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Owner Richard Price at Knuckle Dusters Vape Shop in Reno on July 1, 2019. Photo by David Calvert.

Every year, an estimated 4,100 Nevadans die prematurely as a result of smoking, and 41,000 children alive today in Nevada are expected to die early from it.

Lawmakers who more than doubled the per-pack cigarette tax in 2015 and approved a 30 percent tax on vaping products this session have said they want to price people out of the habit to prevent some of those deaths, and avert some of the more than $1 billion in annual costs in Nevada directly attributed to lighting up. They also want to curb a trend they said they were “horrified” to discover just a few years ago — while years of work has pushed the youth cigarette use rate below 7 percent, nearly 16 percent of youth are vaping. 

“E-cigarettes are winning now,” said Maria Azzarelli, manager of the office of chronic disease prevention at the Southern Nevada Health District and an architect of the Nevada Tobacco Control Plan. “We’re reverting back almost 20 years in terms of the rates of use of those products. That has been quite frightening.”

But exactly how effective have large tax hikes been at getting people to kick the habit? And will a new tax on vaping have the desired effect of keeping youth from getting hooked on something that, while thought to be not as dangerous as combustible cigarettes, still carries health risks?

The limited data since the most recent doubling of cigarette taxes shows the smoking rate wobbling at or slightly below what it was before the increase. But state budget analysts are banking on a continued drop in cigarette sales, predicting the per-capita pack sales in fiscal year 2021 to be one-fifth of what that rate was in 1991.

The effect of a new tax on vaping products — which has not previously been taxed — is a bit more uncertain, and fiscal analysts haven’t yet altered their budget forecasts to reflect a potential tax-driven slowdown in the “other tobacco products” category, where the revenue will flow. The state has been struggling to even get a sense of how many teens are vaping, with surveys only offering a picture of recent developments and rapidly shifting terminology (from e-cigarettes to vaping to JUULing) making it difficult to design questionnaires that will capture accurate responses.

“It’ll be very interesting to watch this unfold. It’s just going to take a while to get year over year [data],” said Russell Guindon, head of the Legislative Counsel Bureau’s Fiscal Analysis Division, about the impact of such a significant tax on behavior.

At Knuckle Dusters Vape Shop in Reno earlier this month, owner Richard Price stood in front of a wall lined with hundreds of small and colorful e-liquid bottles. He predicted the new tax will have something of a catastrophic effect on the rapidly growing industry surrounding vaping, which has only been around for about a decade.

But he’s less confident that the state’s approach on the taxation will make the kind of splash on youth vaping that proponents say they so desire. If lawmakers’ real concern is youth getting hooked, they should focus on raising the minimum smoking age and doing more undercover operations, he said.

“If you're going to push a bill to try to keep kids away from it then enforce the laws that are already there,” he said. “I've been here for four years and never had a compliance check done.”

Reversing some successes

In the last two decades, Nevada has seen a big dropoff in its adult smoking rate, which fell from 30.3 percent in 1998 to 16.5 percent in 2016. 

“In the state of Nevada we had the highest smoking rates in the nation,” Azzarelli said. “We’ve made great strides with our awareness campaigns and our policies.”

Some of the progress can be chalked up to the Master Settlement Agreement, a $200 billion settlement between large tobacco companies and 46 states to help compensate them for tobacco-driven health problems. Nevada’s youth smoking rate, which was ranked highest in the country in 2001, fell to 29th by 2010 after nearly a decade of settlement-linked prevention activities.

But many states, including Nevada, have reinvested very little money from tax hikes and the settlement into tobacco prevention and cessation activities. While the state at one point was sending $4 million to $4.5 million a year to the cause, it zeroed out that spending during the recession and has only restored about $1 million a year.

The Centers for Disease Control and Prevention recommends that based on Nevada’s size, $30 million be spent a year on those efforts. That means the state is spending just 3 percent of what the CDC recommended to curb smoking. 

Nationwide, only 2.6 percent of the $425 billion states received from tobacco taxes and the settlement over the past two decades was reapplied to anti-tobacco efforts. The approximately $160 million Nevada brings in every year from cigarette taxes flows to the general fund, where it supports everything from K-12 education to mental health services.

Almost all of the approximately $40 million the state receives each year from the Master Settlement Agreement flows to programs unrelated to tobacco use prevention. Forty percent of funds go to the state’s popular, merit-based Millennium Scholarship, while sixty percent go to the Fund for a Healthy Nevada.

