Case 1:20-cv-03107-KLM Document 1 Filed 10/15/20 USDC Colorado Page 1 of 34
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLORADO
`
`
`Civil Action No. _________________
`
`LIGGETT GROUP LLC, VECTOR TOBACCO
`INC., and XCALIBER INTERNATIONAL LTD.,
`LLC,
`
`Plaintiffs,
`
`v.
`
`STATE OF COLORADO, by and through JARED S.
`POLIS, in his official capacity as Governor of
`Colorado, PHILIP J. WEISER, in his official capacity
`as Attorney General of Colorado, and the
`LEGISLATIVE COUNCIL of the COLORADO
`GENERAL ASSEMBLY,
`
`Defendants.
`
`
`
`COMPLAINT FOR DECLARATORY AND INJUNCTIVE RELIEF
`
`
`
`I.
`
`PRELIMINARY STATEMENT
`
`1.
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`Plaintiffs Liggett Group LLC (“Liggett”), Vector Tobacco Inc. (“Vector”), and
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`Xcaliber International Ltd., LLC (“Xcaliber”), three out-of-state discount cigarette manufacturers,
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`bring this action to challenge as unconstitutional a provision mandating a minimum retail price for
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`cigarettes sold in Colorado, which is contained in Colorado House Bill 20-1427 (the “Bill”), a bill
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`increasing taxes on cigarettes sold in Colorado. Not only is that fixed minimum price provision –
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`Section 10 of the Bill – unconstitutional under, among other things, the Commerce Clause of the
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`U.S. Constitution, it was rushed through the Colorado General Assembly and presented to the
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`voters without complying with Colorado’s constitutional requirements.
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`2.
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`The Bill, a legislative ballot referral, would impose hundreds of millions of dollars
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`in new and increased taxes on cigarettes and other nicotine products.1 Section 10 of the Bill, which
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`establishes a minimum price for all cigarettes, was added to the Bill in a “back-room” deal to
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`ensure that Philip Morris USA, Inc. (“Philip Morris”), by far the largest premium cigarette
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`manufacturer in the country, would not spend millions of dollars to defeat the Bill, as it had
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`successfully done with previous cigarette tax bills in Colorado. Philip Morris wanted Section 10
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`added to the Bill because it would severely damage the ability of discount cigarette manufacturers
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`to compete with Philip Morris and would solidify Philip Morris’s market dominance in Colorado.
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`3.
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`Section 10 thus imposes a patently anti-competitive fixed minimum price for all
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`cigarettes sold in Colorado, and directly and without justification harms interstate commerce.
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`Unlike other portions of the Bill, Section 10 is not a tax but a unique method employed by the
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`State to inflate cigarette prices artificially. Section 10 benefits Philip Morris and other premium
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`cigarette manufacturers at the expense of Plaintiffs by fixing the retail price of all cigarettes sold
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`in Colorado at premium price levels, thereby eliminating by fiat price competition by Plaintiffs
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`and other discount tobacco manufacturers, and benefitting in-state retailers, who get to pocket the
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`price increase, at the expense of out-of-state discount manufacturers. By contrast, all other states
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`which have raised cigarette prices without utilizing an excise tax have done so not by fixing an
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`artificial minimum price benefitting one segment of the market over another, or by favoring in-
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`state interests over out-of-state interests, but rather by increasing all manufacturers’ prices by a
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`1 A copy of the Bill is attached hereto as Exhibit A.
`
`2
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`

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`fixed percentage, thus raising prices for everyone proportionally while preserving market
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`competition.
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`4.
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`Crucially, Section 10 will benefit not only Philip Morris, but also in-state retailers,
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`who will collect and keep a significant portion of the additional proceeds resulting from the state-
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`imposed minimum retail price of discount cigarettes, and thus be able to sell fewer discount
`
`cigarettes at higher profit margins. This comes at the expense of Plaintiffs and other out-of-state
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`discount cigarette manufacturers, who, as a result of Section 10, will lose sales, profits, and market
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`share. Section 10 also creates regressive and patently unfair burdens on Colorado consumers by
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`imposing much higher costs on those who smoke discount brand cigarettes, typically price-
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`sensitive older and lower income people. Section 10 will cost the discount brand smoker as much
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`as $800 per year, more than twice as much as premium brand users, many of whom will see no
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`price increase.
