Tobacco.org

• LIBIN: A Tory cakewalk goes up in smoke 

There can scarcely be an easier pitch to voters than promising to pass laws that could discourage kids from smoking. That's probably what the Conservatives thought when they promised during last fall's election to ban the sale of candy-and fruit-flavoured tobacco products. At a news conference, Stephen Harper wagged before the cameras rainbow-coloured packages of cigarillos, infused with flavours like banana split, bubble gum and cherry. "These products are packaged as a candy, and this is totally unacceptable," the Prime Minister said. "This can't continue." A nation of alarmed parents nodded its head in agreement.

But somewhere along the way, the Conservatives' attempt to make good on their populist promise set off controversies over NAFTA, unemployment and crime so serious that several Tory MPs who initially voted for the law have now withdrawn their unconditional support. Under scrutiny now by a Senate committee, Bill C-32 appears to have turned from a presumed legislative cakewalk -- it sailed through all three readings in the House -- into a political morass. Ironically, some critics think it is the bureaucrats of Health Canada who are to blame for the delay, and possibly the imperilment of the law.

"In addition to violating a fundamental principle, this legislation could have important negative repercussions," wrote Quebec MP Maxime Bernier on his blog yesterday, explaining why he now opposes the bill in its current form. "Among which [are] an increase in contraband sales, a violation of our international commercial obligations, and the closing of the Rothmans plant in Quebec City which employs 330 workers." . . .

"There is no justification to single out American blend cigarettes in the Canadian legislation, as the ban of this product would not achieve a meaningful public health benefit or discourage youth smoking," North Carolina Congressman G. K. Butterfield wrote in a letter to Canada's ambassador, Michael Wilson, this week.

Bill C-32 has also become a political embarrassment for the Conservatives in Quebec, and in its primary base there, the Quebec City region. American parent firm Philip Morris had planned to equip its Rothmans Benson and Hedges plant in the city to produce American blend cigarettes for the export market. Company executives warn the new law could lead to the plant's closure.

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• Amend tobacco bill or Quebeckers will lose jobs, U.S. firm warns 

Canadian tobacco heavyweight Rothmans, Benson & Hedges is threatening to close a Quebec factory employing more than 300 people if Ottawa doesn't narrow the scope of a bill aimed at stopping the manufacture of candy- and fruit-flavoured cigars and cigarettes.

The Harper government promised the legislation during last year's election campaign as a means of cracking down on tobacco products that appeal to children. But concerns over its Quebec impact are making Conservative MPs in that province eager to accommodate Rothmans.

Rothmans, today 100-per-cent owned by international tobacco giant Philip Morris International, says the legislation, Bill C-32, is too broad and would also ban flavourings traditionally employed to make "American-blend" cigarettes in Canada for local and export markets.

Far less popular with Canadians than Virginia tobacco cigarettes, an American blend of several tobaccos can include sweeteners or flavourings to dispel bitter or harsh tastes. These cigarettes, however, don't taste like candy or fruit.

"The current wording of Bill C-32 puts the future of RBH's factory in Quebec City in jeopardy," Rothmans spokesman Bert Van Gossum said. "RBH employs 750 people in Canada, including more than 300 in its Quebec factory alone."

Mr. Van Gossum said his company backs efforts to ban fruit- and candy-flavoured cigars and cigarettes, but says if the legislation isn't fixed it will undermine Rothmans's current business plan in Canada.

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• Philip Morris Int'l completes Rothmans buyout  

Philip Morris International, maker of Marlboros overseas, said Tuesday it has bought about 94 percent of the stock of Canadian cigarette maker Rothmans Inc.

The company said it bought all the shares that were tendered and will pay for any remaining shares on Thursday. It said shareholders of about 63.9 million shares had responded to its tender offer.

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• Rothmans reports loss after smuggling settlement  

Rothmans Inc, which is being bought by Philip Morris International Inc, reported a first-quarter loss on Tuesday, hurt by expenses relating to a police investigation into tobacco smuggling.

Canada's No. 2 cigarette maker said it lost C$354.4 million ($331 million), or C$5.20 a share, compared to a profit of C$33.8 million, or 49 Canadian cents a share, a year earlier.

Rothmans said profits were hurt by expenses relating to a settlement involving its unit Rothmans Benson & Hedges Inc, which in late July admitted to helping smugglers.