Grantees for the 2018-2019 fiscal year included several food banks, respite care programs, services that offer transportation for seniors and people with disabilities and life skills training to promote independent living. 

“That is one of the dynamics that makes it challenging,” said Michael Hackett, a lobbyist for smoking prevention groups. “We don’t like that we’re competing with them but unfortunately that’s how things have been.” 

While Nevada funnels money from a settlement with tobacco companies to other causes, the state now ranks 38th in the country for spending on tobacco prevention activities. The less than $1 million the state is spending each year to fight tobacco use is up against an estimated $64 million in tobacco marketing in the state.

Advocates are hopeful about SB263, the vaping tax bill passed this session that is expected to yield $8 million in tax revenue each year. It requires $2.5 million each year goes toward tobacco prevention activities.

“Of course the prevention funding to create awareness was absolutely just wonderful,” Azzarelli said.

A new front: vaping

As Nevada celebrated the decline in its youth smoking rate, public health officials have been alarmed at the rapid rise of vaping: while 6.7 percent of youth say they’ve used a cigarette at least once in the past month, 15.5 percent said they’d vaped in the previous 30 days.

That puts Nevada above the national average of 13.2 percent.

“We have to get our hands around this e-cigarette issue. We’re woefully underfunded in this regard,” Azzarelli said.

Part of the issue is the mixed messaging around vaping. Price says he used vaping as a way to kick his pack-a-day cigarette habit and was successfully able to step down to very low levels of nicotine; he opened a vape shop because he believes in the power of his products, and he helps customers addicted to cigarettes choose e-liquids in progressively lower concentrations to eventually phase off nicotine altogether. 

“When somebody finally gets on a zero, they buy a couple of bottles, we never see them again,” Price said. “It’s not great for business, but that’s what we’re here to do. That’s what we believe in.”

But he acknowledges that it’s possible for people who don’t smoke at all to pick up a nicotine addiction through vaping. While older products stick to nicotine concentrations of 3 to 6 mg of nicotine per milliliter, newer products on the market, such as the JUUL, use concentrations of sometimes 50 or 60 mg.

The high-nicotine products, which have lately been enriched with benzoic acid that ensure they absorb in the bloodstream faster, don’t taste as good but produce a quicker, more addictive high. The small devices like the JUUL are also discreet enough for students to use in class without a teacher noticing. 

“These high nicotine devices, they don't create hardly any vapors, so it's really stealthy,” Price said. “You can just hit it and hold it in until it disappears and no, you're not gonna smell it. You're not gonna see it.”

While some studies show that e-cigarettes are less harmful than combustible cigarettes, others point out the adverse affects the smoke and chemicals in e-liquids can have on the lungs and cardiovascular system.  

The CDC sums up the relative benefit of vaping on its website: “E-cigarettes have the potential to benefit adult smokers who are not pregnant if used as a complete substitute for regular cigarettes and other smoked tobacco products. E-cigarettes are not safe for youth, young adults, pregnant women, or adults who do not currently use tobacco products.”

Aside from the challenges of trying to curb a behavior seen as less harmful than traditional smoking, public health advocates are also reckoning with the overall renormalization of smoking — including not just vaping but the enthusiasm and acceptance over a legal marijuana industry that is becoming a notable source of tax revenue.

“Now there’s a lot of advertisement for cannabis products. Maybe there was a generation that they weren’t exposed to that,” Azzarelli said. “It’s becoming normalized to talk about using marijuana. It’s becoming more popular to talk about. When it’s legalized people feel more inclined to do that. The act of smoking or vaping anything has been re-normalized.”

The Nevada Tobacco Prevention Coalition has been charged with maintaining a laser focus on tobacco rather than venture into areas such as marijuana, but their position is that no smoke is good smoke. Even marijuana is an oily plant that can lead to the buildup of tar in the lungs, Azzarelli said.

Health officials are also looking forward to the inclusion of vaping in the Clean Indoor Air Act’s ban on indoor smoking. Keeping smoking and vaping out of sight could address the normalization issue but also prevent secondhand exposure to chemicals in e-liquids.

“We look forward to ... the fact that e-cigarettes will not not be allowed to be used indoors, so people will be protected from the secondhand aerosols coming off those products and that’s a huge, huge deal,” Azzarelli said.

How has cigarette consumption responded to the tax increase?

