Illegal cigarette trafficking has been irking the tobacco industry which is already battling dwindling volumes and high excise taxes for the past few years. The industry incurs a whopping $5.5 billion cost annually because of the illegal trade. Tobacco maker Reynolds American Inc. (RAI - Analyst Report) is geared to tackle the problem by raising awareness about cigarette smuggling going on down the east coast along the highway Interstate 95 – the New Tobacco Road, which has turned into a key transit route for illegal activities.
A subsidiary of Reynolds — RAI Services Company — has set up a website www.thenewtobaccoroad.com, showing how cigarettes are smuggled from lower-tax states to higher-tax ones in the Northeast through I-95.
An organized-crime infrastructure, experienced in smuggling illegal drugs and other contraband as well as other criminal activities which operates along the I-95 is reportedly involved in it.
The website aims to draw attention to lawmakers, law enforcement officials and concerned citizens about the gravity of the situation and also provides valuable suggestions on what federal and state governments can do about it.
Moreover, the website provides access to recent studies and news reports on cigarette smuggling in the major states along The New Tobacco Road. Reynolds also plans to update the site regularly with reports on smuggling activity, new blog reports from Marianos and efforts by states to combat illegal cigarette trafficking.
Illicit trade of cigarettes has been on the rise for the past few years. Strict governmental actions in the form of higher excise taxes have led the tobacco players to raise the prices. This, in turn, has led to the growth of cigarette smuggling making cigarettes available at a much lower price. This affects tobacco players’ margins negatively.
Moreover, these cigarettes are far more injurious to health than their real counterparts. Per the lab findings of “The Organized Crime and Corruption Reporting Project”, fake cigarettes from China are reported to contain 80% more nicotine and an alarming 130% more carbon monoxide and harmful impurities. Thus, the company’s reputation and revenues are being hampered due to illegal trafficking.
Other Stocks to Consider
Reynolds carries a Zacks Rank #3 (Hold). Other stocks worth considering in the consumer staples sector worth considering are The Hain Celestial Group Inc. (HAIN - Analyst Report) , B&G Foods Inc. (BGS - Snapshot Report) and Inventure Foods Inc. (SNAK - Snapshot Report) . All the stocks carry a Zacks Rank #2 (Buy).