Meet Drew Estate’s Joya Red

JULY/AUGUST 2014 VOLUME 17 n NUMBER 4

New E-Vapor Game in Play Now that the FDA’s initial regulatory framework on the e-cig/vapor market has been revealed, the industry weighs educated moves.

Cigar Sense: A Convenient Approach

Trench Marketing: When Bigger is Better

Highlights From the Inaugural Vapor World Expo PUBLISHER’S LETTER BY ed o’connor When Is the Best Time to Get Ready for TPC 2015? NOW!

TPC 2015 takes place at the Las Vegas Convention Center January 28-29, 2015. Each year we provide you with exit interview feedback from the show. At TPC 2014, we ran- domly interviewed 120 attendees and exhibitors as they left the hall. Here’s what they told us.

What was your purpose Which category Top answers to: Was there for attending TPC 2014? do you represent? anything you were looking for 21% at the show that wasn’t there? Online 38% 41% 51% 1. More companies Wholesale E- See new 2. More distributors products 41% 3. RJReynolds Retail 4. Phillip Morris 5. More cigarettes 6. FIN 8% Visit a supplier How many nights did you Top answers to: What did you Was this your first time at the show? spend in Las Vegas? like best about TPC 2014? 21% 1. Las Vegas 36% 36% Two 2. New products 3. Exhibitors No 64% None 21% Yes 4. Beautiful setup 22% One 5. Very informative Three 6. Everything in one place 7. Variety of vendors

How many employees Top answers to: What did you How did you hear about the show? are in your business? like least about the show? 1. Registration Direct mail 17% 1-3 26% 2. Music too loud Telemarketing 10% 4-6 25% 3. No food served in the hall 4. Suggest giving directions Internet 27% 7-12 14% from LVH to convention center in confirmations Word of mouth 36% 13-20 17%

Magazine ad 10% 20+ 18% We you had a good show and that if you came as an attendee, you How many years have you found the items and variety that you Of those who were not been in business? needed. If you exhibited, we hope the investment proved to be profitable. first-timers, 99 percent 1-2 Years 34% Most of all, we hope to see you next said that TPC 2014 was a 3-5 Years 21% year in Vegas. better show than previous Get ready for TPC 2015 now! 6-10 Years 18% years’ shows. 10+ Years 27% Best to you and good selling,

4 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 INSIDE THIS ISSUE

CIGAR SENSE A Matter of Convenience 30 Premium are making more tracks through the convenience store channel.

FEATURES COVER STORY New E-Vapor Game in Play 42 Now that the FDA’s initial regulatory framework on the e-cig/vapor market has been revealed, the industry weighs more educated moves. Electric Alley: Ten Quick Truths 38 Vapor World Expo’s Debut, page 56 Don’t blink—the e-cig/vapor category is moving and changing rapidly. Here are 10 up-to-the minute market realities heard and reported at Vapor World Expo. Vapor World Expo’s Debut 56 Held in Rosemont, Illinois, the first annual vapor, business-to-business industry event was a huge hit for the emerging industry. Ten Tips to Trade Show Success 58 These ideas can help boost your sales at shows like IPCPR, TPC and VWE. Is U.S.-Extracted a Reality? 60 USA Liquid Nicotine says that it’s ready to sell pure liquid nicotine extracted from tobacco grown in the U.S. Their Table Is Definitely Ready, page 64 Their Table Is Definitely Ready 64 Four-year-old St. Louis cigar company Table 36 is launching its third boutique cigar. Event Highlight: Smoker’s Haven Hosts Torano Tasting 72 Cigar tastings and dinners draw a big crowd for this New Jersey retail chain. C-Store Corner: No Thanks to Tanks 74 While more consumers are trading cig-alikes for tank-style vapor devices, can c-stores hang onto their electronic product market share? Trench Marketing: Big Kid on the Block 78 Cigars International leveraged Internet success to become a brick-and-mortar powerhouse. Smoker’s Haven Hosts Torano Tasting, page 72

Publisher’s Letter...... 4 When Is the Best Time to Get Ready for TPC 2015? NOW!

News & Trends...... 12 FDA proposed regulation, Zippo sues Lorillard and more.

TMA Report...... 22 A roundup of industry news

Category Manager...... 26 Vaping: A Market Share Shakeout

Pipe In Hand...... 36 Brotherhood of the Pipe

Product Profile...... 86 A guide to new and popular outlet products Trench Marketing: Big Kid on the Block, page 78 NEWS & TRENDS JULY/AUGUST 2014

FDA Proposes Extending Authority

Agency looks to oversee currently unregulated marketed products, including e-cigarettes, cigars and pipe tobacco.

n April, the U.S. Food and Drug the product will benefit public health The proposal includes a provision Administration released its long- as a whole; and that would give all regulated entities, Iawaited proposal to extend the • Not distribute free samples. including small businesses, “adequate agency’s tobacco authority to cover In addition, the new rule would ap- time” to comply with the new require- additional tobacco products. Prod- ply the following provisions to newly ments, says a spokesperson for the ucts that would be deemed subject deemed tobacco products: agency. The proposal will be available to FDA regulation are those that meet • Minimum age and identification for public comment for 75 days. While the statutory definition of a tobacco restrictions to prevent sales to under- the FDA has pledged to consider all product, including currently unregu- age youth; comments, the agency has specified lated marketed products, such as • Requirements to include health certain areas where it is particularly electronic cigarettes (e-cigarettes), warnings; and interested in input on cigars and e-cig- cigars, pipe tobacco, nicotine gels, • Prohibition of vending machine arettes. The FDA’s original requests to waterpipe (or hookah) tobacco, and sales, unless in a facility that never that effect are as follow: dissolvables not already under the admits youth. • “The FDA recognizes that different FDA’s authority. The FDA currently “This is an important moment for tobacco products may have the poten- regulates cigarettes, cigarette to- consumer protection and a significant tial for varying effects on public health bacco, roll-your-own tobacco, and proposal that if finalized as written and is proposing two options for the cat- smokeless tobacco. would bring FDA oversight to many egories of cigars that would be covered “This proposed rule is the latest new tobacco products,” explains FDA by this rule. The FDA specifically seeks step in our efforts to make the next Commissioner Margaret A. Hamburg, comment on whether all cigars should generation tobacco-free,” says Health M.D. “Science-based product regula- be subject to deeming, and which other and Human Services Secretary Kath- tion is a powerful form of consumer provisions of the proposed rule may be leen Sebelius. protection that can help reduce the appropriate or not appropriate for differ- Under the proposed rule, makers public health burden of tobacco use ent kinds of cigars.” of newly deemed tobacco products on the American public, including • “The FDA seeks answers to the would be required to: youth.” many public health questions posed • Register with the FDA and report “The proposed rule would give the by products, such as e-cigarettes, product and ingredient lists; FDA additional tools to protect the that do not involve the burning of to- • Only market new tobacco prod- public health in today’s rapidly evolv- bacco and inhalation of its smoke, as ucts after FDA review; ing tobacco marketplace, including the agency develops an appropriate • Only make direct and implied the review of new tobacco products level of regulatory oversight for these claims of reduced risk if the FDA and their health-related claims,” adds products. The FDA seeks comment confirms that scientific evidence sup- Mitch Zeller, director of the FDA’s in this proposed rule as to how such ports the claim and that marketing Center for Tobacco Products. products should be regulated.”

Swedish Match Seeks Modified-Risk Designation Company hopes to free General snus from warning label requirements.

Swedish Match has applied for FDA ap- efits for the public. “Swedish snus is very In keeping with FDA recommendations, proval to market its General snus product well scientifically documented and our the company has been proactive in en- line as a modified-risk tobacco product application consists of more than 100,000 gaging with the agency on its submission, (MRTP). If approved, the company will pages,” says Lars-Erik Rutqvist, senior vice meeting with FDA representatives to dis- be able to deviate from the warning label president of scientific affairs at Swedish cuss the format and data requirements for requirements that apply to all tobacco Match. “As an industry leader, we must its MRTP application. products. properly apply the evidence to demon- Swedish Match’s corporate headquar- In the application, Swedish Match cites strate the potential public health benefit of ters are located in Stockholm, Sweden and 12research showing that snus has health ben- our snus tobacco products.” its U.S. division is in , Virginia. TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 NEWS & TRENDS JULY/AUGUST 2014 Highlights Miami Cigar & Company Launches M&R Holdings New Look and New Leadership Transitions Bill has joined M&R Holdings’ Nestor Miranda is celebrating his company’s 25th anniversary national sales force. West has sev- by announcing a new design and changes in company eral years of experience in different facets of the as management. well as years of sales experience. He will work with the company’s cus- Along with the unveiling of new design elements, Nestor Miranda has announced tomers on brands including Dean’s that he is passing management of day-to-day operations on to Jason Wood. “2014 Pipe Tobacco, Dean’s Cigars, Dean’s marks the 25th anniversary of my company and it has brought a renewed excite- E-Cigars and Farmer’s Gold. ment to my wife and me,” says Nestor Miranda, director of Miami Cigar & Compa- M&R has also named Michelle Ed- ny. “I can proudly say that I knew my son-in-law, Jason Wood, was a special talent mundson as a tobacco broker for the who just needed industry experience that time has brought to him. I am excited company. Edmundson will draw on about the new vision that he has for our future and the re-branding of the Nestor years of experience in the wholesale Miranda Collection.” and distribution of tobacco products Miami Cigar & Company will unveil this new look—which is in keeping with a to help clients customize tobacco new “One Life” tagline the company is already promoting on social media—at the programs for Dean’s and Farmer’s 2014 IPCPR show. “It has been an honor for me to begin the process of creating Gold products for their businesses. a new look and feel which is worthy of what Nestor Miranda and the Miami Cigar & Company team have accomplished over the last 25 years,” says Jason Wood, vice president of Miami Cigar & Company. “The ‘One Life’ tagline represents the way that Nestor [Miranda] has and contin- ues to live his life. It represents a call to action to seize the day and live every mo- ment with passion. We are looking forward to celebrating our new look and company anniversary in Las Vegas this July.” Michelle Edmundson Bill West

New Dealer for Smoker Friendly

Smoker Friendly In May, Smoker Friendly signed XO Announces New CIO Corporation as a new authorized dealer in its Smoker Friendly (SF) Private Label Program. XO intro- David Kittle has joined the Cigarette Store Corp. and Smoker Friendly as duced SF products into its 12 retail chief information officer. Kittle, who has 20 years of experience in the in- locations in the Kansas City, Mis- formation technology and information systems industry, will manage and souri market during the last part of expand the information technology systems team at Smoker Friendly with May 2014. Smoker Friendly now an emphasis on security, stability and growth for Smoker Friendly. has 79 corporations participating in its authorized dealer program, and over 800 stores nationwide.

14 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 NEWS & TRENDS JULY/AUGUST 2014

Zippo Sues Lorillard Zippo Manufacturing is charging a Lorillard subsidiary with trademark infringement over blu eCigs.

The Bradford, Pennsylvania-based selling its blu e-cigarettes because ly recognizable because we have long maker of Zippo and its sub- Zippo owns the trademark “BLU” for understood the value of our brand sidiary ZippMark are suing LOEC, a its line of blue-flame butane lighters. and the need to vigorously protect wholly owned subsidiary of Greens- “Despite our attempts to resolve it against use by others. Our ‘BLU’ boro, North Carolina-based Lorillard, this matter amicably, Zippo has been trademarks are similarly valuable and for trademark infringement. Filed in compelled to seek the court’s as- will be similarly protected.” the United States District Court for the sistance to protect our ‘BLU’ trade- Lorillard, which acquired blu eCigs Central District of California, the law- marks,” says Zippo President and in April 2012, is seeking a declaratory suit asks that LOEC be prevented from CEO Gregory Booth. “Zippo is instant- judgment of noninfringement.

