Tag Archives: Tobacco industry

Higher taxes? Smoking bans? Lawsuits? The tobacco industry continues to thrive, thank you

Tobacco

A sobering story from Business Cheat Sheet, but one I was aware of.

In John Oliver’s recent epic rant about the tobacco industry, he touched on this issue (more on that in a subsequent post).

Yes, the tobacco industry has taken some big hits in the past 30 years. A sharply declining smoking rate, from over 50 percent in the 1960s to approximately 18 percent today; the massive $280 billion Master Settlement Agreement in 1998; the Engle judgements out of Florida; and higher taxes in most states over the past 15 years.

However, from the Business Cheat Sheet story.

Then came the good news. According to a Credit Suisse research report released last week, tobacco is America’s most successful industry. The report states that the average returns from a company listed on the stock exchange was about 10% per year from the period between 1900 and 2010. Tobacco stocks, however, produced annualized returns of 14.6% during the same period. In terms of hard cash, this means that a single dollar invested in tobacco stocks was worth $6.3 million by 2010, while a dollar invested in a stock market index would only be worth $38,255.

However, as Business Cheat Sheet points out, the tobacco industry has simply rolled with the changes. There’s a reason the average cost of cigarettes has gone from $1.50 a pack in 1990 to $5.50 a pack in 2015. All those added costs — taxes and settlements — have simply been passed on to cigarette consumers.

According to this article, the $280 billion MSA and other litigation raised the cost of cigarettes by 10.9 cents a pack in the late 1990s. However, the price of cigarettes increased by an average of 14 cents a pack. The industry simply kept the change. When your customers are addicted to nicotine, there’s nowhere else to go.

Business Cheat Sheet also points out that the tobacco industry is an oligopoly — a large industry basically controlled by a very small number of companies. In the U.S., there’s really only four major tobacco companies — Philip Morris, RJ Reynolds, Lorillard and British-American Tobacco. And when the merger of RJ Reynolds and Lorillard is complete, that number will be down to three (BAT, which is big internationally, has a tiny share of the market in the U.S.). In fact, get this, there has not been a new major tobacco company formed in 56 years.

Worldwide, a mere five major companies — Philip Morris, BAT, Japan Tobacco International, Reemsta and Altadis — control 45 percent of the market. A huge percentage of the rest of the world market is in state-controlled in China.

To quote from the article:

As a result, competition within the industry is rare and the incentive to innovate on products and prices is low.

To add to that, cigarettes have an inelastic demand curve. This means that demand stays constant, even in times of recession. Thus, the tobacco industry manages to make profits because product margins improve, even if the overall product volume sold decreases.

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The tobacco industry is booming in developing nations.

The third reason the industry continues to thrive — burgeoning markets in the Asia and Africa.

The smoking rate has not only declined dramatically in the U.S., but through most of the Western World. This was historically where the tobacco industry made the bulk of its revenues. But, as John Oliver pointed out last week, the developing world is completely different, where there is not as much education about the dangers of smoking and frankly for a lot of people, living conditions are so poor, there’s a level of apathy toward the dangers of smoking even when they are known. U.S. tobacco companies simply drool over these huge markets in Brazil, Africa, India, Indonesia the Philippines. (They’d be going after China, too, but China won’t allow it).

It can seem a daunting task fighting an industry that continues to thrive despite losing so many regulatory, legal and PR battles. Killing the industry won’t happen tomorrow and won’t happen next year or in the next decade. It’s definitely a process of chipping away at it.

 

Tobacco companies must place full-page ads admitting they lied

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Interesting and to me surprising story.

This week, several tobacco companies — RJ Reynolds, Altria (Philip Morris) — agreed with the Justice Department to print “corrective statements” in major newspapers around the U.S. admitting that they lied for many years about the health effects of smoking.

These full-page ads will appear in the Sunday editions of 35 newspapers. In addition, the tobacco companies have to post articles on the newspapers’ websites and on their own websites admitting their lies. On top of that, there will be television commercials as well.

A long way from the early 1990s, when tobacco executives testifying before Congress continued to claim that nicotine wasn’t addictive and that there was no proof smoking caused lung cancer (Yup, they kept claiming this right into the ’90s.)

This agreement is part of a 15-year-long racketeering case being pursued by the Justice Department against the tobacco industry.

The five lies the industry will be forced to publicly admit:

The five corrective statements will address the companies’ deceptions regarding 1) the health effects of smoking; 2) the addictiveness of smoking and nicotine; 3) the false advertising of low-tar and light cigarettes as less harmful than regular cigarettes; 4) the designing of cigarettes to enhance the delivery of nicotine; and 5) the health effects of secondhand smoke.

