Free sample and special offer from Outlet Products—Page 47

SEPTEMBER/OCTOBER 2014 VOLUME 17 n NUMBER 5

The roll-your-own segment is very much alive and well, especially for tobacco retailers who stayed a step ahead of the “big machine” government shutdown.

The Possibilities Can E-Cigars of POS Satisfy? Big Merger, Smokers Choice Big Predictions Grows Up PUBLISHER’S LETTER BY ed o’connor

The Genius of Option 3

he proposed Food and Drug Administration (FDA) of time that it took to get the law enacted, there may be deeming regulations on all tobacco products have little FDA desire for wiggle room. In reality, the kind and Tbeen submitted for public comment. Had the deci- extent of the options required may be beyond FDA control. sion been solely the FDA’s, absent the public and legislative pressures foisted upon the agency, it’s not unreasonable to EntEr OptiOn 3 believe that extending control over the plethora of other Consider that each tobacco product category is uniquely tobacco products (OTP) would have occurred. The Family experienced by a wide range of demographic and psycho- Protection and Act (FPTCA) was written graphic profiles. Assembling all elements of legal specifically with as the focus. The tobacco cat- usage could theoretically establish a grid of the varying de- egory was tarred (no pun here) with the same brush with- gree of risk and population impact, but it could never be out regard to scientific-based risk continuums associated scientifically verified. Scientifically quantifying the impact with different methods of tobacco use. However, a unique on the total population by the various tobacco categories is codicil of the act specifically prohibited the outright ban of likely an impossible expensive dream akin to proving that all tobacco products (including menthol), and of reducing the earth is flat. nicotine levels to zero. In the absence of a third option, the only way out of the Despite prohibiting the ban of all tobacco products, conundrum—short of absolutely nothing at all happening the inconsistency of the act provides for protocols al- as in the situations with menthol and substantial equiva- lowing the equivalent of “ [of tobacco] by a thou- lence—is legislative mitigation of the FPTCA. It was de- sand cuts.” As it turns out, this is especially true for OTP. signed and enacted with cigarettes in mind and unless it’s It could be argued in court that the nearly-impossible to now true that “one size fits all,” which it’s not, then the impossible FDA rules, protocols and regulations effec- FDA, the industry and the legislators need to go back to the tively constitute a ban, which, per the act, is illegal. It’s a drawing board to craft reasonable regulations addressing fact that no predicate product against which to verify new each tobacco segment. The genius of option 3 heads off product substantial equivalence even exists for the elec- “death by a thousand cuts” which, if challenged in court tronic tobacco category because the category did not ex- as a de facto ban on tobacco and is ruled to be so, would ist prior to February 11, 2007. This alone testifies to the render the FDA mute just as in the case declaring electron- dated covenants of the FPTCA. To be decided: when do ic--delivered nicotine a tobacco and not a drug. impossible-to-meet standards become a de facto ban? Option 3 is advantageous to all stakeholders. We look to At this time, an option 3 doesn’t exist. The FDA properly the FDA to assume a leadership role. maintains that they must follow the written letter of the law. Given the agency’s angst historically and the length Write your legislators,

4 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 NEWS & TRENDS SEPTEMBER/OCTOBER 2014

Menthol Report Dismissed as Biased Challenges by cigarette makers have succeeded in banning the FDA from use of an advisory panel’s 2011 report. U.S. District Court Judge Richard efforts by cigarette makers Loril- nesses in anti-tobacco lawsuits and Leon in Washington, D.C. recently lard and Reynolds American, who had financial ties to pharmaceutical ruled that the Food and Drug Admin- sued the agency in 2011, alleging companies that make ces- istration (FDA) can’t use an advisory conflicts of interest and bias by sation products and therefore had panel’s 2011 report on menthol ciga- several panel members. They ar- conflicts of interest. rettes due to conflicts of interest by gued that the panel failed to meet The agency countered that the pan- its members. The agency has since the federal requirements that com- el met federal standards and that the conducted an independent review on mittee members should be fairly cigarette makers’ “alleged injuries are the public health impact of menthol balanced and not inappropriately entirely speculative.” But Judge Leon cigarettes; however, the ruling could influenced by any special interest. ruled that FDA erred in determining hamper the FDA in defending any specifically, the plaintiffs as- that the members didn’t have con- regulatory action on the category. serted that some committee mem- flicts of interest and that FDA would The court ruling is the result of bers had served as paid expert wit- need to reconstitute the panel.

States Seek Stronger E-Cig Regs Attorneys general band together to ask for stronger regulations of electronic cigarettes.

Twenty-nine state attorneys gen- the marketing of e-cigarettes, and of flavors available for vaping and e- eral came together to urge the Food the sale of tobacco products over cigarette devices could make the cat- and Drug Administration (FDA) to the Internet,” stated the letter. It went egory appealing for children. strengthen its proposed regulations on to call for the prohibition of the In addition to flavor restrictions, the on electronic cigarettes and vape de- sale of most e-cigarette flavoring— letter also urged advertising and mar- vices, which together comprise a $2.5 a move that those in the e-cigarette keting restrictions on e-cigarettes to billion industry, according to Nielsen. business say would devastate the bring the rules more in line with those FDA has already proposed federal category. for traditional cigarette companies. restrictions that will ban the sale of The prevalence of e-cigarette and However, some public health experts e-cigarettes to minors and require liquid nicotine flavors like Choco- counter this argument, noting that age verification, but a letter from the late Chip Cookie Dough and Graham e-cigarettes appear to be a less dan- group of attorneys general charges Cracker are fueling the debate. In gerous alternative to traditional to- that these steps are insufficient. 2009, FDA banned the use of simi- bacco products, and suggesting that “While the proposed rule address- lar flavors in traditional cigarettes in regulation that would threaten the es some of our concerns, it fails to an effort to deter young people from industry’s survival could potentially address matters of particular con- picking up the habit. The attorneys deprive smokers from a healthier al- cern, such as characterizing flavors, general argue that the sheer breadth ternative.