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• Executives revealed how cigarettes got into Canada 

The investigation into Canada's three major tobacco companies for aiding and abetting smuggling in the late 1980s and early 1990s began eight years ago, after The Gazette ran a series of articles alleging the companies were the main black market suppliers.

Central to The Gazette stories were a tobacco smuggler, who has since committed suicide, and two former tobacco sales executives who oversaw a scheme to funnel billions of Canadian brand cigarettes to the black market.

Les Thompson, an RJR Macdonald sales executive, described in interviews in hotel rooms in Ontario and Quebec how RJR Macdonald (now called JTI-Macdonald) established separate offices and companies in Toronto and the United States to oversee the funnelling of its brands, like Export A, to smugglers. . . .

Another key witness is former RJR Macdonald vice-president Stan Smith, who was Thompson's boss. Smith pleaded guilty in Ontario in 2006 and was sentenced to eight months of house arrest. He had been co-operating with police since 2000. . . .

The articles also focused on the role played by Imperial Tobacco and Rothmans. Both companies sent huge shipments of Canadian brand cigarettes into the U.S. under the pretext they were supplying the duty-free market. In fact, the cigarettes were simply sold back into Canada. . . .

Smugglers told The Gazette that company sales representatives regularly showed up at the smuggling spots and warehouses near Cornwall and Buffalo, N.Y., to take inventory.

After The Gazette articles, in 1998 and 2000, Imperial and Rothmans both denied any role in the smuggling.

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• RCMP Closes Book on Historic Tobacco Investigations 

The Royal Canadian Mounted Police (RCMP) announced it has concluded a long-running file after two of Canada's largest tobacco companies entered guilty pleas this morning in response to indictable offences under Section 240(1)(a) of the Excise Act.

The guilty pleas, from Imperial Tobacco Canada Limited (ITCL) and Rothmans Benson & Hedges (RBH), are the culmination of more than eight years of investigative work by RCMP Customs and Excise sections in Ontario and Québec. As part of agreed statements of fact, the two companies admitted to "aiding persons to sell and be in possession of tobacco manufactured in Canada that was not packed and was not stamped in conformity with the Excise Act and its amendments and Ministerial regulations." . . .

The material time of the charges involved illegal activity between the years of 1989-1994. Then, the contraband tobacco market in Canada involved product being produced in Canada, and shipped to locations in the US near the Canada/US border. From there, it was distributed to smugglers or black market distributors who brought it back into Canada for further illegal distribution.

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As part of agreed statements of fact, the two companies admitted to 'aiding persons to sell and be in possession of tobacco manufactured in Canada that was not packed and was not stamped in conformity with the Excise Act and its amendments and Ministerial regulations.'
RCMP, on the guilty pleas of Imperial Tobacco Canada and Rothmans Benson & Hedges.

• Tobacco firms cough up 

Imperial Tobacco Canada and Rothmans Inc., Canada's two largest tobacco manufacturers, have pleaded guilty to aiding and abetting the smuggling of cigarettes in the 1980s and 1990s and agreed to pay fines and penalties totalling more than $1.1 billion in an unprecedented settlement of criminal and civil cases.

The amount represents the "largest criminal fines and civil settlements in Canadian history," federal Revenue Minister Gordon O'Connor said at a news conference in Lévis yesterday. The settlement ensures the companies do not benefit financially from the smuggling, he added.

"I believe we are sending some strong and clear messages. Firstly, that such activity will not be tolerated. And secondly, that no company is above the law."

The settlements "close a significant chapter in contraband tobacco history," RCMP Assistant Commissioner Mike Cabana said. . . .

In addition to the fines, Imperial and Rothmans will each pay $50 million to establish a new government Contraband Tobacco Enforcement Strategy. The payments are due by Dec. 15.

To settle civil liability, Imperial is to pay the federal government and the provinces a percentage of its annual net sales revenue over the next 15 years, to a maximum of $350 million. Rothmans is to pay $200 million over the next 10 years, at a rate of $20 million per year. The first payment is to be made on Dec. 31, 2009. . . .

Just as the tobacco companies lied for years about the deadly health effects of smoking, Damphousse noted, they also lied originally about their involvement in smuggling.

"They have made lying a regular corporate practice," he said.

Cheap contraband cigarettes helped increased smoking rates among young people, damaging the health of thousands of Canadians, Damphousse added.

