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A Mississippi company that sells tobacco products wants the state to stop collecting taxes on cigarettes sold at retail outlets outside the state.
In a lawsuit filed Friday in Hinds County Chancery Court, the Corr-Williams Co. said a 2009 amendment to the state's tobacco tax policy that applies a $.0125-fee to cigarettes that pass through warehouses in the state violates the U.S. Constitution by applying an unfair burden on cigarettes sold through interstate commerce.
The lawsuit does not challenge the portion of the law that applies taxes to products sold in Mississippi.
Based in Pearl, the Corr-Williams company has warehouses in Columbia and Natchez.
Commonwealth Brands Inc., a Bowling Green, Ky.-based cigarette manufacturer that distributes its tobacco products through Mississippi, joined Corr-Williams in the lawsuit.
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Most of the nation's largest tobacco companies filed a free-speech lawsuit on Monday in Kentucky to try to stop a landmark federal law from curtailing their marketing or forcing them to print graphic warnings on the top half of cigarette packages next year.
The first lawsuit against the new law, which was signed in June by President Obama, is likely to end up before the United States Supreme Court, lawyers on all sides of the issue said on Monday. In 2001, the Supreme Court rejected outdoor advertising restrictions in tobacco regulations in Massachusetts, ruling 6-3 that it violated free speech rights.
"The case is likely to proceed quickly," Floyd Abrams, a constitutional lawyer who is representing the Lorillard Tobacco Company, said in a phone interview on Monday. "Tobacco is a legal product for adults, and the Supreme Court has said that the industry has an interest which the First Amendment protects to communicate information about its products, and adults have the right to receive that information."
Anti-tobacco lawyers said the federal legislation was carefully worded to withstand just such a legal test.
"It was perfectly clear there was going to be a constitutional challenge, and I think it will survive the challenge," Richard A. Daynard, a professor at the Northeastern School of Law in Boston and chairman of its Tobacco Products Liability Project, said in a phone interview. . . .
Clifford E. Douglas, a lawyer and executive director of the University of Michigan Tobacco Research Network, countered, "If there's any commercial speech that it is constitutional to restrict, it's the type of marketing covered in this legislation." . . .
David M. Sylvia, a spokesman for Altria, said on Monday that the company has its own free-speech concerns about some parts of the law, "but at this point in time we're not commenting on our strategy about how we're handling that." He said Altria had not yet reviewed the lawsuit.
Commonwealth Brands, Inc. the fourth largest tobacco manufacturer in the United States has expressed its concern over Missouri's newly proposed statewide smoking ban. Commonwealth believes that smoking bans "infringe upon the freedoms and rights of our smokers." Missouri's existing legislation, which leaves the option of whether to ban smoking or not to the patrons and management of public premises is a perfectly workable and fair solution.
In the Bill proposed by Senator Bray, smoking will be prohibited in public buildings and vehicles, bars, restaurants, and within 15 feet of any entrance to a public place or meeting. There are no exemptions envisaged for any business.
Not only could a wholesale smoking ban be very costly for the state of Missouri but Commonwealth Brands, Inc. stated that, "Where bans have been enacted, the leisure and hospitality industries have witnessed a decline in employment of between 4-16%," and in the case of Missouri the effect could be even more pronounced given the current difficult economic times.
A spokesperson for Commonwealth Brands, Inc. stated that, "Above all else, our consumers, who are legally entitled to purchase and consume our products, disagree with your proposal, which is why we oppose this bill."
Imperial Tobacco Group PLC has completed its $1.9 billion purchase of Commonwealth Brands of Bowling Green, Ky.
Analysts have said that Imperial's deal for Commonwealth could have implications for Reynolds American Inc. Commonwealth, best known for its USA Gold and Montclair discount brands, has gained 3.7 percent in market share in the United States in just 16 years. USA Gold is eighth in brand market share, including third among discount brands, and Montclair is 14th in brand market share.
"An immediate change is not anticipated, but Imperial has much deeper pockets and, therefore, should be more competitive" than Commonwealth, Bonnie Herzog, an analyst with Citigroup, wrote in a report.
Commonwealth Brands, Imperial Tobacco’s newly acquired US tobacco business, is under threat from proposed new laws introducing tough regulatory powers over the industry.
Imperial, Britain’s second-largest cigarette company, acquired Commonwealth, the fourth-biggest player in the US, two weeks ago for $1.9 billion (£975 million).
But new Bills introduced last week in the US House and Senate, designed to give America’s Food and Drug Administration (FDA) fresh powers to regulate the tobacco business, have cast a shadow over the deal.
“It could lead to a more complex tobacco regulatory climate,” Imperial said in a statement to The Times.
Imperial Tobacco Group PLC today announced that it has agreed to acquire 100 per cent of CBHC Inc, which trades as Commonwealth Brands, from Houchens Industries Inc for a total cash consideration of $1.9 billion (£974 million). After taking into account the net present value of tax benefits arising as a result of the deal, the net cost of the acquisition is $1.5 billion (£769 million). In the year to 30 September 2006, Commonwealth Brands generated earnings before interest, tax, depreciation and amortisation (EBITDA) of $174 million (£89 million).
The Group anticipates that the acquisition will be completed by April 2007 and will be earnings accretive in the current financial year, before taking account of brand amortisation and deferred tax on intangibles. The Group also anticipates that the returns will exceed its weighted average cost of capital in the first full year.
