Minnesota’s $3 Billion Habit

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The real cost of tobacco and nicotine use in Minnesota

The average price of a pack of cigarettes in Minnesota is currently legally bound at $8.40. The price, set by the Minnesota Commerce Department, is a crucial component in the state’s strategy to keep tobacco products expensive and to reduce tobacco and nicotine consumption that in 2016 alone cost Minnesotans taxpayers over 3 billion dollars.

Minnesota’s Commerce Department based the figure on known manufacturers’ list prices and included a sampling process of the entire cigarette market in the North Star State.

The new price per pack passed into law on September 25th, 2017 and according to the Minnesota Statutes Chapter 325D, includes minimum prices for unlisted products from brands not affected by the ‘Non-settlement fee.’

As such, wholesale carton prices are set at $35.90 + manufacturer’s price + $5.00 non-settlement fee + $0.97 wholesale cost of doing business. Retail prices are set at +8% of the wholesale price. Add to this the annual UCSA fee cigarette distributors are required to pay under the Unfair Cigarette Sales Act, and you start to question if selling cigarettes in Minnesota is even a viable business option.

The Price of Popularity

Of course, hiking the price of a pack of cigarettes alone will not deter hardened smokers. The addictive power of nicotine is a supremely persuasive argument when it comes to bending a budget to fit the habit. But studies have shown that keeping the price of tobacco products high can be a smart move in bolstering the reluctance and the resolve of non-smokers toying with the idea of purchasing their first smoke.

It’s a hard battle to fight.

However, with Big Tobacco calling the shots for many past decades, the popularity of well-known brands is near-to ingrained into our culture’s sub-conscious.

Nevertheless, the average set by the Minnesota Commerce Department has forced tobacco’s top brands to seriously rethink their pricing strategy.

Here’s a quick look at the current retail-pricing situation for a pack of the top dozen cigarette brands:

  • KOOL $9.21
  • USA Gold $8.18
  • Marlboro $8.67
  • Camel $8.67
  • L&M $8.24
  • Newport $9.13
  • Lucky Strike $10.10
  • Benson & Hedges $9.81
  • Now $10.10
  • Black & Gold $10.97
  • New York Cut $9.25
  • Export A $9.06

Cigarette and Tobacco Tax Breakdown

Minnesota charges excise tax at 95% of the wholesale sales price on all tobacco, cigars and moist snuff products. Tobacco tax, however, is not to be confused with cigarette tax. Cigarettes in Minnesota are levied at a rate of 15.2 cents per cigarette, and 57.4 cents on a pack of 20. The state also has a specific tax regime for sales of tobacco products and cigarettes on Native Reservations.

Conclusion

Raising the price of cigarettes and tobacco products, plus adding significant tax measures are useful tools in Minnesota’s fight against the smoking habit. Studies in some European countries have shown that a 10% price hike on a pack of cigarettes has reduced demand by up to 4%.

Tobacco taxes benefit smokers who successfully quit, reduce overall consumption, and put smoking cessation on the radar of people that continue to smoke, not to mention the reduction in secondhand smoke, and making a considerable contribution to the cost of treating the thousands of smokers that suffer from the long-term impact of a nicotine habit.