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Abstract
An abundance of evidence suggests that the tobacco industry's response to increased regulation imposed on cigarettes has been the development of little cigars and filtered cigars which are tobacco products that are merely cigarettes in disguise. Emphasising these products' physical attributes, the tobacco industry has offered cigar products to its consumers as pseudo-cigarettes. For decades, tobacco manufacturers' response to increased cigarette regulation and taxation has been to exploit policy loopholes by offering these little cigars and filtered cigars pseudo-cigarettes that are exempted from this regulatory oversight. As a result, in spite of increased regulations and taxes on cigarettes, smokers can purchase cigars that are almost physically indistinguishable from their cigarettes at a lower cost. This commentary describes the recent evolution of the cigar market in response to federal regulation, and highlights historical cigar industry attempts to evade taxation, capitalise on product features that are off-limits to cigarettes, and capture the shrinking market of cigarette smokers. We present the case that little cigars and filtered cigars, differing very little physically from cigarettes, are products deserving the same regulatory scrutiny.
- Public policy
- Non-cigarette tobacco products
- Taxation
Statistics from Altmetric.com
Introduction
The cigar market in the USA is extremely diverse, with wide variations in cigar sizes, packaging, flavours and prices.1 Unlike cigarettes, which are heavily regulated at the state and federal level cigars have for decades face minimal restrictions on their manufacturing and promotional practices. Furthermore, only certain classes of cigars have tax parity with cigarettes.2 Over the past few decades, this differential regulation, coupled with industry exploitation of policy loopholes, facilitated the growth in cigar consumption amid declining cigarette sales. Specifically, cigar companies leveraged the physical similarities between small cigars and cigarettes to market their products as virtually indistinguishable from their more expensive cigarette counterparts.3 With the recent FDA deeming regulations for cigars and other non-cigarette tobacco products,4 the tobacco control community must prepare for imminent industry strategies that circumvent these restrictions. This commentary describes the recent evolution of the cigar market in response to state and federal regulations, and highlights historical cigar industry attempts to evade taxation, capitalise on product features that are off-limits to cigarettes, and capture the shrinking market of cigarette smokers.
Legal definitions of cigars and cigarettes
Federal regulations define a cigar as “any roll of tobacco wrapped in leaf tobacco or in any substance containing tobacco.”5 In contrast, a cigarette is defined as “any roll of tobacco wrapped in paper or in any substance not containing tobacco”.5 The cigar market is extremely diverse and includes products such as large, hand-rolled premium cigars; mass merchandise cigars and cigarillos (ie, smaller, unfiltered cigars that are sometimes sold with plastic or wooden tips); and small/little cigars. Despite the wide variety of cigar products, there is no universally accepted classification system. For federal tax purposes, a distinction is only made between large and little cigars, which are taxed by weight. The Alcohol and Tobacco Tax and Trade Bureau (TTB) of the US Department of the Treasury defines little cigars as weighing no more than three pounds per thousand cigars or each of weight less than or equal to 1.36 g, and a large cigar as a cigar with weight greater than 1.36 g.2
Types of cigars
Little cigars have characteristics other than weight that set them apart from large cigars. Most notably, these cigars have features common to cigarettes, such as shape, size (length 70–100 mm), and cigarette-like filters. Additionally, little cigars are sometimes wrapped in paper that contains tobacco or tobacco extract. The industry seems to use similar methods to market little cigars and cigarettes. The packaging and marketing techniques of little cigar products often mimic those of cigarettes (eg, little cigars packaged in the traditional 20-cigarette soft pack fashion).
In 2009, an increase in the federal tobacco excise tax (FET) for all tobacco products equalised the little cigar FET with that of cigarettes; the effort was to close taxation policy loopholes for the little cigar.2 Although this tax effort was well intentioned, it gave rise to a new cigar product: the filtered cigar. Taxed at a lower FET, the ‘large’ filtered cigar resembled the little cigar, but was slightly longer and heavier (presumably from additional tobacco) to meet the large cigar tax classification (figure 1).