12 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 NEWS & TRENDS SEPTEMBER/OCTOBER 2014

Reynolds to Acquire Lorillard HigHligHts

$27.4 billion merger would create a $56 billion cigarette colossus. RJR to Study Secondhand Reynolds American (RAI), the parent company of R.J. Reynolds (RJR) and maker of Pall Mall and Camel cigarettes, plans to merge with Lorillard (LO), which man- E-Cig Smoke ufactures the Newport brands. Representing a deal between the No. 2 and No. 3 companies in the industry, this merger will create a true rival to the industry’s Reynolds American plans to con- dominant player, Altria Group, according to industry observers. “We believe this is duct a clinical trial in Atlanta, a value-creating transaction for RAI and LO shareholders, creating a formidable No. Georgia on secondhand smoke, 2 player in the U.S.,” says Bonnie Herzog, managing director of beverage, tobacco or vapor, from e-cigarettes. The and convenience store research for Wells Fargo Securities. clinical study will look to quan- “From a strategic standpoint, this combination is absolutely compelling,” said tify the emission factors of e-cig- Susan Cameron, Reynolds’s president and CEO, during a conference call about arettes. The move comes as RJR, the deal. “It will give us a unique portfolio of iconic brands, as well as add a geo- which launched its digital va- graphic benefit from RJR’s strength in the western U.S. and Lorillard’s complemen- por cigarettes last year, escalates tary strong presence in the eastern U.S.” Significantly, the deal will bring Newport, its presence in the category. which leads the U.S. menthol category with a 12.6 percent market share, into R.J. Reynolds’ fold. Surprising many in the industry, the merger plan also calls for Reynolds to sell several brands, including blu eCigs, , , and , and other assets and liabilities to Imperial Tobacco for $7.1 billion. This aspect of the MarkTen deal—likely meant to appease regulatory concern about the potential for an indus- try duopoly—will make the British company the new No. 3 tobacco company in Continues the U.S. Currently the fourth biggest player in the American tobacco market with a single-digit percentage of market share, Imperial makes cigarettes and Rollout mini-cigars. Industry observers were surprised that RJR would be willing to give up the popu- NuMark, a subsidiary of Altria lar blu e-cigarette brand, which holds 45 percent of U.S. e-cigarette market share. Group, has rolled out the Mark- However, CEO Susan Cameron combated critics by touting the “superior technol- Ten brand to 60,000 stores in the ogy” of Vuse, describing it as “a product we believe will be a game changer in the western U.S. “We are very pleased e-cigarette space. Since its expansion into Colorado in 2013 (its first major market), with our progress in innovative Vuse has delivered outstanding results and quickly became the category leader. … products,” said Marty Barrington, We have just expanded to 15,000 additional outlets, and we are on our way to full chairman and CEO of Altria, dur- national distribution; all of which illustrates that Vuse has a bright future ahead of it. ing a phone call with investors. We will continue to compete with blu, as we have with Vuse already.” “NuMark also continues to inte- Still, many in the industry question the decision. “[blu] being divested to Imperial grate Green Smoke into its busi- surprised us as we believed RAI would pursue a multi-brand portfolio strategy in ness platform with its supply chain vapor,” said Herzog, who also noted that the post-deal menthol concentration in capabilities.” RJR cigarettes could be viewed unfavorably by investors concerned about a poten- The rolling launch has allowed tial ban on menthol. Altria and NuMark to ensure that If it goes through, the deal would transform Imperial “from a distant No. 5 in the the product is available and to [U.S.] market with a three percent share, to No. 3 with a 10 percent share; from no avoid out-of-stocks, said Bar- presence in e-cigarettes in the U.S., to market leadership with the clear No. 1 brand; rington, who noted that distribu- from a business that has focused on 19 states, to national distribution supported by tion will move east over the next an experienced sales force,” noted Imperial CEO Alison Cooper during a webcast few months. about the potential transaction. “The primary assets for us will be Winston and blu.”

14 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 NEWS & TRENDS SEPTEMBER/OCTOBER 2014

Deeming Regs Draw Comments The FDA’s proposed deeming rule prompted more than 75,000 public comments.

Many of the 75,735 comments made egory, pointing to the products’ effi- can offer long-term, population-level during the Food and Drug Adminis- cacy as a path to smoking cessation. health benefits. tration’s public comment period for For example, Lorillard, which owns “Given this potential, Lorillard urges its proposed deeming rule focused blu, argued in its comment that “[t]he FDA to implement its tobacco product on premium cigars, according to New science developed to date shows that authorities for electronic cigarettes York-based financial services firm electronic cigarettes have the potential in a thoughtful and prudent manner, Cowen and Company. Premium cigar to play a critical role in smoking risk proportional to the harm-reduction smokers and retailers submitted more reduction and to significantly advance potential that these products present. than 47,000 of the comments received the public health. Available scientific Aspects of the existing regulatory sys- during the 90-day comment period as information indicates that electronic tem for conventional tobacco products compared with some 3,500 submis- cigarettes do not encourage smoking are not well-suited for electronic ciga- sions relating to electronic cigarettes. initiation; that they could help some rettes,” the letter concluded. These included approximately 1,653 smokers quit smoking; and that elec- Many of the manufacturers and as- comments related to vaping, 545 on e- tronic cigarettes expose users to far sociations commenting on the propos- liquids and 380 on advertising restric- lower levels of harmful or potentially al conceded that restrictions on sales tions. harmful constituents (HPHCs) than to minors are appropriate, but went on Many of the comments referenced conventional cigarettes. All of these to express concern about over-regula- the potential health benefit of the cat- data suggest that electronic cigarettes tion of the nascent category.

