As presented below, the Seattle Times published an editorial today about gambling and tribes. It is somewhat incongruous that The Times would whine publicly about tribe’s economic and political clout, considering that it editorially supported Initiative to the People 901, which granted tribes a virtual monopoly to accommodate hospitality patrons who smoke. There are also new developments in the nicotine market that could prospectively wipe out new cigarette tax revenues passed by the Washington legislature in 2005. I begin by discussing the Seattle Times’ editorial, then use that context to discuss a recent announcement by the biggest of Big Tobacco, Philip Morris.

From a Seattle Times editorial, December 4, 2005, “Head Over Heels In Love With Gambling,“ by James Vesely:

“The state's gambling picture is so out of focus, it's good to see some practical lenscraft placing gaming into the right perspective. State- and tribal-permitted gambling is off the charts in growth and profits. In less than a decade, gaming has become a $1.6 billion industry in Washington — about $1 billion going to the tribes. That kind of money has its own momentum and carries with it the ability to affect regulation, statewide initiatives and the power to corrupt, because gambling always corrupts, whether it is the average poker player or the legislative institutions that become its revenue partners. Thursday's cautionary warning on the expansion of gambling by King County Prosecutor Norm Maleng is worth retelling here because it seeks to find the bottomless pit of gambling in our state. . . . In retrospect, we are fortunate Gov. Christine Gregoire nixed a new compact with the Spokane tribe endorsed by her predecessor. That new compact would have pushed gambling onto a new plateau of ubiquitous respectability in partnership with the state. It could have put the golden calf into nearly every neighborhood. . . . Asked what triggered his more-recent thoughts, Maleng said by phone Friday, "they always keep coming back. Even with the defeat of last year's initiative, gambling is always trying to expand. . . . Gambling breaks along three interests in our state. First, once the door is open, the state, like any sucker, is attracted to the magic pot and can no longer resist. Seeing a payoff, the state likes to bet on the flop. Second, tribal surrogates and tribal leaders have found that a privileged position in any marketplace gives them a remarkable edge. Not content with the current flow of dollars, there is a constant search for new venues. Just as the state's new smoking ban doesn't apply to the tribal casinos, every edge is exploited for every dollar. And third, the state's nontribal gaming parlors are seeking parity with tribal compacts and eventually a revenue-sharing deal with the state that would make the Legislature eagerly dependent on gaming. The hooks would be in. Maleng warns of revenue sharing because it makes the state a partner in gambling rather than the regulator. Indeed, inside a few years, gambling has become the visitor that stayed and built the mansion next door.” (Underline added.)

Having recently endorsed private, special-interest Initiative to the People 901 that now mandates a statewide smoking ban in all nontribal public places, the Seattle Times laments the clout of tribal gaming. Another way to look at the consequences of that unsavory initiative is to make the observation that, having endorsed an initiative that gives tribal hospitality venues a virtual monopoly to accommodate patrons who choose to smoke The Times now laments the expanding economic power of tribes. Hand ‘em a monopoly, then whine about the economic and political clout that it predictably produces.

Mr. Vesely and The Times’ managing editor, Michael Fancher, should chill out with their high-brow whine, while simmering in the toxic juices that I-901 is already producing. It is childish – some would say delinquent – for our state’s largest newspaper to aggressively endorse a smoking ban measure that expands tribal gaming market share then whine that tribal clout also expands. What else would any rational adult expect, other than monopolies predictably produce a lock on political and economic clout? While decrying that “gambling always corrupts” The Times steadfastly refuses to publish any information that shows how deeply and unredeemably other special-interests such as tobacco control have also corrupted. The issue isn’t gambling at all, it is – as it always has been and always will be – use of state powers to grant favored status to insider special-interests. In that regard the current leadership of both Washington state government and The Times stand conspicuously at the head of the line.

