While fewer Americans smoke than at any time in history, those who still do are paying a heavy cost for their addiction.
Since 2011, The Awl has been surveying all 50 states about the price of tobacco, and if you're a smoker, the news is not good. For the first time no store in any of the 50 states offered a pack of cigarettes for less than $5. In general, the survey found prices are pushing higher, but a number of states, including low-cost leader Virginia and most-expensive-per pack king New York, saw price cuts.
The rise in the price of a pack of cigarettes comes at a time when fewer American adults are smoking. Cigarette smoking has decreased among adults in the United States from about 42% of the population in 1965 to about 18% in 2012 (the latest year for which numbers are available), according to the American Cancer Society. Though numbers are falling, cigarettes are still big business in the United States and about about 42 million (a little less than one in every five) adults currently smoke cigarettes, ACS wrote. "About 21% of men and 16% of women were cigarette smokers in 2012," according to the group. "Education is linked to smoking rates, with lower smoking rates in groups with higher levels of education. More people smoke cigarettes in the Midwest (21%) and South (20%), and fewer smoke in the West (14%)."
Because tobacco has fallen in popularity and anti-smoking efforts have made the habit less cool, taxing cigarettes has been an easy way for state governments to essentially raise taxes without the negative publicity that directly raising taxes brings.
Which states charge the most?
The disparity between the price of a pack of cigarettes in the cheapest state and the most expensive is enormous. Smokers buying a pack in Virginia or Missouri pay just $5.25 while those feeding their habit in New York most pony up $12.95. Here are the five priciest states according to The Awl:
5. Vermont: $9.62
4. Alaska $9.79
3. Massachusetts $9.95
2. Illinois $11.50
1. New York $12.85
The difference in pricing comes in the form of state taxes. Not surprisingly, New York, as of 2013, had the highest state cigarette excise tax rate, coming in at $4.35 per pack, according to The Campaign for Tobacco Free Kids. There are also local taxes on cigarettes in some cases -- in both New York City ($5.85 in taxes per pack) and Chicago ($6.16 in taxes per pack) smokers can expect to pay even more than people living elsewhere in their already expensive states.
The federal government takes in a relatively paltry $1.01 per pack.
Has this hurt big tobacco?
The two biggest cigarette companies in the United States Altria (NYSE:MO) and Reynolds American (NYSE:RAI) saw slight declines in overall revenue in 2013 versus the previous year. Altria breaks out smokeable products from its other business areas (which includes wine) and that segment fell from $22.21 billion in 2012 to $21.86 billion in 2013. The company acknowledged in its annual report that it faces a number of continuing challenges in the U.S. including "actual and proposed excise tax increases, as well as changes in tax structures and tax stamping requirements."
Reynolds saw a similar slight decline in overall revenue dropping from $8.30 billion in 2012 to $8.23 billion in 2013. The company, which operates primarily in the U.S. also acknowledged its potential tax problems in its annual report.
The U.S. cigarette market is a mature market in which overall adult tobacco consumer demand has declined since 1981 and is expected to continue to decline. Profitability of the U.S. cigarette industry and RJR Tobacco continues to be adversely affected by decreases in consumption, increases in state excise taxes and governmental regulations and restrictions, such as marketing limitations, product standards and ingredients legislation.
Taxes and a dying/falling customer base has hurt these two tobacco companies, but those who still smoke have shown a willingness to do so no matter the cost, which has allowed both Altria and Reynolds to raise prices to make up most of the losses attributed to declining demand.
The cost of smoking
While cigarette smokers contribute heavily to the state and federal tax coffers, the costs are also high according to TobaccoFreeKids.org. The group shared the following numbers, all of which are heavily sourced.
- Total annual public and private health care expenditures caused by smoking: at least $132.5 Billion
- Annual health care expenditures solely from secondhand smoke exposure: $6.03 billion
- Productivity losses caused by smoking each year: $156.6 billion
Daniel Kline has no position in any stocks mentioned. He does not smoke. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.