Postal Service Issues Revised Rule
For Mailing Tobacco

This week, the U.S. Postal Service issued a revised rule which will allow military families to more easily mail cigarettes, roll-your-own and smokeless tobacco products to service personnel overseas.  Under the original interpretation of the recently enacted Prevent All Cigarette Trafficking Act (PACT Act), military families were limited to sending these tobacco products in Express Mail packages.  However, this caused a problem because Express Mail service is not offered to military base addresses where large numbers of troops are deployed.

The rule change made by the Postal Service will allow military families to mail these tobacco products to service personnel using Priority Mail packages with delivery confirmations unless the country where the tobacco products are being sent prohibits the receipt of tobacco products.  Also, military families need to be aware that there is a weight limit of 10 ounces per package being mailed and a family can mail no more than 10 packages in any 30 day period.  A copy of the revised Postal Service rule is available at this link. 

NATO Webcast Available on Web Site

Last Friday NATO broadcast a web seminar over the Internet titled the “2010 Tobacco Legislative and Regulatory Environment”.  The webcast included a summary of state tobacco legislative outcomes, FDA tobacco regulations, and the New York City graphic health warning sign law.  The entire webcast will be available on this web site.  The webcast will be in Windows Media Player format.

  During the webcast, NATO members asked about the adoption of Michigan ’s statewide smoking ban.  The Michigan smoking restriction bill passed by the state legislature was signed into law in December of 2009 and went into effect on May 1, 2010 . Click here for video: NATO Tobacco Legislative and Regulatory Upd.wmv.  

New York State Begins Collecting
Tax on Native American Sales

When New York Governor David Paterson signed into law the recent $1.60 per pack cigarette tax increase and other tobacco tax hikes, he publicly stated that his administration would put into effect a plan to begin collecting cigarette and tobacco taxes on those products sold to non-Native Americans on Native American reservations.  Today, the New York Post reports that the governor will begin implementing next Wednesday, September 1^st, measures to collect these tobacco excise taxes. 

FDS Announces Additional
Retail Training Sessions

The FDA’s Center for Tobacco Products has announced the dates, times and locations of four additional retailer training sessions on the new federal tobacco regulations.  These training sessions will be conducted in Atlanta , Georgia , Chicago , Illinois , Dallas , Texas and Los Angeles , California .  The specific dates, times and locations are listed on the accompanying announcement.   Just like the first retail training session held by the FDA in Boston on July 19^th, the topics to be discussed by FDA staff at the upcoming four seminars include:

• Who is subject to the regulations and what tobacco products are regulated
• Prohibition of sale and distribution of cigarettes and smokeless tobacco to persons younger than 18
• Self service displays and vending machines; minimum cigarette and smokeless tobacco package size
• Prohibition of free samples of cigarettes
• Coupons; non-tobacco gift or items; and sponsorships
• Flavored cigarette ban; and the ban on cigarettes with descriptors such as “Light,” “Low” and Mild”

The FDA encourages retailers who sell tobacco to participate in the training session in person, by phone, or by webcast as explained in the accompanying notice from the FDA.  

NYCAS: Retail Cigarette Sales "Plunge" In New York
At $4.35/Pack Tax Rate

The New York Association of Convenience Stores (NYACS) reports in a press release issued last week that cigarette sales at convenience stores throughout New York have plunged since the $1.60 per pack cigarette tax increase went into effect on July 1, 2010 .  With New York State now having the highest state cigarette tax rate at $4.35 per pack, NYACS indicates that field reports show convenience stores have “suffered an average drop of 25% to 35% in cigarette pack” sales in July.  Moreover, new higher excise tax rates of 75% on OTP, $2.00 per ounce on moist snuff, and $4.35 per pack on little cigars all went into effect on August 1, 2010 and will compound the loss of tobacco sales.  On September 1^st, New York plans to begin enforcing the collection of the state cigarette tax from sales on Native American tribal lands to non-Native Americans.