It was regrettable the RCMP did not charge any of the company executives, he said. . . .

Rothmans said the settlement opened the door to the sale of the company to Philip Morris International Inc. for $2 billion. The deal was contingent on the company settling its criminal and civil cases. . . .

If found guilty, JTI-Macdonald could face extensive forfeiture to the Crown equivalent to the amount of the fraud.

But getting money out of the tobacco firm could be difficult. The company filed for bankruptcy protection in 2004 after Quebec assessed it for $1.36 billion in unpaid taxes dating from the early 1990s.

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• Altria and BAT profits beat estimates, but shares fall 

British American Tobacco Plc, the world's second-largest publicly traded tobacco company, said on Thursday first-half profit rose 16 percent, underscoring strength in emerging markets, despite higher fuel prices.

At the same time, Altria Group Inc -- which sells the dominant Marlboro brand but only operates in the United States -- saw a faster decline in the number of cigarettes it sells, raising concerns about how well cash-strapped U.S. consumers are taking to cigarette price increases.

"Price increases accelerated the volume decline seen in the first quarter," Gregg Warren, an analyst at Morningstar said of Altria.

A day earlier, Altria rival Reynolds American Inc said its volume decline slowed in the second quarter from the first, easing concerns over how much price increases would hurt the U.S. market. . . .

BAT, like other cigarette groups, has seen some western European markets decline, with smoking bans taking effect in public places and high excise taxes. But it has seen strong growth in emerging markets such as eastern Europe and Asia.

Altria, which spun off Philip Morris International Inc in March, does not have emerging markets to fall back on as it faces declining U.S. cigarette consumption, more local government smoking bans and higher cigarette taxes.

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• Tobacco firms hit with $1-billion in penalties 

Two of Canada's big three tobacco companies will pay more than $1-billion in criminal and civil penalties for orchestrating the wholesale shipment to the United States of cigarettes that were smuggled back to this country and resold at bargain prices.

The admissions of guilt drew only lukewarm praise from anti-smoking activists. Imposed under the federal Excise Act, the fines and settlement costs total $1.15-billion and are the largest ever levied in Canada.

As part of an agreed statement of facts read out in a Toronto courtroom packed with lawyers and investigators, Rothmans Benson Hedges Inc. was fined $100-million.

Simultaneously in Montreal, Imperial Tobacco Canada Ltd. agreed to pay a $200-million fine. . . .

In addition, the two companies will pay $815-million in civil damages to the federal government and to the Ontario and Quebec provincial governments.

The companies both admitted “aiding persons to sell and be in possession of tobacco manufactured in Canada that was not packed and was not stamped in conformity with the Excise Act.”

However, tobacco foes voiced dismay that the scheme's architects seemed to have evaded punishment.

“We've been involved in this issue for many years and this exposes once again to the public who we've been dealing with,” said François Damphousse, Quebec director of the Non-Smokers' Rights Association. “But when you look at the executives who were behind this fraud, they're getting off scot free, and I think that's despicable.” . . .

The accord included no admission of guilt and Philip Morris called the $1-billion penalty a “voluntary payment.”

Thursday's settlements, however, do acknowledge wrongdoing.

Still unresolved is the future of the third big tobacco firm, Mississauga-based JTI-Macdonald Corp., which is under bankruptcy protection and which, along with two of its executives, is facing trial on fraud charges. . . .

veteran anti-tobacco campaigner Garfield Mahood was unimpressed, saying he welcomed the fines but that “justice escapes us” because nobody went to jail.

“There's no winners in this because the industry has addicted a whole bunch of young people who then became lifetime annuities for these companies,” he said.

“Over time the companies will financially benefit. And literally thousands of people will die in the future as a result of this crime.”

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There's no winners in this because the industry has addicted a whole bunch of young people who then became lifetime annuities for these companies.
Canadian anti-tobacco campaigner Garfield Mahood, on the penalties Imperial Tobacco Canada and Rothmans Benson Hedges must pay for smuggling "wrongdoing."

• Philip Morris International Inc. (PMI) Announces Agreement to Acquire Rothmans Inc. 

Philip Morris International Inc. (NYSE / Euronext Paris: PM) announced today that the company has entered into an agreement with Rothmans Inc. (Rothmans) to purchase, by way of a tender offer, all of the outstanding common shares of Rothmans. The agreement and related offer have the full support of the Board of Directors of Rothmans.

