Tobacco

Policy

Overview

Over the course of the last two decades, seemingly countless campaigns, bills, and lawsuits have been waged at, against, or in favor of the tobacco industry. While the vast majority of efforts have not led to as substantial of changes as either the anti-tobacco or pro-tobacco sides may have hoped for, a smaller number but no less important policies have been implemented over the last decade and a half. By unpacking and briefly analyzing some of the most relevant and influential policies implemented at the state, national, and international level, this section provides a better understanding for how, and in many cases, why the tobacco industry has and continues to change so much. From this understanding this section critically assesses some of the ways North Carolina has been, and is likely to continue to be affected by each related policy.

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State-Level Policies

Although numerous nationally mandated tobacco regulations are applied equally to all states, there still remains a large amount of autonomy at the state and regional levels to control where, and under what conditions, people are permitted to use tobacco products in public. While the majority of states have pushed for stronger legislative action since 2000 to ban smoking in public places for public health concerns, not all states have adopted equally stringent laws. Some states, like North Carolina offer a mix of stringent and non-stringent regulations, and certainly some other states have not enacted any legislation at the state level at all – leaving it to regional legislative bodies to establish their own forms of public tobacco use governance. In addition, states also continue to maintain full control over setting their own excise tax level to be applied to every pack of cigarette sold. This section also briefly looks into the implications excise taxes may have on state cigarette revenue and its percentage of adult smokers.

State and Local Policies on Smoking (3)

In recent years, many states and municipalities have begun to restrict smoking both in public areas and in private restaurants and bars, citing public health and the danger of second-hand smoke. These new anti-smoking actions are expected to affect the tobacco industry negatively, as it could dampen demand for tobacco products, especially cigarettes. The Center for Disease Control and Prevention (CDC) has designed a study called the Morbidity and Mortality Weekly Report (MMWR) that shows the changes in smoking policies across the country. The MMWR shows the new restrictions of smoking in different states across the country. These are the highlights of the latest MMWR:

  • The number and restrictiveness of state laws regulating smoking in private-sector worksites, restaurants and bars has increased substantially from 2005-2012. This increase has provided U.S. nonsmokers with greater protection from exposure to secondhand smoke, a known human carcinogen.
  • From 2002-2010, 26 states (including Washington D.C.) adopted comprehensive smoke-free laws prohibiting smoking in worksites, restaurants and bars. A further four states (including North Carolina) passed laws banning smoking in 2/3 of these locations; six states passes laws banning smoking in 1/3; eight states passed laws with less restrictive laws (e.g. designated smoking areas) without enacting outright bans; and seven states still had no laws.
  • Interestingly, at the time of writing (March 2014) no Southern states possessed laws banning smoking in all three locations; worksites, restaurants and bars.
  • All states have laws banning smoking from commercial daycare centers and home-based daycare centers.

Per the most updated MMWR’s list of states by degree of legislative adoption, the following provides an overview of where each state stood:

  • States with comprehensive laws (banning smoking at worksites, restaurants and bars): Delaware, New York, Massachusetts, Rhode Island, Washington, New Jersey, Colorado, Hawaii, Ohio, D.C., Arizona, New Mexico, Minnesota, Illinois, Maryland, Iowa, Oregon, Utah, Nebraska, Vermont, Maine, Montana, Michigan, Kansas, Wisconsin and South Dakota.
  • States with laws banning 2/3 locations (worksites, restaurants and bars): Florida, Louisiana, Nevada and North Carolina
  • States with laws banning 1/3 locations (worksites, restaurants and bars): Arkansas, Idaho, New Hampshire, North Dakota, Pennsylvania and Tennessee.
  • States with restrictions on smoking but no outright bans on locations (worksites, restaurants and bars): Alabama, Alaska, California, Connecticut, Georgia, Missouri, Oklahoma and Virginia.
  • States with no laws restricting smoking (in worksites, restaurants and bars): Indiana, Kentucky, Mississippi, South Carolina, Texas, West Virginia and Wyoming.