Moreover, The Times’ editorial carries with it the stink of self-serving hypocrisy. Let’s take a brief look at the three points that Mr. Vesely made about gambling in context of tobacco control:

1. “First, once the door is open, the state, like any sucker, is attracted to the magic pot and can no longer resist.” This year our legislature passed SHB 2314, which increased cigarette taxes by 60 cents per pack. When Governor Gregoire produced the proposed state budget for our legislature she said tax increases were not required to balance the budget. Yet she proposed a total of 80 cents per pack in new taxes on cigarettes. The new revenues will allegedly be used to increase funding for K-12 education and to expand higher education opportunities. I-773 also added 60 cents per pack new cigarette taxes in 2001, to finance health insurance for the poor. I-773’s cigarette taxes have been rolling in for four years but expanded health insurance for the did not materialize. Can we expect much of the same for the 2005 cigarette revenues from SHB 2314, too? New cigarette taxes – even when not required to balance the budget – are demonstrably a honey-pot the Queen Bee Gregoire cannot resist.

2. “Second, tribal surrogates and tribal leaders have found that a privileged position in any marketplace gives them a remarkable edge.” So do smoking bans and new cigarette taxes provide a remarkable edge for “Smoke Free” nicotine delivery device distributors. Smoking bans reduce opportunities to smoke, thereby creating a coerced consumer choice for “Smoke Free” nicotine products. Higher cigarette taxes directly increase the parity price that “Smoke Free” nicotine distributors can charge for their products that compete with cigarettes. Moreover, what cigarette manufacturers and distributors pay to the state in taxes and 1998 tobacco Master Settlement Agreement fees do not apply to “Smoke Free” nicotine. Consequently, MSA fee and cigarette tax amounts flow through as sweet juice in pharmaceutical the bottom line profits.

What better “remarkable edge” could multi-national pharmaceutical “Smoke Free” nicotine distributors have than a state law smoking ban that compels a choice of their products, prices artificially inflated by taxes on competitive tobacco nicotine products, and bottom line profits sweetened by exemption from taxes competitive manufacturers must pay? Those who doubt the credibility of those facts merely need to read a research paper by Dr. Walton Sumner II that says “decreasing opportunities to smoke” through smoking bans is an integral part of increasing sales for “Smoke Free” nicotine inhalers, such as Philip Morris’ Aria inhaler: Washington University in Saint Louis, “Estimating the Health Consequences Of Replacing Cigarettes With Nicotine Inhalers. Increasing the cost of tobacco products through higher taxes and reducing the opportunities to smoke with smoking bans are the two essential and critical elements of a mercantile strategy to coerce person who smoke to change nicotine brands to “Smoke Free” nicotine inhaler delivery devices. A few interesting viewpoints are expressed in Dr. Sumner’s paper, many of which will be familiar to consumers today:

a.) Replacing cigarettes with nicotine inhalers must replace the goal, unobtainable according to the author, of reducing smoking prevalence to 12% by 2010.

b.) The "nicotine industry" must "replicate successful smoking themes such as rugged individuality, suave character, and pleasure" to attract smokers to the nicotine inhaler.

c.) "Displacing cigarettes with a widely used, deeply inhaled, highly addictive, pharmaceutical grade nicotine inhaler" is comparable or superior to reducing smoking prevalence to 12%.

d.) Pressuring employers to eliminate both indoor and outdoor smoke break areas, lobbying policy makers to raise cigarette taxes and enact smoking bans will drive smokers to embrace the nicotine inhaler.

e.) The potential customer base need not be limited to smokers.

For a more detailed discussion of Dr. Sumner’s research paper please see my 2003 commentary “XXX Products,” published by Forces.org.

The Seattle Times at once decries the monopolistic behavior of tribes, yet stands mute, silent about one of the most lucrative monopolies ever crafted by pharmaceutical special-interests.