RJR Calls $23.6 Billion Verdict “Grossly Excessive” Company will fight the jury’s decision.

When a Florida jury awarded $23.6 bil- “We plan to file post-trial motions with representing Cynthia Robinson. lion in punitive damages to a longtime the trial court promptly, and are confi- The case is one of thousands pend- smoker’s widow, R.J. Reynolds Tobac- dent that the court will follow the law ing in Florida following the state co (RJR) wasted no time in protesting. and not allow this runaway verdict to Supreme Court’s 2006 decision to The nation’s No. 2 cigarette maker has stand.” dismiss a $145 billion class-action vowed to fight the verdict, calling it Meanwhile, the widow’s attorneys verdict, which also said that smokers “grossly excessive and impermissible are touting the verdict as sending a and their families need only prove ad- under state and constitutional law.” powerful message to tobacco compa- diction and that smoking caused their “This verdict goes far beyond the nies. “The jury wanted to send a state- illnesses or deaths. Robinson individ- realm of reasonableness and fairness, ment that tobacco cannot continue ually sued Reynolds in 2008 on behalf and is completely inconsistent with to lie to the American people and the of her late husband, Michael Johnson the evidence presented,” said RJR ex- American government about the ad- Sr., who died in 1996, winning the ecutive J. Jeffery Raborn, a company dictiveness of, and the deadly chemi- punitive damages as well as an addi- vice president and assistant general cals in, their cigarettes,” said Christo- tional $16.8 million in compensatory counsel, in a statement about the case. pher Chestnut, one of the attorneys damages.

16 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 NEWS & TRENDS SEPTEMBER/OCTOBER 2014

Mourning Irving Korn of Royal Meerschaum Pipes

TBI joins the industry in mourning meerschaum pipes to what is known and fairs with his popular and famous Irving Korn, 94, the entrepreneur today as one of the world’s finest “world’s most expensive pipe,” then who introduced Turkish meerschaum smoking pipes. He bought carvers, valued at $15,000, and listed in the pipes to the U.S. market in the early calibers and other tools used to make Guinness Book of World Records. 1970s. bowls and drill centered, uniformed Irving was a man with a fine and Irving was instrumental in stan- holes for a smooth draw. He assisted long-standing reputation. He was dardizing the present day features of in developing the “push-pull” teflon highly respected by loyal domestic fitting used on today’s meerschaum and international customers as well as pipes. Most importantly, he created many pipe carvers in Turkey. In 2003 an economy for many Turkish villag - during his last and final trip to Eskise - ers, enhancing their quality of life. hir, Turkey, over 75 carvers, stem and The 20th century collectible meer- case makers gathered together, some schaum pipe market is also attributed three generations strong, to honor to Irving Korn. He brought pipes by him with a special banquet. master carvers such as Beckler, Sabri, Jerry Korn, son of Irving, and his The Artist, S. Yanik and others into the wife Harris are proud to carry on the U.S. market. In the early ’80s, “Irv” Royal Meerschaum family business was known for touring pipe shows and reputation.

NYC Bans Tobacco Discounts The Big Apple’s ban on tobacco product discounts went into effect in August.

A New York City ban on tobacco prod- limits at the city level. However, Judge and retailers from offering promotional uct discounts took effect in August Thomas Griesa ruled against them, pricing, coupons, discounts on bulk after manufacturers decided not to ap- stating that “the ordinance only regu- purchases, and free gifts with a pur- peal a U.S. District Court judge’s ruling lates an economic transaction—the chase. upholding the ban. Altria Group, Loril- sale of tobacco products below the New York City has one of the highest lard and Reynolds American had tried listed price. It does not restrict the taxes on tobacco in the country, with to get the ban ruled as unconstitution- dissemination of pricing information a pack of cigarettes carrying a city tax al, arguing that disallowing discounts and thus, it does not violate the First of $1.50, the highest state tax of $4.35, violated their right to free speech, and Amendment.” plus a federal tax of $1.01 for a total tax that state and federal laws supersede The ban will prohibit manufacturers of $6.86 per pack.

BY MICHAEL GELFAND

trench marketing Tell Your Story in TBI

Would you like to see your store profiled in TBI? Or maybe you’d like to share your point of view or see a

efore tobacco became his bread and butter, Tom particular topic covered in our magazine. If so, we’d Facing the MusicFoster was training at the California Culinary BAcademy to become a professional chef. Back then, he looked forward to the day when he’d have a restaurant of his own where he could play tastemaker for his customers and prepare a sensory experience that would exceed their like to hear from you at tobonline.com/contact. expectations every time they came in. But dreams and Fidel’s cigar Shop dug itself reality often mix like oil and water, and Foster soon realized that being a cook meant he would never see the front of the out of an early hole created by a house—let alone get the opportunity to watch them eat the food he prepared. contentious store name—now Disillusioned, Foster soured on his dream of professional it’s a thriving boutique cigar cooking and left California to return home to Kansas City, hotspot on the kansas city scene.