Interestingly, states also have been able to maintain their rights to control excise tax amounts (36).  As the table below demonstrates, in general, the higher the excise tax charged by a state, the higher the gross cigarette tax revenue states have received. Relatedly, higher excise taxes seem to be an indicator of lower percentages of adult smokers and fewer cigarette packs consumed per state capita. While too many outside variables exist to claim any sort of causation, the table does suggest that correlations may exist between the level of excise tax, the amount of tax revenue, and the percentage of adult smokers that live in that state. For example, New York’s excise tax ($4.35) is more than nine times that of North Carolina’s ($0.45) and at $1.6 billion in gross tax revenues, New York is generating more than 5 times the tax revenue of North Carolina; crucially, New York’s cigarette consumption per capita is also more than 42 packs less than North Carolina’s; and, furthermore, it’s percent of adult smokers statewide is 3.7% fewer. It is important to address that these results could be based any number of combinations of factors related to anti-smoking laws, regulations, and public campaigns. Nevertheless, it is worth addressing that incentives may exist for states looking to reduce their percentage of adult smokers and to subsequently increase their income from tobacco taxes, to initiate an increase in their excise taxes (36).

State Rank of State Excise Tax, 2014 (highest to lowest) (37) Excise Tax Amount, 2014 (per pack) (37) Gross Cigarette Tax Revenue, 2012 (millions) (36) Cigarette Consumption, 2012, (Packs Per Capita) (36) Percentage of Adult Smokers (36) Total Population (2013 Census Est.) (millions) (38)
New York 1 $4.35 $1,634 18 16.2% 19.66
Massachusetts 2 $3.51 $574 33.5 16.4% 6.63
Rhode Island 3 $3.50 $134 35.8 17.4% 1.1
Connecticut 4 $3.40 $421 33.5 16% 3.56
Hawaii 5 $3.20 $139 29.8 14.6% 1.41
Washington 6 $3.025 $473 20.3 17.2% 6.98
U.S. MEDIAN - $1.36 - - 19.6% -
North Carolina 45 $0.45 $297 60.7 20.9% 9.85
North Dakota 46 $0.44 $29 74.5 21.2% 0.73
Alabama 47 $0.425 $145 67.2 23.8% 4.84
Georgia 48 $0.37 $231 53.1 20.4% 9.93
Louisiana 49 $0.36 $146 72 24.8% 4.63
Virginia 50 $0.30 $195 72.4 19% 8.26

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National Policy

In addition to state legislation, the tobacco industry in North Carolina is increasingly shaped by national policies that have overtime imposed tighter restrictions and more federal oversight of the tobacco industry. The Food and Drug Administration (FDA) has for decades sought to be the principle federal regulatory agency of the tobacco industry, and after years of hotly debated congressional bills that had failed to pass, in 2009 the FDA was granted their most significant victory to date. By way of the Family Smoking Prevention and Tobacco Act, the FDA subsumed a number of authorities to standardize various aspects of how tobacco manufacturers conduct their business. This section provides an overview of the key policies passed in the Act and discusses the ramifications they have for the tobacco industry.

Congress and FDA Regulation of the Tobacco Industry (1)

On June 22, 2009, the Family Smoking Prevention and Tobacco Act, a comprehensive bipartisan bill seeking improvements to the U.S.’s national tobacco policy was formally passed and enacted into law. This legislation is seen as significantly large success after years of congressional deliberation on similar bills. Its passing has set in place a wide range of important provisions that have and continue to benefit consumers, the general public health, and all rightful participants in the tobacco industry. Some of the essential aspects passed by the bill included the following granted permissions to the FDA:

  • Changing the language of the current cigarette health warnings, substantially enlarging their size to 50% of cigarette pack size and 30% for smokeless tobacco products, and granting the FDA the authority to require new warnings in the future;
  • To require full disclosure of ingredients added to tobacco products and for producers to notify the FDA of any ingredient changes;
  • Authority for the FDA to regulate, or ban, terms such as "light" and "low tar";
  • Authority for the FDA to mandate changes in the design of tobacco products to protect public health, including authority to remove harmful ingredients and smoke constituents;
  • Authority for the FDA to do more to prevent minors from using tobacco products;
  • Authority to establish standards for products that could potentially reduce the harm caused by smoking and define the appropriate ways to communicate about these products via continued research – this is being done primarily through the establishment of the Center for Tobacco Products (CTP);
  • Restricting the sale of cigarettes to face-to-face locales expect for some adult only facilities; and
  • To register, monitor and inspect tobacco companies.
    • The use of graphics on warning labels was passed with the original legislation, however, a Federal Appeals Court reversed this ruling citing it as a violation of free speech protections (26).

