Colorado Sued Over ‘Backroom Deal’ With Philip Morris USA

(Bloomberg) -- Philip Morris USA Inc. struck a backroom deal with Colorado lawmakers pushing a ballot measure to hike prices of cigarettes that will punish makers of cheaper cigarettes and leave the tobacco giant mostly unscathed, discount cigarette manufacturers said in a lawsuit.

Vector Tobacco Inc. and two other discount cigarette makers sued the state and Governor Jared Polis to invalidate what they say is a anti-competitive and anti-consumer provision of Proposition EE, a measure on the ballot in this year’s general election.

Under the deal, approved by Colorado legislature in June, the minimum price for a pack of cigarettes will be set at $7, if voters approve the measure next month. That would mean a steep jump in the price of discount cigarettes, such as Liggett Group’s Pyramid and Vector’s Eagle. Discount brands sell for an average price of $3.80 to $5.32 a pack, according to the lawsuit.

Meanwhile, the price of premium brands, like Philip Morris’s Marlboro, would only rise slightly. Currently, Marlboros go for $6.55 a pack, according to the lawsuit.

Neither Philip Morris nor the Colorado Attorney General’s office responded to a request for comment on the lawsuit. Philip Morris isn’t a defendant in the case.

The discount cigarette makers say Phillip Morris embraced the fixed price idea because it requires them “to sell at premium price levels, thereby eliminating price competition,” and removing “any incentive for cash-strapped Philip Morris customers to switch from its premium cigarettes to discount brands.”

Colorado lawmakers went along with the idea because Philip Morris agreed not to fight the ballot measure and the company ”would not spend millions of dollars to defeat the bill, as it had successfully done with previous cigarette tax bills in Colorado,” according to the complaint.

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