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`5.
`
`Section 10 violates the Commerce Clause because it discriminates against out-of-
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`state discount cigarette manufacturers in favor of in-state retailers, imposes an undue burden on
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`interstate commerce by, among other things, interfering with the interstate sale of cigarettes, and
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`causes negative extraterritorial effects on the cigarette market outside of Colorado. It violates the
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`Due Process Clause because, without any legitimate justification, it deprives Plaintiffs of protected
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`property interests.
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`6.
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`Section 10 is void also because it was passed by the Colorado General Assembly
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`in violation of procedural and substantive requirements of Colorado’s Constitution, including,
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`among others, requirements for full and fair debate in legislative committees and the General
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`Assembly before passage. The Bill was rushed through the legislative process in this fashion in
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`3
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`the last four days of the 2020 legislative session, plainly to avoid opposition by the Plaintiffs and
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`the other parties who would have been able to point out the patent constitutional and other
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`injustices of the Bill. As many legislators commented on the record, they were not given copies
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`of the Bill in advance, as required by Colorado law, and did not even have an opportunity to read
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`it. And, because the Bill concerns taxes, it must, under the Colorado Constitution, be approved
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`directly by the voters and is slated to be on the November 2020 ballot (“Proposition EE”).
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`However, in violation of the Colorado Constitution, neither the title of the Bill nor the ballot
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`question identifies Section 10 or its contents, thus failing to inform voters that the price of
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`cigarettes will be artificially fixed at premium prices if Proposition EE is approved.
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`7.
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`Accordingly, Plaintiffs seek preliminary and permanent injunctive relief precluding
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`the enforcement of Section 10.
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`II.
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`JURISDICTION AND VENUE
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`8.
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`This Court has jurisdiction over this action pursuant to 28 U.S.C. §§ 1331 and 1367
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`because the matter in controversy arises under the laws and Constitution of the United States.
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`9.
`
`This Court is authorized to issue the requested declaratory and injunctive relief
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`pursuant to 28 U.S.C. §§ 2201 and 2202, 42 U.S.C. § 1983, and Rule 65 of the Federal Rules of
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`Civil Procedure.
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`10.
`
`Venue is proper in this Court under 28 U.S.C. § 1391(b) because the State of
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`Colorado is a Defendant, and all other Defendants either reside in or perform their official duties
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`in this judicial district, and because a substantial part of the events giving rise to this action
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`occurred in this judicial district.
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`4
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`III.
`
`PARTIES
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`11.
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`Plaintiff Liggett Group LLC (“Liggett”) is a Delaware limited liability company,
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`with its principal place of business in Mebane, North Carolina. Liggett and its predecessors in
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`interest have been engaged in the business of manufacturing cigarettes for over 120 years. Liggett
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`sells its products throughout the United States and in the State of Colorado through a network of
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`distributors and retailers.
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`12.
`
` Plaintiff Vector Tobacco Inc. (“Vector”) is a Virginia corporation, with its
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`principal place of business in Morrisville, North Carolina. Vector is in the business of
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`manufacturing cigarettes and sells its products throughout the United States and in the State of
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`Colorado through a network of distributors and retailers. Liggett and Vector are both indirectly
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`owned by Vector Group Ltd.
`
`13.
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`Plaintiff Xcaliber International Ltd., LLC (“Xcaliber”) is an Oklahoma limited
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`liability company, with its principal place of business in Pryor, Oklahoma. Xcaliber is in the
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`business of manufacturing cigarettes and sells its products throughout the United States and in the
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`State of Colorado through a network of distributors and retailers.
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`14.
`
`Defendant State of Colorado (the “State” or “Colorado”), operating through
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`legislative and executive action, adopted the Bill, which includes statutory mandates forbidden by
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`the laws of Colorado and the United States. Defendant State of Colorado has acted through its
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`officers, agents and duly elected representatives, including Defendants Jared S. Polis, as Governor
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`of Colorado, Paul Weiser, as Attorney General of Colorado, and the Legislative Council, among
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`others, to injure the Plaintiffs’ constitutional rights and other rights protected under the laws of
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`Colorado and the United States.
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`5
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`15.