The Act further places the following limitations on the FDA’s authority over the tobacco industry:

  • Ban certain specified classes of tobacco products; 
  • Require the reduction of nicotine yields to zero; 
  • Require prescriptions to purchase tobacco products; and 
  • Ban face-to-face tobacco sales in any particular category of retail outlet 

With these new restrictions given by the FDA, the tobacco industry has and will continue to be affected several key ways. By making the warnings larger and identifying all harmful ingredients, people are likely to become more hesitant to buy tobacco products. Additionally, the ability for the FDA to impose monitor and enforce standards through registration, inspection, and continued research give public improves accountability amongst all tobacco stakeholders. The Act has and will continue to change how tobacco is regulated, but remains amongst the most significant pieces of legislation to strengthen tobacco control efforts in the U.S (25). While the FDA has accomplished much, there is far more to do to fully implement all of the provisions of the law, and in particular, many experts argue that e-cigarettes and snus products are in acute need for more attention from the FDA (25).

Several major tobacco companies, including Philip Morris USA, initially supported this legislation. Language from their website stated that the company supports such legislation as "the best way to address the serious harm tobacco products cause and to advance real solutions to the many complex issues involving tobacco" (2). After the Act was passed, a national survey of active smokers was conducted by the International Tobacco Control (ITC) between 2009 and 2010 and found that most smokers had limited familiarity with the act, however, most voiced support for better informing the public of health risks, standardizing advertising, and making the tobacco products less addictive (26).

State & National Public-Private Economic Development

Of the most impactful resolutions to stem from anti-tobacco campaigns in the last two decades has been the establishment of the Master Settlement Agreement. By act of its passing, the Master Settlement Agreement created a large (roughly $200 billion) endowment from which 46 states – including, and especially, North Carolina – would be able to receive annual installments to be used for the purpose of supporting health care and tobacco and non-tobacco agricultural related economic development activities for a period of 25 years. Since North Carolina began receiving installments in 1999, it has been prioritizing the spending of its received funds to promote wide ranging economic development agendas; from jobs training programs, to the support of new and continued agricultural research (e.g. sweet potatoes), to the support of helping former tobacco farmers transition into new industries, as well as to promote the development of newly forming industries such as the biotech and wine industries. What is crucial about the use of these funds is that North Carolina legislatures have been promoting the diversification of its economic profile and the capability set of its labor force away from tobacco amidst a shrinking tobacco industry that has resulted in more than a decade of falling employment and production. Such activities can be seen as an advantageous strategy to promote North Carolina’s modern industrial growth path and sustain its competitive positioning relative to other U.S. states. This section briefly explores the Master Settlement Agreement and some of the key manners in which it has been utilizing its allotted funds.