Taxing cigarettes high enough that they become out of reach for consumers has long been a goal for anti-smoking advocates, and it doesn’t hurt in the legislative process that some of the extra revenue can help balance budgets. The American Lung Association says that every 10 percent increase in the price of cigarettes reduces youth consumption by about 7 percent, and adult consumption by about 4 percent.

“Pricing, and particularly taxation, is the best practice in terms of determining usage,” Hackett said.

In 2015, Gov. Brian Sandoval was proposing a 40-cent-per-pack cigarette tax increase, but anti-smoking advocates pushed for a higher rate.

“From a public health [perspective], it would have a very nominal effect. We were hoping to do something that would have public health benefit,” said Hackett. 

Lawmakers ultimately passed a $1 tax hike, something that the governor and legislative leadership said they could handle because it wasn’t too far out of line from what other western states are doing.

So has it worked?

Nevada’s adult cigarette smoking rate dipped from 17.5 to 16.5 percent in 2016, but then ticked back up to 17.6 percent in 2017, according to the Centers for Disease Control and Prevention. Figures for 2018 have not yet been released.

“We’re not sure what happened there but overall the surgeon general shows that when you increase the price of cigarettes, consumption goes down,” Azzarelli said. 

State fiscal analysts have also seen some aberrations, including a spike in the raw number of packs sold in fiscal year 2015, a big drop in fiscal year 2016 and some stabilization after that. 

The big jump is likely because wholesalers who recognized the per-pack tax was jumping up bought as many stamps as they could at the lower rate before the higher rate kicked in July 1, 2015.  (The cigarette tax is paid by a wholesaler, who buys a stamp that is affixed to a pack and indicates the tax was paid. Taxation happens at the point the wholesaler pays it, rather than at the cash register when a customer buys a pack.)

Trends are just now starting to normalize after those changes. State fiscal analysts are still going with the theory that higher prices will reduce smoking, and have predicted year-over-year declines in per-capita pack purchases.

But the story of the tax’s impact has other nuances. Although it’s hard to prove because people don’t provide their address when buying cigarettes, purchasing habits could be influenced by major changes in cigarette tax rates in other states (such as California’s $2 per pack tax hike) and people near the border buying their cigarettes in a cheaper state.

With more than 40 million visitors a year, it can be difficult to tell how much tourists are driving sales trends in Nevada.

And cigarette sales also appear highly responsive to the recession. Experts believe that’s because people with a less serious nicotine addiction cut back on their consumption when money is tight.

“Probably people would think of cigarette smoking as being somewhat inelastic demand,” Guindon said. “I think the Great Recession was going to change things on the margins.”

Effect on the vaping industry

Vape pens at Knuckle Dusters Vape Shop in Reno on July 1, 2019. Photo by David Calvert.

Recognizing that consumers are moving from smoking to vaping, lawmakers tried in 2017 to impose a tax based on the volume of vaping liquid. The bill died amid an outcry from vaping product manufacturers who argued the tax would crush them after they had recently fled from a California vaping tax.

Nevada lawmakers got their vaping tax in 2019, in the form of a 30 percent tax on the wholesale cost of all vaping products — both vaporizers and e-cigarette liquid.

Price is concerned because the tax, which kicks in Jan. 1, 2020, makes no distinction on nicotine content. He believes that structure will incentivize shops to sell high-margin, highly concentrated products instead of stocking less-popular, lower-nicotine e-liquids that help wean people off of smoking but that are sometimes a losing business proposition.

“Shops like this that are responsible, that want people to quit smoking are going to be the ones affected by it because you can just go into a head shop,” he said. “You say, ‘hey, I want that bottle with tons of nicotine in it’ and they're just going to be like ‘okay,’ sell it and you're on your way. So the educational shops, I think, are going to be the ones that are hurt.”

The tax will also acutely affect vaporizers, which are more expensive and would not only be subject to the 30 percent tax but a 25 percent tariff imposed as part of a trade war with China (most vaporizers are made overseas). That combination would make it much cheaper to buy the product online.

Price said he met before the tax passed with legislators, who shared the data about a fraction of youth giving up vapor products for every 10 percent hike in price. He thinks a better strategy is doing more compliance checks and taxing vape shops $1,000 per quarter per employee to perform them, but the suggestion didn’t make it into the bill.

He says some vape shops in the state are already talking about closing at the end of the year, but he’s hoping to absorb much of the tax increase to spare his customers and ride out the change.

“It's booming for us,” Price said. “We do very well that and that's why I think while this tax is going to hurt, it's going to really, really hurt, and I'm going to have to change my model in some ways, we're going to make it through it.”

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