Why Big Tobacco Investors May Be Watching California Ballots More Closely Than The Presidential Election

Election Day 2016 could bring some big changes to the tobacco industry. Four states will take to the polls to vote on potential increases in state excise taxes on tobacco products, including California, Colorado, North Dakota and Missouri. These four states account for 15 percent of total U.S. cigarette volumes.

Voters nationwide will be also determining party shifts within the House and Senate, which also could affect the future of tobacco legislation. Republicans are seen as the “tobacco friendly” party.

2 Biggest Risks Tuesday

According to Wells Fargo, the two biggest risks to the industry will be California’s ballot vote and whether or not the GOP retains of the House of Representatives. California remains the single largest cigarette consumer due to its sheer population size, with 8.5 percent of total industry volume.

Concerns that if a ballot sweep in the four keys does go thru, that ‘copycat’ efforts from other states will soon follow.

California Vote Key For The Industry

Three major tobacco companies, including Phillip Morris International Inc.PM/Altria Group Inc MO, Reynolds American, Inc. RAI and Imperial Tobacco have spent a combined $92 million to defeat ballot initiatives, the majority being allocated in the Golden State. This spending equates to $0.02 of EPS for Altria and $0.01 of EPS for Reynolds.

According to a PPIC statewide survey in October, 56 percent of Californians support the measure, but there are no guarantees at this point. The state tried similar efforts to raise the tax in 2006 and 2012, which both failed.

The vote will also determine if the state will levy a tax on e-cigarettes.

Control Of The House: Most Important Catalyst

Wells Fargo analysts still believe the most important vote for the tobacco industry will be whether or not the GOP retains the House majority.

“We think the more important debate is whether the GOP is able to retain control of the U.S. House of Representatives and hold onto seats currently up for grabs. Regardless of the outcome, we believe the tobacco industry will be able to offset any potential tax pressure with pricing as it has done historically. Assuming the four states’ tax ballots go through, we expect retail cig prices to increase 9–10 percent,” concluded Wells Fargo.