Police spot violation of tobacco norms, raid shop

The UT Police along with officials of the National Tobacco Control Programme on Thursday confiscated over 260 packets of tobacco molasses of brand Afzal , 20 hookahs and water pipes and about 16 packets of hookah charcoal from a shop in Patel market, Sector 15, in violation of Section 5 of the COTPA (Control of Tobacco Products Act) wherein advertisements of cigarette brands were also displayed. The raid was conducted on the basis of specific inputs.

Dr Deepak Bakshi, nodal officer, National Tobacco Control Programme, Chandigarh, along with Sunil Chowdary, drug inspector, and a team of police officers — SI Ramesh Kumar, SI Ashok Kumar, Head Constable Major Singh and Constable Birender Singh — raided a booth and found a huge cache of tobacco molasses to be used in hookahs along with water pipes, hookahs, charcoal for hookahs. The police team also found about 110 packets of cigarettes of brands like Pine and Black, Superslim, Marlboro, Rothmans packets and cigarettes without the mandatory pictorial warnings.

Two other shops were also found displaying advertisements for cigarette brands and the same were removed by the police officers. Both the shops were booked for violations. Later, the team took a round of Sector 24 market wherein they found three violations of Section 5 of COTPA, ie advertisements of cigarettes and tobacco products. The advertisement boards were removed. At another shop, the team found some cigarette packets without the mandatory pictorial warnings. About 60 such packets were confiscated.

Recent Performance Review For 6 Cigarette Manufacturers

Tobacco and cigarette equities are frequently touted as recession-resistant industries. Due to the addictive nature of the vice, smokers are often reluctant to cut tobacco from their budgets, even though the cost of cigarettes, especially after taxes, has continued escalate. Moreover, cigarettes and other tobacco product sales often increase when consumers are forced to cut food budgets, work longer hours and deal with stressful situations.

Despite the known realities of the negative health consequences associated with tobacco, nicotine is also known to calm the nerves during aggravating situations, curb one's hunger and act as a stimulant. Further, the metaphorical dark cloud surrounding tobacco will keep many individuals and even some institutions and funds from investing in tobacco equities. This disinterest by some investors might contribute to market undervaluation of tobacco related equities, as there could often be fewer buyers of cigarette manufacturers than there might be for many other consumer goods makers.

 Below are the present yields and recent equity performance rates for six publicly traded tobacco companies: British American Tobacco (BTI), Lorillard (LO), Altria Group (MO), Philip Morris International (PM), Reynolds American (RAI) and Vector Group (VGR). I have provided their 1-week, 1-month, 2012-to-date and 6-month equity performance rates.

Groups protest Family Dollar tobacco sales

A group of anti-tobacco activists is protesting Matthews, N.C.-based Family Dollar's recent decision to start selling cigarettes, saying the stores will push more cigarettes on low-income consumers, who already smoke more than average. Family Dollar responded that its decision was driven by customer demand. "We're not in the business of judging our customers for their purchases," said Family Dollar spokesman Joshua Braverman.

"It's just another category where we add the convenience for them." But in a letter to Family Dollar CEO Howard Levine, the Campaign for Tobacco-Free Kids and the Break Free Alliance said the increased availability of tobacco at Family Dollar's 7,100 stores will add to customers' health problems. "Selling tobacco to your customers will make it easier for them to become addicted or sustain an existing addiction," said the letter, co-signed by the groups' directors. "The fact that your customer base is comprised of low-income families makes your decision even more troubling."

 The groups said about 26.9?percent of low-income adults smoke, compared to 19.3?percent of the total adult population. Braverman told McClatchy Newspapers that Family Dollar customers smoke at a higher rate than the general population, which was one factor driving the decision to start selling tobacco. "Our customer over-indexes as tobacco users," Braverman said. "We know they're going to other retailers to purchase their tobacco products."

 In March, Family Dollar reported a record $136.4?million in profits for the second quarter, up from $123.2?million a year ago. Total sales at Family Dollar were $2.46?billion, up 8.6?percent. Family Dollar also has been bulking up its selection of food and drinks. The rationale is similar with tobacco: Executives hope to spur more frequent trips, and allow customers to cross off more of their shopping list at Family Dollar. Levine told analysts at a retail conference this week that while tobacco is a low-profit business, having cigarettes in the store will draw customers who would have shopped elsewhere before.

