Big Tobacco Okay With Missouri’s Prop B?

Measure raises tobacco taxes but eliminates price advantage for smaller tobacco companies

Melissa Vonder Haar, Freelance Writer

JEFFERSON CITY, Mo. -- Missouri's teachers support Proposition B and its higher taxes on tobacco--but could major tobacco manufacturers be on board as well?

While big tobacco companies like Reynolds American and Altria contributed significant funds to oppose earlier measures, they appear to be laying low on Prop B.

"Big tobacco companies helped us defeat a similar proposal in 2006," said Ron Leone, who is running the campaign against Proposition B for the Missouri Petroleum Marketers & Convenience Store Association (MPCA) PAC. "Now all of the sudden, they're staying out of our fight. They've done the calculation that Prop B benefits them more than it burdens them."

How might a measure that aims to raise cigarette taxes by 73 cents per pack help manufacturers? By also repealing the Allocable Share Release that has given smaller tobacco makers a significant price advantage in Missouri since 1998.

"[Proposition B] eliminates a loophole in the law that has created an uneven playing field for cigarette manufacturers and retailers in Missouri," Bryan Hatchell, a spokesperson for Winston-Salem, N.C.-based Reynolds American, told The St. Louis Post-Dispatch.  "Primarily for this reason, Reynolds American Inc. has no plans to oppose the Missouri ballot initiative."

Manufacturers like Reynolds have long pushed for Missouri to repeal this loophole. Missouri was one of 46 states that signed what's known as the Master Settlement Agreement (MSA) in 1998, resolving claims against several tobacco companies over the costs of treating smoking-related illnesses. Companies that signed the agreement are held to several provisions, including a payment of roughly $150 million per year towards Missouri Medicare to cover such illnesses.

However, many tobacco manufacturers were not in existence in 1998. While such companies are required to contribute a portion of their annual revenue into a fund to help cover tobacco-related ailments, due to the Allocable Share Release, these manufacturers get all of such contributions back at the end of each year.

While state officials have referred to the Allocable Share Release as a "mistake in the law," MPCA sees it as anything but.

"We don't think the Master Settlement Agreement should retroactively apply to new companies that never had the benefit of negotiating or signing the agreement," Leone told Tobacco E-News. "We don't see it in any shape or form as closing a loophole."

Though every state that participated in the MSA had the Allocable Share Release, Missouri is the only state that has not repealed the measure. "I think the reason the legislatures in the state of Missouri have not closed [the Allocable Share Release] is because they value competition and they do not want to unduly burden new tobacco companies," Leone explained.

Still, with Missouri lawmakers including a provision that repeals the Allocable Share Release in Prop B, Leone and MPCA are in for an uphill battle--especially without the support of the deep-pocketed Big Tobacco companies.

"We hope the big tobacco companies reconsider and would love their support in opposing Proposition B," said Leone, noting that while he's not optimistic about Reynolds changing its mind, he is optimistic about defeating Prop B. "We feel that, when given the information, common-sense Missourians will vote down this outrageous and unfair tax increase."