NJOY and Victory Settle Suit The two parties have reached a settlement in a patent and trade dress infringement lawsuit.

A lawsuit by the Scottsdale, Arizona- Spring Lake, Michigan-based Vic- by using it without NJOY’s permission,” based maker of NJOY and NJOY King tory recently agreed to stop selling the a company spokesperson said after electronic cigarettes charged that Vic- accused e-cigarettes and cases in re- the settlement was announced. NJOY tory Electronic Cigarettes infringed sponse to the suit, which was filed in has acquired a reputation for pursuing patented technology used in the NJOY the U.S. District Court for the District of patent infringement cases across the disposable King e-cigarette, and that Arizona in November. emerging vapor category. Victory e-cigarette cases infringed “NJOY will continue to vigorously en- Latham & Watkins, LLP and NJOY’s trade dress rights protecting its force its valuable intellectual property Fennemore Craig, PC represented uniquely identifiable King case. against those who appropriate its value NJOY in the case.

16 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 NEWS & TRENDS JULY/AUGUST 2014

. Mistic Now an Indy 500 Sponsor

The e-cigarette company is making its debut as a co-primary sponsor.

Mistic, maker of value-priced elec- during one of the most celebrated Weekend Giveaway are: Glenda tronic cigarettes and vapor products, race events in the world,” says John Eades of Indianapolis, Indiana; Pa- is making its Indianapolis 500 debut Wiesehan, Jr., CEO of Mistic. “We’re tricia Basset of Clarksville, Tennes- as a co-primary sponsor of KVSH also excited to announce the winners see; and Larry Dixon of Lakewood, Racing’s No. 11 car piloted by four- of our Dream Weekend Giveaway, all California. Each of the three win- time Series Champion Sebastien of whom are super excited to be part ners and their guests received a VIP Bourdais. of the big race, and their stories on package courtesy of Mistic Elec- Qualifying in 17th position for the why they made the switch to Mistic tronic Cigarettes for the big race 98th running of the 200-lap race are truly inspiring.” weekend in Indianapolis on May 24 on May 25 with a four-lap average Winners of the Big Race Dream and 25, 2014. speed of 229.847 mph, Bourdais will be making his fourth appearance at the Indy 500, an event billed as the “greatest spectacle in racing.” The 35-year-old Frenchman re- cently put on his strongest perfor- mance of the 2014 Verizon IndyCar Series season, finishing fourth in the inaugural Grand Prix of Indianapolis on the newly designed 2.439-mile, 14-turn Indianapolis Motor Speed- way road course. Mistic is serving as the co-primary sponsor of the No. 11 car for both the 2014 and 2015 Indy- Car Series seasons. “We’re thrilled to be part of this historical racing event and continue to root for Sebastien and his talented team as they attempt to make history

Japan Tobacco Acquires E-Lites

Two companies will join forces to expand the brand’s reach. “This is an exciting day for E-Lites—and companies hope to achieve as follows: on JTI’s immense scientific and R&D ca- an important one for the fast growing e- • International (JTI) pabilities. JTI has a deep commitment to cigarette sector,” says Charles Hamshaw- brings the E-Lites brand immediate access product quality and a vision for innovative Thomas, director of legal and corporate to almost 60,000 outlets across the UK nicotine delivery products. This makes affairs for E-Lites, announcing Japan To- where JTI’s cigarette brands are sold. On them the ideal partner for E-Lites in remain- bacco International’s acquisition of E-Lites. top of that E-Lites can now reach overseas ing at the forefront of e-cigarette research “It is the next stage of our success story. markets through JTI’s global sales and dis- and technology, and developing the next Over the last five years E-Lites has grown tribution network. JTI’s products are sold generation of e-cigarette products. Ac- from a startup to becoming a top brand. in 120 countries in Europe—including Rus- cess to this depth of scientific and finan- Our expansion will now accelerate as we sia, Asia and the rest of the world. Our ob- cial resource is critical to meeting antici- combine with the financial resources and jective is to see E-Lites become one of the pated regulatory requirements in Europe, international distribution capabilities of world’s leading international e-cigarette the U.S. and elsewhere. To comply with one of the world’s biggest tobacco compa- brands. heavy-duty regulation requires heavy-duty nies.” He went on to outline what the two • E-Lites will also now be able to draw scientific and financial resources.

18 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 NEWS & TRENDS JULY/AUGUST 2014

Drew Estate Names NJ Seeks OTP “Master Blender” Sales Tax

Willy Herrera will assume the role. Retailers and—ironically—the state itself stand to suffer most Drew Estate (DE) has named Willy Herrera as its “master blender.” Recruited from the proposal. three years ago to create a signature brand illustrating his Cuban heritage and Cuban-esque blending style, Herrera will now lead the company’s blending team. Two New Jersey senators recently proposed The move represents a major change for Drew Estate, marking the first occasion an amendment to SB 1867 that would adopt where someone of Cuban descent has held a top-level position at the company. “tax parity” for all other tobacco products—in Herrera’s new responsibilities will place him at the front and center of Drew Es- other words, raise taxes on cigars, smokeless tate’s blending team, which will allow him to channel his passion and energy into tobacco, pipe tobacco, and even electronic creating new blends and maintaining Drew Estate’s current signature blends. cigarettes on par with the state’s cigarette tax Herrera’s talents were honed over the eight years of on-the-job training while rate. If passed, the proposal would bring the running the El Titan de Bronze factory in the Little Havana neighborhood of Mi- following tax hikes: ami, Florida. His responsibilities at El Titan de Bronze included tobacco purchas- ing, production, blending and quality control. 1. Cigars priced at $2.00 or more would be “Authenticity is the key factor that originally attracted the DE shareholders to taxed at $2.70 per cigar. Willy,” says Jonathan Drew, company co-founder. “I personally know the chal- 2. with a retail price of less than lenges and skill set necessary to lead a premium cigar factory at all stages of de- $2.00 would be taxed at 54 cents, or $2.70 per velopment, [from] 15 employees [up] to 1,500. Willy has the main ingredients— five-pack. passion, humility and confidence—to achieve great results. It is important for me 3. Little cigars weighing three pounds per to clarify that Willy is not in charge of running La Gran Fabrica Drew Estate. His 1,000 or less would be taxed at 13.5 cents, or position is a newly created, specific role built around his greatest talent: master $2.70 per pack of 20. [ing]. We intend to challenge Willy in expanding his blending universe from 4. Pipe tobacco would be taxed at $4.15 per Liga Privada to Kentucky Fire Cured. This will not be easy for him. Willy will re- ounce, or $66.40 per pound. port directly to me, and I am not an easy person to work for. I am very demanding 5. Moist snuff would be taxed at $2.25 per and require absolute excellence when it comes to creativity.” ounce, which is triple the current tax of 75 Says Willy Herrera: “my passion and love for has grown immensely cents per ounce. over the past three years. I lived in Nicaragua while we blended our Herrera Estelí 6. Snus would be taxed at 13.5 cents per line and, during that time, [I] really got to know the people at the factory. I grew single pouch. to love the country, especially Estelí. This is an incredible opportunity, and it’s a 7. All other tobacco products would be taxed dream come true for me to become master blender of a global company as well- at a rate of 68 percent of their wholesale price. respected as Drew Estate.” 8. A 75 percent tax would be imposed on the Due to Drew Estate’s decision to appoint Herrera as master blender, the com- wholesale cost of e-cigarettes. pany also decided to bring the new “NORTENO by Willy Herrera” line into pro- duction at Drew Estate, as opposed to Furthermore, as written, the amendment , where it was origi- would impose a floor stocks tax on both nally to be produced. Additionally, this wholesalers and retailers on all of these to- will allow Joya de Nicaragua to focus bacco products in stock on the day the tax on production of the “MUWAT Kentucky increases would go into effect. Fire Cured” line, which is currently Brick-and-mortar retail stores would suffer backordered, along with the new Joya greatly under this tax parity, which would like- de Nicaragua products to be released at ly drive consumers to purchase OTP products the 2014 IPCPR trade show in Las Ve- over the Internet, where they can generally gas, Nevada. escape paying any tobacco taxes and sales The NORTENO by Willy Herrera line taxes. That unintended consequence would, will debut at this trade show as well; in turn, mean lost tax revenue for the state of a formal press release will follow with New Jersey instead of the increased revenue more information about the project. that the state is projecting from the bill.

20 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 TMA REPORT By FARRELL DELMAN

Breaking News From the TMA The following are excerpts from harm reduction, Farrell Delman, tobacco regulation and other tobacco-related news. President, TMA

on its proposed deeming rule. Seventy- its progress, including timeframes On the fda… five days does not provide enough time for making final decisions on SE for adequate analysis of the 70 topics and submissions. …The FDA has announced that to issues in the 240-page document, stated Morgan Stanley said that the GAO consolidate all of its centers, it is moving SFATA. testimony before the subcommittee, its Center for Tobacco Products (CTP) …The Center for Tobacco Products while unlikely to meaningfully impact offices from Rockville, to has released its “Compliance and CTP’s behavior, made some “interesting the FDA White Oak campus in Silver Enforcement Report,” which covers observations,” including that: 1) as of Spring, Maryland with the three-week the CTP Office of Compliance and December 31, 2013, the FDA had only move to start on June 6, after which Enforcement’s (OCE) accomplishments made final determinations on 0.067 all written correspondence should be and activities from June 22, 2009 percent, or 30, of the 4,490 outstanding sent to FDA CTP Document Control through September 30, 2013, SE submissions; 2) CTP currently does Center, Building 71, Room G335, 10903 including training sessions, webinars, not have any performance measures to New Hampshire Ave., Silver Spring, conferences, issuance of guidance assess its progress; 3) CTP spent less Maryland, 20993-0002. CTP staff documents, retailer compliance check than its industry-paid user fees to date, e-mail addresses and phone numbers inspections, manufacturing inspections, though the spending rate is expected to will remain the same. and evaluation of sale, distribution, increase as it scales up its “Real Cost” …FDA Commissioner Margaret marketing, advertising, and labeling anti-tobacco media campaign; 4) the Hamburg wrote a letter clarifying an of regulated products. Among other number of premarket tobacco product assertion in The New York Times’ May things, the report indicated that OCE applications increased from zero as of 4 article “Some E-Cigarettes Deliver a has conducted 221,774 inspections and January 7, 2013, to four as of December Puff of Carcinogens,” which said that found 18,960 violations, of which 12,039 31, 2013, including alternatives to the the FDA’s focus is largely on what required warning letters and civil money SE pathway such as modified-risk gets added to e-cigarettes rather than penalties (CMPs); the vast majority of tobacco products; and 5) a proposed the content of the e-vapor emissions. violations went to retail stores. rule to regulate other tobacco products The letter stated that e-cig companies …Goldman Sachs said that the including e-cigs was still under Office will be required to report the levels Government Accountability Office’s of Management and Budget (OMB) of harmful and potentially harmful (GAO) testimony before the U.S. House review as of April 2, 2014. Much time chemicals delivered by their products Energy and Commerce Committee’s was spent at the hearing as Republicans once FDA’s e-cig regulations are Subcommittee on Health hearing on the and Democrats dueled over the hearing’s finalized, but the agency cannot enact implementation of the Family scheduling and the inability of CTP to a rule on reporting or restricting e-cig Prevention and Act attend, reportedly for the fourth time, due emissions until the “foundational rule- would focus on spending of the FDA to its rapid scheduling by Republicans. making” process is completed, adding user fees ($513 million or 46 percent of The full video of the hearing is available that FDA is “committed to the science- the $1.1 billion collected through 2012, at tma.org. based regulation of these products,” and $1.42 billion or 81 percent of the …The Food and Drug Administration and is financing research to answer key $1.75 billion collected through 2013) has reported that as of March 24, 2014, all questions on e-cig safety and consumer and the substantial equivalence (SE) “regular” SE reports (for products that did behavior, including four studies that will review process (4,490 SE submissions not enter the market between February focus on the contents of e-vapor. as of December 31, 2013, of which 17 16, 2007 and March 21, 2011, and for …The Smoke Free Alternatives Trade have been approved and 13 denied). which an SE report was not submitted Association (SFATA) requested that its The GAO is recommending that the by March 22, 2011) have entered into members ask the FDA for an extension Center for Tobacco Products come up FDA review “immediately.” The agency from 75 to 180 days for public comment with performance measures to assess has cleared the queue for regular SE