3. “And third, the state's nontribal gaming parlors are seeking parity with tribal compacts and eventually a revenue-sharing deal with the state that would make the Legislature eagerly dependent on gaming.” The State of Washington is hopelessly addicted to tobacco taxes, to the point where it now feels compelled to finance our children’s education with taxes on a product it also says should be eliminated. That such financing is irresponsible and unsustainable should be evident on its face. There are, however, new facts in the nicotine market that should make any responsible legislator cringe in fear for fiscally sound state governance. From the Los Angeles Times, October 30, 2005, “The Mystery Of Philip Morris’ Nicotine Inhaler,”   by Myron Levin:

“Cigarette maker Philip Morris has developed an inhaler that could deliver a nicotine mist deep into the lungs, giving smokers a satisfying dose of the addictive drug without the carcinogens, gases and toxic metals that make tobacco smoke so dangerous. Cloaked in secrecy, the device was invented nearly a dozen years ago at a time the tobacco industry was vigorously denying that nicotine was addictive, internal company documents show. It was part of an effort by the top cigarette maker to explore the possibility of offering a ‘clean’ form of nicotine to those who can't or won't quit. . . . Nicotine is a mild stimulant that helps some people to focus and relax when under stress. Although a crucial part of a deadly product, nicotine by itself is not very bad for most people, experts say. It does increase the heart rate and could harm people with an existing cardiac condition. For others, however, the effect is similar to mild exercise, said Dr. Neal Benowitz, a nicotine expert and professor of medicine, psychiatry and biopharmaceutical sciences at UC San Francisco.”

The above news article presents compelling information that responsible state legislators must immediately consider. I will discuss those below in a moment, however we must first consider a few issues Philip Morris’ recent announcement brings to the fore:

a.) Philip Morris’ new Aria inhaler presents a huge new revenue opportunity for advertising venues. What is the financial implication of a multi-billion-dollar nicotine delivery device product sales organization once again being able to legally advertise its products on television and radio, as well as in print large display formats? Whatever the impact, it will be huge. We can realistically expect mainstream media to even more aggressively support smoking bans in news reports and editorial content, to garner their “fair share” of those new advertising revenues.

b.) Philip Morris supporting U.S. Food and Drug Administration regulation of tobacco, while also embracing smoking bans, is finally explained. PM stands to score a major market coup if its apparent – but incredibly risky – strategy pays off. Current pending federal legislation that would give FDA authority to regulate tobacco explicitly grants FDA authority to regulate the nicotine in cigarettes. Look at this as a NICOTINE MARKET, not a cigarette or tobacco market. Please consider also that anti-tobacco activists and many FDA officials have claimed for years that cigarettes are merely a NICOTINE DELIVERY DEVICE product.

c.) Let’s speculate about a plausible Philip Morris strategy for a minute:

i.) Support and enact smoking bans to “reduce opportunities to smoke” cigarettes (just as Dr. Sumner says).

ii.) Pass FDA regulations that can eliminate nicotine from cigarettes. PM already has a “De-Nicotineized” NEXT brand of cigarettes (see my June 2001 commentary “The Duke of Nicotine,” published by Forces.org), which effectively cuts RJ Reynolds and Brown & Williamson – plus other small cigarette manufacturers – out of the tobacco nicotine business.

iii.) With smoking cigarettes unlawful in all public places nationwide, and minimal or zero nicotine in cigarettes, aggressively advertise its “Smoke Free” Aria nicotine inhaler.

iv.) Undercut GlaxoSmithKline (Nicorette, NicoDerm CQ) and Pfizer (Nicotrol) 30 to 50 percent on price of nicotine inhalers.

d.) Where does Philip Morris come out? 1) It dominates a new, “virgin,” NICOTINE MARKET; 2) that market has been crafted – quite literally created -- by manipulating state and federal legislation or regulations concerning cigarettes and smoking; 3) PM has virtually wiped out – eliminated – its former competitors in the old CIGARETTE MARKET; 4) it has the financial strength to undercut other pharmaceutical NICOTINE MARKET competitors virtually forever, to capture a dominating market share (see TOBBIG3RETURNS.PDF); it already has developed and ready to market a “De-Nicotineized” cigarette brand, too, to provide the “satisfaction” of smoking!