Side-by-side comparison of a little cigar (top) and a slightly larger filtered cigar (bottom).
Regulatory advantages of cigars
As a tobacco product class, cigars have historically had a number of policy and regulatory advantages compared to cigarettes. Moreover, given the differential tax structure for tobacco products at the federal and state level, there is an incentive for the combusted tobacco industry to manufacture and distribute products as a cigar. First, while all cigarette packages must carry health warning labels, only seven cigar manufacturers (Swisher International, Consolidated Cigar Holdings, Havatampa, General Cigar Holdings, John Middleton, Lane Ltd. and Swedish Match), as per a 2001 consent decree settlement, were required to place warnings on their packages. The recent FDA deeming regulations have closed this loophole and now all cigars will be required to carry warning labels. Second, the 1984 Comprehensive Smoking Education Act required that the ingredients of cigarettes, but not of cigars, be reported to the US Department of Health and Human Services; likewise, this loophole will be closed in 2017 as a result of the FDA deeming regulation requirements. Third, escrow or Master Settlement Agreement (MSA) payments must be made on cigarettes, but not cigars. Fourth, cigarettes, but not cigars, have minimum packaging requirements. Fifth, cigars are not subject to the advertising restrictions of the MSA.6 In the context of these differences, the tobacco industry has exploited the legislative and policy loopholes that favour cigars to maintain competitive advantages in the marketplace. At the same time, it is clear that the health risks of cigar smoking are no less than those from cigarette smoking.7
Cigar consumption trends parallel cigarette regulation
In the USA, cigar use was common at the beginning of the 20th century; however, there was a rapid decline in the 1930s, a period coinciding with the increasing popularity of cigarettes. By mid-century, however, events impacting cigarettes almost always produced notable, concomitant increases or decreases in cigar consumption (figure 2).
Consumption of Little and Large Cigars in the USA, 1950–2014.
A resurgence in cigar consumption was first noted in 1964, coinciding with the first Surgeon General's Report on cigarette smoking. Cigars were perceived as less risky than cigarettes because traditional cigar smoke, due to differing pH levels, is not typically inhaled. As such, cigarette consumption dipped due to health concerns, but some cigarette smokers adopted cigars. Another increase in cigar smoking was observed in the early 1970s when a loophole in the federal law (ie, Public Health Cigarette Smoking Act) banned cigarette ads on TV, but allowed on-air marketing of little cigars. Sales of little cigars quadrupled between 1971 and 1973. Moreover, the overall increases documented in figure 2 for this time period are attributed to little cigars, as the consumption of large cigars, while still somewhat popular, was declining annually during this period. In addition to banning cigarette advertising on television and radio, the Public Health Cigarette Smoking Act also required that cigarette packs display stronger health warnings. At that time, cigars did not require warning labels. Cigar consumption began to decline substantially in the mid-1970s with the emergence of discount cigarette brands, and reached the lowest annual level in 1993. The latter half of the 1990s, however, marked the first increase in cigar consumption in decades; many attribute this revival to the establishment of the Cigar Aficionado magazine, and the endorsement of large cigars by celebrity ‘connoisseurs.’ Initially, the fastest growing cigar product between 1993 and 1998 was the large cigar, increasing in consumption by 66%. However, between 1998 and 2008, little cigars became the fastest growing segment of the market, increasing in consumption by 259% as compared to a 55% increase for large cigars. Following tax increases on cigarettes and little cigars in 2009 that resulted from legislation expanding the State Children's Health Insurance Program (S-CHIP), consumption of little cigars declined (90% decrease from 2008 to 2014), while consumption of large cigars soared (132%). This increase is almost exclusively an effect of little cigar manufacturers ‘converting’ their little cigars into filtered cigars to take advantage of the lower federal excise tax on large cigars.8