22 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 TMA REPORT

reports entering the review process and innovation, noting that current e-cigs deeming regulations, especially the now plans to initiate evaluation of new are not giving consumers the nicotine requirement that all new products apply regular SE reports upon receipt, adding hit that they desire, and that the majority for FDA approval. that the review process has concluded of category growth comes from open …National Center for Public Policy for 23.6 percent of the 981 regular SE tank systems, which offer a greater Research Risk Analysis Director reports received before March 31, 2014, nicotine hit. Industry participants urged Jeff Stier said that while these rules, and FDA intends to reach decisions on the U.S. government to follow the UK which are being described by FDA as the remaining reports as “expeditiously as example and take a more harm-reduction “foundational,” include some reasonable possible.” regulatory approach rather than the “quit provisions such as a ban on sales to or die” approach. minors, the “devil will be in the details …David Abrams, director of research of future regulatory decisions,” which, ON HARM REDUCTION… at the American Legacy Foundation’s if “too heavy-handed,” would have the Schroeder Institute for Tobacco Research “deadly effect of preventing smokers …Reporting their key takeaways from and Policy Studies, said that the single from quitting by switching to these TMA’s recent annual conference on biggest opportunity that comes with the dramatically less harmful alternatives,” “Evidence-Based Science, Electronic FDA’s proposed deeming regulations is adding that he is also concerned that the Cigarettes, & ” “a potential process for e-cig companies “expensive and burdensome requirements in Williamsburg, Virginia, Goldman to get the FDA’s approval to make claims will heavily favor big companies at the Sachs said that: 1) evidence is building that their products are less dangerous expense of smaller innovative ones, around the safety and efficacy of e-cigs, than ordinary cigarettes,” because thus slowing product improvements with some safety/risk assessment studies “then you can aggressively tell people that would make e-cigarettes a more suggesting that e-cigs can assist in to switch completely.” That being said, appealing alternative to even the most smoking cessation and reduction, while on page 28 of the rule, FDA makes addicted smokers.” combustible cigarettes lead to most of the the claim that premarket applications …CTP announced April 18 that adverse health effects, but clinical studies “can spur innovation” by allowing only to “help improve the timeliness and are still necessary to determine the longer new products shown as likely to reduce predictability of the review of certain types term effects of switching, along with morbidity and mortality, and that the of tobacco products currently regulated research on flavors and other ingredients process will also improve “consistency” by FDA,” the agency established four in e-cigs; and 2) “vaporizers and tanks across products. performance measures and timeframes are all the rage,” as Management …A recent blog post by Michael for fiscal years 2015 to 2018: 1) for regular Science Associates (MSA), which tracks Siegel, professor at Boston University’s SE reports, FDA’s performance goal is distributor shipment data, noted that the School of Public Health, states that to finalize jurisdiction and completeness e-liquid used in vaporizers, tanks and placing Section 911, or modified-risk review, to issue letters as appropriate mods accounts for 27 percent of total hurdles, for e-cig statements that their within 21 days of FDA receipt, and to e-vapor-related volume in stores that products are less harmful since they review and act on an original SE report carry the liquids, while some attendees contain no tobacco and generate a much within 90 days of receipt, while for regular commented that there may be as many as smaller number of chemicals is a “gift to SE report resubmissions, the performance 10,000 vape shops in the U.S. now, with combustible tobacco.” goal is to review and act on it within 90 more than three stores opening every day. …The American Council on Science days of FDA receipt; 2) for review of …Also at the recent TMA conference, and Health officials expressed relief that exemption from SE, the performance many session participants agreed that their concerns that “the hyper-regulatory goal is to review and act on it within 60 the proposed e-cigarette regulations in atmosphere” at the FDA might lead to days of receipt; 3) for review of modified- their current form would bring an end a ban on e-cigs—either overtly or via a risk tobacco product applications, the to smaller, independent manufacturers stringent pharmaceutical-type approval performance goal is to review and act on because of the cost of compliance. They process—did not come to pass, and that a complete MRTPA within 360 days of raised concerns regarding the substantial e-cigs will continue to be available on the receipt; and 4) for meeting requests, the equivalence process under the current market. The council added that there is performance goal is to respond to such proposal and its potential impact on still “plenty of bad news” in the proposed requests within 21 calendar days. TBI

24 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 CATEGORY MANAGER VAPOR MARKET

Vaping: A Market Share Shakeout

Vapor systems and vape-only retail stores are gaining ground.

here are now more than 16,000 vape shops, or the industry hoopla about standards for e-liquids due to stores dedicated primarily to selling electronic the toxicity of pure nicotine, most consumers are less Tcigarettes, personal vaping devices, e-liquids, and concerned about liquid safety issues. “We asked, ‘Are you other vapor-related tobacco products and accessories, likely to spend more for an e-liquid from a larger, more according to online E-Cigarette Forum’s Neil McLaren. established company?’ and 67.4 percent said ‘No.’” Speaking at Smoke Free Alternatives Trade Association’s However, consumers did express interest in supporting spring conference, McLaren presented the results of his companies that, in turn, support consumers’ right to vape. firm’s recent survey of vaping consumers to members of “A significant number responded that it is important to the nascent industry. them that they buy from a company that is engaged in “We asked consumers what they were most concerned the regulatory process,” McLaren said. “However, they about with regard to product safety, and the No. 1 response also said that they are not sure who those companies are. was batteries,” said McLaren, who noted that despite We think this suggests [that] there is a real opportunity

Faster Growth for Tank-Style Vaping

350% % of growth in the U.S. retail sales of the total e-vapor sales category 298% 300% 283% % of growth in the U.S. retail sales 250% of just the vapor/tanks category

200% 195% 187% 150% 150% 147%

100%

50%

0% 2012 2013 2014E Source: Wells Fargo/Tobacco Talk Retailer Survey

Do you carry any “tank-style” vaporizers? 40% 36% 36% 35%

30% 28%

25%

20%

15%

10%

5%

0% YES NO NO (currently carry) (but plan to carry soon) (no plans to carry) 26 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 CATEGORY MANAGER VAPOR MARKET

for businesses to get involved and to show that they are past May, Herzog suggested that growth of the tank-style/ involved.” mod vapor products may marginalize the cig-alike version of Wells Fargo tobacco analyst Bonnie Herzog’s estimate vapor tobacco products as more consumers shift to the more of the number of vapor shops is more conservative than cost-efficient vaping alternative. This, in turn, could drive McLaren’s at 5,000 to 10,000 locations, and she still sees more market share to the new “” retail channel, c-stores as dominating (see C-Store Corner, p. 74). Herzog which tends to cater to the tank-style customers. Herzog also remains optimistic about the vapor industry opportunities, asserted that the category will need to innovate in order to although she recently expressed concern that the category’s continue to thrive—a sentiment many in the industry share, growth is decelerating. particularly now that the FDA has announced its intent to At Vapor World Expo, which took place in Chicago this regulate the category. TBI

Who Vapes—and Why?

espite the much-touted concern that electronic Dcigarettes will serve as a gateway to tobacco use, the majority of “vapers,” or users of electronic tobacco devices, are former smokers, according to findings from a recent survey of 19,000 vapers by Vapers International Research Group. In fact, 81 percent of respondents reported that they have quit smoking completely by substituting vaping for traditional cigarette use. Many have not quit entirely, but do smoke less frequently now; 5.8 percent of vapers report “occasional” smoking, while 13 percent report “daily” smoking, with a decline in cigarette consumption from a median of 20 cigarettes a day at onset of vaping to just four per day at the time of survey. Other survey findings include:

• Survey participants reduced levels of nicotine consumed by 33 percent from a median of 18 mg/ml at onset of vaping to a median of 12 mg/ml at the time of survey.

• 21.5 percent of respondents used vapor products containing more than 20 mg/ml of nicotine.

• 3.5 percent used vapor products containing NO nicotine.

• 99.5 percent were cigarette smokers at onset of vaping.

• None of the 0.5 percent who were nonsmokers at onset of vaping became smokers afterward.

• Participants’ average age was 39, 74.7 percent were from Europe, and 20.7 percent were from America.

Source: Vapers International Research Group

28 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 A Matter of Convenience

Premium cigars are making more tracks through the convenience store channel.

By Renée Covino

s more premium cigar makers cater to a mixture of long and short filler tobacco, bound the convenience channel, more c-store tightly by a medium-brown Sumatran wrapper Aretailers consider dabbling in the (a blend commonly referred to as a “Cuban premium market—or is it the other way around? sandwich”), and retails for about $2 a cigar. It’s not entirely clear which came first, but the This March, Royal Gold Cigars’ Gold Strike fact remains: premium cigars are carving out a premium cigars became available at QuikTrip small niche and a future in convenience stores. convenience stores across the country and set the Swisher International, maker of Swisher stage for other chains to embark on the trend. Sweets and other popular machine-made cigars, Earlier this year at the Tobacco Plus took hold of the trend early last year when it Convenience Expo (TPC) in Las Vegas, entered the premium cigar market with the Nevada, premium cigar manufacturers , launch of its Royal Gold Cigars division, led by General, Drew Estate, Rocky Patel and Oliva cigar industry veteran Alex Goldman, former were all highlighting singlestick packs for the owner and president of House of Oxford/ grab-and-go convenience channel. While Mom’s Cigars. According to Goldman, it is Altadis, General and Drew Estate entered Royal Gold’s mission to produce and market this market a couple of years ago, Rocky Patel great handmade cigars at reasonable prices. and Oliva are newcomers. At this year’s TPC, Royal Gold’s inaugural product, created Rocky Patel unveiled Vintage 1990 and 1999, under its new Gold Strike brand and crafted in while Oliva introduced Serie G. Reserve and Estelí, Nicaragua, is a handmade cigar made of Connecticut Nub, all in single foil packs.