The Master Settlement Agreement

In November 1998, the four largest cigarette manufacturers reached an agreement with 46 states to settle state suits to recover costs associated with treating smoking-related illnesses. According to the Master Settlement Agreement (MSA), the cigarette industry is projected to pay the settling states more than $200 billion over the next 25 years, as well as $46 billion to the four states that settled suits before this agreement (9; 10).  MSA payments were divided into two phases: Phase I and Phase II. Phase I contains the vast majority of all money paid/to be paid, and was intended for states to use for initiatives such as various on and off farm economic development initiatives, tobacco-related health care improvements, as well as the continued support of agricultural activities. In Phase II of the settlement, MSA also called for manufacturers to address the negative impact that MSA would/will continue to have on the farming segment of the tobacco industry. Phase II takes the form of a $5.15 billion fund to be divided amongst states like North Carolina that manufacture tobacco products, particularly cigarette manufacturing. It has been expected that North Carolina will receive about $4.6 billion in MSA payments over the 25 years covered by the settlement.
To manage the disbursement of MSA funds the North Carolina General Assembly created three unique programs for Phase I money in 1999: i) the Golden LEAF Foundation – a nonprofit that has received 50% of all Phase I funds in the state; ii) the Health and Wellness Trust Fund – a state run entity that has received 25% of funds; and iii) the Tobacco Trust Fund Commission (TTFC) – another state organization that has received the remaining 25% of MSA funds (30). The Golden LEAF Foundation, aims to reduce the dependence of the state's economy on the tobacco industry by offering diverse economic development opportunities for farmers and non-farmer alike via numerous grant mechanisms (11). Its grantmaking objectives focus on three main factors; agriculture, job creation and retention, and workforce preparedness (31). The Health and Wellness Trust Fund was disbanded in 2011 by an act of North Carolina State legislators looking to ease state budgetary constraints. While in operation from 2001-2011 the Health and Wellness Trust Fund was a primary supporter and financer of preventative youth smoking programs across the state, as well as a funder for various other tobacco-health related programs. The TTFC on the other hand, like Golden LEAF, was still in operation at time of writing. The purpose of the TTFC has been to support persons involved in tobacco farming, past quota holders, and others affected by the MSA; the TTFC has and continues to offer financial assistance vis-à-vis compensatory programs and various agriculture programs.

The tobacco settlement was presented as a historic opportunity to attack the enormous public health problem posed by tobacco use in the United States. As described by state attorneys general and governors, the promise of the MSA was two-fold. First, it would significantly increase the amount of money the states would spend on programs for juvenile tobacco prevention and treatment programs for users. Second, it would greatly reduce youth exposure to tobacco marketing through specific mandates aimed at tobacco companies. The agreement, among other things, did the following:

  • Forbid participating cigarette manufacturers from directly or indirectly targeting youth
  • Imposed significant prohibitions or restrictions on advertising, marketing and promotional programs or activities for cigarettes
  • Banned/restricted cartoons, transit advertising, most forms of outdoor advertising including billboards, product placement in media, branded merchandise, free product samples, and most sponsorship.

The two largest tobacco companies, Philip Morris and R J Reynolds, created youth anti-smoking and prevention divisions within their company. R J Reynolds's program, "Right Decisions, Right Now," and Philip Morris's program, YSP (Youth Smoking Prevention), both express their desire and responsibility to help prevent children from smoking. Both companies have provided funding, research materials, and paid advertisements to support their efforts, and they have changed some business policies and practices to support this new campaign.

NC Agriculture, Post-Tobacco: Diversification and the Rise of new Industries

For many tobacco farmers, especially those who own small farms, the declining tobacco industry in North Carolina puts them in a bind. They have a couple of options: continue to grow tobacco; sell their farms to larger farmers; or seek to expand into other crops (diversification). In the case of tobacco farming, the relatively small plots of land are only conducive to a small number of crop changes, one of which is grape growing. The industry does require start-up capital, but some of this capital is available to farmers, both as a result of payouts from the MSA and other litigation measures, but also through organizations like the Golden LEAF Foundation (14).As part of their multifaceted grantmaking initiative, one of Golden LEAF’s programs includes a trust fund for farmers in North Carolina who want to switch crops from tobacco into another viable crop – such as grapes or sweet potatoes (see below for more information on these crops) (15).

Relatedly, the Golden LEAF foundation announced its commitment to the emerging biotech industry in 2002 with an $85.4 million economic stimulus package it believed would significantly improve North Carolina's economy and make the state a leader in the biosciences industry (12). More specifically, the Golden LEAF economic package allowed the people of North Carolina to capitalize on advances in the biotech industry, create a major new market for NC agricultural products, and to more specifically position North Carolina at the cusp of the cutting edge of the alternative fuels industry (12). These measures were expected and have certainly increased tax revenues at the state and local levels, in addition to having helped improve competitiveness for North Carolina businesses in the growing field. Specifically, Golden LEAF has been an avid supporter of the biotech industry and has awarded more than the original $85.4 million, principally to three organizations: the Biomanufacturing Training and Education Center at NC State University, the Biomanufacturing Research Institute and Technology Enterprise at NC Central University, and the BioNetwork at the NC Community College System (32).