Exploitation of regulatory loopholes
Evading federal and state excise taxes
The emergence of the filtered cigar is the extension of several marketing strategies over the past four decades, which were designed to take advantage of weaknesses in regulatory schemes for cigarettes. The earliest example of this is the introduction of the Winchester little cigar by RJ Reynolds (RJR). A review and analysis of tobacco industry documents, including 262 research reports, presentations, memorandums, and newspaper articles, explored how the cigarette company RJR engaged in a calculated effort to blur the line between cigarettes and little cigars with Winchester, a little cigar designed for cigarette smokers that was as close in characteristics to cigarettes as legally possible.3 As illustrated by Delnevo and Hrywna, the 1968 RJR's planning proposal for ‘Project CC’ (short for Cigar/Cigarette) sought to develop a cigarette-like cigar as a way to circumvent the broadcast ban for cigarette advertising on television. The document analysis indicated that RJR designed Winchester cigars for cigarette smokers and produced a product with features as close to a cigarette as legally possible. The industry documents reveal that while RJR was initially motivated by the cigarette broadcast ban during early development, the company's careful exploitation of price and tax structure was the dominant factor for its success. Lastly, the documents suggest that RJR voluntarily withdrew their television ads to derail proposed legislation to redefine little cigars as cigarettes so as to protect the product's tax status as a little cigar.
A sense of déjà vu is noted in the mid-2000s when little cigar sales skyrocketed. This was largely driven by the regulatory and taxation policy advantage of the product in the context of the cigarette policy environment. Indeed, from 2000 to 2006, cigarette excise tax increases in numerous states resulted in a doubling of the average combined state and federal tax levied on a carton of cigarettes, from $6.50 to $13.10. Of note, the little cigar price advantage was not solely due to differential excise taxes. Little cigars are free from the costs and restrictions imposed on cigarettes by the MSA, not the least of which is that little cigar manufacturers are not required to make MSA or escrow payments to states (estimated at $4.30/carton) as cigarette manufacturers must. The lack of parity in such added costs can result in a large differential on a carton of cigarettes versus little cigars. Indeed, as highlighted at the 2005 Tobacco Tax Conference, the taxes and fees on a pack of cigarettes were five times higher than that of a pack of little cigars in Massachusetts.
As noted previously, in 2009 S-CHIP sought to establish tax parity between little cigars and cigarettes, but unintentionally created new loopholes that the tobacco industry was quick to exploit. While the FET for little cigars was increased to ∼$10/carton, large cigars with a wholesale cost of $10 would be taxed at a considerable lower rate of $5.28/carton. Subsequently, the cigar industry modified their little cigar into a ‘filtered large cigar’ (or sometimes referred to as a ‘filtered cigar’) by adding a small amount of weight to their product to make it qualify for a large cigar tax classification.
Some data suggest that the added weight in a filtered cigar was not from tobacco, and that one brand (Cheyenne) used sepiolite in the filters (a product used in kitty litter) to add weight to the product.9 In fact, 12 of 22 little cigar companies switched to or increased production of large cigars in response to S-CHIP, and sales of little cigars plummeted while that of large cigar sales soared. These filtered cigars retain many of the cigarette-like appearances of the little cigar, but are slightly larger (figure 1). More recently, one study found that, based on mean stick weight, 15 popular cigar products fell outside their nominal tax classification (ie, weighing <1.36 g on average, but classified as large).10 In other words, these cigar brands did not meet the weight threshold for a large cigar raising questions of potential tax evasion. Of note, personal correspondence with the Tobacco Tax Bureau (TTB) indicates that tobacco manufacturers can self-classify as a large ‘filtered cigar.’