Mailing Of Tobacco Products Overseas Can Resume

The Prevent All Cigarette Trafficking Act (PACT Act) recently passed by Congress and signed into law had the unintended consequence of preventing U.S. military personnel serving overseas from receiving cigarettes, RYO tobacco and smokeless tobacco through the mail.  The law as passed required a signature by the recipient which meant that families of service personnel could only send these tobacco products via Express Mail.  The problem was that Express Mail packages are not delivered to most overseas military addresses.  The U.S. Postal Service has issued new guidelines effective August 27, 2010 which allow these tobacco products to be shipped in Priority Mail packages that do not require a signature upon delivery. 

UBS Tobacco Survey Results

The results of a recent tobacco survey by UBS Consumer Research are available here: Link

San Francisco Proposes Banning 
Tobacco Sales In Certain Grocery Stores

Two years ago, San Francisco became the first city to ban the sale of tobacco products in drugstores.  This month, a proposal has been introduced to ban the sale of tobacco products in the city’s grocery stores that have on-site pharmacies.  The proposal requires the approval of the city’s Board of Supervisors.

TTB Requests Comments To Distinguish
Between Pipe and RYO Tobacco

The U.S. Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau (TTB) is requesting public comments on standards that have been proposed to distinguish between the physical characteristics of pipe tobacco and roll-your-own tobacco for federal excise tax purposes.  A copy of the TTB’s “Request for Public Comment” published in the Federal Register on July 22, 2010 accompanies this NATO E-News Bulletin.

  On April 1, 2009 , the federal excise tax rate on pipe tobacco was increased to $2.8311 per pound and the excise tax rate on roll-your-own tobacco was raised to $24.78 per pound.  The law which increased these federal tax rates also expanded the definition of roll-your-own tobacco and included a new provision regarding the packaging and labeling of pipe tobacco and RYO tobacco to in an attempt to better distinguish between these two kinds of tobacco.  However, these law changes did not include any objective standards to differentiate between pipe tobacco and RYO tobacco.

  As a result of these changes to the law, the TTB received six written submissions in the form of comments or letters suggesting specific standards that could be used to distinguish between pipe tobacco and RYO tobacco.  In general, these proposed standards focus on the percent of reducing sugars present in the tobacco, the moisture content, the cut width, the existence of Cavendish, Latakia, Perique or Black Tobacco, the casing and flavoring rates, the density of packing, and the presence of burn inhibitors, among others.  The TTB also continues to conduct research to determine any other physical characteristics that could be used to distinguish between pipe and roll-your-own tobacco for tax purposes.  For a summary of the six submissions and the proposed standards, please see Pages 42660 and 42661 of the Federal Register document.

  The TTB is asking for additional public comments on the standards proposed in the six written submissions to determine whether the standards are appropriate and sufficient to differentiate between pipe tobacco and RYO tobacco.  Comments will also be accepted on any other physical characteristics that could be used to distinguish between the two tobacco products.  Instructions on how to submit comments to the TTB can be found on Pages 42661 and 42662 of the accompanying Federal Register notice.  Comments must be received by the TTB no later than September 20, 2010 .

FDA Announces Retail Training Sessions

The FDA’s Center for Tobacco Products will conduct the first of five retailer training sessions on the new federal tobacco regulations in Boston on Monday, July 19, 2010 at 1:00 P.M. to 5:00 P.M. Eastern Time.  This first training seminar will be held at the Boston Marriott Copley Place , 110 Huntington Avenue , Boston , MA   02116 .    The topics to be discussed by FDA staff at the first seminar include the following:

• Who is subject to the regulations and what tobacco products are regulated
• Prohibition of sale and distribution of cigarettes and smokeless tobacco to persons younger than 18
• Self service displays and vending machines; minimum cigarette and smokeless tobacco package size
• Prohibition of free samples of cigarettes
• Coupons; non-tobacco gift or items; and sponsorships
• Flavored cigarette ban; and cigarettes with descriptors such as “Light,” “Low” and Mild"

  The FDA encourages retailers who sell tobacco to participate in the training session in person, by phone, or by webcast as explained in the accompanying notice from the FDA.  Please note that the FDA indicates space is limited to attend the seminar by phone or webcast.  The call in number and webcast participation information will be available from the FDA’s website on July 14^th and NATO will obtain and send that information out to members.  Also, the most recent webcast conducted by the FDA was limited to 100 participants and some NATO members were unable to log on.  For that reason, and given the attendance limitations for these new seminars, NATO will be requesting the FDA to expand the number of participants allowed via phone and webcast.   