Wine Industry (13)

Two institutional changes have derived from the MSA which have helped drive the growth of North Carolina’s wine industry, vis-à-vis by encouraging tobacco farmers to switch to grape farming. First, community colleges started to provide training programs for tobacco farmers interested in grape growing and wine making. Surry County Community College, for example, has offered successful viticulture and enology programs throughout the 1990 and 2000s. In addition, NC State University has developed experimental vineyards to conduct research on grape growing in Carolina's soil and climate (16) – the Golden LEAF foundation has been a financial supporter of both of these initiatives.
Second, the creation of the North Carolina Grape Council, which is publicly funded, aimed to stimulate the growth of grape farms and wineries across the state. The Grape Council has been a major marketing force and offers valuable information on grape growing and production equipment. It eases the transition for farmers in other industries (17). Other organizations, including the North Carolina Winegrowers Association, have sprung up to aid in the effort, and trumpet the fact that grapes are one of the only crops (at least in North Carolina) that can effectively replace tobacco incomes for farmers dollar-for-dollar (18).

As of late 2003, 2% of NC farmers have switched to grape growing (19). By September 2004, North Carolina had about 300 vineyards and 38 wineries half of which had been established in the two year period 2002-2004 (20) By 2013, the number of wineries had grown to more than 140 and the amount of land under grape cultivation had grown by roughly five times its 2001 levels, to 1,800 acres (33). As tobacco farms have declined in number and the number of vineyards has increased, North Carolina has grown to the 9th largest producer in the country of both grapes (33) and wine (21). The economic impact of this industry according to a state survey in 2013 was estimated at $1.28 billion with an average annual 7,600 jobs supported (33).

Transformation, however, is not as easy as it may sound. In a random sample of 1,000 tobacco growers, a strong, negative, trend between age and being interested in or trying alternative enterprises was found (23). Grape farming is a long-term investment, making it hard for anxious farmers to take the risk knowing they will have to wait a few years for a return. In addition, many older landowners cannot afford to forego income for multiple years. Finally, the wine industry further differs from the tobacco industry in that, with the former, success also depends upon the farmer's marketing skills. Regardless of these reasons, currently there is not an adequate public dialogue to promote diversification (24).

One possible solution is for the government to design public policy to encourage farmers to diversify their crops. Many growers are psychologically ready to take such a step, but lack the knowledge and resources. New measures should take this into account. Another possibility is to encourage banks to adopt more lenient standards in terms of loans to farmers in such situations. The government should probably enact policy at both the federal and state levels. Federal aid is indispensable, but leaders at the state level can provide more specific plans for infrastructure development that address local needs and concerns.

For more on this case study, see Diversifications into the Wine industry

Sweet Potato Industry (31)

Phase I money from the MSA has also been instrumental in promoting the sweet potato industry in North Carolina. As the largest state producer of sweet potatoes in the U.S. since 1971 (34), MSA funds have been used to help tobacco farmers looking to exit tobacco farming transition into sweet potato farming. The Golden LEAF Foundation, in particular, has been a critical driver of new funding for the state’s continued expansion of sweet potato production. Between 2001 and 2006 it awarded multiple grants to the North Carolina Sweet Potato Commission totaling over $2 million to increase amongst other things: demand for sweet potatoes by expanding marketing research, product development, test marketing, and expansion of processing capacity for new sweet potato products. The TTFC also provided the Commission further funding of $100,000 between 2007 and 2011 (34).

Researchers at NC State University have also received more than $1 million in MSA grant funding to support research related to applied genetic research, improving processing techniques, and storage of sweet potatoes.  In addition to this, private businesses have been direct beneficiaries of MSA funding for sweet potato enterprises – such as Trinity Foods.  In 2013, Trinity foods received $1.158 million in state-issued MSA funds to construct a publicly owned wastewater pre-treatment facility in which to support its sweet potato fry processing activities located in the North Carolina town of Pembroke.

