To: AWMA Members
From: Scott Ramminger
Date: June 8, 2006

This memo outlines the background on the important issue of Low Ignition Propensity (LIP) cigarettes and the impact of these new LIP laws on your business. Included in this memo are talking points you may use when communicating with your legislators and others regarding the need for a nationwide federal standard for LIP cigarettes. In addition, you may visit the Government Relations portion of AWMA’s website at www.awmanet.org to find the tools you may use to contact your state and federal legislators on this important issue.

BACKGROUND

According to the American Burn Association and the federal government, almost 1000 Americans die each year and over 2,500 are injured as a result of fires started by cigarettes. In response, more and more states are considering legislation that would require that only Low Ignition Propensity cigarettes (LIP) be sold in that state.

LIP cigarettes are often called "fire-safe" cigarettes, however, there is some concern over this term as it may indicate that it will not cause a fire, and that is untrue. Basically, a LIP cigarette is one that has demonstrated a reduced ignition propensity in certain laboratory tests. These tests indicate that these cigarettes are less likely to ignite bedding and upholstered furniture, such as mattresses and sofas. The most common form of LIP cigarette involves wrapping the cigarette with two or three thin bands of less-porus paper that acts as a kind of "speed bump" to slow down the burning cigarette. If a LIP cigarette is left unattended, the burning tobacco will eventually reach one of these "speed bumps" and self-extinguish.

A coalition – known as the Coalition for Fire-Safe Cigarettes – has been spearheading the effort to enact legislation across the 50 states addressing this issue. The coalition – which is comprised primarily of fire safety groups (such as the National Fire Protection Association and the International Association of Fire Fighters) as well as health advocacy groups (such as the American Health Care Association and Tobacco Free Kids) - has been having significant success in raising the visibility of this issue across the country. The stated mission of this coalition is "to save lives and prevent injuries and devastation from cigarette-ignited fires by calling for cigarette manufacturers to immediately produce and market only cigarettes that adhere to an established cigarette fire safety performance standard. In addition, the coalition is working to see that these standards for fire-safe cigarettes are required in every state in the country."

Already, five states have enacted legislation that requires only LIP cigarettes be sold in that state - those states with LIP laws are: Illinois, New York, Vermont, New Hampshire and California. And, 16 other states are currently considering similar legislative initiatives. New York was the first state to adopt this legislation and that new law has been used as the model in the three other states that enacted LIP laws. A copy of the New York State law is attached.

AWMA CONCERNS

AWMA is concerned that as states across the country begin to adopt legislation mandating only LIP cigarettes be sold in that state, distributors will increasingly find it more difficult to manage their inventory of different cigarettes – LIP cigarettes and non-LIP cigarettes. This patchwork of differing state laws – some requiring LIP cigarettes be sold in their state and others not – is already working a tremendous burden on many of our distributors and the situation will continue to worsen if not addressed.

For example, a distributor who currently sells cigarettes in both New York (adopted the LIP law) and New Jersey (has not adopted the LIP law) must keep separate inventory of these products and if he or she inadvertently sells non-LIP cigarettes into the LIP law state (New York, Illinois, Vermont, New Hampshire, California) the penalties are extremely steep.

In particular, some of the economic concerns resulting from the current patchwork of state laws include:

• The daily management and ordering of different products – both LIP and non LIP cigarettes.
• The cost of reconfiguring current cigarette storage and pick to accommodate multiple inventory areas for the same items.
• Printing and maintaining separate Retail Inventory Guides for retailers operating in the different states that wholesalers service.

AWMA POSITION


At the 2006 AWMA REAL DEAL EXPO in Las Vegas, the AWMA Board adopted a position on the issue of Low Ignition Propensity cigarettes (LIP). The language the Board approved as AWMA’s official position on this issue is as follows: "AWMA supports the adoption of the New York State law on low ignition propensity cigarettes as a model for the standard at both the state and federal level and any federal legislation must include a federal pre-emption provision."

While AWMA supports the adoption of the New York State model for LIP cigarettes in those states already considering such legislation, the real solution would be to establish a uniform, nationwide standard that included federal pre-emption language. The inclusion of pre-emption language is necessary to ensure that a state could not amend the national standard thereby creating the current patchwork effect that is working such a hardship on distributors.

