Convenience Store News

DEC 2016

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54 Convenience Store News | DECEMBER 2016 | WWW.CSNEWS.COM Cigarettes + Cigars + Smokeless + E-Cigs + Other OTP TOBACCO O n Nov. 8, registered voters across the United States turned out in droves to cast their bal- lots for the next commander-in-chief. While everyone was watching, waiting and trying to pre- dict the outcome of the race between GOP candidate Donald Trump and Democratic candidate Hillary Clinton, the tobacco industry was keeping an eye on mea- sures in four key states. Once the election dust settled, California emerged as the state that will see the biggest change in tobacco retailing. Voters in the Golden State — by a 62.9-percent to 37.1-percent tally — approved Proposition 56, a ballot mea- sure that raises the state's cigarette excise tax by $2 per pack. Also known as the California Healthcare, Research and Prevention Tobacco Tax Act of 2016, the proposi- tion places an equivalent tax increase on other tobacco products and electronic cigarettes containing nicotine. A similar tax proposal was defeated in 2012. Tax revenues from the higher levy are expected to range between $1 billion and $1.4 billion annually by 2017-2018, with revenues decreasing slightly in subse- quent years, according to an analysis conducted by the Legislative Analyst's Office and Department of Finance. This outcome was not a surprise to some industry watchers. "While California accounts for over 12 percent of the U.S. adult population, the state accounts for less than 7 percent of cigarette industry volumes, as smok- ing incidence in California is nearly 400 basis points below the national average," said Vivien Azer, director and senior research analyst at Cowen and Co. She explained that the state excise tax increase could result in an approximately 40-basis-point drag on industry vol- umes in 2017, assuming a 25-percent bor- der benefit and an April 1 effective date. According to Bonnie Herzog, managing direc- tor of tobacco, beverage and convenience store research at Wells Fargo Securities LLC, this was the third time in the last decade that California voters weighed in on raising taxes on cigarettes — but the first one to pass. Why is this important? There are several reasons: California is the second-largest cigarette consumer state. In addition, Proposition 56 effectively increases the weighted average state excise tax on cigarettes in the U.S. by 17 cents a pack to $1.77, and will drive average cigarette retail prices up by roughly 8 percent to $6.81 per pack, explained Herzog. Also, high prices — partially driven by the tobacco companies taking cigarette list price hikes — could lead to greater volume declines in fiscal year 2017. "Therefore, we anticipate volumes to decelerate greater than our current 3-percent volume decline expecta- tions," she said. California's win could likewise trigger copycat Tobacco Goes to the Ballot Box California tax increase heads to the polls and finally wins voter approval By Melissa Kress

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