e.) In a nutshell, Philip Morris comes out, once again, as the king of the nicotine delivery device market – just as it has been for decades The only differences being of course that Philip Morris has beat the crap out of its own customers to do so, and that the NICOTINE DELIVERY DEVICE it would then be distributing is an vastly inferior plastic stick pseudo-cigarette that does not by any stretch of the imagination replace the pleasures of smoking that many tobacco consumers enjoy. But do either of those considerations matter at all when Dr. Sumner says such inhalers are “highly addictive”? Won’t the “addicts” just fall in line to “get their fix” from PM’s new product? Interestingly enough, in “The Duke of Nicotine” I wrote about a 2001 study by Duke University that concluded smoking “De-Nicotineized” cigarettes like Philip Morris’ NEXT, while using “Smoke Free” Nicotine Replacement Therapy products (now such as Philip Morris’ Aria inhaler), may be beneficial in smoking cessation efforts!

Ain’t it interesting that here sits Philip Morris in 2005 with the two products – its Next “De-Nicotineized” cigarettes and Aria nicotine inhaler – necessary to carry out the conclusions in both Prof. Rose’s Duke University study and Dr. Sumner’s Washington University research paper . . .? I wrote about such subjects in my March 27, 2001 letter to then-CEO of Philip Morris, Geoffrey C. Bible (see PHILIPMS.PDF.) And, if the above strategy were successful, Philip Morris would emerge from the fray with its nicotine delivery device products once again tax exempt! Perhaps we now have a deeper understanding of the import of then-candidate-for-governor Gregoire’s comment that Philip Morris’ lawyers were now her “friends.”

So where does fiscal governance for the State of Washington stand, when considering these new facts about the NICOTINE MARKET? The answer to that question is simple: cigarette tax revenues and Governor Gregoire’s 1998 tobacco Master Settlement Agreement payments from tobacco companies could disappear virtually overnight. And with that so does cigarette tax funding for K-12 education passed by our Democrat-controlled legislature in 2005. Would voters and taxpayers like a $400 million-plus-per year crater in the state budget for the next biennium? They could get that by simply continuing to support anti-tobacco legislation and initiatives. Enjoy.

A better alternative is to immediately pass new taxes on “Smoke Free” nicotine delivery device products such as GlaxoSmithKline’s Nicorette and NicoDerm CQ, as well as Pfizer’s Nicotrol. They can well afford those taxes without adding price hikes for consumers because they have been on a “parity pricing” free-ride for years. Every cigarette tax hike merely adds profits to the bottom line for “Smoke Free” nicotine distributors such as GlaxoSmithKline, Pfizer, and now Philip Morris. It might also be well to consider reducing cigarette taxes, just as the legislature did for cigars, as well as pipe and smokeless tobacco in 2005 to increase revenues form those products. If the nicotine market plays out as indicated above we’ll need every dime in tobacco taxes we can get. We need not worry about increasing cigarette taxes to reduce smoking, cigarettes will be history in the near future if the nicotine monopolists have their way.

The Wall Street Journal  reported about Philip Morris’ new Aria nicotine inhaler on October 27, 2005, as did the Los Angeles Times on October 30, 2005. The Seattle Times did not publish reports about Philip Morris’ new “Smoke Free” nicotine product before the November 8, 2005 election day, when I-901 was passed. Was an acquired taste for prospective “Smoke Free” nicotine advertising revenues, now from Philip Morris, a material part of the Times’ news reporting decision?

We leave the Seattle Times to wallow in the sour juices of its own well-nurtured hypocrisy. Responsible legislators who have an earnest interest in responsible state fiscal governance would be well-advised to take careful notice of these new developments in the nicotine market.

Norman E. Kjono