78 TOBACCO BUSINESS JANUARY/FEBRUARY 2014

18 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 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 the fda… menthol legislation is unlikely, but it (CTP) Tobacco Products Scientific is still likely to be difficult to successfully Advisory Committee, even as it rejected challenge potential FDA menthol several projects that the NIH panel …A court agreed with Lorillard (LO) rulemaking given the need to show that found to have greater scientific merit. and Reynolds American (RAI) that three the FDA acted in an arbitrary manner Reuters says that this raises concern that of the nine original voting members of the and/or that such regulations would not the process lacked transparency, though FDA Tobacco Products Scientific Advisory benefit public health. the FDA says no favoritism was involved Committee (TPSAC), researchers Neal …During the public comment period with David Ashley, director of the Office Benowitz, Jack Henningfield and Jonathan on the FDA’s proposed regulations for of Science at CTP, and that the grant Samet, had conflicts of interest due to additional tobacco products, J.C. Newman awards to TPSAC members were “purely their receipt of funds from pharmaceutical Cigar Company fought to save its family- coincidental.” companies making nicotine replacement owned factory in Ybor City, Florida by …The CTP announced a Site therapies, as well as their participation having its products included in a proposed Tours Program for its scientific and in tobacco litigation as expert witnesses. exemption for premium cigars. The regulatory staff to help them gain a Washington, D.C. U.S. District Court company has backing from Florida Gov. better understanding of the industry Judge Richard Leon ordered the FDA Rick Scott and U.S. Rep. Kathy Castor and its operations by visiting facilities to reconstitute the panel and barred the (D-Fla.). involved in the cultivation, processing, and agency from using TPSAC’s March 2011 …Reuters reports that its review of manufacturing of tobacco or currently- menthol report, which said that removing confidential scores—given by a National regulated tobacco products. Interested menthol cigarettes from the market would Institutes of Health (NIH) review panel companies should submit a request for benefit public health. to more than 50 research proposals aimed participation by September 15, 2014 with …Morgan Stanley said Judge at helping shape tobacco regulation— a description of the facility and a list of Leon’s decision that the FDA cannot found that the FDA in September 2013 all tobacco products processed and/or use TPSAC’s report on menthol is recommended that millions of research manufactured there to regulations.gov or “unambiguously favorable” and increases dollars be awarded to scientists who serve to the Division of Dockets Management the market’s confidence that disruptive on the Center for Tobacco Products’ (HFA-305), FDA, 5630 Fishers Lane,

20 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 TMA REPORT

Rm. 1061, Rockville, MD 20852. with the new predicate). …Reuters claims that documents …S&M Brands of Keysville, Virginia …The FDA issued a final rule for published June 24 in the Federal Register announced July 15 that it received domestic manufacturers and importers show that the review conducted by the substantial equivalence (SE) orders from of cigarettes, snuff, chewing tobacco and White House’s Office of Management the FDA on its redesigned Riverside roll-your-own tobacco to submit the same and Budget (OMB) prior to the release cigarette brands with old and new information that they had sent to the in April of the FDA’s proposed deeming paper suppliers; its products will now be United States Department of Agriculture rule resulted in the following changes: distributed to retailers and available to (USDA) before the tobacco buyout ended creating the two-option possibility for consumers by October 15. to FDA beginning October 1. There was premium cigars with one option being …The CTP issued new guidance for no mention of how FDA will address exemption; modifying or deleting sections industry entitled “Substantial Equivalence products now subject to the deeming highlighting FDA concerns about the Reports: Manufacturer Requests for process that have no current federal excise safety of e-cigs, including manufacturing Extensions or to Change the Predicate taxation, which is the existing formula that quality; and editing the FDA proposal Tobacco Product,” with a 60-day comment USDA used for the buyout. to prohibit “non-face-to-face sales” of period until September 15, which …After the FDA issued the e-cigs so that the ban would apply only provides information on 1) new limits on aforementioned rule in June 2014, it issued to vending machine sales and not online manufacturer requests for time extensions 50 substantial equivalent (SE) orders sales. to respond to deficiencies that CTP and six “refuse to accept” (RTA) letters, …During an American Legacy identifies in substantial equivalent (SE) while companies withdrew 19 SE reports Foundation Kenneth E. Warner Lecture reports (CTP now plans to grant extensions from the review process. Bill Godshall of entitled “One-On-One with FDA CTP for provisional tobacco products in “very Smokefree Pennsylvania pointed out that Director Mitch Zeller,” Zeller discussed limited instances where the manufacturer’s of the latest SE orders, 44 were issued for the CTP’s current work on user fees, the rationale for the request demonstrates that Riverside and Valu Time cigarettes made deeming rule, continued menthol and the extension is necessary, likely to result by S&M Brands. graphic warnings research, and highlighted in a complete response to all identified …Clarence, New York-based plant the CTP’s longer term “strategic priorities” deficiencies, and would not significantly biotech company 22nd Century Group for the first time: 1) product standards to delay CTP’s continued review of the SE said July 11 that it “engaged a major ban or restrict products or designs through report”), and 2) manufacturer requests to contract research organization” (name rulemakings that focus on the addictiveness, change the predicate tobacco product in undisclosed) with experience in tobacco toxicity and appeal of various tobacco submitted SE reports that have already exposure studies to assist 22nd Century in products; 2) a comprehensive nicotine commenced CTP scientific review (CTP certain FDA-related “regulatory activities” policy across all forms of nicotine delivery now recommends that the SE report be on the development of potentially less recognizing the relative risk continuum withdrawn and a new report be submitted harmful or modified-risk cigarettes. of alternative nicotine delivery systems