30 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 ’s Cuban Rounds premium cigar brand, popular at smoke shops and tobacconists for more than a decade, are now encased in a three-pack resealable pouch—specifically to “captivate and capture” the convenience store shopper, according to Kevin Newman, brand manager of Kretek’s Ventura Cigar Company, distributor of Cuban Rounds. Because of space concerns and the fact that premium smokers aren’t expecting to find premium cigars in the channel, the c-store that wants to be in the premium cigar business continues to face challenges, but “the trend is growing and we’ll continue to support it,” says Newman. Fresh Opportunity? The sealed-fresh pouch concept is one the industry specifically launched convenience channel attention these days. corporate hierarchy, the store has the for this channel. The poly pouch (with Mitch Zeller, director of the FDA’s Center autonomy to experiment a bit with the clear-front windows that allow for easy for Tobacco Products, recently stated that category, according to Jeremy Goerts, product viewing) reportedly sustains cigar the agency received the message that there general manager. freshness for up to a year, and does not may be differences between premium and “The increased awareness on premium require a humidor. It also mimics the on- “other” cigars, and implied that this will be cigars definitely got my attention and I the-go convenience that the channel is taken into account when figuring out how talked it over with my owners…so we are known for. to regulate them. right now in the experimentation phase,” And so the obvious question becomes: Julie Montague, a buyer for Jr. Food Goerts says. is there fresh premium opportunity in the Mart, which does business with 24 Regionally speaking, Flagstaff is somewhat stale little cigar segment for convenience stores in Mississippi, “home to one of the oldest universities c-stores? Louisiana and Alabama, was on a mission in the state—NAU, Northern Arizona Some convenience retailers came to the to meet with a few popular and popularly- University—and right now the college TPC show and participated in a premium priced premium cigar manufacturers at students are very into the cheaper cigars, cigar roundtable, looking for ways to the show as a way to “diversify and grow but some are starting to trade up and ask attract some on-the-go stogie customers up sales and margins,” she tells Tobacco more about what else there is,” Goerts in the hopes of beefing up tobacco margins Business International. “We don’t know relays. “I want to try some new things and tallying up larger overall basket rings. a lot about this category, but we want and have items that cater to this group, Premium cigars are known to have some to learn. I think we could sell [premium and [to] a college crowd that is always of the highest margins in the tobacco cigars]—we do get requests.” And putting changing.” category (in the mid-double-digits up to in humidors is also a consideration for And actually, the “millennial generation” keystone) and they yield higher basket some of the stores in the Hattiesburg, (those born in the early ’80s to the early rings; premium cigar smokers typically Mississippi-based chain. 2000s) has been pegged as an adult make more than one purchase. consumer group that aspires to the pursuit The FDA’s pending proposal on other Regional Consideration of the “finer little indulgences” such as craft tobacco products (OTP) regulation and From the independent c-store arena, beer, premium spirits, and now premium the expectation that it will be less onerous Speedi Car Wash & Fuel in Flagstaff, cigars, according to RBC Capital Markets on premium cigars than machine-made Arizona is another convenience retailer Tobacco Analyst Nik Modi. and less expensive cigars is another reason on the premium cigar track. Being an Goerts admits that “you don’t hear a lot why premium is attracting a bit more independent retailer and thus free from of people saying ‘let’s go to a 7-Eleven for

32 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 a Tatiana or a cigar,’ but the way my store is set up, we are trying to be the The Pros on Premium QuikTrip of Arizona here—we’re into a little bit of everything.” Why premium cigars are a plus for the convenience channel: And so, after the store went through remodeling in late 2012 and early 2013, a • They yield high margins; small humidor was put in “that has about nine slots for nine different varieties of • Consumers of higher-end cigars ring up larger overall baskets; cigars,” Goerts explains. He continues that he has recently “blown through” • Little premium indulgences are popular with millennials, a core c-store market; cigars, and also that “Montecristos do quite well now in the • FDA regulation is expected to be less onerous on premium cigars than on warmer weather.” machine-made cigars. Speedi has also had good success selling Kretek’s bundled cigars, Cuban While c-stores typically can’t offer the premium-cigar smoker a place of cigar Rejects, which the store breaks up and education or lounging, it can offer stogie lovers some quality cigars on the run sells individually at $3 a stick. But on the or in a pinch, as well as more flexible and/or longer store hours than the typical next order, Goerts is getting ready to put tobacco shop. on the store’s own in-house label, “Speedi Cigars,” as a way to attract a little more attention to the low-priced premium cigar, and to build a small local following. “After about two years, the cigar does quite well, even without the in-house label. There are some—mostly local guys with local accounts—who really love them,” he says. “My best customer on these is an owner/operator of a towing company in town; he and his son and his in-laws all work for the company and they are all tobacco users that are now happy Speedi customers.” Because of Arizona tobacco laws, Speedi is not allowed to advertise cigars, so it relies on word-of-mouth to get the message out. or the local tobacco shop.” is one such brand that really does well as Goerts takes advantage of the fact that the Goerts also makes good use of the fact an impulse cigar purchase, according to store is right next door to a bar. that one of his employees also works at Goerts. “I am planning to merchandise “I go around town, including the bar, a smoke shop part-time. “I really look to the next batch on the counter and in the and let people know about my shop next him to help provide me with knowledge humidor, even though they don’t need to door and that we have great prices on and information about what adult be humidified, just to cross-merchandise tobacco,” he says. “We also get customers smokers his age are looking for, and just them and give them double exposure,” from the bar coming in and I let them tobacco knowledge in general,” he admits. he adds. “It’s an impressive, reasonably- know [about] the assortment and [the] Speedi also utilizes the displays that priced smoke that some of my customers premium items [that] we carry. I’m also the foil pouch cigar manufacturers already know about, so I’m playing it very honest—if they want something we are making available for counter up that we carry them and are in the don’t carry, I’ll steer them to the Chevron merchandising. Drew Estate’s Acid line premium business.” TBI

34 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 Brotherhood

of the Pipe

A first-hand account of a noble tradition.

By Erik Stokkebye

just returned from my induction non-members. We were each given a into the Confrerie des Maitres pipe from the guild. Only if you answer IPipiers—that is, a Fellowship of their questions correctly are you allowed Pipe Masters—and it was a wonderful to keep the pipe. (I got to keep mine, event. I felt quite honored and privileged and was subsequently admitted to the to be there. fellowship.) The Saint Claude Fellowship of After the official ceremony, all parties Pipe Masters was created in 1966 by involved were treated to a delightful Edgar Faure, who wished to develop a French dinner at a local restaurant set guild of men proud of their art, namely in a former pipe factory and named, pipe making. Since then, the guild has appropriately, La Bruyere. developed into a conference of pipe The following day, we were invited to an smokers and pipe makers who share a exceptional lunch at Antoine Grenard’s great passion for pipes and pipe smoking. (of Chacom pipes) mother’s house with The conference is held in the Pipe and a splendid view of the Jura Mountains. Diamond Museum in Saint Claude, I think that I could easily get used to France, which displays many artifacts the French food culture: champagne that illustrate the proud tradition of for lunch, and meals always including pipe making in this tiny village. It also incredibly tasty cheeses and breads. showcases 1,300 pipes and plaques from For me it was not only a humbling members who have been inducted into experience, but also very personal due to the guild throughout the years. Among meeting several pipe makers who I remember the notable names I saw on those plaques from years past when my father was involved were Herman Lane, Karl Kolpin, and my in pipes from France. He brought the whole father, Peter Stokkebye. family to visit Saint Claude one year to On the evening of the event, we experience this pipe mecca for the first time, prospective new members (five men and and this chance of revisiting brought back three women), were led to a massive many dear memories. oak door where, after three knocks, we I hope that the Confrerie des Mai were allowed into the pipe hall and tres Pipiers continues for many years introduced to 100 or so members and to come. TBI

36 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 electricALLEY

Quick Truths

By Renée M. Covino

ollowing the bouncing ball in for their “low maintenance” selling (see the e-cig/vapor world takes C-Store Corner, p. 74). According to Don’t blink— Fsome acuity, but consumer and the latest Nielsen estimates on May merchandising trends are beginning to 10, 2014, Lorillard’s blu remains the the e-cig/vapor take shape for those willing to hone in. category leader in the channel with a 43 category is Here are 10 learnings gleaned at May’s percent dollar share, Logic ranks second Vapor World Expo in Las Vegas, Nevada: with a 24 percent share, and NJOY is moving and third with an 11 percent share. But the 1. The estimated size of the total U.S. channel is also starting to look at the changing vapor market is $2.5 billion, according vapor side; Mistic’s personal vapor item, rapidly. Here to Nielsen and Wells Fargo Securities. Haus, is already being distributed in This is currently divided into the some c-stores. are 10 up-to-the- traditional e-cigs category, which minute market amounts to about $1.4 billion, and the 3. E-cig repeat purchases have sur– vapors/tanks/mods (VTMs) category, passed trial purchases. Roughly half of realities heard which represents about $1.1 billion. all e-cig sales are now repeat purchases, This estimation takes tracked channels, according to Wells Fargo research. and reported at non-tracked channels, and online sales “Many of our [retail] contacts noted Vapor World Expo. into account. that there might not be complete elimination of smoking combustible 2. C-stores reign supreme in traditional cigarettes, but there is significant dual e-cig distribution. Convenience retailers use due to health concerns and the are reportedly drawn to traditional e-cigs ease of using e-cigs in public places,”

38 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 electricALLEY

says Bonnie Herzog, tobacco analyst 8. Vaping is substantially more affordable and managing director of Wells Fargo than combustible cigs and rechargeable Securities. e-cigs. A 15ml bottle of e-juice, which costs about $15, is roughly equivalent to 4. E-cigs are becoming “your father’s five to seven packs of combustible cigs, e-cig,” as Herzog sees it, meaning VTMs according to Wells Fargo research. What’s are accelerating and are expected to more, the average VTM consumer’s continue to accelerate at a faster rate than weekly spend is about 30 percent less traditional e-cigs. “The typical vaper is a than the e-cig consumer’s weekly spend. former smoker, [who] first tried e-cigs, The expectation is that retailers will but quickly moved to tank-style systems continue to embrace e-vapor thanks and eventually mods, which offer a much to consumer trends and the fact that stronger battery and a superior vaping cigarette gross profit margins remain on experience,” she says. a downward trend. “E-cigs are probably three times more profitable for retailers 5. Vape shops are a force to be emulated. than combustible cigs,” offers Herzog. Recent industry estimates calculate about 5,000 to 10,000 vape shops to be operating 9. E-juice has loyalty potential. Recent in the U.S., and they are catering to vape- field work at vape shops revealed that hungry consumers in more intimate vapers do indeed have a “go-to” juice, ways than other channels. While future despite the fact that they experiment with FDA regulation could negatively impact flavors, brands and customizing. This vape shops, they are presently helping to leads Herzog to believe that “there could grow category awareness—but perhaps be more potential for brand loyalty than at a price for c-stores, tobacco shops, and we originally thought, despite the lack of others. Traditional channels that want to combustible cigarette-style packaging,” be in the game, particularly the VTM she says. game, could learn to emulate the way vape shops are educating consumers. 10. Segregated merchandising is the preferred merchandising method. Half 6. E-vapors are akin to energy drinks. of all retailers believe that having a “We think e-vapor is to tobacco what separate e-cig/vape section, preferably energy drinks are to beverages,” states near conventional cigarettes, is the Herzog. “They are profitable and quickly most effective way to merchandise the growing in volume and shelf space at category, according to a recent Wells retail, and increasingly gaining consumer Fargo Tobacco Talk survey. Thirty acceptance.” percent believe that they should be merchandised with cigarettes, and 20 7. Nearly half of all adults have now percent prefer to merchandise them on tried an e-cig—or so reports Lorillard, the front counter. Jordan Hirsh, buyer which puts the exact figure at 47 percent, for Cigar King in Skokie, Illinois, is with 24 percent having used an e-cig in among the latter with a separate area the past three months, and 15 percent in devoted to the category in the front of the past seven days. This speaks to the the store. “It’s about 20 feet [of space] rapid trial and awareness of the category, with a couple hundred SKUs [on it],” he the company believes. tells Tobacco Business International. TBI

40 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 42 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUSTMAY/JUNE 2014 2014 By Renée M. Covino

NewNew E-VaporE-Vapor GameGame inin PlayPlay

Now that the FDA’s initial regulatory framework on the e-cig/vapor market has been revealed, the industry weighs more educated moves.

he wait is over—let the true chess vapor market. On April 25, the FDA game begin. put forth a 241-page document of T With the late April Food and proposed rules for the market, which Drug Administration (FDA) regulatory included no sales to minors, no health blueprint proposal for e-cigs and vapes claims in advertising, and no free came a sigh of relief. Not because it samples. was (or wasn’t) what the industry was “Perhaps the biggest proposed hoping for, but simply because it was change,” according to The New York finally out—it initiated discussion and Times, is the requirement for e-cig more educated consideration for how manufacturers to “register with the industry players from all walks can start FDA, provide the agency with a strategizing their next moves. detailed accounting of their products’ In a nutshell, nearly five years after ingredients, and disclose their Congress passed the Tobacco Control manufacturing processes and scientific Act and gave the FDA the authority data.” E-cig companies would also be to regulate various tobacco products, subject to FDA inspection. In essence, the governmental agency expanded its they would have to apply for FDA sights to include e-cigarettes and the approval for their products, but would

Now the chess board is in front of us, we see the pieces…the question is, how are we going to play the game? —Linc Williams

43 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 New E-Vapor Game in Play

have two years after the new rules are What the initial proposal did not A Matter of Interpretation finalized to do so. In the meantime, include: restrictions of flavors, a ban Of course, there are varying expert products can stay on the market. on Internet sales to adults, nor a ban viewpoints and interpretations “Eventually, the companies would on TV advertising (but of course these regarding the proposal. have to adhere to FDA standards items could all be re-evaluated at a From the positive camp, Tom Kiklas for manufacturing their products, later date). of the Tobacco Vapor Electronic not unlike drug companies and food “Right now this rapidly evolving Cigarette Association (TVECA) says companies do now, but the agency has marketplace is rapidly evolving with that he is happy about the FDA’s yet to write those rules,” reported The no regulation whatsoever,” stated proposed regulations because e-cigs Times. Mitch Zeller, FDA’s director, Center of are tobacco products, and “as an Furthermore, e-cig and vapor Tobacco Products, when the proposed industry, we do need a regulatory path products would have to have a warning regulations came out. “Now, for the because the product itself is a regulated label stating nicotine is addictive, but first time, there will be a science-based product.” that wouldn’t be a requirement until regulatory agency playing a gate- Also with a positive outlook, Linc two years after the rule is finalized. keeping function.” Williams, co-founder of the American

“Now, for the first time, there will be a science-based regulatory agency playing a gatekeeping function.”

