The Cigarette-paper Business May Get a Boost from an Unexpected Source

Source from:  Tobacco Reporter  08/08/2013

In researching this story in April, I spoke with somebody who estimated that demand for cigarette rolling papers was increasing by 8–10 percent a year. Such an increase would be welcomed by just about any industry in respect of almost any product. In tobacco-industry terms, it is enormous, so I asked my informant what was behind this level of increase. It was, he said, down to "economic drivers and taxation drivers."

This is understandable. In many parts of the world, smokers, like most other people (the 99 percent, perhaps), are suffering from an economic crisis largely caused by people who aren't suffering from it, and increases in cigarette taxes simply pile "oh-but-it's-for-your-own-good" pain on to hard-ship. A lot of smokers—those who don't seek immediate refuge in the illicit trade—have been turning to hand-rolling tobacco as a—in some places, at least—less expensive alternative to factory-made cigarettes

Of course, if this explanation is correct, then the boom in hand-rolling paper sales is going to last only as long as there is a tax advantage in smoking hand-rolling tobacco, which is purposely being eroded in some countries. And, while the economic crisis holds on, both of these factors will vary from country to country, region to region.

But, there are some interesting developments going on in the United States that might prolong interest in hand-rolled cigarettes there. On April 10, President Obama announced his intention of seeking to impose the biggest-ever increase in the United States' federal cigarette tax, with the purpose of funding preschool programs. The proposal would increase the current federal cigarette tax from $1.01 per pack to $1.95 per pack, increase proportionately taxes on other tobacco products and index tobacco taxes for inflation after 2014.

In 2009, the president signed into law what was then the single-largest increase in the federal cigarette tax, which took it from $0.39 to $0.62 per pack, with an inevitable result. According to a 2012 Federal Trade Commission report, ciga-rette sales declined by 10 percent nationwide in 2009 and by three percent in 2010.

At the time of the president's most recent announcement, the National Association of Tobacco Outlets said that the proposed tax increases might result in even heavier declines in sales than those of 2009 and 2010. And if this were the case, presumably, hand-rolling tobacco and, therefore, ciga-rette papers, would reap some of the benefit of the declines in cigarette sales, though this would be offset, to some extent, by declines also in hand-rolling tobacco sales as some consumers looked for even cheaper alternatives.

Of course, there was a long way to go when this story was being written and, already, Bonnie Herzog, managing director of beverage, tobacco and consumer research at Wells Fargo Securities, had thrown some cold water on to the proposal. She made the point that, for two reasons, the proposal seemed to have a low chance of passing in its original form. First, Republicans in the House of Representatives, who tend to oppose tax increases, were more prominent in Congress than they were in 2009, when the most recent federal tobacco tax increase was passed. And second, the tax would unfavorably impact some of the more vulnerable income populations, such as households with moderate-to-low incomes, and therefore it would be unpopular.

The rise of weed

OK, but even if there's some horse trading on the proposal, the president's plan might still cause a boost to the hand-rolling sector. And, even if it doesn't, there is another factor that is worth taking a look at: the legalization of marijuana in some parts of the U.S.

A couple of days before the president's proposal to nearly double the federal excise on cigarettes was made public, a story in the  Huffington Post had it that licit marijuana sales were projected to hit $1.5 billion this year, and it quoted data from the  Medical Marijuana Business Daily as saying that sales could quadruple to $6 billion by 2018.

Of course, as is implied above, a lot of this licit use of marijuana is medicinal in nature and some—probably most—of that will be administered in ways other than smoking. The Post  piece, quoting the National Cannabis Industry Association, said that 18 states and Washington, D.C., had legalized the medicinal use of marijuana, and that 10 other states had formal measures pending to do so.

More interestingly, from the point of view of the demand for papers, Washington state and Colorado legalized the recreational use of marijuana in November. And the questionthat arises is: What is the likelihood that other states will fol-low the lead of Washington and Colorado? That's a tricky one to answer. It could be that one of the reasons why some states have been fairly quick to legalize medicinal use of mari-juana is that it will allow them to resist pressure for a more wide-ranging liberalization of its use. Or such a step might be seen as one way of testing the waters before committing to a general liberalization.