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`Defendant Jared S. Polis, sued in his official capacity, is the Governor of Colorado
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`and, in that capacity, has the power to enforce the laws of the State of Colorado and is required by
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`the Colorado Constitution to ensure that all laws of the state are faithfully executed. Colo. Const.
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`art. IV, § 2. In his capacity as an agent of the State of Colorado, Defendant Governor Polis has
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`injured Plaintiffs’ constitutional rights and other rights protected under the laws of Colorado and
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`the United States.
`
`16.
`
`Defendant Philip J. Weiser, sued in his official capacity, is the Attorney General
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`for the State of Colorado and, in that capacity, enforces the laws of the state of Colorado. In his
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`capacity as an officer and agent of the State of Colorado, Defendant Attorney General Weiser has
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`injured Plaintiffs’ constitutional rights and other rights protected under the laws of Colorado and
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`the United States.
`
`17.
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`Defendant Legislative Council is a committee of the General Assembly tasked,
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`among other things, with preparing and approving the ballot information booklet that provides
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`Colorado voters with information about ballot measures in advance of elections.
`
`IV.
`
`FACTUAL ALLEGATIONS
`
`A.
`
`Plaintiffs Sell Cigarettes In Interstate Commerce For
`The Discount Segment Of The Cigarette Market
`
`18.
`
`Plaintiffs are tobacco companies based outside of the State of Colorado which
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`manufacture and sell cigarettes in interstate commerce throughout the United States. They
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`compete by pricing their respective cigarette brands lower than most other domestically sold
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`brands, which positions the companies in the “discount segment” of the domestic cigarette market.
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`Plaintiffs sell their cigarettes to consumers in Colorado through distributors and retailers.
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`6
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`19.
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`Liggett is the operating successor to the Liggett & Myers Tobacco Company, which
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`owned and sold premium brand cigarettes, such as Chesterfield, L&M and Lark. Beginning in the
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`1980s, Liggett began to de-emphasize its focus on its premium brands and pioneered what is today
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`the discount segment of the tobacco market, by competing largely based on price, rather than image
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`and advertising. In 1998, Liggett sold its remaining rights to the Chesterfield, L&M and Lark
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`brands to Philip Morris, and today Liggett operates by selling branded products exclusively in the
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`discount segment of the cigarette market. Liggett also manufactures several private label brands
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`that are sold and distributed by certain retail customers. Liggett sells the discount cigarette brand
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`Pyramid in Colorado through retailers in Colorado at an average retail price of $5.28 per pack.
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`While Liggett sells other discount brands in the State, the Pyramid brand constitutes over 98% of
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`Liggett’s product sold in Colorado.
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`20.
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`Vector is a discount cigarette manufacturer specializing in deep discount cigarette
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`products. Vector sells the discount cigarette brand Eagle 20’s in Colorado through in-state
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`distributors and retailers at an average retail price of $4.59 per pack. The Eagle 20’s brand is the
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`only Vector brand sold in Colorado.
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`21.
`
`Xcaliber was founded in 2001 and manufactures a variety of tobacco products,
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`including cigarettes and cigars. Xcaliber sells cigarettes exclusively in the deep discount segment
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`of the market. Xcaliber sells discount brands Echo and Edgefield in Colorado through in-state
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`distributors and retailers, at an average retail price of $5.40 per pack and $4.00 per pack,
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`respectively.
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`22.
`
`In 1996 and 1997, Liggett began focusing exclusively on the discount market, after
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`breaking ranks with the major domestic tobacco companies to become the first domestic tobacco
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`7
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`company to settle smoking and health-related litigation, including by entering into the first-ever
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`settlements of Medicaid expense recovery litigation brought by state attorneys general against the
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`major domestic tobacco companies. As part of these landmark settlements, Liggett agreed to
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`change the way it marketed and sold its cigarettes, including by, among other things, stating
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`publicly that “smoking is addictive” and causes serious diseases and death, adding warnings
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`regarding addiction to its cigarette packs, and discontinuing virtually all conventional consumer
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`advertising and marketing of its cigarette products.
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`23.