Commonwealth Brands is based in Bowling Green, Kentucky and is the fourth largest cigarette manufacturer in the United States of America, with 3.7 per cent of the 376 billion US cigarette market. Commonwealth Brands employs around 720 people, including a sizeable sales force with excellent trade relationships nationwide, and has a factory which currently manufactures around 14 billion cigarettes a year but has the capacity for 30 billion cigarettes a year.
Gareth Davis, Chief Executive of Imperial Tobacco Group, said:
“This is an excellent deal for Imperial, which will create significant value for our shareholders, and is consistent with our strategy of entering the US tobacco market in a low risk manner. I am delighted that we will finally have the US as a significant part of our international footprint and believe that we will benefit considerably from having the US in our market portfolio.
“Commonwealth Brands is a terrific, young business which gives us immediate and significant access to the world’s most profitable tobacco market.
Imperial Tobacco Group Plc, the U.K. maker of Lambert & Butler, agreed to buy Commonwealth Brands for $1.9 billion to enter the U.S. discount cigarette market.
The purchase of Bowling Green, Kentucky-based Commonwealth from closely-held Houchens Industries Inc. adds five brands including USA Gold and Sonoma, Imperial Chief Executive Officer Gareth Davis said on a conference call today.
The fourth-largest U.S. cigarette maker gives Bristol, England-based Imperial 3.7 percent of the world's most profitable market. Smoking in Britain will decline this year because of a ban. Commonwealth's brands have gained a 13 percent share of the U.S. discount market since the company was created in 1993, and haven't been named in any smoker lawsuits.
``Whenever you do go into this market, you are taking on legal risk,'' said Stuart Fraser, who helps manage the equivalent of about $39 billion pounds at Brewin Dolphin Securities Ltd. in London. ``It does look though that things are quieting down a lot and the political scene has stabilized.''
The nation's largest cigarette makers are questioning past payments they made to states as part of a $206 billion settlement over health care costs.
Philip Morris USA, R.J. Reynolds Tobacco Co. and Lorillard Tobacco Co. have said the landmark 1998 settlement forced them to raise prices, contributing to a proliferation of low-cost competitors who took market share - a provision of the settlement. Because the major players lost market share, they want to know whether last year's payments should be adjusted.
The companies' requests come as state legislation is targeting cigarette makers operating outside the agreement. Most of the settlement's 46 states have passed measures that essentially force the smaller companies - mostly discounters and regional players - to raise their prices.
Confidential documents obtained by The Associated Press show that Liggett Group Inc. and Commonwealth Brands Inc. - which later joined the agreement - challenged more than $45 million of their payments due April 15. Both said in letters to the settlement's auditor that the deal allows them certain adjustments if nonparticipating manufacturers increase their market share.
Spencer Coates, Chairman of Commonwealth Brands, today offered the following statement to clarify the record after comments made by the Attorneys General of New York, Connecticut, Arkansas and Virginia in response to Commonwealth's announcement of June 16. In that announcement, Commonwealth described its legal challenge to these four states, and New Mexico, on its failure to enforce the 1998 Tobacco Industry Settlement.
New York:
The Office of Attorney General Eliot Spitzer issued the following statements under his name, in response to our motion for arbitration. The statements are inaccurate and misleading, and require a response.
Spitzer: "The allegation that New York is not enforcing the MSA is baseless."
Coates: "The issue here is the lack of enforcement of the escrow statutes that the MSA requires states to enact and enforce or face severe penalties. Mr. Eliot Spitzer's office has initiated exactly ZERO enforcement actions against renegade tobacco companies (the Non-Participating Manufacturers) for failure to pay into escrow as required by the statutes. Meanwhile, they have scooped up at least 8%, and by many indications even 10-15% of the market. In fact, according to a recent survey in the Daily News, some one-third of New York smokers admit that they have paid no taxes on their cigarettes. That means they have not paid excise taxes, and it's a pretty fair bet those companies have not paid funds into the tobacco settlement. Last year New York State received $797 million in revenues from the tobacco companies. The MSA provides for significant reductions in MSA payments to states that fail to enforce."
Commonwealth Brands Inc., the maker of USA Gold cigarettes, said Tuesday it filed motions in five states aimed at preventing deep-discount cigarette makers from having what Commonwealth Brands says is an unfair advantage in the market.
With the motions, Commonwealth Brands and two other cigarette makers are seeking arbitration under the 1998 national tobacco settlement in order to settle a dispute with the attorneys general of New York, Connecticut, New Mexico, Arkansas and Virginia.
Commonwealth Brands, of Bowling Green, Ky., alleges the states failed to enforce provisions of the landmark settlement, also known as the Master Settlement Agreement, that were established to level the playing field for all cigarette makers. As a result, the companies who participated in the settlement have lost market share, Commonwealth Brands said.
State officials hope Tuesday's payment will pave the way for the sale of $2.3 billion in tobacco-backed bonds -- money the state needs to pay for services already in this year's budget. The bonds, which are tied to future tobacco settlement payments, were set to hit the market Tuesday, but state officials pulled out of the deal amid worries that investors would consider the buy too risky. . .
It's unclear when the state will try to sell the bonds again, said Mitch Benson, spokesman for state Treasurer Phil Angelides.
Meanwhile, the state Attorney General's Office is preparing to fight three small tobacco companies that missed their payments, said spokesman Tom Dresslar.
Liggett Group Inc. and Vector Tobacco Co., both owned by Miami-based Vector Group, as well as Commonwealth Brands Inc., based in Bowling Green, Ky., owe California about $3 million this year, Dresslar said.