New York City Sued Over Graphic Health Warnings

On September 22, 2009 , the New York City Board of Health amended Article 181 of the City’s Health Code to require that “[a]ny person in the business of selling tobacco products face-to-face to consumers in New York City shall prominently display tobacco health warning and smoking cessation signage produced by the Department [of Health].”   The signs graphically depict in color diseased organs and contain a directive to “Quit Smoking Today”.  This is the first of its kind graphic warning poster ordinance in the country.

In response to this ordinance, two retailers, two New York trade associations, Lorillard Tobacco Company, Philip Morris USA, Inc. and R.J. Reynolds Tobacco Company recently filed a lawsuit in federal district court to overturn the ordinance since the law is pre-empted by the Federal Cigarette Labeling and Advertising Act and violates the First Amendment of the U.S. Constitution by forcing retailers to display controversial graphic images.  NATO will continue to report on this litigation to overturn this New York City ordinance.

Interview On FDA Stakeholder Meetings

Last week, NATO President Andy Kerstein and NATO Executive Director Tom Briant were interviewed for ideas and suggestions about how the FDA should set up and conduct future stakeholder sessions on the tobacco regulations.  The FDA plans to hold a series of separate meetings with various groups, including health agencies, manufacturers, wholesalers, and retailers to learn about each segment of the industry and discuss ideas on how best to implement the tobacco regulations.  The interviewer was provided with a number of suggestions on how best to conduct a stakeholder meeting for tobacco wholesalers and retailers.

Summary of FDA Webinar

Dr. Lawrence Deyton, the head of the FDA’s Center for Tobacco Products, was the presenter in a webinar that reviewed the first year of FDA tobacco regulations and highlighted some of the upcoming regulations.  The FDA had audio problems with the webinar and apparently limited the number of on-line participants to the first 100 individuals.  Accompanying this NATO E-News Bulletin is a set of the PowerPoint slides that were shown during the webinar.  The topics highlighted during the webinar included the following:

Ø      The FDA’s goals of preventing underage youth tobacco use and reducing adult use rates.

Ø      The decline and now leveling off of adult and underage smoking rates over the past twenty years.

Ø      The ban on the sale of flavored cigarettes.

Ø      The ban on the use of descriptors including “mild”, “light”, or “low” on packages and in advertising of cigarettes, RYO tobacco and smokeless tobacco.

Ø      The rules regarding the sale of cigarettes, RYO tobacco and smokeless tobacco such as self-service display restrictions, promotional item bans, etc.

Ø      The upcoming requirement that graphic warning labels be placed on the top 50% of the front and back of all cigarette packages by October, 2012.

The FDA does plan to hold additional webinars in the future and NATO will advise its members when they will be held and how to participate.  

FDA Stakeholder Discussion Series

The FDA will be holding a series of public meetings with health groups, tobacco control advocates and tobacco industry organizations called Stakeholder Discussions.  In advance of these meetings, the FDA is interviewing a cross section of these various groups to determine how the meetings should be designed and what topics should be discussed.  NATO President Andrew Kerstein and NATO Executive Director Tom Briant are being interviewed today to provide input for these public Stakeholder Discussion meetings.  These NATO representatives will reiterate the need for the FDA to consider an advisory group comprised of Center for Tobacco Products staff, tobacco manufacturers, wholesalers, retailers and trade association representatives to facilitate an exchange of knowledge and expertise to develop reasonable and effective regulations so that they can be implemented in a practical and workable manner.