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`Liggett’s settlements and its cooperation with the state attorneys general and public
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`health authorities -- widely recognized as historic -- were key to enabling the attorneys general of
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`all fifty states, including Colorado, to recover more than $200 billion in Medicaid expenses on
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`behalf of the states from the major domestic tobacco companies. These global settlements also
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`resulted in revolutionary changes in the way the domestic tobacco industry operates, including
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`through advertising and marketing restrictions and smoking and health warnings.
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`24.
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`Currently in the U.S. market, there are certain established premium brand
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`cigarettes, such as Philip Morris’s Marlboro, which command higher prices based on name or
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`brand recognition. Most, if not all, of the premium cigarette brands which exist today were
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`established long before the revolutionary industry changes resulting from the Liggett settlements
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`in the 1990s. Since those changes, it has become virtually impossible to create, support or launch
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`a new premium brand cigarette product.
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`25.
`
`The limited set of recognized premium brand cigarettes in the industry have a
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`competitive advantage in the domestic cigarette market, based on market share and brand
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`recognition, over all discount cigarette brands. Liggett, Vector, Xcaliber, and other discount
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`8
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`manufacturers cannot compete with the much larger Philip Morris and other premium
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`manufacturers by using conventional consumer advertising to create a premium brand, but rather
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`compete almost exclusively on price.
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`26.
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`Accordingly, Plaintiffs must compete vigorously to maintain their presence in
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`national and state markets dominated by Philip Morris and other premium manufacturers.
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`B.
`
`If Enforced, Section 10 Would Cause Irreparable Harm
`To Plaintiffs And Consumers
`
`27.
`
`Section 10, if enforced, will impose much greater price increases on discount
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`cigarettes than on premium cigarettes, thus causing irreparable harm to the tobacco manufacturers
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`which make them and the consumers who purchase them, while leaving premium cigarette
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`manufacturers largely unaffected. Plaintiffs and other out-of-state discount manufacturers will
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`thus be prevented from selling cigarettes at lower prices, resulting in a windfall to in-state retailers
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`at the expense of Plaintiffs and other out-of-state discount manufacturers.
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`28.
`
`The current Colorado cigarette tax is $0.84 per pack, which the Bill would increase
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`by $1.10 to $1.94 per pack effective January 1, 2021, with additional increases taking effect in
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`July 2024 and thereafter. See Bill, Section 3. Separately, Section 10 of the Bill also sets a
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`minimum price for the retail sale of all cigarettes in Colorado at $7.00 per pack effective January
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`1, 2021, increasing to $7.50 effective July 1, 2024. The tax portion of the higher cigarette prices
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`resulting from the Bill is collected by in-state distributors, which are charged with applying the tax
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`stamp to the pack and remitting the tax to the State, collecting a small fee for doing so. The non-
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`tax portion of the higher cigarette prices resulting from Section 10 is collected at the point of sale
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`by in-state retailers, who simply keep it. None of those proceeds go to the State.
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`9
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`29.
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`Discount cigarettes are currently selling in Colorado at average retail prices
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`between $3.80 – $5.32. Section 10 would harm discount brand manufacturers because it mandates
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`that the retail price of all discount cigarettes must increase to a minimum of $7.00 per pack as of
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`January 2021, which is a price increase greater than the $1.10 per pack of tax imposed by the Bill.
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`By the same token, Section 10 would benefit in-state retailers, as well as Philip Morris and other
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`premium cigarette sellers which will not be affected by the Section 10 portion of the increase
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`because their products already sell near or above the Section 10 minimum price. For example, a
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`pack of Marlboro which currently sells in Colorado for $6.55 per pack would increase to $7.65 per
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`pack, with the entire price increase resulting from the $1.10 per pack tax increase, and none of it
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`from Section 10. The problem is compounded further as the Bill mandates increases in the
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`minimum price per pack in later years.
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`30.
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`Such price increases distort the market because the discount products that
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`previously sold between $3.80 and $5.32 will no longer be able to compete against each other
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`based on price, because all must increase their prices to the same $7.00 minimum, or against the
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`premium cigarettes, because there will be no material difference in price.
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`31.
`
`The Bill also has regressive and patently unfair consequences to consumers, by
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`imposing higher costs on Coloradans who smoke discount brand cigarettes. For example, a smoker
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`who currently purchases Marlboro or another premium brand cigarettes for $6.50 per pack will
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`pay $7.60 per pack, an increase of $1.10 per pack entirely from the new State cigarette excise tax.
