Increasing Tobacco Prices Through Non-Tax Approaches
According to the Surgeon General, raising the price of tobacco products is one of the most effective strategies for reducing initiation, decreasing consumption, and increasing cessation. While raising excise taxes is the gold standard for raising the price of tobacco products, other non-tax opportunities exist for states and communities facing political barriers to excise tax increases.
These strategies include:
- Implementing or strengthening minimum price laws;
- Banning price discounting/multipack offers;
- Increasing tobacco retail licensing fees;
- Instituting mitigation fees; and
- Implementing disclosure or sunshine laws for payments or discounts to retailers.
The first two of these strategies also have the benefit of counteracting industry attempts to subvert tax increases through price discounts paid to retailers or wholesalers, which, according to the Federal Trade Commission, accounted for 85.4% of the industry’s advertising and promotional expenditures for cigarettes in 2013.
For a primer, review:
- TCLC’s “Price-Related Promotions for Tobacco Products: An Introduction to Key Terms & Concepts”
- California Department of Public Health’s “Tobacco Retail Price Manipulation Policy Strategy Summit Proceedings”
- Public Health and Tobacco Policy Center’s“Tobacco Price Promotion: Policy Responses to Industry Price Promotion”
- Public Health and Tobacco Policy Center’s “Tobacco Product Pricing Policy in Vermont“
For more details on each of these strategies, click below:
What are Minimum Price Laws?
A strong Cigarette Minimum Price Law (CMPL) at the state level sets a floor price for cigarettes, or a price below which cigarettes cannot be sold. According to a MMWR study, as of December 31, 2009, 25 states (including Washington, DC) had CMPLs. There are several options for crafting CMPLs:
- Establish minimum markups when cigarettes are sold from wholesalers to retailers or from retailers to consumers, with a separate minimum price for every brand because wholesaler and retailer costs vary by brand. While this is the most common approach, most current CMPLs contain loopholes that limit their effectiveness. 
- Strengthen CMPLs by excluding trade discounts (eliminating one of the loopholes mentioned above) from the calculation of minimum price, which seven states have done. See the table below for an example comparison of the calculation of the minimum retail price of a pack of cigarettes with a minimum price law that expressly prohibits and one that expressly allows trade discounts.
- Establish a floor price (e.g., $5.00 per pack) below which no pack could be sold, regardless of the wholesale price. This approach was implemented in New York City. The flat-rate minimum price would need to be pegged to inflation or increased every few years to account for inflation.
- Establish a hybrid law that establishes a minimum price law that also requires substantial minimum percentage markup for all products and bans price discount tactics. 
- Implement a minimum price law with a minimum pack size for cigars and cigarillos (little cigars): While cigarettes must come in packs of 20 or more, there are no federal regulations on pack sizes for cigars and cigarillos. This allows companies to sell the products at extremely low prices making them appealing to price sensitive shoppers like youth. However, localities can also establish floor prices for other tobacco products, and pairing a floor price with a minimum pack size requirement can further strengthen the law. For example, New York City’s law requires a minimum price of $3.00 for any single cigar sold. Otherwise, little cigars must be sold in packs of at least 20 and cost at least $10.50, the same as cigarettes. In 2011, Boston implemented a cigar packaging and pricing regulation that required single cigars to cost more than $2.50, a package of two cigars to cost more than $5.00, and a package of three cigars to cost more than $7.50. Otherwise, the regulation stipulated that cigars must be sold in packages of at least four. Several Minnesota cities have implemented similar policies. For more information, review the following resources:
For more information on Minimum Price Laws (MPLs), review the following resources:
- ChangeLab Solution’s “Model Legislation Establishing a Minimum Retail Sales Price for Cigarettes (and Other Tobacco Products)” and “Tobacco Minimum Pricing Laws“
- TCLC’s“Cigarette Minimum Price Laws—Tips and Tools” and “Regulating Tobacco Product Pricing: Guidelines for State and Local Governments”
- MMWR Study: “State Cigarette Minimum Price Laws — United States, 2009”
- Campaign for Tobacco Free Kids’ Regulating Package Size and Setting a Minimum Price Will Help Reduce Cigar Use Among Kids: Responses to Misleading NATO/Swedish Match Arguments
The evidence for implementing or strengthening tobacco minimum price laws
By using trade discounts and buy-downs, the tobacco industry is often able to keep cigarette prices low even in the face of excise tax increases. A strong minimum price law can prevent this type of price manipulation. Strong minimum price laws can also prevent price manipulation by geographic area or by brand, thereby reducing targeting of products to certain populations, such as low income and racial and ethnic minority populations as well as youth, who are particularly price sensitive.
Establishing minimum prices for all tobacco products may help encourage price sensitive users to quit rather than switch to a lower-cost product. For example, in many places little cigars and cigarillos are sold for less than a dollar. One study found that a 10% increase in cigarette price led to a 27% increase in little cigar sales, but increasing little cigar prices by 10% led to a 32% decrease in little cigar sales.
