When 46 states agreed to a $246 billion out-of-court settlement to recover the costs of smoking-related illnesses, they joined the other four that had previously sued and won. In Canada, the province of Ontario now seeks similar compensation from Big Tobacco with its own suit for $50 billion Canadian (about $46.6 billion).
The tobacco companies call the suit hypocritical: Ontario collects about $1.1 billion in tobacco taxes, of more than $7 billion levied among all of Canada's provincial governments. As long as cigarettes and other tobacco products are legal, industry proponents say, the tax money should cover health-care costs.
Canada's provinces are believed to be banding together for the suit, just as most U.S. states did to reach the Tobacco Master Settlement Agreement in 1998. The Canadian lawsuit has been expected since the Tobacco Damages and Health Care Costs Recovery Act passed unanimously this year, but tobacco companies promise a long and hard fight.
The suit names Altria Group (MO) and some of its Philip Morris Cos. subsidiaries; British American Tobacco of London and its Canadian unit Imperial Tobacco, Canada's largest tobacco manufacturer; and Reynolds American Inc. (RAI).
Is this a legitimate suit or a money-grabbing ploy? Ontario Attorney General Chris Bentley said in a statement: "We believe that taxpayers should be compensated for the costs that they have paid."
But many think taxpayers are being paid enough through taxes and levies of tobacco products. Ontario estimates it provided $1.6 billion in tobacco-related health services last year (a figure some call inflated) -- far more than the $1.1 billion in taxes on tobacco products it collected.
Similarly, the $50 billion figure was reached by looking at "costs of health-care related illnesses directly tied to tobacco from 1955 until now." Critics call this sum arbitrary and argue that the provincial universal health plan dates only to 1972, with some earlier provincial payments for hospital services since 1959.
Another question concerns alcohol sales. Canada sells alcoholic beverages in government-owned stores -- in Ontario, through the Liquor Control Board of Ontario, which is one of the world's largest single purchasers of beverage alcohol products. Alcohol also creates health-care and social costs, critics argue, but the public is more willing to go after tobacco companies than further tax alcoholic beverages.
Ontario has ruled out banning tobacco in favor of education and progressive restrictions on smoking. As long as tobacco products are legal (albeit with increasing limits and regulations) and taxed, critics say, the suit is hypocritical.
However, many others believe there's merit to that claim. As the suit charges, the companies have long known that cigarettes were addictive; that active and passive smoking can cause diseases; that they conspired to mislead the public and suppressed evidence of the risks; and encouraged smoking in children and teens.
Antismoking groups and other organizations welcome the suit and hope for its success, hoping to see tobacco companies pay for their actions. In 2002, the U.S. Centers for Disease Control said that every pack of cigarettes sold in the U.S. costs the nation more than $7 in medical care and lost productivity -- a figure greatly exceeding the tax on cigarettes in Canada and the U.S.
Why do investors make the decisions that they do?View Course »