Approximately 50% of all U.S. sweet potatoes are grown in southeastern North Carolina, and thus the industry is both essential to the state and the nation as a whole; in 2010 production value in North Carolina was roughly $196 million (35). Support for the sweet potato industry through MSA funds is not likely to have the same amount of job growth or revenue growth potential as the wine and bio tech industry, however, it is nonetheless a significant and instrumental example of public-private funds are being used to diversify North Carolina away from tobacco production and into other pro-growth economic activities. 

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International Policies

At the international policy level, two key policies within the last decade stand out. The first is the Fair and Equitable Tobacco Reform Act, which disbanded the long established quota-based trading system for U.S. tobacco farmers, and the subsequent 10 year payment scheme that followed in its place. The second is the Prevent All Cigarette Trafficking Act, a law that created explicit controls for non-face-to-face tobacco product retailers and how they ship, apply tax, and verify age when selling tobacco products. These two policies have, and will continue to have significant impact on North Carolina’s tobacco businesses, and in many cases point to how large consolidations in North Carolina’s tobacco industry have taken place as tens of thousands of jobs have been lost over the last two decades (also see tobacco establishments, workers, and wages section).

The Fair and Equitable Tobacco Reform Act of 2004

The tobacco industry has been under a system of quotas since 1938, a result of the financial difficulties that tobacco farmers faced during the Great Depression. These quotas, calculated by a complicated formula applied to each farm, limit the amount of tobacco that each producer can grow. Over time, rich landowners have purchased quota shares from smaller farmers, gaining larger rights to production. In addition, these landowners often profit by renting out quotas to small farmers.

Quotas were intended to act as a price support mechanism by restricting the amount of tobacco in the market; however, in the past decade, demand for cigarettes (and therefore tobacco) has declined for various reasons. Additionally, tobacco imports from other countries have also increased, especially from Brazil and Turkey. In order to maintain the effectiveness of quotas as a price support mechanism, the U.S. government has had to limit the number and size of quotas (6).

These difficulties in the industry led to support for and passage of the Fair and Equitable Tobacco Reform Act of 2004, which Congress passed in 2004. It called for an elimination of both the quota system and supplemental government price supports through a massive buyout; subsequently it is sometimes known as the “tobacco buy-out” (27). The purpose of the buyout has been to pay farm owners proportionately to the quotas they possessed. Payments began in 2005 and will end of 2014.  Approximately 436,000 quota holders have been paid $7/pound based on their previous total quota amounts (equaling roughly $6.7 billion) and around 57,000 farmers have received $3/pound for tobacco grown during the 10 years of payments (equaling roughly 2.9 billion) (28).  Payments have been largely funded by the assessments conducted by tobacco manufacturers and importers required to pay a quarterly fee into the Tobacco Transition Payment Program (TTPP) for 10 years that the Act created (29).

This has affected North Carolina substantially as it possessed the largest number of quotas of all U.S. states; approximately four of the ten billion dollars involved in the buyout program has been paid to North Carolina farmers. For example, in the first year of payments in 2005, North Carolina farmers received a total of $392.4 million – by comparison the largest one-year Master Settlement Agreement (MSA) payment to farmers in the state has been $148.7 million (29). Of the 76,000 people that were scheduled to receive payments from the government, 269 will receive over $1 million, which is a demonstration of the inequalities that were present in the ownership of quotas, a contributing factor to the dismantling of the quota system (7).

As many experts predicted, big farms have largely survived in the resulting liberalized market environment because they were able to leverage their size to directly contract with tobacco product manufacturers, and because economies of scale worked to their benefit (28, 29). Many of the biggest farmers have used the buyout funds to invest in new equipment and technologies that have enabled them to remain competitive in a declining export market (28). In fact, because supply restrictions were lifted, some have even grown in size and capability. However, thousands of smaller farms have left tobacco production as prices have fallen, exports have dropped, and end users have reduced their demand amidst increasingly impactful anti-tobacco campaigns. This not only has not only affected farmers, but it has also changed in many ways the manner in which the U.S. tobacco industry operates.