State Tobacco Legislative Update

New York:  Last week, the New York state legislature passed and Governor Paterson signed into law an increase in the state cigarette tax rate from $2.75 per pack to $4.35 per pack, an increase in the tax on cigars, pipe tobacco, RYO tobacco and chewing tobacco from 46% to 75% of the wholesale price, a change to tax little cigars as cigarettes, and an increase in the tax on moist snuff from $.96 per ounce to $2.00 per ounce.  The cigarette tax takes effect on July 1, 2010 and there is a floor stocks tax on cigarettes.  The tax increases on all of the other tobacco products begins August 1, 2010 and there is no floor stocks tax on OTP products.

Pennsylvania :  The Pennsylvania legislature and governor agreed on a budget solution this week that does not include any increase in the state cigarette or tobacco tax rates.

FDA Issues Draft Guidance Report 
For Sell-Through Products

On Saturday, June 5th, the FDA’s Center for Tobacco Products issued a document titled “Draft Guidance for Industry: Use of “Light,” “Mild,” “Low,” or Similar Descriptors in the Label, Labeling, or Advertising of Tobacco Products”. This Draft Guidance states that wholesalers and retailers may distribute or sell tobacco products in their possession for which the label, labeling, or advertising contains the descriptors “light,” “low,” or “mild,” or any similar descriptor after July 22, 2010. There is no time limit or time period for wholesalers and retailers to sell out their inventory of these tobacco products with descriptors. This regulation on descriptor terms does not affect cigars or pipe tobacco. 

FDA Draft Guidance Report For Sell-Through Products

Postal Service Issues Final Rule
To Implement PACT Act

On Friday, June 4th, the U.S. Postal Service issued the Final Rule to implement the provisions of the PACT Act prohibiting the mailing of cigarettes, roll-your-own tobacco and smokeless tobacco. A copy of the Final Rule accompanies this NATO E-News Bulletin. The Final Rule takes effect on June 29, 2010 and will prohibit the mailing of cigarettes, roll-your-own tobacco and smokeless tobacco in the continental United States. Any of these tobacco products deposited into the mail are subject to seizure and forfeiture and the sender of the tobacco products is subject to criminal fines, imprisonment and civil penalties. There are limited exceptions to allow packages of these tobacco products to be mailed within the States of Alaska and Hawaii and for mailing of these products between tobacco industry businesses. Pipe tobacco and cigars are not regulated by the PACT Act and can continue to be mailed.

Postal Service Final Rule On PACT Act

New York City Sued Over Warning Signs

Altria Group, Lorillard, Inc., Reynolds American, Inc., two retailers and two retail trade associations have filed a lawsuit in U.S. Federal District Court challenging the New York City Board of Health’s ordinance requiring graphic anti-tobacco health warning signs be posted in retail stores that sell tobacco products. The lawsuit includes claims that the federal government warning label regulations pre-empt this action by New York City’s Board of Health and that the ordinance infringes on the right to communicate with consumers about lawful tobacco products. This litigation will be monitored and NATO members will be updated regarding further developments in this case.

Cigarette Tax Increase in New York Invites Crime

Here's a NATO video message opposing the New York State cigarette tax increase. The video, which emphasizes the negative effects on jobs, crime and the state's economy, has also been posted on YouTube.  In addition, NATO sent a second letter to New York Senate Finance Committee members urging them to oppose the governor’s plan to increase the state cigarette tax by $1.00 per pack and the state OTP tax rate on pipe tobacco and cigars from 46% to 90% of the manufacturer’s price. Letter to New York Senate Finance Committee.