44 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 New E-Vapor Game in Play

E-Liquid Manufacturing Standards different. The [proposed regulations] seem onerous for retailers, which is Association (AEMSA), which has represent the first day; for years we positive.” brought together liquid manufacturers had a cloud overhead, we knew it Meanwhile from the legal realm, who are adhering to standards long was coming. Now the chess board is Bryan Haynes, a partner in tobacco before regulations come out, views in front of us, we see the pieces…the practice at Troutman Sanders law firm, the proposed regulations as a strong question is, how are we going to play doesn’t think that “the proposal is as opportunity “for this industry to put the game?” industry-friendly as reported in the its big boy pants on and become the Wells Fargo tobacco analyst Bonnie media, but it’s also not necessarily as power of us,” he states. Herzog believes that the FDA bad as what others are saying more Williams actually views the deeming deeming e-cig regulations are “not recently.” regulations, as they are initially written, as bad as feared,” especially from Haynes had previously considered as “horrible, but having gone through the retail perspective. She notes that whether FDA was going to this regulatory process in [other facets “bottom line, e-cig/e-vapor regulations metaphorically regulate the industry of ] my career, I know that the proposed will ultimately increase the barriers to with a scalpel or a sledgehammer, but rule and the final rule are dramatically entry. For now, the regulations don’t now that the regulations are out, his take

“Bottom line, e-cig/ e-vapor regulations will ultimately increase the barriers to entry. For now, the regulations don’t seem onerous for retailers, which is positive.”

46 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 New E-Vapor Game in Play

is that “it’s more like a regular hammer, Big Tobacco companies that are now as tobacco or not tobacco—the but they’ve got a sledgehammer ready growing players in the e-cig arena. framework isn’t applicable, it doesn’t in the garage.” And there are other grave concerns. work. It was made for combustible The sledgehammer he speaks of—and Cynthia Cabrera, executive director tobacco cigarettes.” why Williams classified the proposal as of the Smoke-Free Alternatives “horrible,” has partly to do with the Trade Association (SFATA) doesn’t Calling All Comments fact that as of now, the regulations believe that the deeming regulations The crucial piece for addressing would put at least 90 percent of as they were initially put forth are these and all concerns regarding FDA’s e-cigarette and vapor companies out even appropriate for the e-cig/e-vapor proposed regulations is the public of business—the cost and man-hours market at all. comment period, which originally to provide FDA with the requested “The Tobacco Control Act was amounted to a 75-day period that product and ingredient application enacted to deal with health hazards began ticking the day the proposal was information would be far out of the of tobacco; it is not applicable to vape released on April 25, meaning that the realm of all but the largest companies products,” she says. “So it doesn’t matter industry would have until July 9 to with the deepest pockets—mainly, the whether we classify these products comment. (At press time, it looked like

“It doesn’t matter whether we classify these products as tobacco or not tobacco—the framework isn’t applicable, it doesn’t work. It was made for combustible tobacco cigarettes.”

48 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 New E-Vapor Game in Play

that date would be pushed back thanks and a tank unit, and they need to be obstacles that need to be overcome to “numerous requests” to FDA for an educated in this process.” for 99 percent of current industry extension.) Tacking onto what Bartkowski players to stay in business. SFATA is It is the contention of Bill believes, Cabrera criticizes FDA one group that is putting energy and Bartkowski, president of VapAria for “not understanding the diversity resources into looking at the different Corporation, an e-cigarette research and complexity” of the category. “So ways for how this can be accomplished, and product development company, nicotine derived from tobacco will according to her. “All is not lost; our that FDA be “flooded” with industry make this a tobacco product; well, hope is that we will all work together comments. “They don’t know how what happens when there’s a synthetic to do them,” she says. to define the product [category], nicotine (which is a long way off)? … Williams agrees that “there’s passion they don’t understand and appreciate [T]here are a myriad of issues that and a reasonable framework for how the vast diversity of the products, need to be explored and looked at,” we can come together and dramatically the technology, and the liquids,” he she says. Furthermore, Cabrera calls change this. We have to band together maintains. “They don’t know the the proposed regulations “daunting and really decide what it is as an difference between a rechargeable and overwhelming;” she refers to the industry we would accept as reasonable

“We have to band together and really decide what it is as an industry we would accept as reasonable regulation.”

50 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 New E-Vapor Game in Play

regulation. It can be litigated to an these deeming regulations. Politicians FDA is primarily a safety agency and outcome we want—this can be done.” have no clue how to categorize these we have to show safety,” offers Todd Offering global support, Arnaud products; our biggest challenge here is Harrison, an attorney whose practice Dumas de Rauly, who heads FIVAPE, to put out studies and come up with focuses on FDA and other government the French Vapor Trade Association standards on the four main areas of agencies, as well as other federal, state also known as the Inter-Professional concern: e-liquids, batteries, atomizers and international consumer protection Vaping Federation, believes regulation and testing protocols.” agencies. “We have to collect data,” he is “going to bring legitimacy” to the Bartkowski stresses the importance adds. “The FDA does not understand industry, but also recognizes that there of addressing all these areas. “We can our industry at all, but having a lack of will be a hard fight for adjustments put the controls necessary on flavorings cohesive data points makes it worse.” similar to what he and his colleagues and on our liquids, but if we’re not He believes that there ought to be are experiencing with the Tobacco properly controlling the power in surveys conducted to tackle negative Product Directive (TPD) in Europe. the devices, we will be cracking and points head-on—for example, to “We’re offering our help to SFATA burning those liquids.” show FDA that neither kids nor to help everyone answer this and Looking at it in a logical way, “the adults are using e-cigs as a gateway

“Politicians have no clue how to categorize these products; our biggest challenge here is to put out studies and come up with standards.”

52 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 New E-Vapor Game in Play

The Skinny on April 25 Proposed E-Cig/Vapor Regulations

Highlights include: Proposal did not include:

• Companies can keep existing products on the • Restrictions on flavors market and bring new products to market • A ban on Internet sales to adults • No free samples • A ban on TV advertising • No sale to anyone under age 18 • No health claims in advertising • Must register ingredients with FDA

• Must have a warning label stating that nicotine SOURCE: Wells Fargo Securities/Bonnie Herzog is addictive (required two years after rule is finalized).

54 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 New E-Vapor Game in Play

product to tobacco. Recognizing that It is imperative that while tackling all surveys take time, Harrison suggests of the safety, chemical and labeling issues, that this is one of the talking points for the industry doesn’t allow regulation to kill extending the public comment period. the golden goose, asserts Dean Cirotta, “We’re suggesting 180 days, but hopefully president and COO for EAS Consulting we will get 120.” And even if the surveys Group. “Almost everything we hear [related can’t be presented to FDA in time for the to these issues] has been joyless and dull,” public comment period, Harrison still he says, while cautioning the industry to maintains that they need to be conducted not swing too much the other way, “creating and that data needs to be collected “to a perfectly safe product that no one wants help us down the road.” to buy.” The road to tackling regulation issues for Cirotta says that there is a balance for e-cigs and e-vapes looks to be years long. keeping the buzz and excitement alive and “This is just the tip of the iceberg,” warns well. Haynes, who refers to the fact that the Cabrera, Williams and Bartkowski all FDA regulations are one aspect of industry stress the importance of coming together as concern, while state regulations are another. an industry to “unite to win the fight.”TBI

55 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 Vapor World Expo’s Debut Held in Rosemont, Illinois, the first annual vapor, business-to-business industry event was a huge hit for the emerging industry.

By Jennifer Gelfand

oming on the heels of the in a post-show report. “We believe the FDA’s long-awaited announce- potential of vapors/tanks/mods (VTMs) Cment regarding regulating elec- is undeniable given the superior product tronic cigarettes, cigars and pipe tobacco, performance and fierce customer the inaugural Vapor World Expo could commitment to the category.” not have taken place at a better time. Many attendees echoed Herzog’s More than 600 representatives from sentiments, feeling buoyed about the vapor companies and retail shops turned category’s potential despite questions out to attend the show’s educational and concerns related to the prospect of seminars and browse the displays on the FDA regulation. “Our sales of electronic trade show floor. products have already had triple-digit “After attending and speaking at this growth during 2014—and we have a show, we are even more excited about the long way to go,” said one retailer. “While vast potential of the e-vapor category,” we’re concerned that regulation will Wells Fargo’s Bonnie Herzog wrote change the game significantly, that will

56 TOBACCO OUTLET BUSINESS JULY/AUGUST 2014 take time, so we plan to make hay for as from Herzog on retail industry trends long as we can.” and from Troutman Sanders’ Bryan The educational sessions won raves Haines, who spoke about the legal from attendees, who enjoyed the ramifications of FDA regulation. (For opportunity to ask industry experts more details about the perspectives and representatives of the largest shared at the show, see this issue’s electronic tobacco associations to cover story, p. 42.) offer their insights on a wide range With Vapor World Expo a rousing of industry issues and concerns, from success, plans are already under way what to expect from the FDA over for next year’s trade show to be held at the next two years, to the prospect the Donald E. Stephens Convention of local taxation and regulation of Center in Rosemont, Illinois on June e-cigarettes by states and cities. 17 and 18 of 2015. Hope to see you Attendees also heard presentations there! TBI

57 TOBACCO OUTLET BUSINESS JULY/AUGUST 2014 Ten Tips to Trade Show Success These ideas can help boost your sales at shows like IPCPR, Tobacco Plus Convenience and Vapor World Expo.

ver wonder if you’re making the most of the trade shows and industry events you attend? Mike Thimmesch of Skyline Exhibits Esuggests that you think like an attorney as you bring forward your trade show sales and profitability case. Witness his 10 ideas for winning sales on the show floor. By Ed O’Connor