Circumventing federal flavour bans
In 2009, when the FDA implemented a ban on flavoured cigarettes, Kretek International, a key producer of clove cigarettes, came under scrutiny for their clove cigar, prompting the House Committee on Energy and Commerce to initiate an investigation exploring whether the company was attempting to circumvent the flavoured cigarette ban. A review of industry documents highlights Kretek International's deliberate manipulation of their product to circumvent the flavoured cigarette ban and exploit the legislative loopholes to continue selling their clove tobacco product.11 Kretek's internal documents indicated that plans for a clove cigar began in 2007, with the goal to be “prepared for a seamless transition from Djarum Clove cigarettes to Djarum Clove cigars in the event of FDA ban on clove.” Kretek highlighted additional regulatory advantages for their clove cigars, recognising that the new warning label requirements and point of sale marketing restrictions for cigarettes would not apply to cigars, and excise tax disparities would mean a lower consumer price and ‘very high’ retail margin for their cigars relative to cigarettes. While the regulatory advantages of a cigar served as the impetus to the introduction of the clove cigar, Kretek's marketing approach was to publicly “ignore FDA as a reason why, and to barely touch on S-CHIP/taxes”, believing it would be necessary “to demonstrate to distributors and trade that there is a market driven reason for filtered clove cigars, rather than just a reaction to FDA.” While imports of clove cigarettes decreased sharply after the flavoured cigarette ban, the value of tobacco imports from Indonesia, while shifting between the two tobacco products, did not change notably over this time period.11 Concurrently, many mass merchandise cigar brands have increased their share of flavoured products since the flavoured cigarette ban.1 This is especially of concern as these products appear to have particular appeal to youth and young adults.12 Of note, while the recent deeming regulations do not ban flavours in cigars, the FDA intends to propose a tobacco product standard that will prohibit characterising flavours in all cigars, including cigarillos and little cigars.
The case for regulating little and filtered cigars as cigarettes
Filtered cigars are offered to and purchased by consumers as cigarettes
In 1966, the Federal Cigarette Labeling and Advertising Act defined a cigarette as any roll of tobacco wrapped in paper or in any substance not containing tobacco, as well as any roll of tobacco wrapped in any substance containing tobacco which because of its appearance, the type of tobacco used in the filler, or its packaging and labelling is likely to be offered to or purchased by consumers as a cigarette. Likewise, the 1998 MSA includes in their definition of ‘cigarette’, a tobacco product which because of its appearance, the type of tobacco used in the filler, or its packaging and labelling is likely to be offered to or purchased by consumers as a cigarette. Here we review why little and filtered cigars could, and perhaps should, be legally regulated as cigarettes using the 1966 definition.
‘Offering’ filtered cigars as cigarettes
Tobacco industry documents illustrate cigar companies' intentions to develop and market products that appeal to cigarette smokers. Winchester little cigars, described earlier,3 walked a fine line between cigar and cigarette, even causing confusion among RJR employees who repeatedly referred to the little cigars as cigarettes. The initial marketing concept of ‘Project CC’ was to position Winchester as ‘the little cigar designed for the cigarette smoker’ with an explicit health claim—satisfaction without inhaling. RJR's key marketing objective was to communicate that although Winchester was not a cigarette, it was similar to cigarettes in many ways. Advertising research on one of their commercials found that the advertisement successfully utilised several elements to evoke cigarette associations. In addition to the product's visual similarity to cigarettes, focus group participants for the commercial recalled voice overs saying, ‘It's not a cigar’, as well as a woman inhaling the product and a man reminiscent of the Marlboro cowboy. Although RJR executives found the results encouraging, they wanted more:The “20 Little Cigars” super at the end of the commercial was in relatively large type and contributed to the recognition that Winchester is a Little Cigar… The fact that the older, slobby man was smoking a big cigar resulted in some smokers thinking that Winchester is for cigar, not cigarette smokers. For this reason other commercials in the pool will probably not show cigars being smoked. In our analysis we will look for additional clues as to how to position Winchester closer to cigarettes.
