FAQs

In a hurry? Here’s a quick overview

Aren’t most of these NPM products made in foreign countries with foreign tobacco?

Many of the NPM products are manufactured overseas, but the same is true for big tobacco.  While Big Tobacco continues to shift its manufacturing and tobacco purchases to overseas sources, there have been a growing number of NPM manufacturers in America.  Many of these companies make it a point to use domestic tobacco as a marketing tool.  At a recent congressional hearing, Big Tobacco manufacturers refused to reveal the amount of domestic content in their products. Many of the tobacco companies (King Maker Marketing, Japan Tobacco International, Lignum-2 Inc.) that have lobbied the states to pass anti-NPM legislation are foreign corporations.

Will allowing lower priced NPM products to proliferate lead to an increase in youth smoking?

One need only thumb through popular youth-oriented magazines, such as Rolling Stone, to see who is really trying to appeal to the youth market and sell cigarettes.  The American Legacy Foundation, the organization funded by the MSA to reduce smoking, reports that 47% of middle school and 53% of high school smokers prefer Marlboro cigarettes.  Newport is the most popular brand with 22% of middle school kids and 21% of high school kids, and Camels are the third most popular brand, used by 6% of middle school kids and 11% of high school kids.  Other studies show that NPM brands account for less that 2% of youth smoking.  Even though NPM brands may sell for one-third to one-half the price of the most popular Big Tobacco brands, kids prefer the nationally advertised “cool” cigarettes.  This fact calls into question the contention that kids are price sensitive when purchasing tobacco products, and questions Big Tobacco’s commitment under the MSA to refrain from youth oriented marketing.

Will increased NPM sales reduce the Phase II payments big tobacco companies make to tobacco farmers to compensate them for loss of tobacco quota due to the MSA?

No.  The Phase II payments are the result of an agreement between the big four tobacco companies (Philip Morris, RJR, B&W, and Lorrilard.)  These are the only MSA signatory companies that make these payments directly to farmers.  NPMs (typically fourth-tiered priced products) rarely compete for customers who buy Big Tobacco’s first-tired priced products.  Instead, NPMs tend to compete more with the lower priced MSA signatories (typically the third-tiered priced products in the tobacco industry.)  The third-tiered priced products are more likely to compete with the big four companies, especially the second-tiered priced products produced by the big four.

Anti-NPM legislation being passed by the states tends to increase market share for the lower priced MSA companies, but no significant impact on Phase II payments.  In the long-run, anti-NPM legislation will actually hurt Phase II payments as the lower priced MSA signatories gain more strength and can more effectively compete with the big four companies.

Are independent brands (NPMs) paying their fair share to the MSA to help state government?

Independent brands don’t have a “fair share amount” to pay.  These independent brands weren’t the brands being sued for engaging in an anti-trust conspiracy to lie to the government about the health risks of smoking, engaging in advertising that appeals to children, and claiming their light cigarettes were less harmful than their full flavored cigarettes. Most independent brands weren’t even in business when the MSA was signed.

Your elected officials agreed to, as suggested by Big Tobacco, make independent brands invest funds in an escrow account for 25 (twenty-five) years just to keep these brands from having a price advantage over the Big Tobacco brands that were being punished by the MSA settlement, specifically for their illegal practices.

The state governments rationalized making companies invest in escrow accounts that had not engaged in wrong-doing (some of whom weren’t even in business at the time) by saying the escrow accounts would serve as a source of funds the state could draw on to pay monetary judgments if any independent brand is ever successfully sued.  To date, none have faced the kind of suits Big Tobacco has faced for lying about the health risks of smoking.

The state requires independent brands to invest money in an escrow account based on the allocable share formula in the MSA.  This formula is designed to make the independent brands pay into their escrow account the same amount the state would have received from the MSA if these brands participated in the MSA.  Basically, the independent brands have to create a fund the state can attach if the state ever successfully sues an independent brand.  The Big Tobacco brands agreed to stop their illegal practices and the states have agreed to drop their suits against these companies in exchange for their MSA payments.

Isn’t NAAG just trying to correct a loophole in the MSA by repealing the allocable share release formula?

No.  The provision in the MSA that releases all of the escrow payments to a non-participating manufacturer (NPM) in excess of each state’s allocable share was intentionally placed in the MSA to protect the agreement from anti-trust attack.

The real loopholes in the MSA are the huge permanent base exemptions granted many subsequent participating manufacturers (SPMs) that allow them to pay far less than the nominal per carton annual MSA assessment.

Do NPMs generate any revenue for the states?

Yes. The states receive millions in taxes and economic multipliers from NPM manufacturers, distributors, and retailers of these products. These companies employ American workers, build the economy and many make it a point to use American tobacco.  Many the Big Tobacco manufacturers are shifting more tobacco purchases and manufacturing overseas.

Many NPMs are working for a mechanism through which they can pay their escrow payments to each state in which they do business.  Big Tobacco says its concerned about the state losing MSA payments. MSA signatory companies show their true colors when they work to block the efforts of NPMs to make these payments direct to the states.

Is it true that unlike MSA companies, NPMs don’t have to restrict their advertising or marketing practices?

Given their very low margins, few NPMs can afford to use advertising to reach customers. To any extent they do advertise, NPMs are subject to state lawsuits for any fraudulent or deceptive advertising practices in which they might engage. NPMs pay into escrow accounts to set aside money for judgments if a state ever successfully pursues a lawsuit against them.

Do NPMs take market share away from Big Tobacco, resulting in lower MSA payments to the states?

No.  The Louisville Courier-Journal Business section, 1/29/04, reported, “Tobacco sales help boost Altria profits 20%.”  “Discounters held 10 percent of the market and that is shrinking,’ said Altria  (Philip Morris) chief financial officer Dinyar Devitre.

On 1/28/04, The Courier-Journal Business section ran an article titled, “Tobacco companies merger is on schedule.”  This article states that while major brands continue to feel pressure from bargain brands, they are no longer losing market share to these brands.

To protect their huge profits, Big Tobacco is pushing small manufacturers out-of-business. The real reason for lower MSA payments to the states is the result of fewer people smoking.