Part of the proposed legislation sought to alter the role of the FDA in this industry. This item sought FDA regulatory power over cigarettes, a change which would place tobacco under regulation as a drug for the first time. The compromise bill worked out between the two houses of Congress ultimately eliminated this oversight from the final legislation, though the Senate initially allowed this power (8). Interestingly, the biggest tobacco company in the United States, Philip Morris, supported the FDA regulation bill attachment due to its dominant role in the industry. FDA oversight or regulation would not have affected Philip Morris in a different manner from other companies in the industry, and may have prevented competitors from gaining market share. Because many of the costs of compliance with regulation are fixed in nature, Philip Morris would have been able to spread these costs across a wider volume of sales than the other cigarette manufacturers. As the previous section covers, it was the Family Smoking Prevention and Tobacco Act that did finally give the FDA many legal regulatory oversights.

Illegal Trade (4; 5)

Legislators and tobacco manufacturers have also sought to prevent smuggling of cigarettes. As cigarette prices rise, some consumers have sought other means to acquire cigarettes, including counterfeit, illegally imported, untaxed, under-taxed and stolen cigarettes. The Prevent All Cigarette Trafficking Act (the "PACT Act"), which passed the U.S. Senate in 2004 during the 108th Congress, was a prominent attempt to address such concerns. The PACT Act includes a series of reforms to the Jenkins Act, the Contraband Cigarette Trafficking Act (CCTA) and the Imported Cigarette Compliance Act (ICCA). This legislation was reintroduced to the Senate in both 2007 and then again in 2009, before it was signed into law on March 31, 2010. Some of the key reforms it included were:

  • The requirement for Internet-based businesses to pay all federal, state, local or Tribal tobacco taxes and to include all tax related poste stamps before shipment;
  • Mandate that age verification must be conducted and ensured at time of purchase and delivery;
  • Require all remote vendors to comply with all applicable state and local laws that are present in a buyer’s locale;
  • To improve federal and state monitoring and enforcement efforts related to ensuring the cessation of all unlawful trade and subsequent tax evasion; and
  • A complete ban on the use of United State Postal Services as a carrier of tobacco deliveries.

While it is not possible to accurately quantify how the PACT Act has affected the tobacco industry, it is obvious that both in principle and in practice it’s legislation does impact the dynamics of the tobacco industry. Cracking down on illegal trade has and will likely continue to have both mixed effects for the tobacco industry. If people can no longer buy cigarettes illegally, they will either pay the higher price for the cigarettes (which will help the industry), or stop buying cigarettes they cannot afford (which will harm the industry in the long-run). As part of a more comprehensive regulatory control mechanism, the PACT Act has been seen as an important and necessary step by many federal authorities (4).

