Cigarette companies are being threatened with prosecution amid claims they are exploiting a loophole in the law banning tobacco sponsorship.

The Smoke-Free Environments Act 1990 banned sponsorship by stopping companies from advertising and making financial contributions to events.

They appear to be getting around the law by paying for exclusive distribution deals with event promoters, including music festival Rhythm and Vines and Air New Zealand Fashion Week.

Rhythm and Vines director Scott Witters confirmed Philip Morris Tobacco had bought exclusive supply rights at this year's event, starting outside Gisborne on December 29, but wouldn't reveal how much.

Witters said the event approached the Health Sponsorship Council for Smokefree sponsorship before doing the deal, but "due to budgetary constraints they couldn't work with us".

He said having cigarettes onsite was part of "host responsibility" - to stop revellers driving 12km into the town centre to buy them.

"It's no different to the agreements we have with a lot of other suppliers. They pay the rights so they don't get their competitors in there but there's no advertising, no promotion."

A spokeswoman for British American Tobacco New Zealand confirmed an exclusive supply deal with Fashion Week, held in September.

The Herald on Sunday understands the company provided several marquees in exchange for the distribution rights. British American Tobacco and Myken Stewart of Fashion Week would not confirm this, but Stewart said the legislation allowed for "provision of equipment".

Philip Morris has also signed a deal with BW Camping Festival, which runs in conjunction with Rhythm and Vines.

Festival organisers contacted the Gisborne Cancer Society requesting sponsorship in the form of sun shades and sunblock, but on learning of the tobacco company's involvement the society declined.

"There's absolutely no way we'd have anything to do with an event that is marketing tobacco to young people," said Cancer Society health promotions manager Dr Jan Pearson. BW Camping organisers did not return calls. The Health Ministry said tobacco companies who provided financial incentives to events were "most likely" breaking the law.

National tobacco control manager Karen Evison said the ministry had written to companies asking them to stop the practice voluntarily.

Michael Colhoun, of anti-smoking group ASH, said tobacco companies were trying to attract new customers, and called for retailers to be licensed in the same way as liquor sellers.

"I could drive up and sell tobacco from the boot of my car as long as I pay the taxes.

"Part of the frustrating thing ... is that unless you find a paper trail, you can't do a lot about it."