 "The whole strategy behind adding tobacco was not a basket-builder," he said, using a retail term to describe how much customers buy. "It was very simple. It was to get a trip in the Family Dollar that we had not had before. ... That's what we hope to accomplish, is to get him or her into our store." Family Dollar also has been competing more directly with mega-retailers such as Wal-Mart and traditional grocers as customers look to save money, and both those store categories sell tobacco.

Training on tobacco law planned

The Clinton County Health Department will hold Certified Tobacco Sales Training on Monday, May 7, to help retailers reduce the potential for tobacco sales to minors. In Clinton County, the overall sale of tobacco to minors increased by 5 percent between 2008 and 2011. About 8 percent of the 105 retailers who sell tobacco products in the county were fined for selling to minors, a Health Department press release said.

 Across the state, those figures have actually dropped from 8.3 percent to 5.9 percent over that same time period. "We conduct unannounced compliance checks throughout Clinton County," said Susan Thew, a senior public-health sanitarian who oversees the compliance-check program for the county. "Despite our educational efforts with vendors, sales to youth continue to rise."

 SURPRISE CHECKS

 The state's Adolescent Tobacco Use Prevention Act allows local health departments to conduct unannounced checks and identifies penalties for businesses that sell to minors. "We conduct one adult compliance check and one youth compliance check in retail stores annually," Thew said. "The adult check is used as an educational tool to help vendors understand their responsibilities."

 During an adult compliance check, Health Department staff verifies that tobacco vendors are registered with New York to sell cigarettes products and are compliant with signage and tobacco location requirements.

ZNFU bemoans unfair tobacco pricing

THE Zambia National Farmers Union (ZNFU) has expressed concern over the price exploitation of local tobacco on the regional market by merchants which is adversely affecting the industry. ZNFU commodity chairman Graham Rae said the continued exploitation of local tobacco farmers has a negative impact on the industry. In an interview recently, Mr Rae urged the newly-appointed board at the Tobacco Association of Zambia (TAZ) to investigate why local tobacco is fetching low on the regional market.

He said local tobacco, which is priced at US$4.60 is being treated as inferior when the same commodity from Zimbabwe is fetching US$5.90. “The question is why our tobacco is inferior…I say no, it’s straight exploitation. When you look at the average price of tobacco on the floors now, they are 30 to 50 percent higher than they were last year,” he said. Mr Rae said Zambian tobacco is losing its identity by exporting to Zimbabwe, which later adds value to the product.

“There is a real issue here and as a country we need to find out why our tobacco is being discounted to regional prices in Zimbabwe. If the issue is on value addition, let them tell us so that we can upgrade Tombwe Processing to upgrade the facility to meet international standards,” he said. He wondered why Zambian tobacco should be exported to Zimbabwe to simply enhance their tobacco which has low nicotine and flavour.

“Three years ago, Zambia participated in the international tobacco competition in America and Zambian tobacco came second in the world,” he said. Recently, the Zambia Co-operatives Federation called on Government to quickly address the chaotic tobacco marketing before the opening of the next auction floors. The TAZ is expected to officially open the sales floor price for tobacco on May 11, 2012.

Tobacco stocks: A hard habit to break

Somebody forgot to tell investors that cigarettes are a declining business. The S&P 500 tobacco index has beaten the market, jumping 13 per cent so far this year after surging 36 per cent in 2011. While the U.S. tobacco industry must wrestle with falling cigarette sales, rising taxes and potential litigation headaches, dividend hunters can't kick the industry's lush payouts. “The products tobacco companies make are abhorrent … but they are amazing businesses,” says Darren McKiernan, a portfolio manager with Invesco Canada Ltd.

“The beautiful thing about it is that these companies generate so much cash … They pay out 50 to 75 per cent of their earnings in the form of dividends and they buy back stock.” Philip Morris International Inc. and its former parent Altria Group Inc., (MO-N32.420.210.65%) both of which sell the iconic Marlboro brand, are among the best-positioned bets in a sector where dividends now yield 3 to 6 per cent. Both firms recently reported higher first-quarter profit, while Lorillard Inc. (LO-N133.56-1.73-1.28%) and Reynolds America Inc. (RAI-N40.77-0.06-0.15%) saw earnings fall on weaker cigarette volume. Sales of cigarettes have been falling in markets like the United States and other developed countries because of smoking bans and concerns about tobacco-related cancer.