Minimum price laws for cigars may result in a reduction of retail availability in addition to an increase in price. Following implementation of a minimum pricing policy for cigars in three Minnesota cities, the price for single cigars and 2-or 3-packs increased significantly, and percentage of retailers selling single cigars decreased from 80% to 45%. Similar results were seen for flavored cigar sales following Boston’s implementation of cigar minimum price policy, with the price for single grape-flavored Dutch Masters cigars (which are popular with youth) increasing by $1 and the percentage of Boston retailers selling grape-flavored DM single cigars decreasing by 34.5%. Additionally, the number of neighborhoods with 3 or more retailers selling these cigars per 100 youth residents decreased from 12 stores to 3, reducing neighborhood-level disparities in retail availability.
In 2013, New York City passed a comprehensive point of sale policy, Sensible Tobacco Enforcement, which restricted price discounts by prohibiting retailers from redeeming coupons or honoring other price discounts for tobacco products, set a minimum price for cigarettes and little cigars at $10.50 per pack, set minimum packaging requirements, and increased enforcement and penalties for tax evasion. At the same time, the city also passed legislation that raised the minimum age to purchase tobacco and e-cigarettes from 18 to 21. Learn more about NYC’s point of sale policy success, the policies’ impacts on public health, legal considerations, and lessons learned in Reducing Cheap Tobacco & Youth Access: New York City, a case study in the Innovative Point-of-Sale Policies series from the Center for Public Health Systems Science at Washington University in St. Louis.
What are price discount and multipack offer bans?
According to the Federal Trade Commission, price promotions accounted for 79.7% of the industry’s advertising and promotional expenditures in 2014. These include price discounts of $.50 or $1.00/per pack (aka “buydowns”), or offer bonus cigarettes with purchase such as buy two get one free (aka “retail value added”). Read more about different types of industry price promotions. Bans on price discounts include the following approaches:
- Restricting coupon redemption, multi-pack discounts, and “buy one get one offers” as standalone laws or as part of tobacco retailer licensing agreements. Providence, RI was the first to ban coupon redemption and multi-pack discounts in 2012 and New York City proposed a similar ban in March 2013. This type of policy has withstood both preemption and First Amendment challenges in court.  For example, states and localities can include these restrictions as part of tobacco retailer licensing agreements For more information, visit
- CounterTobacco.Org’s page on licensing and zoning
- Tobacco Control Legal Consortium’s (TCLC) “Tobacco Coupon Regulations and Sampling Restrictions—Tips and Tools” and sample language for prohibiting coupon redemption in tobacco licensing ordinances.
- Campaign for Tobacco Free Kids’ Regulating Package Size and Setting a Minimum Price Will Help Reduce Cigar Use Among Kids: Responses to Misleading NATO/Swedish Match Arguments
- Restricting tobacco sampling. The Family Smoking Prevention and Tobacco Control Act restricted most tobacco sampling, but it is still allowed in certain settings. For more information, review:
- TCLC’s “Tobacco Coupon Regulations and Sampling Restrictions—Tips and Tools” to learn about strategies for closing loopholes in the Tobacco Control Act.
- ChangeLab Solutions’ Model Tobacco Sampling Ordinance.
Story from the Field: Regulating Price Discounting in Providence, R.I.
In 2012 Providence R.I. became the first municipality in the U.S. to prohibit tobacco retailers from selling tobacco products at a discount, through multi-pack or buy-some-get-some-free deals, and redeeming coupons that provide tobacco products for free or at a reduced price. These policy successes were the result of a multi-year campaign that included passing a successful licensing policy, conducting store assessments and public opinion surveys, the development and promotion of the Sweet Deceit media campaign, and building community and political support around the issue. After being challenged in court by the tobacco industry, the provisions were upheld by the First Circuit Court of Appeals and went into effect in 2013.
Learn more about Providence’s tobacco pricing policy success in Regulating Price Discounting in Providence, R.I., a case study in the Innovative Point-of-Sale Policies series from the Center for Public Health Systems Science at Washington University in St. Louis.
Story from the Field: New York City
New York City’s Sensible Tobacco Enforcement banned price discounts by prohibiting retailers from redeeming coupons or honoring other price discounts for tobacco products, set a minimum price for cigarettes and little cigars at $10.50 per pack, set minimum pack size of 20 for little cigars and cigarillos, and increased enforcement and penalties for tax evasion. Read more.
Case Study: Reducing Cheap Tobacco & Youth Access: New York City. Learn more about NYC’s point of sale policy success, the policies’ impacts on public health, legal considerations, and lessons learned.
The evidence for implementing price discount and multipack offer bans
Price discounts are the largest single category of tobacco industry spending on advertising and promotions and are used to counteract the impact of increased excise taxes or to target price sensitive smokers. In 2012, 30% of youth reported recent exposure to coupons for tobacco, and exposure was associated with greater intentions to purchase cigarettes, higher susceptibility to smoking among never smokers and lower confidence in quitting among current smokers. Combining minimum price laws with a ban on discounting is a particularly strong policy approach. According to the Surgeon General, raising the price of tobacco products (e.g., through POS price promotion restrictions) is one of the most effective strategies to reduce tobacco consumption, decrease initiation, and increase cessation. Particularly when combined with minimum price laws and excise taxes, prohibiting tobacco industry price reduction practices, such as prohibiting price promotions, multipack promotions and coupons, is key to creating a strong tobacco minimum price law. 