Know why you exhibit before you do anything else. Always train your booth staffers. Just as intent is an important factor in the law, it is essential in exhibiting. Legal proceedings follow almost ritualistic protocol. You will please Too often, exhibitors reserve a booth at a show without knowing why they the judge if you follow similarly repetitive steps and train your staff are going in the first place. Without the guiding light of an overriding for every show. Top sales people still need to know how to adapt to goal, they can’t shape their exhibit to match their needs, train their staff to trade show booth staffing. And veteran staffers don’t know your new {1}aim at a common goal, or even know if they succeeded. {6}objectives, new products, latest pre-show and at-show promotions, and how to use the new technology you added to your booth. Exhibiting well requires both logistics and marketing. You may say, “I object, your honor. I only have time to manage the Qualify your leads to boost follow-up. logistics for our trade show.” That’s not going to get you off the hook. To Just as not everyone is guilty, not every lead is qualified. Your booth succeed, you must also perform the marketing tasks well that too often staffers must interrogate attendees to determine their value, and then get pushed aside in favor of details like shipping, ordering show services, rank the leads (A = Immediate, B = Intermediate, C = Future). Your {2}and travel arrangements. reps will be more likely to follow up on the A and B leads, knowing you {have7 already} sent the C leads (to which you continue to market) to the Exhibit at shows that your buyers attend. holding cell. Just as what is legal is based on jurisdiction, so will your fortunes change when you choose from an assortment of more than 10,000 shows (in Promote your presence before and during the show. North America alone). You have to do the homework to determine what A good trial lawyer is a little bit the showman in order to sway the jury. your best customers look like, and then find the trade shows where they You should have no objection to taking a page out of that book and {3}freely roam. promoting your presence before and during the show. Let attendees know all the reasons they should visit your booth so you get their Design your exhibit for your buyers, not for you. {8} attention, rather than your competitor. What if your lawyer talked a lot just because he liked to hear the sound of his own voice, rather than to convince the jury? Similarly, some Plan for lead follow-up before the show. companies design their exhibit to show themselves off the way they want Have your closing arguments prepared before the trial ends—by to be seen—rather than focusing their message to best appeal to their preparing your lead/follow-up system before you go to the show. Assign {4}clients and prospects. a person to enter the leads, have fulfillment packets prepared, and have a smooth process for getting leads quickly to the right salespeople. Bring only willing booth staffers. {9}

Do the people you ask to staff your booth react as if being summoned for Measure and report your results to keep exhibiting. jury duty? Those people will take that negative attitude with them when After the show ends, the jury is still out whether it was a successful they meet your booth visitors. Don’t ever break this law if you want to show or not. But if you track your leads to sales, compare your costs to succeed at shows—just bring willing booth staffers, even if it costs you your sales, and then report your satisfactory return on investment, you’ll {5}more to get them there. {be much10 more likely} to be judged successful.

58 If you’ve just realized that you have been breaking these laws all along, consider yourself on TOBACCO BUSINESSparole. INTERNATIONAL You’ve got some time to reform your ways, become a trade show law-abiding citizen, and JULY/AUGUST 2014generate trade show success before the next TPC show in Las Vegas on January 28 and 29, 2015. Is U.S.-Extracted Nicotine a Reality?

SA Liquid Nicotine says Group, which sources tobacco from USA Liquid Nicotine that it is ready to mass- growers. “Then we met with people in Uproduce pure liquid nicotine Georgia who had the scientific ability says that it’s ready extracted from tobacco grown in and equipment to do that. We have the southeastern United States and experience in growing tobacco and to sell pure liquid produced in Albany, Georgia. Formed in sales and distribution of tobacco nicotine extracted as a venture between Kentucky Liquid products, so we teamed up to create a Nicotine and National Nicotine, USA company called USA Liquid Nicotine. from tobacco grown Liquid Nicotine is looking to become Now we each get to do what we are a premium supplier of U.S.-extracted good at.” in the U.S. nicotine to the growing vapor industry. Furnish acknowledges that his “We formed Kentucky Liquid company’s product will probably By Jennifer Gelfand Nicotine to try to start extracting be more expensive than those of nicotine from tobacco grown in overseas competitors’, but hopes that Kentucky, but we couldn’t find manufacturers and retailers alike will the right partners,” explains co- be willing to pay more for a domestic founder Brian Furnish, who hails product. “We meet all UST standards from an eighth-generation tobacco and GMP practices, and we are growing family, and is president looking at the other standards under of International Tobacco Trading development—everyone from health

60 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 organizations to tobacco associations are but I don’t think [that] the FDA will releasing opinions on standards—to see stop the business; I think they will put if we can meet those as well. Our tests regulations in place that will mandate have been very good and we’ve gotten a that we know what is in the product lot of feedback that people are willing and that it is safe,” he says. “We have to pay more for a good quality product dealt with them before and, as U.S. with batch numbers and data [that] they tobacco growers, we feel that we have can use to protect themselves.” an advantage because we already follow According to company reports, the rules and protocols that no other liquid nicotine will be marketed as a country is following.” safer alternative to similar products Furthermore, adds Furnish, sourced overseas. “Unlike liquid regulations are necessary to protect nicotine produced in China, India and consumers. “Nicotine in its purest form Europe, USA Liquid Nicotine can is deadly—it needs to get regulated or assure its customers that the tobacco someone will get hurt,” he says. “Right grown in the United States does not now, a lot of what’s out there is not even use banned pesticides found overseas, properly labeled. People are mixing up such as DDT,” says a company release. concoctions and selling them without “Every batch of nicotine extracted any science behind the product and is tested for the highest purity and without the [standards] that a lab can ensures no contamination with heavy offer. Our ultimate goal is to control metals or other dangerous impurities.” the process from seed and farmer While Furnish acknowledges that through production, all the way until it FDA action could hamper the growth gets to the manufacturer, and even then of this burgeoning category, he’s we want to audit the people we sell it cautiously optimistic about its future to to make sure [that] they handle it prospects. “I don’t have a crystal ball, properly.” TBI

62 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 Their Table Is Definitely Ready

any evenings that involve Manso, a Midwest representative for great food, a terrific Alec Bradley, sampling blends and Mcigar, and the company providing feedback. Soon afterward, of friends probably end the way they found themselves forming a Four-year-old Table 36 started. This boutique limited liability corporation and cigar company originated when a beginning the two-year process of St. Louis cigar group of friends who had a standing bringing their very first cigar to monthly reservation for an evening market: the Fellowship (see “Table company Table 36 of socializing over dinner and stogies 36’s Lineup,” p.68). at—you guessed it—table no. 36 at a Now the group had a cigar, but is launching its third local steakhouse began musing about lacked almost everything else an creating their own cigar. unknown company needs to bring “It was a group of anywhere a new product to market—most boutique cigar. between five and 20 people, purely a significantly a sales force. “We all social thing,” recounts Will Blicharz, had—and still have—full-time jobs,” a co-owner of the company. “There explains Blicharz, who notes that By Jennifer Gelfand were eight of us that particular some members of the Table 36 team night—in May of 2010—that we have changed since its inception, but started to talk seriously about it.” that there are still eight owners, all The group began working with Chris of whom are moonlighting. Blicharz

64 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 teaches high school; other owners talk to each other about new blends suggested by its name, the Peacemaker include a physician and a former [that] they discover at events and features an exploded rather than a police officer. Ages of the owners range on blogs. We’ve definitely benefitted shaggy foot, and a label with the from 35 to mid-60s, and one owner from that.” Table 36 logo inside a sheriff’s five- is a woman. “We are pretty much After launching the Fellowship, pointed star badge. working people who enjoy cigars and the members of Table 36 returned to In keeping with Table 36’s wanted to share what we think a lot of their cigar blend development efforts, philosophy, all three blends have people feel is so great about cigars: the continuing to work with Alec Bradley, mainstream appeal. “Most of our camaraderie they bring.” who helps them develop blends and products are blended to appeal to a To get the Fellowship into stores, acts as a liaison between the owners wide range of consumers,” explains each of the eight spent their downtime and their factories. Their next release Blicharz. “[The] Fellowship is the visiting Missouri cigar shops, sitting was the Integrity—a somewhat more most approachable; a medium-bodied down with the owners, and sharing full-bodied cigar than the Fellowship. [cigar] with mass appeal. The idea cigars with them. The cigar gained The company is now in the process of is that anyone could smoke it. If you traction locally and, over time, the rolling out the Peacemaker, possibly brought a bunch to a dinner, everyone group began getting requests from its most successful cigar to date. would be able to pick it up and enjoy afar. “While Missouri is still where “We’ve been fortunate to get good it. [The] Integrity is a little fuller, [and] most of our business takes place, we reviews on all [of] our cigars, but richer for smokers who want something have been lucky enough to establish we saw pretty immediate latching- stronger. And [the] Peacemaker, also a accounts across the country in 20 on with the Peacemaker blend,” says medium-bodied cigar, is a fun concept states,” says Blicharz. “The nice thing Blicharz. “People seem to like it.” In we wanted to try out.” about this business is that cigar lovers keeping with the Old West theme Having eight owners is another

66 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 Table 36’s Menu

The Fellowship The Integrity The Peacemaker

Wrapper: Habano “Colorado Wrapper: Jalapa, Nicaragua Wrapper: Jalapa, Nicaragua Subido”, Binder: Criollo 98 Seed, Binder: Jalapa and Estelí, Binder: Mata Fina, Brazil Honduras Nicaragua Fillers: Jalapa, Nicaragua; Fillers: Estelí, Jalapa, and Fillers: Azacualpa, Honduras; Trojes, Honduras Condega, Nicaragua Jamastran, Nicaragua; Jalapa, Nicaragua

A medium- to medium-full-bodied Manufactured by the legendary Table 36’s newest cigar features an cigar made at the Alec Bradley- Nestor Plasencia’s Tabacos de exploded foot that reveals over an inch owned Fabrica de Tabacos Raices Oriente factory in Esteli, Nicaragua, of unwrapped binder and filler leaves. Cubanas factory in Danli, Honduras, the Integrity features a wrapper of “This is a bold statement for a young the Fellowship comes in four shapes: Jalapa (Viso) that delivers Cuban company,” says Blicharz. “It takes real Corona Gorda (5.5x46), Robusto strength and flavor from its Havana skill and experience to roll a cigar whose (5x50), Toro (6x50) and the proprietary origin, and a filler blend of Esteli barrel is tight right up to the transition V58 (6.5x58). It features a 100 percent Viso, Condega Ligero and Jalapa between the rim of the wrapper and the long-leaf filler blend that combines leaf Ligero. The double binder of Jalapa emerging shaggy inner leaves. Luckily, from Nicaragua’s Jalapa Valley with Seco and Esteli Viso routinely the Danli, Honduras factory of dark rare Honduran tobacco grown on the produces a two-inch ash. The cigar’s tobacco giant Nestor Plasencia has Raices Cubanas’ tobacco farm in Trojes, entubado (tubed) arrangement of perfected this process.” Honduras. The binder is Honduran- the filler leaves assures free-flowing The Peacemaker’s toothy Nicaraguan grown Criollo 98 tobacco, and the smoke and even burns. wrapper is true to the cigar’s rustic wrapper is a Honduran-grown Habano The Integrity comes in the same theme. The binder is Brazilian Mata Colorado Subido (“High Red”) leaf. four shapes as the Fellowship, and Fina, while the filler is a multi-region The are aged a full three are individually cellophane-wrapped blend of Jamastran and Azacualpa to four years, and the cigars another and presented in high-quality boxes tobaccos from Honduras, coupled with six months, yielding a rich, mellow of 20 cigars. a Jalapan—a strain known for its rich flavor profile described by reviewers depth. as “earthy and spicy, with a touch of “The medium-bodied Peacemaker sweetness.” The cigars are bunched is especially complex and balanced,” using the traditional but seldom-used reports Blicharz. “The predominant entubado (tubed) method, in which the flavor note is nuttiness, with wood filler leaves are rolled into individual smokiness and other fleeting nuances tubes, surrounding a similarly tubed that are especially hypnotic and ligero core. Fellowship cigars are appealing.” The cigars are entubado- individually protected in cellophane bunched to prevent irregular burns and tubes, and presented in substantial, hard draws—cigar smokers’ biggest high-quality, 20-count cedar boxes complaints. with the distinctive Table 36 logo. The Peacemaker comes in four shapes: The Bullet (4.25x42), The .45 (5.5x45), Tin Star (7x43) and The Judge (6x52). The cigars are presented 20 to a rustic Spanish cedar box with a Wild West motif.

