (3) smokers that are looking for a temporary nicotine “kick” when they cannot smoke, or (4) smokers that would have quit anyway. This bodes well for RAI and MO share holders as these new snus products don’t appear to be cannibalizing either Marlboro or Camel brands.”

Citigroup Investment Research, 2007


Taxation and new products

“New Snus Products not Expected to Hurt Cigarette Volumes

The majority of our survey respondents (64%) do not believe either of the new snus products will affect cigarette volumes by promoting current smokers to quit at a faster rate. Rather, the new snus product will most likely (1) attract smokers that have previously quit, (2) that are currently using moist snuff, (3) smokers that are looking for a temporary nicotine “kick” when they cannot smoke, or (4) smokers that would have quit anyway. This bodes well for RAI and MO share holders as these new snus products don’t appear to be cannibalizing either Marlboro or Camel brands.”

Citigroup Investment Research, 2007


Taxation and new products

  • “When scientists have identified undesired compounds in a product, we have seen it as our responsibility to reduce or eliminate these compounds, if feasible.”

    www.myeval.net (Swedish match No America)


Taxation and new products

  • We focused on innovation, introducing a variety of more approachable new products that would appeal to smokers. We also ramped up our communication with smokers, acquainting them with smokeless tobacco products.”

    Butler, President USSTC (USSTC, May, 2008)


Taxation and new products

TFK


Taxation and new products

TFK


Domestic smokeless advertising and promotional expenditures 1998 2006 millions of dollars

Domestic Smokeless Advertising and Promotional Expenditures 1998 – 2006 (Millions of dollars)

Source: Federal Trade Commission Smokeless Tobacco Report for 2006


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