Oh, No. 5 is a hoot. Reminds me all the old arguments I’ve had with smokers’ right’s nuts that secondhand smoke is completely harmless. Dave Hitt, FORCES, the Heartland Institute will not be happy with these full-page ads.

I mean does this make any difference? It won’t undo the damage done and bring people back to life. But, I think it’s important that these lies are exposed once and for all (and I’m serious, there are still people to this day arguing that secondhand smoke is harmless). It’s all about maintaining the legacy of the “cigarette century,” a century in which untold millions died from their tobacco addiction, and the industry’s cover-up of that holocaust. Ultimately, that’s how we will win.

 

Golden Holocaust: Origins of the Cigarette Catastrophe and the Case for Abolition

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I can’t wait to get my hands on a book coming out in February, written by a Stanford professor about the evils of the tobacco industry, called: “Golden Holocaust: Origins of the Cigarette Catastrophe and the Case for Abolition”

Ouch, but $44.95? I think I’ll wait to see if I can get a used copy.

In this book, Robert Proctor (I’ve seen his name around in a few articles I’ve read), takes on the tobacco industry and argues the industry is not dying, but people still are.  Obviously, with the term “Holocaust” in the title, this book is no shrinking violet. I personally have called tobacco a “slow motion Holocaust,” having watched what it did to people in my mom and dad’s generation.

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I’m quoting liberally from a Stanford University article, which you can read in full here:

One author calls it “a remarkable compendium of evil” while another reviewer says “unpacks the sad history of an industrial fraud. [Proctor’s] tightly reasoned exploration touches on all topics on which the tobacco makers lied repeatedly to Congress and the public.”

Sounds like the kind of thing that will get my rage on. It sounds like it pulls no punches.

Big Tobacco tried to stop the publication of the book, actually subpoenaing Proctor’s emails and his unfinished manuscript and costing him $50,000 in legal fees.

Two other powerful quotes from the book.

For the industry, though, the cigarette represents the perfect business model. “It costs a penny to make. Sell it for a dollar. It’s addictive,” says investment guru Warren Buffett.

Proctor notes that “by artfully crafting its physical character and chemistry, industry scientists have managed to create an optimally addictive drug delivery device, one that virtually sells itself.”

Proctor explores several tobacco myths in the book. Among them:

Myth #1. Nobody smokes anymore. If you read the media, smoking sounds like a dying habit in California. That’s far from true, said Proctor. Californians still smoke about 28 billion cigarettes per year, a per capita rate only slightly below the global average.

So why do we have this illusion? “We don’t count the people who don’t count. It’s not the educated or the rich who smoke anymore, it’s the poor,” said Proctor.

Myth #2. The tobacco industry has turned over a new leaf. “The fact is that the industry has never admitted they’ve lied to the public or marketed to children or manipulated the potency of their project to create and sustain addiction,” Proctor said. “A U.S. Federal Court in 2006 found the American companies in violation of RICO racketeering laws, and nothing has changed since then. And the same techniques used in the past in the U.S. are now being pushed onto vulnerable populations abroad.”

Myth #3. Everyone knows that smoking is bad for you. Proctor pointed out that most people begin smoking at the age of 12 or 13, or even younger in some parts of the world. “Do they know everything?” Proctor asked rhetorically. “And how many people know that cigarettes contain radioactive isotopes, or cyanide, or free-basing agents like ammonia, added to juice up the potency of nicotine?”

Myth #4. Smokers like smoking, and so should be free to do it. And the industry has a right to manufacture cigarettes, even if defective. Proctor called this “the libertarian argument.”

“It is wrong to think about tobacco as a struggle between liberty and longevity; that tips the scales in favor of the industry. People will always choose liberty, as in ‘Give me liberty or give me death.’ What people don’t realize is that most smokers dislike the fact they smoke, and wish they could quit. Cigarettes are actually destroyers of freedom.”

There are tobacco industry documents, he noted, in which smoking is compared not to drinking but rather to being an alcoholic.

Myth #5. The tobacco industry is here to stay. Global tobacco use would be declining were it not for China, where 40 percent of the world’s cigarettes are made and smoked. Proctor has a bet with a colleague, though, that China will be among the first to bar the sale of cigarettes, once their financial costs are recognized.

Anyway, sounds like a heavy read and a real unapologetic voice of anti-tobacco advocacy. Can’t wait.

Amazon link to the book.