Rothmans' sole holding is a 60% interest in Rothmans, Benson & Hedges Inc. (RBH). The remaining 40% interest in RBH is currently owned by PMI and, as a result of this transaction, RBH will become wholly owned by PMI. PMI and Rothmans have been joint shareholders of RBH since 1986.

PMI agreed to make the offer following Rothmans' and RBH's finalization of the CAD $550 million settlement, announced today in a separate release issued by Rothmans, with the Government of Canada and all ten provinces. The settlement resolves the Royal Canadian Mounted Police's investigation relating to products exported from Canada by RBH during the 1989-1996 period.

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• UPDATE 2-Rothmans profit gets lift from higher prices 

Fourth-quarter profit at Rothmans Inc grew 17 percent, Canada's No 2 cigarette maker said on Friday, as price increases more than offset pressure from a growing trade in contraband tobacco.

Increased competition to sell low-priced cigarettes and declining volumes posed further difficulties, but Rothmans said it is well positioned financially to withstand market pressures thanks to C$234.9 million in cash reserves.

Known for its Craven A, Rothmans and Benson & Hedges brands, the company said it earned C$21 million ($21 million), or 31 Canadian cents per share, in the period ended March 31.

That is up from C$18 million, or 26 Canadian cents per share, in the same period last year and betters analyst expectation for a profit of 30 Canadian cents a share.

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• Rothmans Loses Bid to Sue Canada Over Health Costs (Update1) 

A judge threw out a lawsuit by Rothmans Inc. and other tobacco companies that sought to blame the Canadian government for health-related costs incurred by British Columbia.

The province sued the companies in 2001, seeking to recover billions of dollars spent by its government-funded health-care system to treat people with diseases such as emphysema and lung cancer. The companies sued Canada last year, claiming federal officials were responsible for the costs.

``The allegations cannot succeed because Canada is immune to liability,'' British Columbia Supreme Court Judge Catherine Wedge wrote in an April 11 ruling in Vancouver. Only Parliament can lift the immunity, she said.

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• Rothmans Q3 sales up 11 per cent despite impact of contraband tobacco 

Cigarette maker Rothmans Inc. (TSX:ROC) saw its profit rise 22 per cent rise in the October-December quarter, as sales grew by 11 per cent despite pressures from the contraband market.

Canada's only publicly traded cigarette maker said Wednesday that net sales at subsidiary Rothmans, Benson & Hedges, which is 60 per cent owned by Rothmans, were $170.8 million, up from $153.6 million in the year-earlier quarter.

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• Tobacco trooper smokes out illegal F1 memorabilia 

Grand Prix weekend is very good business for the three owners of the Formula 1 Emporium on Crescent St.

"We do 40 per cent of our yearly business in this week. We should have more weeks like this," said part owner Michael Gardner.

The store sells numbered prints of famous cars and drivers, die-cast replicas of Formula One cars, signed helmets and the ever-present Ferrari, McLaren and BMW caps and team jerseys.

But this year the store had an unexpected and unwelcome client, an inspector from the provincial Health and Social Services Department, the so-called tobacco police.

According to Article 27 of the anti-tobacco law, enacted in May 2006, it is against the law to sell any object that is not tobacco if that product has a name or logo associated directly with a tobacco product.

On Thursday, the inspector bought a nine-year-old shirt with a Rothmans logo.

The age of the shirt precedes the federal tobacco sponsorship ban enacted in 2003 that made it illegal for sporting and cultural events, like the Grand Prix, to be sponsored by tobacco companies. . . .

Gaudreau argues that these offending articles are artwork that reproduce an era and were she to remove the logos it would be tantamount to counterfeiting.

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• Rothmans earnings off in Q4 

Earnings at Rothmans Inc. fell in the fourth quarter of the 2005-06 fiscal year, as the company cited smoking bans for a decline in year-end sales.

Rothmans three-month chart

The company said it made $16.4 million (23 cents per share) January through March, down from $17.3 million, (25 cents per share) a year earlier.

The company's revenue came in at $144.9 million, off from $145.4 million year-over-year.

"With increased smoking bans in effect, we're seeing decreased consumption in the winter months," said Rothmans CEO John Barnett during conference call with analysts.

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