The little cigar boom of the mid-2000s was spurred on by the high prices of cigarettes. A 2006 trade publication article entitled ‘Might of Mini's’13 includes numerous quotes from the cigar executives regarding little cigars, their appeal to cigarette smokers, and recommendations to market the product at point-of-sale to cigarette smokers. For example, Jeffrey Avo Uvesian, president, International Tobacco Partners, LTD stated:Little cigars should be merchandised separately from cigars as they appeal more to the crossover former cigarette smoker.
While Jeffrey Wagner, director of international corporate sales, Royal Blunts, Inc. suggested thatA little nudge by the clerk to suggest they try them as an alternative to cigarettes, as well as a bright and clean display near the register, can make all the difference.
Lastly, Harry Preston, national accounts manager for J.C. Newman Cigar Company acknowledges thatThe popularity of mini cigars is at least partially due to the cost increases of cigarettes,” and that “some cigarette customers are clearly switching to little cigars as a more inexpensive way to enjoy a smoke.
Much like Winchester's advertisements in the 1970s, little cigar advertising in the 2000s was also designed to appeal to cigarette smokers and blurred the lines between little cigars and cigarettes. For example, Cheyenne, like numerous other tobacco brands, manufactures and markets both little cigars and cigarettes under the same brand, with visually similar packaging.
How the product is presented is also critical. An advertisement for Supreme Blends shows a traditional cigarette-like soft pack, with the product's cigarette-like tipping paper exposed, but not the brown little cigar wrapper (figure 3).
Little cigars presented as cigarettes, from a 2004 industry magazine.
While the imagery of the product helps to blur the line between a little cigar and cigarette, overt tag lines were also utilised. In particular, a marketing website for Prime Time little cigars advertised that the products were “so much like cigarettes, it's hard to believe they are cigars!” The advertisement reminds the viewer that this product is packaged in ‘cigarette like cartons of ten 20-packs’ and that it has a ‘filter just like a cigarette.’ (figure 4).
Little cigars' advertised similarities to cigarettes.
Moreover, analysis of the design of filtered cigars and little cigars shows that they are comparable to cigarette products in terms of features such as filter weight and length, tobacco weight and density, filter ventilation, and pressure drop.10 Technically, there is little separating many filtered cigar products from cigarette products.
‘Purchasing’ filtered cigars as cigarettes
Consumer perceptions are critical in determining whether filtered cigars are viewed and purchased ‘as cigarettes.’ Again, the tobacco industry documents specific to Winchester are useful.3 When RJR conducted consumer testing with cigarette smokers and presented them with a filtered cigar, they found that:Most men (and women) inhaled their first puffs of this new product. When asked why, they said it was because the product seemed like a cigarette in terms of size and shape and because the filter suggested that it could be smoked just like a cigarette.
Cigarette smokers also found the product to be ‘surprisingly mild’ and ‘closer to a cigarette taste.’ RJR's market research showed that the percentage of smokers identifying CC as a little cigar was ‘surprisingly low’ and many cigarette smokers assumed that the product, described as ‘a new kind of smoke,’ was ‘another cigarette brand.’
A 2012 study sought to explore perceptions of filtered cigars via a web survey of 344 self-identified cigarette smokers.14 The web survey presented smokers with images of various types of tobacco products, including: a Winchester Little Cigar, a Santa Fe filtered cigar, a Black and Mild filtered cigar, and a Nat Sherman Black and Gold Cigarette, a unique product because the cigarette paper is black and not white. Participants were then asked to categorise the products as either a cigarette, little cigar, cigarillo, cigar or roll-your-own tobacco. The respondents had difficulty distinguishing between cigarettes and filtered cigars; 42.2% identified Winchester, and 34% identified Santa Fe as cigarette products. Interestingly, only 40.4% identified the Nat Sherman cigarette as a cigarette, suggesting that the dark paper confused cigarette smokers.