But here again, the  Post  quoted some interesting figures. A recent Pew Research Center poll had found that as many as 52 percent of U.S. citizens supported legalizing the use of mari-juana. And while 45 percent did not, nearly 75 percent said it was not worthwhile spending the amount of money currently spent enforcing marijuana usage laws.

This last-mentioned fact is interesting because it perhaps goes some way to explaining why, in a country where a huge effort is expended on stopping tobacco smoking, the authorities would decide to loosen the reins on marijuana, the consump-tion of which is certainly not risk-free. After all, marijuana is often smoked in combination with tobacco. And if you make illegal the use of cherry flavor in cigarettes at levels regarded
as "characterizing" because cherry flavor makes it more likely that people, especially young people, will smoke, surely it seems odd then to say, "But we're going to allow the use of marijuana with tobacco." But, of course, while most characterizing fla-vors were banned, menthol was not, presumably on economic grounds, and a parallel argument might be made that while marijuana is an additive that makes tobacco more attractive, the cost of policing its prohibition is simply not worth the possible health benefits.

And perhaps, given that you feel a need to sidle around this issue and give a boost to marijuana growing, you could come up with some encouraging health news. Again, just before the tax-increase proposal was made in April, a  San Francisco Chronicleblog quoted an Australian study as finding that smoking mari-juana on its own produced lesser negative physical outcomes than did smoking tobacco and/or smoking tobacco mixed with marijuana.

Researchers at the University of New South Wales, Sydney, Australia, recruited 350 adults over the age of 40 and divided them into four groups: marijuana-only users, tobacco+marijuana users, tobacco-only users and a control group of abstainers.

The population size was small, but the authors concluded in a report listed in the journal  Addictive Behaviors that the control and marijuana-only groups tended to report the best health, while the two tobacco-smoking groups fared the worst.

All three smoking groups reported significantly higher rates of emphysema than did the control group. But all members of the marijuana-only group diagnosed with the debilitating lung disease had formerly been regular tobacco smokers.

Trading places

And I suppose that things would get even more interesting for the cigarette rolling-paper industry if marijuana-only smoking were to become the norm. Here I have to admit to having no real figures or media reports to go on, only the film Withnail and I. One of the most memorable sequences to come out of this film is where a character named Danny explains the provenance of the Camberwell carrot, which, prosaically, is named so because he invented it in Camberwell (London) and it looks—in shape, at least—like  a carrot.  Those in the hand-rolling cigarette-paper business who are not familiar with the Camberwell carrot will be delighted to learn that it is 18 inches long, filled with pure weed and constructed using 12 cigarette papers.

But we shouldn't get carried away here. We don't really know—or  I don't know—what the demand out there is for licit marijuana. Perhaps all of the people who want to smoke marijuana are already doing so and legalization of the habit will merely convert illicit use to licit use, in which case the use of cigarette papers is not going to increase.

Also, once marijuana becomes more accepted, it will no doubt attract the interest of entrepreneurs looking to make marijuana cigarettes in factories.

And, of course, we all know where the story goes from there.  Filters will be added; the surgeon general will issue a statement warning of the dangers of smoking marijuana; low tetrahydrocannabinol offerings will come out that will be found to be more risky than were the original products; graphic health warnings showing heads sprouting grotesquely long hair, beads and flowers will become mandated for packs; and, eventually, somebody will come up with an electronic joint. Perhaps we should try to cut out the middleman.

Finally, as an in-between stage, perhaps those machines that became popular in some U.S. retail outlets for churning out a carton of cigarettes in 15 minutes or so could be brought back into service to meet demand for marijuana cigarettes. Of course, that will not help those trying to sell hand-rolling papers, but they at least use filter tubes, and they use paper. Enditem