But the industry has been offsetting revenue declines by cutting costs, boosting prices and diversifying into smokeless tobacco products like snuff, which is inhaled through the nose, and snus, which users insert between their teeth and gums. Lorillard, which last year fought off a proposed U.S. government ban on its top-selling menthol cigarettes, expanded its offerings last week by buying Blu Ecigs, a maker of electronic cigarettes that heat nicotine-laced liquid and convert it into a mist. “At some point, the party ends, but as far as I can tell, it is a long, long way off,” said Mr. McKiernan, who owns Philip Morris, Altria and British American Tobacco in his global dividend fund. While the U.S. tobacco industry continues to battle lawsuits, “the litigation environment is more benign now” because it has won some big cases, and litigation is less prevalent in other countries, he said.

“The dirty little secret is that the biggest beneficiaries of tobacco companies are the local governments because of the taxes.” China, home to a third of the world's smokers, is a closed market where tobacco sales are dominated by state-owned China National Tobacco Corp, but cigarette sales are rising in other Asia markets where consumers with more disposable income seek out prestigious brands such as Marlboro. Unlike its three domestically focused U.S. peers, Philip Morris International is “generating growth and has momentum” in international markets, said Wells Fargo Securities analyst Bonnie Herzog. She rates its stock as her “top pick” with a one-year target of $96 (U.S.) a share.

 “I expect Philip Morris' profit in Asia to double to over $10-billion by the year 2020,” she said. “One of the big drivers is Indonesia where I expect profits to quadruple.” Altria is Ms. Herzog's top U.S. pick because she expects its Philip Morris USA unit will become more aggressive in offering alternative tobacco products this year to keep its No. 1 market position. Cigarette sales have been declining for four decades, but the U.S. tobacco category is “closer to flat” when smokeless products “be it moist snuff, snus, dissolvables or electronic cigarettes” are included, Ms. Herzog said. She compares the sector to the beverage category where carbonated soft drinks are fading, but “you have non-carbonated drinks, whether it is water, juice or tea, and energy brands like Monster or Red Bull.”

 S&P Capital IQ analyst Esther Kwon has a “strong buy” on Philip Morris because of its rising sales in emerging markets, and a “buy” on Lorillard and Altria. Lorillard, through its Newport brand, dominates the market for menthol cigarettes, but has launched a non-menthol version that is gaining market share, she said. “We are less positive on Reynolds American, which we have downgraded to a hold” because its brands are vulnerable to consumers trading down to roll-your-own cigarettes, she said.

Lights out on tax on cigarettes?

Now that the election is in the history books, Danville City Council’s next task is to finish work on the 2012-13 budget — one that’s likely to include a new local tax on cigarettes. Danville’s proposed budget doesn’t try to justify this new tax on health grounds. In that argument, the cost of smoking is raised to the point where smokers are forced to quit. That’s not happening here. Neither is there any acknowledgment of tobacco’s role in Danville’s rich history.

The city is, of course, best known for being a transfer station for tobacco from nearby farms to the companies that turn that tobacco into cigarettes. You won’t find any references to that irony in this proposed budget. Instead, Danville’s proposed cigarette tax is simply about adding another 30 cents to the price of pack of cigarettes, with the hopes of generating another $100,000 in the upcoming budget year and as much as three times that amount once the cigarette tax is levied for an entire year.

 Danville is one of nine Virginia cities (out of 39) that do not charge the cigarette tax. That would seem to put the matter in the realm of "We should do it because just about everyone else is doing it." But the real question that should be asked right now is "What are the unintended consequences of adding to the cost of cigarettes purchased in Danville?" Danville is not an island surrounded by dozens of miles of empty space. If the cigarette tax is enacted in the next few weeks, store owners won’t start collecting it until Jan 1.

That’s plenty of time for some of them to figure out where to locate new stores that will sell cigarettes for less in Pittsylvania County or Caswell County, N.C. Of course, it costs a lot of money to make the kind of capital investment simply to create a price advantage for cigarettes sold just over the border. But the border isn’t all that far from most of Danville, and the members of City Council would be wise to consider the competitive disadvantage that they could be creating for the city’s merchants.

 For a city like Danville, which has developed into a retail hub for the surrounding communities, that competitive disadvantage might have the unintended consequence of spreading the hub’s retail sales to areas beyond the reach of the Municipal Building’s tax collectors. That concern is worth considering now, before it’s too late. Danville certainly needs new revenue, but the better choice this year is to find more savings in the lines of municipal government spending. Tax increases may be a forgone conclusion, but their bite is numbed when people know their political leaders were willing to take a tough look at spending before they raised an entirely new tax.