These survey data, along with trade publications and industry documents, suggest that some filtered cigar users are cigarette smokers, perhaps seeking ‘cheaper smokes.’ The 2012 National Survey on Drug Use and Health (NSDUH),15 asked past 30-day cigarette smokers what brand of cigarette they currently smoke. An estimated one million cigarette smokers actually reported cigars, specifically: Black and Mild, Phillies, Swisher Sweets, Prime Time, Smokin Joe, Sonoma, Seneca, Double Diamond, 305s, Sky Dancer, Cheyenne, Smoker's Choice, and Santa Fe.
Implications for tobacco control: a call to action
There is abundant evidence that the tobacco industry has offered cigar products to its consumers disguised as a cigarette. As far back as the 1970s, the tobacco manufacturers' response to increased regulation and taxation of cigarettes was to modify and implicitly market cigar products to take advantage of policy loopholes and exploit the cigars' physical similarities with cigarettes. Faced with increased prices and restrictions on product features (eg, ban on flavoured cigarettes), smokers could purchase cigars that are almost indistinguishable from cigarettes, including characteristics such as filter, length, weight and in some cases, the brand. The astonishing rise in cigar sales in the USA over the past few decades, and strong sales in recent years, indicate that manipulative industry tactics and weak regulation continue to drive tobacco consumption.
It could be argued that many little cigars and filtered cigars meet the Federal Cigarette Labeling and Advertising Act and MSA definitions of a cigarette, both in terms of physical attributes and in product marketing. These products are intended to subvert the regulation applied to cigarettes, and sales data suggest smokers are responding positively to a pseudo-cigarette with fewer government restrictions and taxes. Closer regulatory scrutiny on the manufacturing and marketing practices by companies producing little cigars and filtered cigars is warranted, as the tobacco industry has repeatedly shown that any loophole or exemption will be exploited. Closing the regulatory loophole that little cigar and filtered cigar manufacturers now enjoy would be a positive step towards reversing the current cigar consumption trend, and thus continue the progress towards a goal of stricter tobacco control.
Localities and states can, and have, enacted policies that close some of the regulatory loopholes that favour cigars, including tax parity with cigarettes, flavour bans, and packaging restrictions; however, no jurisdiction has comprehensively addressed these issues. Correcting the regulatory scheme that makes it more cost-effective for smokers to simply smoke filtered cigars calls for national policy action which, in place of varying state-level efforts, could uniformly rule that filtered cigars be classified as cigarettes and are thus subject to similar regulations. One of the greatest achievements in public health was the drastic reduction in cigarette smoking prevalence over the past 50 years that was due in no small part to increased cigarette taxation, and stringent cigarette sales and distribution policies. We should do no less for cigars.
What this paper adds
This paper exposes the tobacco industry's response to increased regulation imposed on cigarettes: exploiting policy loopholes by offering little and filtered cigars that are really pseudo-cigarettes, but are exempted from the same regulatory scrutiny to which cigarettes are subject.
This paper provides a detailed account of the recent evolution of the cigar market in response to federal regulation, and highlights historical tobacco industry attempts to evade taxation, capitalise on product features, and capture the cigarette market.
This paper also presents a case for stricter regulation of little cigars and filtered cigars, as these products differ very little physically from cigarettes.
Footnotes
Twitter Follow Cristine Delnevo at @lozzola
Contributors CDD conceptualised the paper, reviewed all relevant literature, oversaw all analyses, took primary responsibility for the writing, and is responsible for the overall content. MH and DPG participated in the review of the literature, conducted the data analyses, and participated in writing the manuscript. EJML contributed to writing and editing the final manuscript. RJO performed product analyses, and contributed to the writing and editing the final manuscript.
Funding This study was supported in part by grants from the National Institutes of Health, National Cancer Institute (3P30CA072720-17S1; R03CA119799; P30CA016056).
Competing interests None declared.
Provenance and peer review Not commissioned; externally peer reviewed.