Actually MO has
already taken this question and answered it in conference calls and
investor presentations. Under current laws, Heets will be taxed in the
US the same as traditional cigarettes, and the MSA provisions and
"taxes" apply to their sale as well. That is because they contain real
tobacco.
Well, smokeless tobacco, loose tobacco, and cigars also all contain real tobacco, but aren't taxed at the same rate as ordinary cigarettes. I just checked and the operational definition of a cigarette is a roll of tobacco. Here it is from US code section 2341:
As used in this chapter—
(1) the term “cigarette” means—
(A) any roll of tobacco wrapped in paper or in any substance not containing tobacco; and
(B) any roll of tobacco
wrapped in any substance containing tobacco which, because of its
appearance, the type of tobacco used in the filler, or its packaging and
labeling, is likely to be offered to, or purchased by, consumers as a
cigarette described in subparagraph (A);
The "B" part, was a deliberate change in the definition of cigarette to address the issue of manufacturers creating cigarettes wrapped in processed tobacco leaf instead of paper, to qualify legally as cigars and avoid cigarette taxes and certain other restrictions. Products like this do still exist and I think they still may enjoy tax advantages in certain holdout jurisdictions.
Anyway, by the above definition, yup HEETs qualify as cigarettes by Federal law. I haven't checked every state definition, but the few I did check use functionally similar definitions of cigarettes. In fact at least a few are even more restrictive, classifying cigarettes with cloves or any "tobacco substitute" as cigarettes too. So yes,looks like HEETs are just specialized cigarettes subject to normal cig taxes.
On future taxation, although I like your idea that these eventually get differential tax treatment, effectively by attrition as a potentially politically viable one, I wouldn't count it. If they're taxable as cigarettes at launch, and they actually get any market share, I find it hard to see why politicians would feel incentivized to give them preferable treatment later. We'll see.
In some ways, this
is actually beneficial to MO. If Heets were exempt from existing excise
tax laws and the MSA provisions, there likely would be additional huge
opposition to ever approving them. It could mean major losses of
revenue to the feds, the states, and the various MSA beneficiaries. You
can already see some of this in new laws and taxes being enacted on
e-cig vaporizers in various states, taxing them by such methods as the
milliliters of nicotine, since they do not fall under existing excise
tax laws.
I think this helps the product in the sense that its falls into a specific pre-existing category The product itself certainly looks and feels like conventional cigarettes, even though you can't smoke them (see below).
If they come in similar packages as cigarettes, with similar labels and markings, if they're fully regulated, taxed, and distributed as cigarettes, then in the mind of regulators AND consumers they're effectively cigarettes.. .perhaps SAFER ones. . .but basically cigarettes. I think that's a useful paradigm. No new laws need to be written here, no new taxes, etc.