The passage of legislation to expand a government children's health program will put fresh pressure on the U.S. tobacco industry.

The House on Wednesday passed legislation that allows for an expansion in the state children's health insurance program, clearing the way for President Barack Obama's signature later in the day. The bill is financed by an increase in tobacco taxes, including a 61-cent-per-pack increase in cigarette taxes that would raise the federal excise tax on a pack of cigarettes to $1.

The higher taxes are a blow to the U.S. tobacco industry, which in recent years has already seen cigarette volumes slide. Higher taxes tend to put further pressure on volumes as they increase the cost of cigarettes. Volumes at U.S. cigarette makers Altria Group Inc. (MO), Reynolds American Inc. (RAI) and Lorillard Inc. (LO) are likely to suffer further.

Charles Norton, a portfolio manager at the Vice Fund, which invests in tobacco stocks, says he expects overall cigarette volumes in the U.S. to be down in the "high-single-digit range" in 2009.

Still, tobacco stocks did not show much of a reaction to news of the bill's passage Wednesday since investors have been gearing themselves up for the change since late last year. Altria was down 1% to $16.76 and Reynolds was up 1 cent to $38.78

Industry watchers expect tobacco makers with the strongest brands - like Marlboro maker Altria - to be the most successful in withstanding the pressures of the increased levy.

"In our view Altria is best positioned to weather the U.S. cigarette headwinds of excise tax increases and eventual FDA regulation, due to its pricing and market-share leadership," wrote JPMorgan analyst Erik Bloomquist in a recent research note to investors.

Citgroup said in a recent note that the moist smokeless tobacco sector, where taxes will also rise, will gain as a category because the tax there is still relatively low. Among makers of smokeless tobacco are Altria's newly purchased UST unit, which sells brands like Coppenhagen and Skoal, as well as Reynolds American's Conwood unit, which sells names like Kodiak and Grizzly.

Citigroup also noted that the tax increases will pressure cigars, which could become more expensive for consumers and could lose some of their tax advantage over cigarettes.

Norton is hoping the cigarette companies will be able to offset the pressures of lower volumes by eventually tacking on their own price increases that can help raise their profits.

"A lot of it will be recovered in price - they have strong pricing power," said Norton. "In terms of the stocks, a lot of it is well know."

-Anjali Cordeiro; Dow Jones Newswires; 201-938-2408; anjali.cordeiro@dowjones.com

(Fawn Johnson contributed to this article)