References
  1. FDA. Overview of the Family Smoking Prevention and Tobacco Control Act: Consumer Fact Sheet. Retrieved March 10, 2014.
  2. Philip Morris USA. “Legislative Issues” Corporate website. Retrieved March 10, 2014.
  3. Center for Disease Control and Prevention. (2011, April). "State Smoke-Free Laws for Worksites, Restaurants, and Bars - United States, 200 -2010." Washington, DC: Department of Health and Human Services. Retrieved March 10, 2014.
  4. Smith, J. Litigation Concerning the Constitutionality of the Prevent All Cigarette Trafficking Act (Pact Act). Retrieved March 10, 2014. 
  5. Library of Congress. S. 1147 (111th): PACT Act. Retrieved March 10, 2014.
  6. Penkava, M. (2004, Oct. 12). "Big Tobacco Buyout: Interview with David Rice, Billy Yeargin, and Cynthia Hill." Radio Program, National Public Radio, State of Things.
  7. Locke, M. and A. Martinez. (2004). "Leaf Buyout Tolls End of Era," The News and Observer (Raleigh), Oct. 12, p. A1.
  8. Penkava (fn. 6)
  9. Campaign for Tobacco-Free Kids. Campaign for Tobacco-Free Kids Organization Website, various pages. Retrieved August 7, 2007.
  10. Campaign for Tobacco-Free Kids. (2004, Dec. 2). "A Broken Promise to Our Children: The 1998 State Tobacco Settlement Six Years Later."  Retrieved August 7, 2007.
  11. Golden LEAF Foundation. About Us. Retrieved March 10, 2014.
  12. Golden LEAF Foundation. Golden LEAF Foundation Announces $85.4 million Economic Stimulus Package. Retrieved March 10, 2014.
  13. Center on Globalization, Governance & Competitiveness, North Carolina in the Global Economy Project, "Diversification in North Carolina Farming; From the Decline of Tobacco to the Rise of the Wine Industry," Unpublished article. Retrieved July 2, 2007. [www.soc.duke.edu/NC_GlobalEconomy/pdfs/tobacco/TobaccoCS_WineIndustry.pdf]
  14. Breckenridge, R. and I. Taplin. (2005). "Entrepeneurship, Industrial Policy, and Clusters: The Growth of the North Carolina Wine Industry," in Lisa A. Keister (ed.), Entrepreneurship. Research in the Sociology of Work Series, Vol. 15, pp. 209-230.
  15. Golden LEAF (fn. 11).
  16. Smith, M., Altman, D. and B. Strunk. (2000, December). "Readiness to Change: Newspaper Coverage of Tobacco Farming and Diversification," Health Education and Behavior, Vol. 27, pp. 708-724.
  17. Breckenridge and Taplin (fn. 14, pp. 10-11)
  18. Campaign..., "Broken Promise," (fn. 10).
  19. Breckenridge and Taplin (fn. 14, pp. 10-11).
  20. Lockhart, S. (2004, Nov. 23). "As Tobacco Declines, Farmers See a Future in Grapes," Durham Herald-Sun.
  21. Ibid.
  22. North Carolina Wine & Grape Council. "The Source for Information about NC Grapes & Wine." Website, Retrieved August 7, 2007 from www.ncwine.org.
  23. Youngquist, Sherry Wilson. (2003, August 31). "Growers Hesitant to Turn a New Leaf: Many Farmers Dependent on Fast, Reliable Income from Tobacco Find Grapevines and Strawberry Plants Inadequate Substitutes. Switch Requires Investment, Equipment and Re-Education," Winston-Salem Journal.
  24. Smith et al. (fn. 16. p. 710).
  25. American Cancer Society. The FDA and Tobacco Regulation Three Years Later. Retrieved March 10, 2014.
  26. BMC Public Health. Smokers’ Reactions to FDA Regulation of Tobacco Products: findings from the 2009 ITC United States Survey. Retrieved March 10, 2014.
  27. USDA. Tobacco Transition Payment Program. Retrieved March 10, 2014.
  28. IRS. Farmers (ATG) Chapter Ten – Tobacco. Retrieved March 10, 2014.
  29. Brown, B. (2013). The End of the Tobacco Transition Payment Program. North Carolina State University. Retrieved March 10, 2014.
  30. North Carolina TTFC. About Us. Retrieved March 10, 2014 from www.tobaccotrustfund.org/about.htm
  31. Golden LEAF Foundation. (2013). Golden LEAF provides grant for infrastructure, other sweet potato support. Retrieved March 10, 2014.
  32. Golden LEAF Foundation. Gerlach to speak at CED’s 18th Annual Biotech Conference.  Retrieved March 10, 2014 from www.goldenleaf.org/press/n20090213.html.
  33. NCWINE.org. Wine Industry Facts. Retrieved March 10, 2014.
  34. NC Sweet Potato Commission Foundation. About Us. Retrieved March 10, 2014.
  35. North Carolina Growers Association. Slicing the $478 Million Sweet Potato Pie. Retrieved March 10, 2014.
  36. CDC (2014). State Tobacco Activities Tracking and Evaluation System. Retrieved March 10, 2014.
  37. Tax Admin (2014). State Excise Tax Rates on Cigarettes. Retrieved March 10, 2014.
  38. U.S. Census Bureau. (2013). State Totals: Vintage 2013. Retrieved March 10, 2014.

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