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Exiting Tobacco Companies.

Phillip Morris International (NYSE:PM) reported a quite good quarter. Price is up almost 5%. Good time to sell.

I outlined my reasons for reducing or exiting tobacco companies in midyear portfolio review. Tobacco is under huge pressure throughout the world. In developed world, all tobacco products are taxed so heavily, tax is now more than 50% of the customer price. Multiple law ban smoking in most public places, including bars and restaurants. Initially, I thought that such laws and taxation are not a threat to existing companies. Even more, these laws and taxes reduced competition, because it's impossible to establish a new tobacco company now. But now tobacco companies face new competition. Smuggling is one thing, and smuggler doesn't care if he sells real Marlboros or fakes. Another thing is home growing production. It's not that visible as smuggling yet, but with current level of taxes it will be. You don't need much land to grow your own smoke. In US you can grow decent tobacco in all 48 continental states. It won't be as good as production of professional farmers, but it will still contain nicotine. Quite soon we might also see illegal sales of home grown tobacco (interesting, is it illegal to sell dried leafs?)

So far I reduced holdings in Altria (NYSE:MO) and Phillip Morris International (PM). I am planning to completely close both position by the year end, if prices are good.

Full disclosure: I still have long positions in both MO and PM.