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`However, smokers who use discount brands will incur the new cigarette excise tax increases, plus
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`the mandatory price increases imposed by Section 10. Thus, a smoker who currently purchases a
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`discount brand cigarette in Colorado at $4.60 per pack will experience a mandatory $2.40 increase
`
`10
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`($1.10 per pack in tax, and an additional $1.30 per pack solely because of the $7.00 minimum
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`price law).
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`32.
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`Section 10 will benefit not only Philip Morris, but also in-state retailers who will
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`collect and keep a significant portion of the additional proceeds resulting from the state-imposed
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`minimum retail price of discount cigarettes. Because Section 10 substantially increases the retail
`
`price of discount cigarettes in excess of the cigarette tax increase, the non-tax portion of the higher
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`price goes into the pockets of in-state retailers. Retailers will therefore be able to sell fewer
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`discount cigarettes at higher profit margins. This comes at the expense of Plaintiffs and other out-
`
`of-state discount cigarette manufacturers, who will lose sales, profits, and market share as a result
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`of Section 10. Many in-state retailers recognize that they will increase their per unit profit margins
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`on discount cigarettes as a result of Section 10, a benefit they did not ask for and do not want
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`because of the long term negative impact that the Bill will have on their overall business. Neither
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`the State nor the discount tobacco manufacturer receives the benefit of the non-tax portion of the
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`higher price resulting from Section 10.
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`33.
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`If Section 10 is enforced, the retail price of Plaintiffs’ products will be artificially
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`raised, benefitting Philip Morris. The immediate result will be an unfair and disproportionate price
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`increase for those buying discount cigarettes in Colorado. In the short term, the in-state retailers
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`will unjustly benefit at the expense of out-of-state tobacco manufacturers, by pocketing the non-
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`tax portion of the Section 10 increase. In the longer term, the demand for these overpriced discount
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`products will diminish. Section 10 will severely interfere with the ability of Plaintiffs to compete,
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`causing them to lose sales and profits and benefitting Philip Morris, which will gain market share
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`at their expense. The ultimate result will be to drive most, if not all, discount cigarettes from the
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`11
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`Colorado market, causing avoidable and irreparable economic harm to Plaintiffs, similarly situated
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`discount tobacco manufacturers, and consumers of their products.
`
`C.
`
`Philip Morris Has Spent Millions Of Dollars Successfully Opposing Cigarette
`Tax Increases In Colorado
`
`34.
`
`For years, Colorado’s efforts to raise tobacco taxes have been frustrated because of
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`opposition funded by Philip Morris in the form of multi-million dollar anti-tax campaigns. In the
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`years preceding the enactment of the Bill, there were two unsuccessful attempts by Colorado to
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`increase taxes on cigarettes and other tobacco products.
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`35.
`
`In a back-room deal, Defendants added Section 10 to garner Philip Morris’s support
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`and guarantee that the company would not mount another multi-million dollar campaign opposing
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`the tax hike in the Bill.
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`1. Philip Morris’s Opposition To Amendment 72
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`36.
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`In 2016, a citizen’s ballot initiative was proposed, called the Colorado Tobacco Tax
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`Increase, also known as Amendment 72 (“Amendment 72”), followed by proposed legislation in
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`2019. Philip Morris, through its agents, lobbyists, and corporate affiliates, including its parent
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`company Altria, spent millions of dollars funding campaigns opposing both Amendment 72 and
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`the proposed legislation in 2019, and both efforts failed to pass. Much like the current Bill, the
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`primary purpose of Amendment 72 was to increase state taxes by $315.7 million annually by
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`increasing taxes on cigarettes and other tobacco products.
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`37.
`
`Philip Morris bankrolled an opposition campaign entitled, “No Blank Checks In
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`The Constitution” (“No Blank Checks”). Of the approximately $18.1 million raised by No Blank
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`Checks, Philip Morris contributed about $17.5 million. As reported, No Blank Checks, acting as
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`Philip Morris’s proxy, outspent the group that supported Amendment 72, the Campaign for a
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`12
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`Healthy Colorado, by nearly eight to one.2 As reflected in a campaign financing filing, Philip
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`Morris’s campaign to defeat Amendment 72 was overwhelming, with at least $14 million spent on
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`polling, research, mailers, consultants and digital and television advertising. Philip Morris’s
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`opposition campaign was successful and Amendment 72 failed.
