A federal judge on Monday denied the request of certain cigarette manufacturers to halt the portion of a voter-approved nicotine and tobacco tax measure that established a minimum price for cigarettes.
Coloradans voted in favor of Proposition EE in the November general election, which set the price of cigarettes to at least $7 per package, among other changes. Three companies that make discount cigarettes — Liggett Group LLC, Vector Tobacco Inc. and Xcaliber International Ltd., LLC — plus Littleton resident and cigarette user Jennifer A. Smith filed a federal complaint, asking for a preliminary injunction to prevent the price floor from taking effect.
The plaintiffs had argued the provision violated the Commerce Clause of the U.S. Constitution by discriminating against them, with benefits accruing to in-state retailers of cigarettes. By establishing a price floor, they contended, any money not remitted to the state in the form of taxes would accrue to the sellers of cigarettes.
In rejecting the request for a preliminary injunction, U.S. District Judge Raymond P. Moore deemed unpersuasive the claim that the discount cigarette companies not only competed with premium cigarette manufacturers like Philip Morris, but with the Colorado-based retail establishments that dispense the products.
“Even if there was any alleged alignment of interests with premium brand manufacturers, Discount Manufacturers fail to show how that renders the retailers the agents of premium brand manufacturers or how that makes retailers competitors with Discount Manufacturers,” he wrote. “The competition remains between cigarette manufacturers who seek to persuade the retailers as to whose goods they should display on premium shelf space.”
Moore also decided the minimum price provision did not place an unconstitutional burden on interstate commerce, even though it does put burdens on certain manufacturers. The provision will now take effect on Friday.
Elizabeth Kosar, a spokesperson for Gov. Jared Polis, said the governor was pleased with the judge's order.
"Voters overwhelmingly approved Prop EE to help provide free preschool to Colorado’s kids and we look forward to implementing the will of the voters," Kosar said.
“We respectfully disagree with the Court’s decision and will appeal it," said a spokesperson for Liggett Group. "Among other things, the minimum price statute effectively bars competition from discount cigarettes in Colorado and denies consumers affordable choices. Moreover, as we show in our parallel state court proceeding, the statute is void also because it was enacted in violation of the Colorado Constitution, including its disclosure requirements to the Colorado voters.”
Proposition EE also increased to $2.64 the tax per pack of cigarettes, with revenues going to K-12 education, tobacco programs and general spending, and then to preschool spending in later years. The law change covers vaping products as well.
The minimum price for cigarettes will rise to $7.50 per pack in 2024.
The plaintiffs' underlying lawsuit also seeks to permanently void the minimum price provision from Proposition EE and its related legislation, House Bill 20-1427. According to calculations from the plaintiffs, the current $2.40 price difference between a pack of Camel cigarettes and the cheapest discount cigarette brand will narrow to 48 cents with the price floor. For Newport cigarettes, the difference will be $1.21, from the current $3.13.
“Ultimately, if price-fixing of this kind were to proliferate, discount tobacco manufacturers will have no means to price and sell their products effectively, leaving big tobacco companies like Philip Morris with full control over pricing in the domestic cigarette market,” the plaintiffs warned in their lawsuit.
This story has been updated with additional comment.