State reaches $39.3M settlement with defunct Keysville tobacco company

Closed in 2019, S&M Brands never entered Master Settlement Agreement

Published March 10, 2021 by Kate Andrews

Twenty-three years after the landmark Tobacco Master Settlement Agreement was reached, defunct Keysville tobacco company S&M Brands Inc. has settled with Virginia for nearly $40 million, the attorney general’s office announced Wednesday.

S&M Brands, the makers of Bailey cigarettes and other products, closed in 2019. It was started in 1995 by father and son Mac and Steven Bailey, part of a longtime family business growing and brokering tobacco in Charlotte County dating back to 1860. In November 1998, the four largest U.S. tobacco product manufacturers — Virginia’s Philip Morris Inc., R.J. Reynolds, Brown & Williamson and Lorillard — entered into the master settlement agreement with 46 states, the District of Columbia, Puerto Rico and four U.S. territories.

Under the agreement, the states settled their Medicaid lawsuits against tobacco manufacturers in exchange for the companies stopping certain marketing practices and paying annual compensation to the states for medical costs stemming from smoking-related illnesses. In subsequent years, other tobacco companies entered the agreement, but S&M Brands did not do so, leading to this year’s settlement.

The defunct company’s recent deal with the state (along with other states, including North Carolina and Kentucky) required it to pay $39.38 million into the Virginia Health Care Fund, according to the attorney general’s office. Under state law, the company had been required to make regular deposits based on statewide sales into an escrow account, funds that usually can be returned to companies after 25 years, except for any money awarded in suits against them. However, the 2021 settlement assigned the rights of S&M’s escrow funds to the state and prevents the company from suing later over the return of the money, the attorney general’s statement says.

Although 40% of Virginia’s $4 billion in original tobacco settlement funding went into the health care fund, part of the money has gone toward economic development efforts in Southern and Southwest Virginia communities that were the heart of the state’s tobacco-growing region. The Tobacco Region Revitalization Commission was founded after the 1998 settlement and has allocated nearly $1.2 billion in grants for businesses in the region, as well as $309 million in indemnification payments for tobacco growers and quota holders. A smaller percentage of Virginia’s MSA funds is earmarked for youth tobacco-use prevention initiatives carried out by the Virginia Foundation for Healthy Youth.

“With this settlement, almost $40 million has been transferred into the Virginia Health Care Fund where it will be used to help the people of the commonwealth who truly need it,” Attorney General Mark Herring said in a statement. “I want to thank my team for all of the hard work that they put into reaching this substantial settlement with S&M Brands.”

Subscribe to Virginia Business.

Get our daily e-newsletter.