Smoke Shoots Out of Cigarette Makers' Ears

The crackdown on cigarettes has businesses that profit off smokers in rebellion mode.

Several major U.S. cigarette manufacturers filed suit Tuesday in federal court in Washington, D.C., seeking an injunction against graphic cigarette warning labels that the government is mandating next year.

Tobacco companies R.J. Reynolds Tobacco Co., Commonwealth Brands, Lorillard, Liggett Group, and Santa Fe Natural Tobacco name the U.S. Food and Drug Administration, as well as Health and Human Services Secretary Kathleen Sebelius, in a suit prompted by new FDA regulations revealed in June.

The new rules force tobacco firms to feature nine new graphic photographic warning labels, along with the phone number 1-800-QUIT-NOW, on all cigarette packaging and advertisements by September 2012. It's not the text, but rather the mandated images of people with rotting teeth or lesions on their lips, diseased lungs, and even a cadaver with stitches across his chest that have tobacco businesses reeling.

"The primary complaint is that we think it violates the First Amendment for the government to require people who produce a lawful product to essentially urge prospective purchasers not to buy it," Floyd Abrams, a prominent First Amendment case expert who is representing the plaintiffs, told CNN Wednesday.

The big tobacco companies are not the only ones rebelling against government, though. The Wall Street Journal reported this morning that a growing number of Native American entrepreneurs on reservations in New York State are manufacturing their own cigarettes and selling them at bargain prices both in state and in Florida, Texas, and Washington.

The reason? Native American reservation businesses have long sold tax-free cigarettes to Native and non-Native customers alike, accounting for about a third of all cigarettes sold in the state of New York.

But in June, the cash-strapped state government began enforcing the collection of state excise taxes on so-called "premium brands," like Marlboro, amounting to $4.35 a pack, for non-Native Americans who buy them on reservations. It’s the highest tax charged in the United States for this product.

In response, some Native American cigarette makers have stopped selling the big brands and ramped up production of their own tribal-made brands, which they contend are beyond New York law since they are produced and sold on reservations, where tribes operate as sovereign governments.

It's not clear how they will feel about the new federal regulations, but the new warning labels will apply to the tribal cigarettes as well, Christina Saull of the American Cancer Society Cancer Action Network tells Portfolio.com, since Native tribes are treated much like states under the law.

State officials aren't saying yet whether they will try to enforce tax collection for tribal brands. A spokesman for Governor Andrew Cuomo told the Journal that officials "are reviewing some aspects of the law," but "are committed to enforcing the law to the fullest."

It's a tricky situation. The last time New York State got tough on cigarette tax enforcement, a 1997 protest by the Seneca Nation briefly shut down the New York Thruway.

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Teresa Novellino writes for Portfolio.com