22 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 TMA REPORT

given that people are injured or die from mouth cancer”—because there is “excellent RAI through an investment of about $4.7 the “delivery method,” not the nicotine scientific evidence” that the product does billion in the combined entity. The offer itself; 3) pre- and post-market controls via not cause oral cancer. price represents a premium of 2.5 percent rules and guidance using the pre-market to LO’s July 14 closing. pathways of substantial equivalence, pre- …The Economist reports that the potential market applications and modified-risk On industry news… RAI/LO merger may be “a first step toward applications, with CTP using science ending America’s relative isolation from the and acting as a gatekeeper between the …Assuming antitrust approval by the global tobacco market” given that litigation product and the end user; 4) compliance Federal Trade Commission (FTC) and the costs in the U.S. now look more predictable. and enforcement with possible civil and Department of Justice in the U.S. estimated RAI and BAT are planning to collaborate criminal penalties for violations (48 states at six to nine months from now, the approval on e-cigs and heat-not-burn products, and territories now have enforcement of shareholders of Imperial Tobacco while Euromonitor’s Shane MacGuill is with all others soon to have it); and 5) Group (ITG) at a general meeting, and saying that RAI and BAT may, down the communication for health campaigns like completion of the acquisition, Reynolds road, try to market conventional brands The Real Cost that focus on initiation American and Lorillard announced that like Newport overseas. This would leave prevention for the most at-risk and RAI will buy LO for $68.88 per share China as the “main holdout against tobacco vulnerable groups including the 12-17 age (LO shareholders will receive $50.50 in globalization,” though Erik Bloomquist of group, minorities, Native Americans, and cash and 0.2909 of a share in RAI stock Berenberg believes that the state-owned LGBTs. Zeller noted that these campaigns for each LO share) in a transaction valued China National Tobacco Corporation could will include menthol, given that “menthol at $27.4 billion including debt. Meanwhile, acquire one of the major global firms in the plays a role in initiation.” for antitrust reasons, ITG will buy RAI’s future. …Swedish Match North America KOOL, Salem and Winston brands and …The brands to be acquired by ITG (SMNA) in , Virginia is filing LO’s Maverick brand, as well as LO’s had 2013 volumes of 20 billion pieces and an application with FDA to have its blu eCig business, and its production will bring ITG’s U.S. market share to 10 General Snus approved as a modified-risk and R&D infrastructure in Greensboro, percent counting its existing three percent tobacco product, with SMNA Director North Carolina for $7.1 billion in cash share, yielding net revenue of $2.4 billion, of Federal Government Affairs Jim (debt financed), or $5.6 billion after tax EBITDA of $0.8 billion, and operating Solyst explaining that SMNA proposes benefits of $1.5 billion (due to a step-up profit of $0.6 billion, making ITG’s to say that snus is “substantially less risky in amortization of intangibles), implying a enlarged U.S. business about 24 percent of than smoking” and wants permission to multiple of 6.9x the brands’ earnings before its combined tobacco net revenues. Through remove one of the required health warning interest, tax, depreciation and amortization its acquisition of LO’s assets in Greensboro, labels—presumably the one that reads (EBITDA). British American Tobacco ITG will gain about 2,900 employees “WARNING: This product can cause will maintain its 42 percent ownership in including LO’s national sales force.

24 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 TMA REPORT

PMI spokesperson commented that “established users” (used the device more On harM reduCtiOn… the acquisition will give the company than 50 times), showed that while 47 “immediate access to, and a significant percent of the current smokers had tried …U.S. Sens. Bill Nelson (D-Fla.), Mark presence in, the growing e-vapour e-cigs, only 3.8 percent were established Pryor (D-Ark.), Dick Durbin (D-Ill.), category in the UK market, as well as users, indicating that cigarette smokers are Barbara Boxer (D-Calif.), Richard a strong retail presence,“ as Nicocigs, slow to switch to routine use of e-cigs. Blumenthal (D-Conn.), Sherrod Brown according to Nielsen data, has a share …In a study published in Tobacco (D-Ohio), Edward Markey (D-Mass.), of about 27 percent in the $350 million Control, researchers led by C.K. Gourdet Tom Harkin (D-Iowa), Jeff Merkley UK e-cig market and distributes to over of the University of Illinois at Chicago (D-Ore.), Charles Schumer (D-N.Y.) 20,000 stores in the country. found that in the current absence of any and Michael Bennet (D-Colo.) on July 10 …Tax analyst and Forbes contributor federal law governing e-cigs, 34 U.S. introduced the Child David Brunori writes that vested interests states have adopted laws that address Prevention Act of 2014, which would that depend on state cigarette excise tax e-cigs either explicitly or as part of direct the Consumer Product Safety revenues are supporting proposals to tax language applying to tobacco-derived or Commission to issue rules requiring safer, e-cigs in the same manner as conventional nicotine-containing products. child-resistant packaging for liquid cigarettes under the pretense of addressing …Commenting on an open letter nicotine containers used to refill e-cigs. negative externalities—societal costs that sent to World Health Organization …During a two-day Investor Day affect parties that did not choose to incur (WHO) Director General Margaret held June 26 and 27, Philip Morris those costs—but that e-cig taxation is Chan from a group of 53 scientists who International (PMI) announced plans to actually a “money grab” because the state cautioned against classifying e-cigs as launch Marlboro HeatSticks in Japan loses revenue if consumers smoke less tobacco products under the Framework and Italy later this year with further cigarettes and more e-cigs. He argues that Convention on Tobacco Control (FCTC) expansion in 2015, saying that the product “[w]e should be subsidizing e-cigarettes, and called e-cigs “among the most resembles a cigarette, contains real tobacco, not making them more expensive,” significant health innovations of the and can be inserted into a hollow device given evidence that e-cigs have positive 21st century,” Wells Fargo said that it is called an iQOS, which heats the stick to a externalities. encouraged by what appears to be a broad maximum of 350 degrees Celsius to create …A survey of 2,000 current and former belief among health professionals and a tobacco-flavored nicotine vapor. smokers, conducted in June 2013 by a team scientists on the “benefits of e-cigs/vapor …PMI announced, without disclosing of researchers led by Daniel Giovenco of and the vast public health opportunity the value of the transaction, that it the Center for Tobacco Surveillance and such products present,” and noted that acquired 100 percent of Birmingham, Evaluation Research at Rutgers School of the letter was issued ahead of the WHO- UK-based e-vapor company Nicocigs, Public Health in New Jersey to find out sponsored FCTC meeting in Moscow whose flagship brand is Nicolites. A whether they ever used an e-cig or are scheduled for October 2014. tBi

