The 2009 increase in federal excise tax on RYO tobacco from US$1.10 per pound to US$24.78 per pound has had a significant effect on smoking tobacco. The steady growth rate that RYO tobacco had experienced over the previous decade was suddenly brought to a halt in 2009 as the 2,153% tax increase led many RYO tobacco companies to relabel their products as “pipe tobacco”, which attracts a much lower tax rate, and consumers reduced their purchases of RYO tobacco. As a result, pipe tobacco volume sales experienced a CAGR of 53% over 2008-2013, whereas RYO tobacco posted a 22% CAGR decline over the same period. However, in response to these unintended consequences, legislators in several states and municipalities began engaging in efforts to close this “accidental loophole” in 2012. As a result, volume growth in pipe tobacco slowed down significantly from 98% in 2010 to 9% in 2015, only slightly outpacing the 8% volume sales growth rate in RYO tobacco.
Despite experiencing year-on-year volume sales declines from 2008 through to 2014, an 8% volume sales gain in 2015 allowed Republic Tobacco Co to become the leading player in smoking tobacco in 2015 with a volume share of 3%. Republic Tobacco owns Top, a leading smoking tobacco brand in the US, which held a volume share of 8% in RYO tobacco in 2015, and it also produces the well-known Drum brand under licence from Imperial Tobacco Group Plc, which generated a 13% share of RYO tobacco in the year. Republic Tobacco’s volume share in smoking tobacco declined steadily over the course of the review period due to the high sales growth recorded by unbranded and locally branded pipe tobacco.
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