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`2. Philip Morris’s Opposition To The 2019 Tobacco Tax Bill
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`38.
`
`In April 2019, Defendant Governor Polis and lawmakers announced another effort
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`to raise taxes on tobacco and nicotine products, proposed legislation HB19-1333 (the “2019 Bill”).
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`Similar to the current Bill, the 2019 Bill was a legislative ballot referral, which would have to be
`
`approved by the voters.
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`39.
`
`As with Amendment 72, Philip Morris spent millions of dollars to fund the
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`opposition group, No Blank Checks for Colorado, to defeat the bill in the General Assembly. The
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`opposition campaign by Philip Morris, which began even before the 2019 Bill was formally
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`announced, was extensive and far-reaching, including a social media campaign with a website,
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`Twitter account, and Facebook page.
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`40.
`
`In the days leading up to the Senate vote, Philip Morris hired the most powerful
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`lobbyists in the State and utilized Facebook and social media to mount extensive opposition to the
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`2019 Bill. As reported in The Colorado Sun, Philip Morris “flooded newsfeeds with 60 sponsored
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`ads” and its Facebook posts were seen between 336,000 and 985,000 times by Colorado users.3
`
`
`2 See Eliza Carter, “Big Tobacco Stubs Out Cigarette Tax,” The Colorado Independent, Nov. 9,
`2016, https://www.coloradoindependent.com/2016/11/09/amendment-72-colorado/
`(Attached
`hereto as Exhibit B).
`
`3 Jesse Paul, Eric Lubbers, “Big Tobacco is Fighting Colorado’s Nicotine Tax Bill With Powerful
`Lobbyists And A Social Media Campaign,” The Colorado Sun (Apr. 30, 2019),
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`13
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`41.
`
`Philip Morris’s coordinated and well-funded opposition campaign was successful,
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`as the Colorado Senate voted down the 2019 tax bill in a late-night vote on May 2, 2019, “with no
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`debate or discussion, a remarkable occurrence in a chamber that has seen extended debate on a
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`large number of bills this session.” 4 The tobacco giant emphasized that it would not stand idly by
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`while Colorado attempted to increase taxes on tobacco products. As its company spokesperson,
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`George Parman, told The Colorado Sun at the time, “Philip Morris’s tobacco operating companies
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`oppose excise tax increases which place an economic burden solely on adult tobacco consumers.
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`This is particularly true in Colorado, where voters struck down a similar measure in 2016.”
`
`3. In 2020, Philip Morris, To Fight Growing Competition From Discount
`Cigarette Sales, Strikes A Backroom Deal With The State
`
`42.
`
`Before 2020, Philip Morris experienced growing competition from discount
`
`cigarette manufacturers. After the COVID-19 pandemic struck, as Philip Morris’s parent
`
`company, Altria, publicly stated, Philip Morris feared that the economic downturn would cause
`
`more smokers to switch to lower-priced discount cigarette brands, threatening Philip Morris’s huge
`
`profits as a premium cigarette manufacturer. In April and May of 2020, Philip Morris’s parent
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`company, Altria, publicly stated that it anticipated losing market share and profits to discount
`
`cigarette manufacturers in the wake of the COVID-19 pandemic and the consequent economic
`
`downturn. At Altria’s annual shareholders meeting on May 14, 2020, Altria’s Chief Executive
`
`
`https://coloradosun.com/2019/04/30/colorado-nicotine-tobacco-tax-proposal-opposition/
`(Attached hereto as Exhibit C).
`
`4 Erica Meltzer, “Colorado Senate Rejects Nicotine Tax That Would Have Boosted Preschool
`Spending,” Chalkbeat Colorado (May 2, 2019),
`https://co.chalkbeat.org/2019/5/2/21108100/colorado-senate-rejects-nicotine-tax-that-would-
`have-boosted-preschool-spending (Attached hereto as Exhibit D).