26 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 CATEGORY MANAGER PIPE TOBACCO

The Problem With Pipe Tobacco

The controversy continues over how to handle the pipe-tobacco-as-RYO issue.

irst the good news: in the last five years, pipe tobacco Office (GAO) found that monthly sales of pipe tobacco has enjoyed a relatively great run—particularly when increased from about 240,000 pounds in January 2009 to Fcompared to other struggling categories of traditional more than three million pounds in September 2011, while tobacco. Now the bad news: that run-up is largely—if not monthly sales of roll-your-own tobacco decreased from entirely—attributable to the tax implications of the Children’s approximately two million pounds to 315,000 pounds in the Health Insurance Reauthorization Act (SCHIP) legislation same time frame. passed in 2009. By raising the federal excise tax on roll-your-own tobacco In fact, a 2012 report by the U.S. Government Accountability from $1.09 a pound to $24.78 literally overnight, SCHIP might

Taxes Before and After SCHIP Product Federal Tax Rates Through March 31, 2009 Federal Tax Rates on April 1, 2009 Cigarettes 39¢/pack $1.0066 per pack (rounded to $1.01/pack) Large Cigars 20.719% of manufacturer’s price; 52.75% of manufacturer’s price; cap of 4.875¢/cigar cap of 40.26¢ per cigar Little Cigars 4¢/pack $1.0066/pack (rounded to $1.01/pack) Pipe Tobacco $1.0969/pound $2.8311/pound Chewing Tobacco 19.5¢/pound 50.33¢/pound Snuff 58.5¢/pound $1.51/pound RYO; Cigar Wrappers $1.0969/pound $24.78/pound Cigarette Paper 1.22¢/50 papers $3.15¢/50 papers Cigarette Tubes 2.44¢/50 tubes 6.30¢/50 tubes Source: GAO

well have sounded the death knell for the RYO category. Tobacco Group told attendees of the Tobacco Merchants However, as everyone knows, a workaround soon emerged Association’s annual meeting earlier this year. “What it in the form of bagged pipe tobacco, which RYO customers comes down to is that pipe tobacco is not specifically soon began using in lieu of RYO tobacco. defined; it’s basically about what label the manufacturer Of course, this practice—labeled by many as a loophole— puts on the bag, or the manufacturer’s intent.” has increasingly come under fire. “Public health officials McGee and others in the pipe tobacco category are have raised concerns that some pipe tobacco might be concerned that, in an effort to close the pipe-tobacco-as- masquerading as RYO,” Daniel McGee of Scandinavian RYO loophole, regulators will simply tax pipe tobacco at the

28 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 CATEGORY MANAGER PIPE TOBACCO

Impact of SCHIP 2009/Proposed 2015 Budget 45 40 35 30 Pipe

25 RYO

20 Total 15 TTB pounds (million) 10 5 0 2008 2009 2010 2011 2012 2013 Source: Scandinavian Tobacco Group, Alcohol and Tobacco Tax and Trade Bureau (TTB)

same rate as RYO—a move that would singlehandedly cripple both categories. The concern is valid. Sen. Richard Durbin (D-Ill.), among other legislators, introduced legislation to do just as feared, arguing that “[equalizing] tax rates on all tobacco products, including pipe tobacco, cigars and smokeless tobacco, is a necessary and welcome measure that will reduce “What it comes down tobacco use, especially among youth, and stop rampant tax avoidance.” to is that pipe tobacco Thus far, the Food and Drug Administration (FDA) has chosen to address the issue by sending warning letters to is not specifically defined; retailers who they feel are promoting pipe tobacco product use in cigarettes. However, anti-smoking activists are pushing hard it’s basically about what for further action. “While the FDA’s enforcement actions are welcome steps, Congress can stop these tax evasion schemes label the manufacturer by increasing tax rates on all tobacco products to the same rate as cigarettes,” reads a missive about the issue on the Tobacco- puts on the bag, or the Free Kids’ website. To avoid that unhappy fate, manufacturers of “legitimate” pipe manufacturer’s intent.” tobacco suggest that stakeholders push for clear and distinct definition of pipe tobacco. “The FDA has a great opportunity to define pipe tobacco,” says McGee, who suggests criteria around cut-width format, moisture content, flavoring and types of tobacco (black burley) that would call out the distinction between pipe tobacco and RYO. TBI

30 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 E-Cigar Double Take

You can’t replace a real stogie, but that’s no reason to dismiss electronic cigars— they’re an add-on business that provides your customers with a vape option.

