Philip Morris USA - more , the test marketing L&M RYO cigarette tobacco..

August 1, 2009 - Back on June 16, 2009 we reported that Philip Morris USA (PM USA) will continue to grow its product reach this week with the beginning of a test market for the new L&M roll-your-own (RYO) tobacco product. Tobacco delivery of pouches and canisters of the new product to retailers in Maine and Michigan begins this week as a test markets. (Philip Morris USA to test L&M Roll-Your-Own-Tobacco..)

PM USA spokesman Bill Phelps: "It's a very small market, but it's growing fast."

Last year, roll-your-own tobacco sales jumped 17 percent to more than 20 million pounds, U.S. Alcohol and Tobacco Tax and Trade Bureau statistics show. During the past five years, sales jumped 60 percent. One reason: It costs significantly less than a pack of cigarettes to make roughly the same number of cigarettes from roll-your-own tobacco.

Philip Morris, for instance, is selling three-quarter-ounce pouches of L&M brand roll-your-own tobacco, enough to make a bit more than 20 cigarettes, for $4 in Maine and Michigan. The pouches include rolling paper. Cigarettes sell for about $6 a pack in those relatively high-tax states.

"Our fear is what happens when federal and state taxes rise. . . . Rather than quitting smoking, some smokers just switch to discount brands, and some switch to roll-your-own," said Eric N. Lindblom, director of policy research at the Campaign for Tobacco-Free Kids, a nonprofit public-health advocacy group.

Philip Morris' entry into the market could have a major impact, in part because of the company's marketing muscle, he said. But selling roll-your-own under a cigarette brand name also could transform the market and attract smokers who never considered the traditional roll-your-own brands such as Drum or Bull Durham, he said.

Philip Morris acquired the L&M brand in 1999 and has positioned the one-time flagship of the old Liggett & Myers Tobacco Co. as a discount brand.

Compared with conventional cigarettes, though, the roll-your-own market still is small. The number of cigarettes that smokers made with roll-your-own tobacco amounted to the equivalent of about 5 percent of the number of cigarettes sold last year, a Richmond Times-Dispatch analysis of tax data shows.

A major wild card affecting growth could be recent federal tax increases on tobacco.
While federal cigarette taxes just jumped by 61.66 cents a pack to $1.0066, -- a 158 percent increase -- the federal excise tax on roll-your-own rose more than twentyfold, to $24.78 per pound. That translates to $1.16 for a three-quarter-ounce pouch.

The change reflects new estimates of how much tobacco is in a cigarette and is aimed at ending roll-your-own tobacco's long-standing tax advantage, Lindblom said. The estimate assumes there is about 0.65 ounce of tobacco in a pack of cigarettes.

So far, it seems to have had an effect: Roll-your-own sales are down 17 percent this year, bringing them back nearly to 2007 levels, federal tax figures show. What will happen now to the market as Philip Morris tests the waters could be critical, Lindblom said.

Lindblom: "It appears they want to control the full spectrum of tobacco products."

Making your own cigarettes is a growing trend, and sales have climbed during the past five years:
• 2004: 12,851,269 pounds
• 2005: 15,546,474 pounds
• 2006: 16,495,710 pounds
• 2007: 17,296,179 pounds
• 2008: 20,290,130 pounds
• 2009 (through May): 7,227,606 pounds (same period last year: 8,385,737)
SOURCE: U.S. Alcohol and Tobacco Tax and Trade Bureau

Reference: Philip Morris is test-marketing roll-your-own tobacco by David Ress, 7/31/2009.