NATO Files Comments on PACT Act
and FDA Advertisement Ban

This week, NATO filed comments supporting the U.S. Postal Service’s proposed rule to enforce the provisions of the PACT Act prohibiting the mailing of cigarettes, roll-your-own tobacco and smokeless tobacco.  Also this week, NATO filed a set of comments objecting to the FDA’s notice of rulemaking regarding restrictions on outdoor tobacco advertising.  The Postal Service will be issuing an initial rule implementing the PACT Act law by June 29, 2010 , just two days before the PACT Act takes effect on July 1st.  The FDA has now extended the time to submit comments on the outdoor advertising ban restrictions to July 17, 2010 .  

NATO Comments On Non-Mailability of Cigarettes and Smokeless Tobacco
NATO Comments On FDA Outdoor Advertising Rule

State Tobacco Legislative Update

Connecticut :  The Connecticut legislature adjourned without taking any action on a bill that would have increased the OTP tax on pipe tobacco and roll-your-own tobacco to $73.84 per pound.  Earlier this month, NATO sent each Connecticut lawmaker a letter regarding the potential tax windfall that the state would receive due to the federal PACT Act taking effect July 1^st.

  Georgia :  Several bills that would have increased the state’s cigarette tax rate by $.63 per pack and $1.00 per pack, respectively, plus another bill that proposed raising the OTP tax from 10% to 25%, were not passed due to the adjournment of the legislature.

  Kansas :  A $.55 per pack cigarette tax increase and an OTP tax rate increase from 10% to 40% were not passed by the Kansas legislature.  Also, a bill to tax little cigars as cigarettes also failed.

  Massachusetts :  The Massachusetts legislature did not pass a bill to raise the excise tax on cigars to 110% and the tax on pipe tobacco to 120% while also rejecting a ban on flavored tobacco products.

  Minnesota :  A bill that would have taxed little cigars as cigarettes was amended and the tax provisions were deleted from the legislation.

  New Hampshire :  The New Hampshire House Finance Committee defeated the governor’s proposal for a $.20 per pack cigarette tax increase.  However, the House passed an increase in the OTP tax rate from 48.59% to 65.03%.  This OTP tax increase is still pending in the New Hampshire legislature.  New Hampshire was one of the states in which NATO sent letters to lawmakers informing them of a tax windfall due to the enactment of the PACT Act.

  South Carolina :  The South Carolina Governor vetoed a $.50 per pack cigarette tax increase, but both the Senate and the House voted to override the veto.  The new higher cigarette tax rate of $.57 per pack goes into effect on July 1, 2010 .

NATO Trade Show Update
Save The Date

Just as NATO has earned a reputation as being a premier grassroots tobacco legislative trade association, the planning that is underway will make the new NATO Trade Show a leading retail event for every kind of retailer that sells tobacco products. The NATO Trade Show will be held on April 12-14, 2011 at the Rio Hotel in Las Vegas, Nevada and kick off with NATO’s 10^th Anniversary Awards Dinner on the evening of Tuesday, April 12, 2011 followed by the NATO Trade show held over the next two days.

Link To 2011 NATO Trade Show Site

Exhibitors

The list of exhibitors for the new NATO Trade Show keeps growing with some 37 companies already planning to exhibit including Altadis, USA, Swisher International, Swedish Match, Republic Tobacco, National Tobacco Company, Arango Cigar Company, Carolina Tobacco, Dom Rey Cigar/Cusano Cigars, Drew Estate, Harold Levinson Associates, House of Oxford, King Maker Marketing, Renegade Tobacco/House of Windsor, Smoker Friendly International, U.S.Flue-Cured Tobacco Growers, Zippo Lighter Company, Nat Sherman, New Image Global, Smokey Mountain Chew, Zander-Greg, K.K. International Corp., A&T Tobacco Imports, Bags of Bags, Bahama Mama Cigars, Beach Cigar Group, Inc./Gurhka Cigars, Cheyenne International, DWC Enterprises, Global Tobacco, Great Midwest Tube & RYO Machines, International Tobacco Partners, Villiger Stokkebye International, Liaison Sales and Marketing, M & R Holdings, National Honey Almond, Rouseco, and Tantus Tobacco.