By Renée Covino

o e-cigars deserve your second look? not think that his premium cigar business and The way some in the business tell it, electronic cigars were a good mix. But he did Dthis is not your father’s cigar and it’s a double take after one persistent sales rep left not supposed to be. Perhaps even more so than a quality electronic product behind for him to an e-cigarette, an e-cigar is best merchandised try at his leisure. as an option to its combustible tobacco “I was very skeptical. I’m a serious cigar smoker counterpart—not a replacement. and we’ve done some business with e-cigarettes, “The entire experience and passion of but I tried some other e-cigars a while back and smoking a cigar… this does not take the place wasn’t keen on them,” Lambert says. of that, but it helps my customers get through It was the limited-edition E-Cigar King the times when they can’t do it,” Dennis from Vapor4Life that sold Lambert over to Lambert, owner of Tinder Box in Rockford, the idea of carrying an electronic cigar. He Illinois, tells Tobacco Business International praises the company’s three different e-cigar (TBI). “It’s also not taxable as a cigar. We have cartomizer liquids—cubana , ligero and a 36 percent tobacco tax in the state of Illinois, maduro—as well as the packaging and the so our margins are good on this. I’m just battery life, which he describes as “amazing.” helping my customers when they need a cigar and can’t smoke one. It’s strictly an option.” The CannibalizaTion QuesTion Lambert admits he wasn’t always this open In fact, the product was so impressive to the idea. Like many passionate purveyors that after trying it, Lambert’s concern that who are cigar aficionados themselves, he did electronic cigars weren’t good enough turned

32 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 into concern that they might actually be too good. “Once I tried it, I knew some of my customers would love to have one of these, but then I was concerned that I might lose some regular cigar business to them,” he explains. Over time, he found that not to be the case—the electronic stogie was incremental business for when “my guys are at a place where they can’t smoke or it’s illegal to smoke…they can take this e-cigar out and puff on it a few times and it satisfies what they need,” Lambert says. “Guys, too, who don’t smoke in their car, house and/or office—they now have an opportunity to do that, as well. I don’t see that I lost any cigar business whatsoever to this.” The E-Cigar King limited edition is not an impulse purchase—it retails for about $150 for the kit (one battery, three pre-filled cartomizers, a USB wall about six to eight units at one time with adapter, a charging cord and a USB car the ability to order more in very quickly. adapter) at Tinder Box—so Lambert “We are close to the company’s shipping usually sells it by letting customers area, so if I need more I can get them in try it first. “Vapor4Life makes rubber 24 to 48 hours,” Lambert says. tips available so that many different So now that Lambert is sold on the customers can try the E-Cigar King we concept, will he branch out to other have in store; most will not buy it on the brands and styles of e-cigars? “No, spot, but many will leave and come back I’m a believer in this brand and do not about a week later wanting it,” Lambert plan on adding to it,” he says. “Like explains. “Once they buy one, they’re a myself, other customers who have converted customer, [and] it becomes tried disposable e-cigars and other another reason to shop [at] our stores— rechargeable brands tried this and for the replacement liquids.” couldn’t believe it. I don’t want to sell The e-cigars at Tinder Box are anything that’s not the best.” merchandised in a glass showcase near That rousing endorsement is why the cash register with a big sign that Steve Milin, owner of Vapor4Life, took says “TRY ME,” and when customers four years to develop the product that inquire about trying it, they’re given one is now the Limited Edition E-Cigar that’s kept behind the counter with a King. It is also being repackaged and fresh rubber tip. Tinder Box also carries rebranded into a vaping item (which the liquids, typically lasting for about many say is the way the market is going) two weeks, up front for $17.95, which that looks exactly like the E-Cigar King, Lambert says is “a bargain considering available in three sizes: Zeus Royale, most of our guys pay more than that for Zeus Regale and Zeus Regalo, each two premium cigars.” available in five colors, including black, The e-cigar is a growing category at green, blue, brown (resembling a cigar Tinder Box, which is currently stocking leaf ) and hot pink.

