State Advised To Snuff Tobacco Stocks Panel Says $250 Million In Holdings Threatened By Legal, Regulatory Uproar

Washington state should sell its $250 million worth of tobacco stocks, given the growing legal and regulatory assault on the industry, a key investment panel decided Tuesday.

The state Investment Board’s public markets committee unanimously recommended that the full board divest the holdings as a risky bet for the government retirees whose pensions depend on steady income from the state’s $30 billion investment fund.

The full panel will vote on the sell-off next month. Backers expect approval.

Washington is one of 32 states currently suing the tobacco industry for billions in health-care costs and alleging consumer-protection and anti-trust violations. Christine Gregoire, the state attorney general, is one of five lead attorneys working on a potential settlement.

Gov. Gary Locke said it puts the state in an awkward position to be suing the industry while investing heavily in its stock.

He told reporters he strongly supports selling off the stock on purely economic grounds as well, “given the very tenuous situation surrounding tobacco stocks and the magnitude of lawsuits that tobacco companies will be facing with respect to people who have come down with cancer and people who will be alleging the effects of second-hand smoke.”

The industry will be hammered economically over the next few years, at least until all the lawsuits are sorted out, “and holding tobacco stocks would not be a good investment,” the governor said.

Industry spokesmen did not immediately return a call for comment.

The anti-smoking lobby was delighted with the vote.

“This in an historic acknowledgment that the state should not profit at the expense of public health,” said Astrid Berg, executive director of the American Lung Association of Washington.

“The decision is consistent with the state’s leadership in being one of the first to seek accountability from the tobacco industry.”

Washington would become the third state to divest in recent months. Florida voted last week to sell off its $825 million in holdings and Maryland unloaded its $75 million portfolio last year.

Washington’s single largest tobacco holding is $144 million worth of Philip Morris stock.

The investment panel must consider only economics when deciding on stock holdings, although social policy may be weighed as a secondary consideration if it doesn’t cost the state anything, Assistant Attorney General Jeff Lane told the board’s public markets panel.

Wall Street already has lowered tobacco stock prices between 30 percent and 40 percent to reflect the potential cost of lawsuits or a settlement, the committee was told. It’s impossible to tell where the stock will end up and whether holding on would help or hurt the state, analysts said.