FEDERAL & STATE LEGISLATION

New York State was the first state to adopt LIP cigarette legislation. The four states – Vermont, California, New Hampshire and Illinois - that have since adopted LIP laws have all enacted the New York state model. A copy of that new law is attached.

Currently, there are two bills pending in the U.S. Congress – both the House and Senate – that would establish a national standard mandating the sale of Low Ignition Propensity cigarettes – actually adopting the New York State law. These bills, HR 1850 introduced by Rep. Edward Markey (D-MA) and S. 389 introduced by Sen. Richard Durbin (D-IL), are entitled "Cigarette Fire Safety Act of 2005." Unfortunately, neither of these measures includes the federal pre-emption clause that AWMA feels is critical to ensure that the current patchwork of inconsistent and conflicting state regulations is eliminated. Without the federal pre-emption this national standard – if adopted – could be modified by any state which would essentially put us back in the same situation we currently find ourselves in.

WHERE DO OTHERS STAND?

The Coalition for Fire-Safe Cigarettes asserts that "one of the goals of the Coalition for Fire-Safe Cigarettes is to work to ensure there is just one standard" for LIP cigarettes and that this "type of consistency we all feel is essential, avoiding a patchwork of state standards." And, the Coalition indicates that they are "working to see that all the states use the New York standard."

According to Philip Morris USA, "PMUSA supports enactment of a uniform, national standard for reduced cigarette ignition propensity (RCIP) that would preempt all state and local RCIP regulations, requirements or prohibitions in the field of cigarette ignition propensity – thereby resulting in one standard applicable to all cigarettes sold in the United States, regardless of the size or location of the manufacturer." Philip Morris USA further states that, "federal legislation would also eliminate the possibility of a patchwork of inconsistent and conflicting state regulations that would be an undue burden on interstate commerce, and would lessen the opportunity for adult smokers to obtain non-compliant cigarettes." Philip Morris USA also "supports federal RCIP legislation that establishes a performance standard that is equivalent to the performance standard adopted in New York, Vermont and California; designates the U.S. Consumer Product Safety Commission (CPSC) as responsible for implementation and enforcement; and preempts state and local RCIP regulations, requirements or prohibitions in the field of cigarette ignition propensity."

According to R.J. Reynolds Tobacco Company, "the standard adopted by all three states, although identical, require a 75% compliance rule for cigarettes made available in the state. We achieve this compliance through the use of paper technology but have yet to see any published date from New York as to any level of enforcement for all manufacturers doing business in the state. I am sure we have identical opinions that all manufacturers, not just a selected few, should comply with the ignition propensity standard." And, R.J. Reynolds Tobacco Company is concerned that "there is a practical reason for not being able to manufacture all domestic products to the ignition propensity standard as it relates to the availability of the paper technology that can meet the adopted standards." And, R.J. Reynolds Tobacco Company shares concerns regarding the patchwork effect saying, "the implementation of varying standards between the states could impose unnecessary and unintended consequences for issues not directly related to ignition-propensity. In the interim, we are meeting with elected officials in several states as they consider this legislation to utilize the provisions adopted by New York."

Lorillard Tobacco Company states, "We believe that when a cigarette related fire safety measure has been demonstrated to be effective in reducing fires and has been determined to be acceptable to consumers, adoption of such a standard at the national level with preemptive effect upon conflicting state standards should be considered a priority. We encourage Congress, through the cooperation of the Consumer Product Safety Commission, to adopt a national standard that expressly preempts state action."

AWMA ACTION

AWMA ultimately supports the enactment of federal legislation setting forth a uniform, national standard for Low Ignition Propensity cigarettes that includes federal pre-emption. However, in those states currently considering such legislation, AWMA supports the adoption of the New York State law to ensure that a patchwork of differing standards on this issue are not adopted across the country.

Toward that end, AWMA has been lobbying to encourage enactment of a national standard for LIP cigarettes. Most recently, AWMA held a lobbying effort with many of our AWMA members to push for legislation adopting a national LIP standard. Over 50 appointments were made with various U.S. Senators and Representatives from across the country to discuss this issue.

In addition, AWMA has posted letters on the government affairs portion of our website for members to use, if they wish, in contacting their legislators to encourage enactment of a national standard for LIP cigarettes. And, AWMA has contacted the State Association Executives to encourage them to make enactment of the New York State LIP cigarette law a priority in those states already considering this legislation. AWMA will help in those state efforts as well.