Cash-Strapped States May be Forced To Pay Billions to Big Tobacco

By Dirk Hanson 06/27/11

A lawsuit may allow tobacco giants like Philip Morris and Lorillard to claw back $2 billion they were forced to pay out after a landmark 1998 Agreement.

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Big Tobacco Strikes Back.
Photo via takingontobacco

Believe it or not, Altria Group Inc., once known as Philip Morris—along with colleagues like Reynolds American and Lorillard—appear to have reached agreement with officials in 46 states to receive a payment of $2 billion back from the states, representing a portion of the money they have already paid out as part of a series of payments required under terms of the 1998 Master Settlement Agreement. Under that landmark agreement, tobacco companies agreed to dole out $200 billion to the states as a settlement designed to “help states recover the costs of treating sick smokers,” as the Wall Street Journal put it.

The nature of this disagreement defies simple description, but the dispute between the companies and the states hinges on the fact that state fees and taxes were not equally collected from smaller tobacco competitors that were not party to the landmark 1998 Agreement. As a result of these inequitable policies, the huge cigarette manufacturers claim they have lost over $2 billion to lower-taxed, lower-priced competitors that were unfairly excluded from the original deal—mostly Native American cigarette companies that produce small regional brands. After complaining in court that these smaller companies were unfairly left out of the deal, the makers of Marlboro, Virginia Slims, Merit, and Parliament are now likely to get back $2 billion, while kneecaping cheaper competitors like Seneca, Mohawk, and King Mountain that have been gaining market share. In one master stroke, Altria and the others manufacturers boost market share and cut costs.

 As for the states, the sad truth is that they weren’t spending the money the way there were supposed to, anyway. See our post on How States are Misspending Smoking Prevention Funds.  Much of the money has gone for dump trucks and golf carts in New York, broadband-cable networks in Virginia, metal detectors, and surveillance cameras for schools in Alabama, museum expansion in Alaska, and sewer improvements in South Carolina. In 2010, the states collected $25 billion in settlement money, yet spent less than 3% of it for tobacco prevention and cessation programs. Shameful business all around.

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Dirk Hanson, MA, is a freelance science writer and the author of The Chemical Carousel: What Science Tells Us About Beating Addiction. He is also the author of The New Alchemists: Silicon Valley and the Microelectronics Revolution. He has worked as a business and science reporter for numerous magazines and trade publications including Wired, Scientific American, The Dana Foundation and more. He currently edits the Addiction Inbox blog. Email: [email protected]