In the USA, states have enjoyed decades of revenue from the sale of tobacco cigarettes.
The money was supposed to repair some of the damage smoking has done. In reality, it has been largely frittered away.
The source of the revenue is the Tobacco Master Settlement. While aimed at punishing tobacco companies, the settlement actually ended up helping them.
But with cigarette sales declining, vapes are the next target, and with potentially dire consequences.
- What is the Tobacco Master Settlement?
- How the Tobacco Master Settlement helped tobacco companies
- A Master Settlement for vaping
- Potential consequences of a vape master settlement
- Wrapping up
What is the Tobacco Master Settlement?
The Tobacco Master Settlement is an agreement made between tobacco companies and US states in 1999.
Tobacco companies make an annual payment to US states based on how many cigarettes they sell.
Brent Stafford of Regulator Watch told us:
“Fundamentally what you have is a protection racket, where tobacco companies are allowed to sell lethal products without fear of prosecution in return for forking over cash to governments.”
In total, tens of billions of dollars have been paid out to those states, while tobacco control groups have received hundreds of millions of dollars in payouts.
How the Tobacco Master Settlement helped tobacco companies
A tax on profit would have harmed tobacco companies.
However, funds were paid not on profit but on number of cigarettes sold. Smokers smoke whatever the price, so cigarette companies could simply up the price.
That’s exactly what they did - and more. The 1999 Master Settlement added a 40 cent levy to cigarettes. But tobacco companies increased prices by 79 cents.
Meanwhile, US states faced a perverse incentive. By keeping cigarettes legal, they would get more money. If they were ineffective at reducing smoking rates, they would get more money. If they stopped competition from reduced harm alternatives, they would get more money.
Perhaps that’s why, after the Tobacco Master Settlement:
- tobacco profits immediately increased
- tobacco companies performed 47% better in the post MSA period than similar companies
Given the amount of money states get from the master settlement, it’s hardly surprising that not only has the US failed to ratified the WHO framework on tobacco control, it’s actively sought to undermine it.
Indeed, many vape activists believe that the master settlement is the reason some US states have opposed vaping.
However, the flow of cash may fall if plans to drastically reduce nicotine levels in cigarettes come to fruition, leading to both a larger black market and more smokers switching to alternatives.
A master settlement for vaping?
Now a new master settlement, outlined in the ROADMAP TO A NATIONAL SETTLEMENT AGREEMENT, is proposed for (tobacco controlled) vape company, Juul.
The proposal suggests using the money raised for a ‘vaping prevention program’, despite the fact these have backfired in the past.
Currently, the master settlement is aimed only at Juul. I think it’s also inevitable that if Juul is forced to pay funds to states, other vape/tobacco companies will inevitably have to follow in their footsteps. That’s certainly implied in the linked document above, which writes:
“To be effective, the counter-marketing campaign should have a broader focus than just Juul…”
Human nature being what it is, states will likely use the money how they see fit. Despite this, tobacco control groups such as Tobacco Free Kids and Truth Initiative will still benefit to the tune of millions of dollars.
Potential consequences of a Vape Master Settlement
Legal protection for vaping
On the positive side, a master settlement could protect vaping. The settlement will likely mean vaping gains immunity from prosecution. As we’ve seen with cannabis, when an industry starts paying its way, states become keen to make/keep it legal.
However, that positive would come at a cost.
Handing control to tobacco companies
As with the Tobacco Master Settlement, the vape master settlement could help tobacco companies. That’s especially the case if the settlement is only with larger companies.
Regulations in the US are already favouring large, well funded tobacco companies by helping them to control the nicotine market in both vaping and combustible tobacco.
More money flowing stateside could encourage further regulations that punish small companies (assuming any survive incoming vape regulations) to the benefit of those paying into the state’s coffers.
Brent Stafford believes this is deliberate. The current administration would prefer to deal with a small number of large companies which are easier to control than a plethora of small, independent businesses.
That has serious consequences for vapers.
With reduced competition, there would be less choice of devices, vastly less choice of e-liquid flavours and increased prices.
It would also hand control of vaping to an industry which not only created the problem vaping is trying to solve but which has the least incentive to see it succeed.
Marrying vaping to smoking
Brent foresees another consequence.
“It’s forever going to nail vaping to tobacco in people’s minds. Vaping is already increasingly seen in a negative light after an aggressive media campaign against it. Once it becomes part of a Master Settlement, there’s no coming back from that.”
A vape master settlement will provide more money to states and tobacco control organisations. But that comes at a steep cost.
With less choice, higher prices and increased stigma, cigarette smokers will have less incentive to switch to an alternative which research says:
- is at least 95% safer than smoking
- carries 0.5% of the cancer risk