68 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 “We were fortunate early on to get positive reviews by some of the cigar bloggers, and now I use Facebook, Twitter and Instagram to get the word out about new products.”

innovative concept for a cigar company, one of the eight owners, is accountable out about new products and to reinforce one that seems to be working for the for the company’s social media our brand,” says Morgan, who notes that group so far. While the company’s presence—Table 36’s main method of the company has 520 likes on Facebook. owners declined to discuss financials in marketing. “We were fortunate early on “We show pictures of our events and detail, they did note that owners’ shares to get positive reviews by some of the we work with review sites to get people in the company vary, as does their level of cigar bloggers, and now I use Facebook, to review our cigars, then share those involvement. For example, Tim Morgan, Twitter and Instagram to get the word [reviews] through social media. It’s taken off pretty well.” Morgan’s marketing efforts on the company’s behalf is typical of the way each of the owners pitches in, says Blicharz. “We’ve been able to divvy up the roles, get people involved wherever they feel comfortable, and all pitch in for one another effectively so far,” he explains. “Even though we have slotted people with certain responsibilities and some of us are able to devote more time than others, it is very collaborative.” While Table 36 is open to working with any brick-and-mortar shop, the company does not sell its cigars online, believing that its customers are better served by the sales experience offered by face-to-face interaction at the retail level. Despite owing its origin to a cigar event, the company’s leadership structure makes it difficult to hold events outside of its home state and therefore relies heavily on social media to reach new customers. “We’ve done about six cigar events so far this year, but we sponsored National Smoke a Cigar Day on March 6 this year, and we had reps from our company in Texas, Oklahoma and here in Minnesota,” relays Blicharz, who says the company will continue to expand on both its product and event offerings. “We are constantly looking to move forward. It’s a matter of doing the right thing at the right time.” TBI

70 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 Smoker’s Haven Hosts Torano Tasting Cigar tastings and dinners draw a big crowd for this New Jersey retail chain.

By Jennifer Gelfand

eather is always the wild and fewer places cigar smokers can go. card for a successful cigar State law permits smoking outdoors, so Wevent, especially when the patio there is ideal.” you’re banking on patrons enjoying an Events usually feature a new line outdoor patio. A recent Torano tasting for a vendor or a new vendor for the held by Smoker’s Haven was a case in store. The April event, for example, point: cigar smokers struggled to keep featured three cigars: a Torano Reserva their stogies lit, let alone their food on Selecta, a Torano Vault Red Label, and plates and their plates on tables, during a Leccia Black for a total retail value an inordinately windy night. of about $25. “We try to include a “We’ve never been rained out, but mild-, a medium- and a full-bodied last night we got a little bit winded cigar,” explains Malkin, who notes that out,” reported Ave Malkin, manager the store uses an early bird pricing of the chain’s Metuchen, New Jersey program to encourage customers to store, which co-hosted the event with commit to attending. “If you sign up a sister location in Matawan. Despite more than a month before the event, the the gusty weather, more than 50 cost is $26; between a month before to patrons persevered, managing to enjoy three days before the event it’s $30, and appetizers and cigars on the Brown then it goes to $35 for the last three days Stone Grill’s spacious patio. or at the door. The three-tier approach Minus the wind, these evening events helps us [with] get[ting] people to are a regular occurrence for Smoker’s commit in advance so [that] we aren’t in Haven, with at least four tastings or a situation where we’re hosting an event dinners held every year, most frequently and only three people show up.” at the Brown Stone Grill, a cigar-friendly The store also offers specials on local restaurant. “We supply cigars, featured manufacturers at the event and and they supply a table of appetizers,” door prizes, all of which help to boost explains Malkin, who says that tastings attendance—which, in turn, boosts store usually run from 5 p.m. to 8 p.m. and traffic. “A lot of our customers bring people flow in and out over that time guests with them and some of those period. “We have a great relationship friends then become new customers,” with them, which is important because says Malkin. “It’s a great way to get the in states like New Jersey there are fewer word out.” TBI

72 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 C-STORE CORNER

No Thanks to Tanks

As more consumers trade cig-alikes for tank- style vapor devices, can c-stores hang onto their electronic product market share?

By Jennifer Gelfand

et’s face it. Selling cig-alikes, or sector for c-stores. Herzog is quick to electronic tobacco products that In a recent survey note that c-stores hold the lion’s share Llook and feel like cigarettes, of the market. In a presentation that is natural for c-stores. Tank-style of 19,000 vapers, the she gave at Vapor World Expo, she devices—or juice delivery systems— said that “c-stores reign supreme in however, are a different story. Most vast majority used e-cigarette distribution,” and suggested c-store retailers aren’t eager to devote that the convenience channel has themselves to marketing the various second (eGo-type) vigorously pursued the category largely pieces—tanks, cartomizers, e-liquid because it affords higher margins and juices, wicks, heads, coils, and the like— and newer generation lower maintenance (i.e. no controlling that comprise a refillable tank-style contracts from manufacturers) than vaping system. This begs the question: (mod) vaporizers, traditional combustible tobacco with more and more consumers products. switching to the more economical However, Herzog did acknowledge systems, what does the future hold for with only 3.7 percent that more and more “vape shops,” or c-stores’ share of the electronic tobacco stores dedicated primarily to electronic product market? using “cig-alike” tobacco products and accessories, have Despite the tank trend, Wells Fargo been debuting across the U.S. “Vape tobacco analyst Bonnie Herzog still e-cig products. shops have been opening up around the sees plenty of opportunities in the vapor country, and although they are not (yet)

74 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 C-STORE CORNER

Volume Moves to Alternative Retail Channels

E-Vapor Market Size $2.2B

E-Cigarettes Vapors/Tanks/Mods $1.4B $800M

a threat for c-store retailers, these new shops are definitely on retailers’ radar C-Store/ Tobacco Outlets screens,” she said. What the future will Traditional Retail and Online Vape Shops hold depends on factors ranging from Channels Vapor Shops $300M $500M how the category is regulated and taxed $700M $700M to future product innovations and how vigorously the various retail channels opt to pursue consumers devoted to tank-style vaping. In the near term, however, c-stores are reaping—and will Online Other *Other non-tracked channels include likely continue to reap—the rewards of $350M $350M* tobacco-only outlets and other e-cig adopting this emerging category.” retail locations. The graphics on this page offer a look Source: Wells Fargo at current market share trends. TBI

Share Shakeout Top 5 brands by c-store dollar market share 50% (+9.3 share point gain yr/yr)

40% Lorillard remains the category leader in c-stores. 30%

44% 20%

10% 22.2% 14% 2.7% 1.5% 0% Lorillard blu LOGIC NJOY RJR ALTRIA MARK TEN

Source: Nielsen Data 76 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 trench marketing BY MICHAEL GELFAND

Big Kid on the Block Cigars International leveraged Internet success to become a brick-and-mortar powerhouse.

t’s natural for smaller retailers New York City and Philadelphia. thanks to, in large part, assets that to sometimes resent or envy the Cigars International maximizes that are just as available to mom-and-pop Iexistence of bigger competitors. A advantage with immense physical stores stores—customer service and employee better bet? Learn from your larger peers and the buying power to fill all that education. in the business. square-footage floor-to-rafters with Joe Stracco, the general manager Cigars International is one of the a breathtaking diversity of products. of the chain’s Hamburg Super-Store big boys who does things right. With And when you throw in that they’re location, keyed in on customer service three stores located in and around the Google’s top-ranked online cigar retailer as a cornerstone of the business before Bethlehem, Pennsylvania area (two (cigarsinternational.com), you’ve got he was even an employee. “I have been a in town, one in nearby Hamburg), yourself a very serious competitor. cigar smoker for over 40 years, and I was the company enjoys advantages that a customer of Cigars International before other retailers would love. For starters, Size Is Irrelevant, Customer the original owners asked me if I wanted they’re located in a tobacco-friendly Service Is Everything part-time work six years ago,” he recalls. state, and their stores are all within Putting aside the inherent advantages Stracco quickly became a full-time reasonable driving distance for tax-savvy, of scale, location and monetary resources, employee and then moved to corporate metropolitan consumers in and around the chain also does gangbuster business headquarters last year, where he wrote

78 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 trench marketing

the company’s certification program. “When the boss asked me to come out and run this store,” recounts Stracco, “how could I turn down that opportunity?” “We have to be better [than our competitors]. Today, Stracco applies many of the experiences he had I make sure our employees are constantly aware as a customer to his approach to managing the store and its staff. “One thing our company is dedicated to is customer that the customer always comes first.I keep service,” he says. “If you like people it comes easily, but there’s lots of competition in this area of the country. We have to be reminding our sales staff to remember that. better [than our competitors]. I make sure our employees are ‘The customer is why you were hired,’ I’ll say.” constantly aware that the customer always comes first. I keep reminding our sales staff to remember that. ‘The customer is why you were hired,’ I’ll say. I keep that fresh in their minds all of the time.” The store also regularly holds seminars on new products, and Employee Education Is Critical all store associates are required to attend. “It creates a marriage, to Customer Service and provides a great process of ongoing education,” he says. Being helpful and attentive toward customers is a priority While customer service and training are two of Stracco’s core at Cigars International, but that all falls by the wayside if the competencies, he has many other responsibilities as well. As employee isn’t knowledgeable. “Our training is built around general manager, he is in charge of overall operations for the getting manufacturers to come into all three of our stores and 10,000-square-foot store, which houses well over 1.5 million give 90-minute talks about their products to our team,” explains cigars, a host of humidors, lighters, and other related products, Stracco. “That’s gone a long way to help build relationships with plus two bars and 14 store employees. the manufacturers, and to develop knowledge we can convey to “The success we’ve got going on is built on our marketing,” our customers.” explains Stracco. “We’re a little different than most other big

80 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 trench marketing

tobacco stores because we got our our products due to these start as an Internet company that meetings with manufacturers, eventually turned toward retail, and from what they can learn whereas most of [the] others on the Internet,” says Stracco. were retail stores that [then] got “We’re getting lots of younger into selling on the Internet. Our consumers coming into the catalog is more than 160 pages store—[they’re] either in college long and features lots of what we sell—proprietary blends and or new to their careers—and they’re extremely knowledgeable. national brands. We have lots of buying power, and it helps us You’d think they wouldn’t have lots of disposable income to keep prices lower than competitors’. Our customers enjoy that spend, but they come in to buy top-of-the-line products. […] advantage.” I think it points to us being in the middle of a ‘mini-boom.’ And being the largest Internet provider of cigars doesn’t There’s a whole social aspect of coming into a store like this.” hurt,either. “Cigars International is the top site hit on Google Stracco has also nurtured this social scene. “We have two for cigar retailers,” says Stracco. “It’s a very, very large part of our floors, each with its own lounge and bar that customers can business, but people love coming in and looking at cigars, and smoke in to their hearts’ content,” he says. “The upstairs lounge all of our staff is highly trained about what goes into making was provided by Rocky Patel and has seven sets of leather cigars. We send them to cigar factories to see the process lounge chairs with tables. It leads to an outdoor deck with firsthand, and our customers like to hear about it. We also have tables and umbrellas that cover the upper part of the store. The manufacturers come here to speak with our customers. That downstairs lounge is smaller, but has a pool table. We also have gives them knowledge and makes them better consumers.” our ‘Patriots’ room, which is dedicated to people in the armed services both past and present, and 10 TVs mounted in various The In-Store Bar Benefit locations throughout the store for people to watch sports, news “Consumers are becoming extremely well-educated about or educational product videos.”