What are retailer licensing fees?
An increase in tobacco retailer licensing (TRL) fees can be considered when implementing or strengthening a state or local licensing law (see CounterTobacco.Org’s Licensing & Zoning page). Best practices show that fees should be tied to demonstrable costs related to tobacco sales (e.g., comprehensive enforcement, costs of administering a tobacco control program, health care costs or the cost of providing education). ChangeLab Solutions’ “Tobacco Retailer Licensing Fee Calculator” provides guidance on projecting enforcement costs and determining appropriate licensure fees for your area.
The evidence for implementing retailer licensing fees
Most existing TRL fees are too low to require retailers with large sale volumes to pass on any costs to the consumer. However, there is potential for sizeable increases in licensing fees to impact retail pack prices. See the table below for an assessment of the potential impact of tobacco retailer license fees on the additional cost of a pack of cigarettes. The two prior strategies are more likely to lead to notable increases in tobacco prices. However, new research indicates that raising tobacco retail licensing fees may also have the added benefit of reducing the number of tobacco retailers. 
What are mitigation fees?
A mitigation fee for cigarettes is an added fee on each pack of cigarettes sold to cover costs the government incurs related to improperly discarded cigarette butts. The fee might be used to offset the cost of litter collection and disposal, public education, signage, and administration of the fee program. The needs to be used to cover the intended purpose and cannot be used to raise general revenue. For more information, review:
- TCLC’s “Policy Tools for Minimizing Public Health and Environmental Effects of Cigarette Waste—Tips and Tools,”
- ChangeLab Solution’s model Tobacco Litter Control Ordinance
- San Francisco’s Cigarette Litter Abatement Fee
Story from the Field: San Francisco’s Cigarette Litter Abatement Fee
San Francisco adopted a Cigarette Litter Abatement Fee at the rate of 20 cents per pack of cigarettes. According to a 2009 report from the Health Economics Consulting Group, the city of San Francisco spent over 6 million dollars in 2008 removing cigarettes from gutters, drainpipes and sidewalks. San Francisco has also proposed a fast food litter fee. No studies have assessed the effectiveness of this approach on raising prices, but presumably the impact would be akin to an excise tax. For more information, see the San Francisco Ordinance of Cigarette Litter Abatement Fee, Administrative Code, Chapter 105 and this Letter of September 24, 2009 to Cigarette Retailers RE: San Francisco Cigarette Litter Abatement Fee.
Another option is to shift the burden of responsibility and cost for tobacco waste cleanup to the consumer and the producer through Extended Producer Responsibility. Learn more in Tobacco industry responsibility for butts: A Model Tobacco Waste Act, a special communication in the journal Tobacco Control and download the Model Tobacco Waste Act.
The evidence for implementing mitigation fees
Cigarette butts constitute the most common type of litter and contain toxins like ammonia, formaldehyde, benzene, and butane. In addition to the impact associated with raising the price of cigarettes, mitigation fees therefore have the duel benefit of funding programs that benefit the environment.
What are sunshine laws?
A sunshine law would require public disclosure of price discounting and promotional allowance payments. A variation might be to amend a state or local tobacco retailer licensing program to require retailers to disclose how much money they receive from manufacturers for price promotions. For more information, review TCLC’s “Sunshine Laws: Requiring Reporting of Tobacco Industry Price Discounting and Promotional Allowance Payments to Retailers and Wholesalers—Tips and Tools.” To our knowledge, no jurisdiction has implemented this type of sunshine law.
The evidence for implementing a sunshine law
A sunshine law could help bring attention to the disparate discounting which may stigmatize and discourage these payments to retailers, thereby increasing prices. Read more on disparities in pricing . While the Federal Trade Commission aggregates these data nationally, a sunshine policy could mandate disclosure at the city or state level or by manufacturer, as well as provide information that is more up-to-date. Sunshine laws can also facilitate enforcement of compliance with the Master Settlement Agreement and state CMPLs.
- Review the “Assessing Alternative Tobacco Price Policy Options” document
- Check to see if your state or locality has existing cigarette minimum price laws, tobacco retail licensing laws, mitigation fees, or sunshine laws and if they need to be strengthened.
- Find out if your state preempts local regulation of tobacco. Preemption means that the laws at a higher level of government take precedence over the laws at a lower level of government. For more information on preemption, review the following resources:
- The tobacco industry may argue that efforts to restrict price promotions violate First Amendment Commercial Speech protections or the Commerce Clause. Review the following resources from TCLC and the Center for Public Health & Tobacco Policy for more details:
- The tobacco industry may argue that a sunshine law constitutes release of trade secrets. Review TCLC’s “Tobacco Control and the Takings Clause—Tips and Tools” for more information.
Special thanks to Kurt M. Ribisl, Todd Rogers and Maggie Mahoney, developers of Assessing Alternative Tobacco Price Policy Options, a handout presented at a Communities Putting Prevention to Work (CPPW) Annual Training on March 29, 2011. Their work heavily informs this section of CounterTobacco.org.