`
`14
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`Officer, Billy Gifford, expressed concerns about economic conditions “that result in adult
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`consumers choosing lower-priced brands including discount brands.” Significantly, in late April
`
`2020, Altria withdrew its 2020 earnings guidance because it anticipated the economic downturn
`
`would push smokers to switch to cheaper brands. 5 Altria and Philip Morris’s fears of losing market
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`share due to the pandemic have been proven correct. As reflected in market analyses, total sales
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`volume for cigarettes decreased by 2.2% in August 2020, and more consumers have been opting
`
`for discount cigarette options rather than premium brands.
`
`43.
`
`As Philip Morris was facing its growing discount price competition problem,
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`Defendant Governor Polis and state legislators were moving forward with efforts to fashion yet
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`another Colorado tobacco tax bill. At the same time, Healthier Colorado, a grassroots organization
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`that had supported earlier, unsuccessful efforts to increase tobacco taxes, was pushing Initiative
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`292, a proposed citizen’s ballot initiative for a new Colorado tobacco tax law.
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`44.
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`To address the threat posed by discount cigarette brands sold by Plaintiffs and other
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`manufacturers, particularly in Colorado where it faced steep price competition from discount
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`products, Philip Morris decided to seek a fixed minimum price provision in the new Colorado
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`tobacco tax law that would require discount cigarettes to sell at premium price levels, thereby
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`eliminating price competition from discount brands.6 This anti-competitive measure would
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`5 Jennifer Maloney, “Altria Sees Smoker Shift From Vaping To Cheap Cigarettes,” The Wall Street
`Journal (May 1, 2020), https://www.wsj.com/articles/marlboro-maker-warns-smokers-will-turn-to-
`cheaper-cigarettes-11588249226?fbclid (Attached hereto as Exhibit E).
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`6 Jesse Paul, “Marlboro’s Owners Negotiated Colorado’s Proposed Tobacco Tax Hike – And It
`Could Help Them Dominate The Cigarette Market,” The Colorado Sun (Aug. 13, 2020),
`https://coloradosun.com/2020/08/13/colorado-tobacco-tax-hike-1427/ (Attached hereto as
`Exhibit F).
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`Case 1:20-cv-03107-KLM Document 1 Filed 10/15/20 USDC Colorado Page 16 of 34
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`remove any incentive for cash-strapped Philip Morris customers to switch from its premium
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`cigarettes to discount brands and permit Philip Morris to convert discount brand smokers to its
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`premium brands more easily.
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`45.
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`Healthier Colorado and Philip Morris, which have historically been on opposite
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`sides of tobacco regulation, thus found common ground. In or around May 2020, Philip Morris
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`informed Healthier Colorado that it would no longer oppose the proposed tobacco tax increases in
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`Colorado, so long as an acceptable minimum price provision was included in the law; Healthier
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`Colorado agreed to help Philip Morris accomplish that goal in order to secure the tobacco tax
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`increases it desired. This deal was confirmed by Healthier Colorado’s Executive Director, when
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`he appeared before legislative committees to promote the proposed tax increase: “We have a deal
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`with the largest tobacco company in America, who was the exclusive funder of the opposition
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`campaign last time.”
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`46. With Philip Morris’s lack of opposition confirmed, Defendant Governor Polis,
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`legislative supporters, and other proponents of the Bill, including Philip Morris, worked behind
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`closed doors, keeping information about the proposed Bill and Section 10 from Plaintiffs and other
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`interested parties, and even from other legislators. Sponsors of the Bill in the General Assembly
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`failed to provide proper notice and hearing, and failed to disclose Section 10 in the title of the Bill,
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`thus precluding full and fair consideration of the Bill on its merits in violation of Colorado law.
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`D.
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`As All Other States Have Done In Raising Cigarette Prices, Colorado Can
`Raise Cigarette Prices Without Burdening Interstate Commerce
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`47.
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`Cigarettes – the only product Philip Morris was facing increasing competition in
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`selling in Colorado – is the only product subject to the Section 10 minimum price control. The
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`Bill would impose new or increased taxes on cigars, pipe tobacco, chewing tobacco, snuff, e-
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`cigarettes, and vaping devices, all of which are calculated as a percentage of the product prices,
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`but does not require those products to be sold for a minimum price.
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`48. Moreover, the increased taxes on cigarettes under the Bill take effect gradually,
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`January 1, 2021, July 1, 2024, and July 1, 2027, at which point the tax will be 10 cents per