82 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 trench marketing

Customers also enjoy being able to hang out and enjoy their events, such as Bike Night [one Thursday per month], where products in the company of friends in either of the store’s two we have bands perform outside, and guys come in on their fully-licensed bars. “It’s certainly not the main part of our motorcycles, have a drink, and listen to music. business; it’s really here to serve customers with something “We also have Cigar Fest, which lasts two days,” says Stracco. added on to their experience,” relays Stracco. “That’s a key “It’s the Sturgis motorcycle rally of cigars. We’ve had Jonathan tenet we make our employees understand: we’re not just selling Drew [co-founder of Drew Estate Cigar Company], Alex cigars…we’re selling an experience.” Goldman [president of Royal Cigars], representatives from According to Stracco, his store’s success boils down to the Bolivar family, and many others come in to meet and greet having great products with great marketing, and to providing customers, and the customers love coming in to meet them,” he employees and customers with an excellent education in an says. “They enjoy talking about cigars they love, especially with inviting environment. “We use the entire store to hold big the people who make those cigars. It’s a great source of fun events that feature cigar manufacturers, and we also have live and information, and it creates a lot of camaraderie between music on Friday and Saturday nights,” he explains. “We have everyone.” TBI

84 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 PRODUCT PROFILE JULY/AUGUST 2014

A Very Robust Launch From Griffin’s Griffin’s Cigars has launched the Paul Joyal’s New Lancero Limitado Shape Gran Robusto, featuring a Dominican tobacco filler, a Peruvian binder, and an Joins J. Grotto Silk Boutique Cigar Lineup Ecuadorian wrapper, providing a mild- to-medium-strength flavor. Slightly Ocean State Cigars has added a new Lancero Limitado shape to its existing J. longer than a traditional robusto, the Grotto Silk line of premium boutique cigars. “Our first Lancero Limitado joined the cigar also has a bigger ring gauge (52). J. Grotto Series Reserve line a year ago, and we’ve barely kept ahead of demand,” The new cigar is available in boxes of says Paul Joyal, founder and president of Ocean State/J. Grotto Cigars. “So, we 25 and cases of four. Oettinger , griffinscigars.com decided to add it to the Silk line as well.” The medium- to full-bodied Silk Lancero features an Ecuadorean-grown Con- necticut Shade wrapper, a filler consisting of a blend of Honduran Trojes region and Nicaraguan Jalapa Valley leaf, and a double binder that combines Criollo 98 with Indonesian tobaccos. Like the J. Grotto Series Reserve Lancero, the Silk version joins four other shapes: Gran Robusto (5x52), Gordo (6x60), Gran Toro (6x52), and Churchill (7x50). Its presentation consists of lush artwork on a high-quality, substantial Spanish ce- dar box holding 10 cello-tubed cigars with a manufacturer’s suggested retail price of $7.50. Ocean State Cigars, [email protected]

Sweet Stuff From Swisher Swisher Sweets has introduced a smoother, rich chocolate blend for its Swisher Sweets Chocolate Cigarillos, available in the popular resealable foil pouches and five-for-three packs. The two-count resealable pouches provide adult consumers with guaranteed fresh cigars. The cigars come in three popular price points: 99 cents, $1.49, and non-priced “save on 2.” For chocoholic consumers looking for greater value in their favorite blend, Swisher Sweets Chocolate Cigarillos’ five-for- three pack provides five cigarillos for the low price of three. Swisher, 800-874-9720

86 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 PRODUCT PROFILE JULY/AUGUST 2014

Peacing out With Table 36 Cigars

Table 36 Cigars has rolled out “The a Jalapa, Nica- Peacemaker,” their third boutique pre- raguan, a strain mium cigar line, for IPCPR’s 2014 trade known for its rich show. The new cigar follows Table 36’s depth. Fellowship and Integrity brands, which “The medium- first appeared in 2012 and 2013, re- bodied - spectively. The Peacemaker features an maker is especially “exploded foot” revealing over an inch complex and balanced,” of unwrapped binder and filler leaves. reports Blicharz. “The pre- “This is a bold statement for a young dominant flavor note is nuttiness, with company,” says Table 36’s co-founder, wood smokiness and other fleeting nu- Will Blicharz. “It takes real skill and ex- ances that are especially hypnotic and perience to roll a cigar whose barrel is appealing.” The cigars are entubado- tight right up to the transition between bunched to prevent irregular burns and the rim of the wrapper and the emerging hard draws—cigar smokers’ biggest shaggy inner leaves. Luckily, the Danli, complaints. Honduras factory of dark tobacco giant The Peacemaker comes in four Nestor Plasencia has perfected this pro- shapes: The Bullet (4.25x42), The .45 cess.” (5.5x45), Tin Star (7x43), and The Judge The Peacemaker’s toothy Nicaraguan (6x52). The cigars are presented 20 to wrapper adds fittingly to the cigars’ rus- a rustic Spanish cedar box with a Wild tic theme. The binder is Brazilian Mata West motif. Suggested prices for the Fina, while the filler is a multi-region cigars range from $4.95 to $7.25. Table blend of Jamastran and Azacualpa to- 36, LLC, [email protected] (IPCPR Run for the Red baccos from Honduras, coupled with booth #3107) Juan Ignacio Martínez (31), president of JDN since 2013, led a team of contemporary executives and experienced master blenders such as Leonel Raudez (62), JDN’s factory manager since 1992, to create this new, vibrant blend. “This time, we moved away from our abundant use of ligeros and thick wrappers to a blend with more visos and lower priming Habano wrappers,” says a spokesperson for the company. “The binder and filler leafs were also grown in the rich Summer Sweetness and fertile lands of Estelí, Jalapa and Condega. This combination of premium Swisher Sweets continues its limited edition line tobaccos resulted in a balanced cigar with Swisher Sweets Summer Twist, featuring a sweet lemon with medium strength and captivating mango taste. Swisher Sweets Summer Twist comes in a flavors. Joya Red is available in four resealable two-count pouch with a sealed-fresh guarantee. sizes—Short Churchill (4.75x48), Robusto Summer Twist will be available two for 99 cents, or with a (5.25x50), Toro (6x52) and Cañonazo save-on-two option. Additional limited tastes are expected (5.5x54)—packed in 20-count boxes. throughout 2014. Swisher International, 800-874-9720 Drew Estate, Drewestate.com

88 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 PRODUCT PROFILE JULY/AUGUST 2014

Garcia y Vega Launches 1882

Available now, Garcia y Vega 1882 Rolled Leaf Cigar is named for the year Garcia y Vega began making premium Dominican cigars. A refined rolled cigar made in the Dominican Republic using premium leaf and quality filler, Garcia y Vega 1882 will be available in four flavors—Sweet Aromatic, Honey Berry, White Grape and Bourbon—and will be offered in pre-priced 82-cent singles, as well as three-pouch and five-pouch offerings. The 1882 features Back to the Future a resealable pouch to ensure each cigar is as fresh as the day it was made. has relaunched Epoca, the first cigar brand owned by Nat Sherman “We are excited about our newest prior to the Nat Sherman brand’s creation. The cigars have been in aging for several addition to the category,” says Ryan months and are finally being packed and shipped. Epoca is manufactured at the Krasner, brand manager. “Rolled leaf, Quesada Cigars’ factory in Licey, Dominican Republic, using a blend of Nicaraguan- also known as rough cut, [currently] and Dominican-grown Cuban seed tobaccos, finished with a beautiful Ecuadorian represents 27 percent of the small wrapper. The new packaging is inspired by the original Epoca designs highlighting natural leaf segment and is growing the bold crimson crest, gilded bordering, and over-sized quality seal. [by] over 20 percent. [The] 1882 is a Epoca is available in six formats packed in boxes of 20 cigars: Breva (5x42, $8 per well-crafted mild cigar using all natural cigar/$160 per box), Admiral (5x50, $9 per cigar/$180 per box), Prince (6x50, $10 filler and rolled in an aged broadleaf to per cigar/$200 per box), Senator (6x56, $11 per cigar/$220 per box), Knickerbocker create a truly authentic cigar.” Garcia y (7x48, $11.50 per cigar/$230 per box) and Perfecto (5.75x52, $12 per cigar/$240 per Vega, Swedish Match, swedishmatch. box). Nat Sherman, natsherman.com com

Arango’s Three Credos

Arango Cigar will be featuring three novel cigar cutters from Credo (Marseille, France) in the Arango pavilion at the IPCPR trade show of 2014—two based on the Credo Synchro, and a revolutionary three-in-one punch cutter. The double-blade “XXL,” with a 70-ring gauge open- ing, takes center stage as one of the world’s largest-capacity cutters, able to cut any cigar made. The “Cutter RG 60” offers greater economy and cutting capacity than the original Syn- chro. The third introduction is a three-in-one pocket punch cutter available in the rectangular, aluminum version finished in black, silver or titanium, as well as the rounded-contour stainless steel version in black, silver or bronze with a key ring on a chain. The cutter’s tri-fold design has two hinged side that open out to reveal three punches in 34, 48 and 60mm ring gauges at a wholesale cost of $26.50. Arango Cigar, 800-222-4427, [email protected]

90 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014 PRODUCT PROFILE JULY/AUGUST 2014

New from 7-20-4 Domestically Yours

Kurt A. Kendall’s new boutique cigar, White Cloud Electronic Cigarettes has launched “ClearDraw2,” featuring a “Factory 57,” is a 100 percent long-filler, proprietary new design that eliminates the industry-standard cotton filler and all handmade premium cigar that features narrow airflow chambers, giving users more e-liquid per cartridge, plus more a complex five-nation blend. A medium- flavor and vapor with every puff. to-full-bodied cigar, Factory 57 has a fla- “We are thrilled to bring ClearDraw2 to market,” says Matthew Steingraber, vor that is “bold, full, yet very smooth, co-founder of White Cloud. “This all-new design is the product of tireless with distinct creaminess,” says Kendall, research into existing e-cigarette technology, which resulted in a cartridge founder of 7-20-4 Cigars. The cigar’s filler unlike anything seen before in this industry. ClearDraw2’s design is filler-free consists of a high-primed Jalapa, Nicara- and features dramatically improved airflow and capacity, which will give us- guan Habano wrapper leaf, whose upper ers pure flavor, more satisfying puffs, and unparalleled enjoyment.” location on the plant produces a more The most important aspect of the new ClearDraw2 is that it will allow White resinous tobacco. The binder is from the Cloud to fill its cartridges at its new manufacturing facility in Tampa, Florida. Costa Rican fields of tobacco giant Nestor With this move, White Cloud Electronic Cigarettes will be one of the few e- Plasencia, while the filler blend is Hondu- cigarette companies to both produce 100 percent U.S.-made flavored e-liquid ran, Nicaraguan, San Andrean (Mexico), and fill its cartridges entirely in the U.S. and Colombian. Three years of tobacco “White Cloud has always made customer experience a top priority,” says aging and six months of cigar aging can Steingraber. “By making our e-liquids in the U.S. and moving to an automated be credited for the mellow and harmoni- cartridge-filling process right here in Florida, we have the ability to oversee ous smoking experience. all final production steps and test everything more thoroughly. Our target is Factory 57 comes in 5x50 Robusto, nothing less than 100 percent satisfaction, and this shift to USA-based liquid 6x52 Toro, 7x50 Churchill and 6x60 Gor- production, filling and testing moves us closer to that goal.” do. The cigars are entubado-bunched ClearDraw2 will soon be available in all of White Cloud’s industry-leading for plug-free, even-burning smokes. The six nicotine strengths and 19 flavors, with more flavors to be announced in wrapper tobacco is triple-fermented, the coming months. White Cloud Electronic Cigarettes, Tarpon Springs, Flor- which prevents bitterness in the latter part ida, whitecloudelectroniccigarettes.com of the smoke. When asked what sets this cigar apart, Kendall responds, “It’s a small- batch limited release. If Factory 57 goes the way its predecessors have, it’ll find its way into our regular catalog of boutique cigars.” 7-20-4 Cigars, 603-965-4493

92 TOBACCO BUSINESS INTERNATIONAL JULY/AUGUST 2014