A smoker puts out a cigarette in a public ash tray in Ottawa on May 31, 2016.Sean Kilpatrick/The Canadian Press
Max Krangle is a former general counsel of R.J. Reynolds Tobacco.
One wonders if the executives at the three Big Tobacco companies in Canada were collectively patting themselves on the back last week.
Although there are still a few legal hurdles to overcome, JTI-Macdonald Corp., Imperial Tobacco Ltd., and Rothmans Benson & Hedges Inc. are set to pay $32.5-billion to settle multiple provincial health-related lawsuits and a long-standing Quebec judgment that attached “failure to warn” liabilities to the industry.
While that’s undoubtedly a substantial sum of money by anyone’s measure, it’s less than 7 per cent of the nearly $500-billion total that was sought at trials many had labelled the biggest victories against Big Tobacco, anywhere, ever.
And the industry can finally get back to business as normal after nearly 10 years of self-imposed creditor protection, as the spectre of a much higher payout had loomed (a time in which, it should be noted, the industry has amassed nearly $12-billion in protected profits that covers more than a third of what is now owed).
The current settlement figure is nothing to the tobacco companies. Consider the Master Settlement Agreement with the tobacco industry in the United States roughly 25 years ago, where the companies could shrug off even a settlement of a minimum of US$206-billion, which was more than they were worth. Any industry willing to accept a settlement figure that is higher than the capitalized value of their business must be on to something.
In Canada, if the settlement proposals filed in court last week hold up, the deal affords a layer of protection to tobacco companies and allows them to exit bankruptcy protection, and to continue their existing business model for many years to come – free of litigation. It’s nothing short of an economic and legal miracle, as they were previously facing almost certain financial ruin.
The same can’t be said for the class of litigants, hundreds of whom have died waiting for this day to actually happen. Sure, compensation will likely go a long way to alleviate the suffering of the plaintiff class that has endured life-changing damage, but many never lived to see this day. Even the Canadian Cancer Society has been critical of this settlement, noting last week that the deal should have included public-policy plans to further restrict the business operations of the tobacco industry.
Who else benefits from this settlement? The answer is simple: Follow the money.
At $32.5-billion, governments can still claim they “beat” the tobacco industry. They can also say they have access to a very decent pot of funds to genuinely address the pain of some, better fund provincial health care budgets, and increase the warnings they give to smokers about the life-changing choices they are making. But at what price?
The tobacco industry will remain protected and very much in business going forward so that they can continue to manufacture, distribute, market and sell products that continue to be responsible for sending more than 125 Canadians a day to an otherwise preventable early death.
At the same time, the industry can continue to contribute nearly $10-billion a year in direct and indirect tax revenue to the Canada Revenue Agency that is used to fund multiple government programs. A crippling settlement figure imposed on a bankrupt Canadian tobacco industry would have killed the “golden goose” of governments.
To an outsider, it should raise the question: Who actually is the tobacco industry?
When you have one stakeholder in a business that takes more than 80 per cent of the profits (in this case by specific taxation), controls the price paid by the customer, dictates where the product can be sold and marketed, and actively manages all legal control over the way the product is manufactured and consumed, it’s normal to associate that “stakeholder” as exerting significant control over the business.
The interesting point here in Canada is that stakeholder entity is not the companies that collectively make up Big Tobacco. Rather, it has become government itself, and this landmark settlement proves it.
If governments in Canada were actually serious about completely eradicating the clear and present dangers associated with smoking cigarettes and other tobacco products, they would have let the court process deal with and end Big Tobacco in the country, once and for all. They chose the opposite.
