Business

Fewer People Are Buying Cigarettes, But Tobacco Companies Are Raking In Profits

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American tobacco companies are seeing increased profits even though cigarette sales in the U.S. have dropped, the Wall Street Journal reported Sunday.

Despite decades of regulatory costs, lawsuit settlements, public relations campaigns and governments across the globe pushing programs aimed at reducing smoking, tobacco company profits have grown during the past 12 years.

Around 15 percent of U.S. adults smoke, or 36.5 million people, down from 23 percent of adults in 2001, according to the Centers for Disease Control and Prevention.

American tobacco companies made it $117 billion in profits last year, compared to $78 billion in 2001, and indexed tobacco sector profits increased 178 percent during the past decade.

Tobacco companies have consolidated into two major U.S. companies, Altria and Reynolds American. Johnny Cagigas, vice president of manufacturing at Reynolds American, said the current profitability is similar to the tobacco heyday in the 1960s and ’70s.

“In a blessed way, I started at the right time, because now I’m getting to ride a wave that people were used to back in the ’60s and ’70s,” Cagigas told WSJ. “Uncertainty doesn’t faze us a whole lot now,” he says.

One key reason for the steady profit growth is cigarettes continue to increase in price, even though taxes on each pack has stayed pretty steady at just over 40 percent of the total product cost.

The increased profits trend started long before tobacco companies began investing in electronic cigarette and vapor technology, indicating that traditional tobacco products are fueling the profit spike. (RELATED: Tobacco Giant Looks To Phase Out Cigarettes With E-Cig Technology)

While combustible tobacco products are still the focus, many tobacco companies are investing in vaping technology and looking into mass-marijuana cigarettes, assuming the federal government will eventually decriminalize pot.

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