Florida No New Cigar Taxes
11 May, 2009- Florida’s cigar industry will apparently not have to endure even more taxation at the hands of its own state legislature. As previously reported here.
- As part of negotiations between the leadership of the state’s House of Representatives and Senate over the state’s new budget, a new $1-per-pack tax on cigarettes will be included, but no taxes will be instituted on cigars. At present, Florida is one of just three states – along with New Hampshire and Pennsylvania – that does not tax cigars.
- According to a report filed by the Associated Press, the leadership deal between Senate President Jeff Atwater and House Speaker Larry Cretul (both Republicans) includes the $1-a-pack increase in cigarette taxes proposed by the Senate, but drops the cigar levy. The House budget plan did not include any new tobacco taxes. The Senate’s proposed cigar tax would have imposed a $1-per-ounce tax on large cigars and taxed small cigars at the same rate as cigarettes. That could have created tax rates of perhaps $1 each on some 60-ring shapes and would have had devastating effects on the Florida cigar trade, especially coming on the heels of the Federal SCHIP tax increase.
- Governor Charlie Crist has been cool to tax increases on tobacco, but clear in his distaste for any taxes on cigars, which he regards as a "home industry" in Florida. The budget deal still has to go through the legislative process and there were instant critics who moaned about being "shut out" of the process, although the budget bills will move through the normal procedures with the goal of being completed by the end of next week, adding one week to the normal length of the state’s legislative session.
- As expected, distributors stocked up on both machine-made and premium cigars in the first quarter to avoid paying the 35.4-cents-a-cigar increase in Federal taxes that began April 1. That meant a big quarter for Swedish Match, the largest seller of premium cigars in the United States.
- In its first-quarter report, the company noted that "sales increased by 56 percent in the first quarter to 1,179 [million Swedish Kronor or about $146.5 million U.S.]" and that "U.S. cigar sales grew by 43 percent in dollar terms, with sales and volume growth for machine made cigars and premium cigars positively impacted by hoarding activity in anticipation of FET related price increases." The operating profit for this sector grew to $35.7 million, converted from Kronor, a 156% increase over the first quarter of 2008. Other highlights:
- The premium cigar segment, rose by 29% in the U.S. during the quarter (in dollars) as against what was a weak first quarter in 2008. The number of cigars sold in the American market was up by 29%. Swedish Match estimates it has a 30% market share for premium cigars in the U.S.
- In machine-made cigars, where Swedish Match ranks fourth in the U.S. market, sales were up an astronomical 62% in dollars and unit volume was up 54%! A.C. Nielsen figures show Swedish Match with a 10.2% share of U.S. sales, but 5.2% of U.S. machine-made volume. The leaders (in cigar sales volume) continue to be Swisher International (33.1%), Altadis U.S.A. (a unit of Imperial Tobacco, 15.7%) and John Middleton, Inc. (a unit of Altria, 14.4%)
- The SCHIP effect was credited with the U.S. sales surge. The report noted that in Europe, sales "declined somewhat in local currencies as a result of mix effects despite modest volume increases." Translation: Europeans bought more Swedish Match cigars in the quarter, but selected cigars that sold at lower prices.
- The company has no illusions about what could be a very bleak second quarter, noting "In the U.S., the recent increase of federal excise taxes could negatively impact consumption, especially of cigars. We will take decisive measures to mitigate the effects of possible volume declines for U.S. cigars. We expect significant destocking effects for U.S. cigars in the second quarter, following the significant trade hoarding in the first quarter."
- Swedish Match had total sales of 3.5 billion Kronor (about $438.8 million U.S.) in the quarter, up 25% over 2008 and realized operating profits of 846 million SEK or about $105.0 million U.S., up 55% from a year ago. The company is quite healthy and its smokeless products continue to gain in popularity. Hopefully, the dive in U.S. cigar sales won’t be as bad as feared as the pre-SCHIP inventories are depleted during the second quarter.
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- Related News and Articles
- - Florida Senate Cigar Surcharge
- - Start of New Taxes
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La Gloria Cubana Artesanos Retro Especiale has a Connecticut seed wrapper. The Mexican and Nicaraguan binder is enhanced by Nicaraguan and Dominican ligero and an additional peppering of proprietary Nicaraguan and Dominican leaf. 