VICTORY
PACT Act Signed Into Law

President Obama signed into law the Prevent All Cigarette Trafficking Act (PACT Act).  This new law will take effect on June 30, 2010.  This is a major victory for the industry and the states because the law includes the following provisions:

Ø        Retailers which sell cigarettes and smokeless tobacco products over the Internet must collect state cigarette and smokeless tobacco and pay those taxes to the states where the customer who is purchasing the tobacco products resides.

Ø        Internet retailers must verify the age of the individual purchasing cigarettes and smokeless tobacco products to prevent underage youth from buying these products.

Ø        The U.S. Postal Service is prohibited from delivering cigarettes and smokeless tobacco products through the U.S. Mail to consumers.

The PACT Act should result in a significant reduction in the purchase of cigarettes and smokeless tobacco products over the Internet because the price advantage for those website retailers that have not collected state cigarette and smokeless tobacco taxes will no longer exist.  Moreover, violations of the law will now be a felony which should further deter retailers from selling these tobacco products over the Internet.  NATO worked closely with the Coalition to Stop Contraband Tobacco, a coalition of trade associations, businesses and individuals, to support passage of the PACT Act. 

FDA Issues Final Rule on Selling and Marketing 
of Cigarettes and Smokeless Tobacco

The FDA Center for Tobacco Products has republished a rule as required by the Family Smoking Prevention and Tobacco Control Act that took in 2009.  This republished rule becomes effective June 22, 2010 and restricts the sale, distribution, and marketing of cigarettes and smokeless tobacco as follows:

Retail Sale and Distribution Regulations:  

Ø       Prohibits the sale of cigarettes or smokeless tobacco products to people younger than 18.

Ø       Requires retailers to obtain photo identification of any customer that appears to be younger than 27 years old to verify that the customer is at least 18 years old.

Ø       Prohibits the sale of cigarette packages with fewer than 20 cigarettes.

Ø       Requires that cigarettes and smokeless tobacco products be sold in a direct, face-to-face exchange between the retailer and the customer.

Ø       Prohibits the sale of cigarettes and smokeless tobacco products in vending machines, self-service displays, or other impersonal modes of sales, except that vending machines and self-service displays are allowed in retail stores where the retailer ensures that no person younger than 18 years of age is present, or permitted to enter, at any time.

Ø       Prohibits giving out free samples of cigarettes and allows free samples of smokeless tobacco products only in qualified adult facilities.

Marketing Regulations:

Ø       Prohibits manufacturers, distributors and retailers from sponsoring any athletic, musical, artistic, or other social or cultural event, or any team or entry in those events in the brand name, logo, symbol or recognizable color of any cigarette or smokeless tobacco product.

Ø       Prohibits gifts or other items in exchange for buying cigarettes or smokeless tobacco products.

Ø       Requires that audio advertisements use only words with no music or sound effects.

Ø       Prohibits the sale or distribution of items, such as hats and tee shirts, with cigarette or smokeless tobacco product brand names or logos.

Advertising Regulations:

Ø      The republished FDA rule includes Section 1140.32 which states that any advertising of cigarettes or smokeless tobacco products by a manufacturer, wholesaler or retailer shall use only black text on a white background.

Ø      However, the republished FDA rule goes onto state that in January, 2010, the United States District Court in Kentucky “issued an order granting the plaintiffs’ motion for an order enjoining FDA from enforcing against them Section 1140.32 which would otherwise have gone into effect on June 22, 2010.”  That is, the FDA acknowledges that the federal judge overturned the FDA’s regulation that cigarette and smokeless tobacco advertisements must use only black text on a white background.  The FDA republished rule then states that “the government has noticed an appeal from the final judgment entered in that case on March 8, 2010 ”.  This means that the FDA is appealing the federal district court decision which found the black text/white background requirement unconstitutional.

Ø      With the FDA appealing the decision overturning the black text/white background advertising restriction, retailers may continue to have color advertisements in their stores during the appeal process.

Link to FDA Final Rule Publication