34 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 Close Cigar? products and packaging and lowered its cigar option (disposable) to its three Milin says he modeled the three cigar price points “in order to help our retail Dean’s little cigar blends: full, mild and flavors after “the finest cigars I loved” customers be more successful in the menthol. “We wanted to complement from . The E-Cigar King/ e-cigar business,” according to Pavesi. our line for when our customers can’t Zeus battery is modified, the cartridge “Our customers also specifically asked smoke cigars,” explains Cheryl Turner, is custom-made, and it is topped with for a product that could be used with vice president of M&R Holdings. a “medical silicone tip,” he says, noting other juice—a reviewer of our maduro “They specifically asked about it and that his product has an “ease of refilling” rechargeable product gave our e-cigar so we decided we wanted something and can be charged while in use. itself a phenomenal rating, but didn’t that would exactly complement our “The modified battery has a microchip particularly like our juice, and it came own brand, rather than having them go that keeps the puffs consistent—each to our attention that retailers wanted to elsewhere for an electronic option.” and every puff is consistent…there is no be able to sell a quality e-cigar without No doubt, e-cigars are not for every other battery like it,” explains Milin. necessarily selling a certain brand of cigar smoker—or every cigar retailer. Milin’s passion comes from the fact juice with it,” Pavesi explains. Many still express skepticism. “I have that he was a former cigar smoker with He, too, calls it “ancillary business” no place for e-cigars—I don’t carry COPD—the reason he couldn’t smoke for retailers, rather than a replacement them and I’m doing extremely well anymore. “I missed the flavor and I category as some are calling e-cigs. with e-cigs,” asserts Andy Kerstein, made it my mission to get the flavor “E-cigars are for the traditional cigar president of Smoker’s Haven in profiles and the cigar experience as close smoker who can’t smoke in certain Metuchen, New Jersey. “I’ve heard that as possible. The hardest thing to imitate places, but it’s also for the vaping some retailers are doing extremely well in this business is cigar smoking, but I’ve consumer who might want to try a with e-cigars and if they are, God bless gotten it damn close.” cigar.” them. I’ve had one or two customers Like Vapor4Life, other e-cigar And so, as the e-cigar market refines ask about them, but I don’t have them manufacturers see a more macro picture and fine-tunes, it is getting second in my stores.” TBI for the electronic cigar market as it and third glances from retailers and moves forward. “It’s our feeling that customers alike. the entire electronic market is going to morph into pens and cigars and move e-Cigars aT iPCPr away from cigarettes,” Michael Pavesi, E-cigars and vaping items were a senior sales representative for e-cigar larger presence than usual at this July’s manufacturer CIGR8, tells TBI. “We annual International Premium Cigar consider the e-cigar just a specialized & Pipe Retailers Association expo. vaping product.” There were 25 percent more “electronic Claiming to provide retailers with smoking devices/e-liquids” listed in gross profit margins in the 52- to the 2014 exhibitor directory compared 60-percent range, CIGR8 has three with the 2013 directory. Plus, that e-cigar SKUs on the market currently: was just the pure electronic smoking a rechargeable maduro e-cigar with devices/e-liquid companies—several tank and charging cable for $48.88, a tobacco manufacturers exhibiting at the gift-boxed rechargeable maduro e-cigar show also now have electronic options with all of that plus a second cartridge available. and a 10ml bottle of maduro juice for Daughters & Ryan and M&R $88.88, and an 800-puff disposable Holdings are two cigar companies that maduro-flavored e-cigar for $12. These have branched out “electronically.” In are all new-generation products for the case of M&R, the company decided CIGR8, which reportedly redesigned its in January to provide an electronic

36 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 Focus on Filters

Here’s a primer on the types of filters available for pipes.

By Erik Stokkebye

he European pipe market varies filtered pipe market it’s probably smart filters in removing/reducing particles quite a bit in terms of the use to stock some pipes that accommodate from the smoke. Tof pipe filters. For example, filters as well as the filters themselves— Absorptive filters include the 6mm and most pipes in Germany have filters. especially considering that some of the 9mm Balsa filters used in some Savinelli In Denmark it’s the opposite, while in large drug store chains are dropping pipes, as well as maple filters used in England it’s a mixed bag. In the U.S. tobacco products. Here’s a look at the Brigham pipes. Both types of filters are one would think most pipes would be different types of filters available. effective in reducing the moisture level, sold without filters. That’s true for the Basically there are three forms of resulting in a drier smoking experience. premium market, but since pipe brands filters used in pipes today: pass-through Finally we have condenser pipe filters, such as Dr. Grabow comprise a large filters, absorptive filters and condensers. which are really not filters at all. The share of the pipe market, I would venture Pass-through filters include the 6mm condenser either fits into or is part of to say that about 40 percent or more of American version (used in Dr. Grabow the tenon of the stem. The condenser pipes sold in the U.S. are adaptable to and Medico) and the 9mm version used disrupts the airflow through the pipe and filter use. in Europe. Both usually use activated tends to cool the smoke flowing through Why bother with a filter in your charcoal in removing particulate matters the metal device. Any excess moisture pipe? Some say it makes the smoking from the visible part of the smoke and tends to condense around the device so experience less moist and means less hence can reduce tar, nicotine and excess as not to reach the tip of the pipe stem. use of pipe cleaners. Personally, I prefer moisture levels. At the same time, these Kaywoodie filter pipes use this system. not to use filtered pipes; I think it takes filters also reduce the flavor and taste of To filter or not to filter…the choice is away from the taste of the tobacco. the blend. The activated charcoal does yours. Nevertheless, given the size of the seem to be the most effective of all the Cheers. TBI

38 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 electricALLEY

Blu Aftermath

By Renée M. Covino

s it a new blu world for e-cigs? The merges, RAI spokesman David Howard If Imperial $27.4 billion intended big deal told CNBC recently. “Our approach is Imerger joining Reynolds American to remain focused on Vuse.” Tobacco lands (RAI) and Lorillard threw the industry Clearly, the decision was also made a curve ball when it divested off e-cig to help ease regulatory concerns about e-cig category category brand leader blu to Imperial a potential duopoly and allow the deal Tobacco Group. Some speculation on to go through. “Regulatory issues most brand leader merger rumors had previously been certainly were part of the conversation that RAI would become an e-cig regarding selling off blu,” Howard blu, how will it powerhouse with VUSE and blu, but said to CNBC. Industry analysts have the deal went a different way, leaving posited that Imperial only agreed to affect the tobacco analysts like Bonnie Herzog purchase the other brands in the deal— from Wells Fargo in New York City Kool, Winston, Maverick and Salem industry? and Philip Gorham from Morningstar brands—to get blu. in Amsterdam reportedly “surprised” Putting the strategic thinking that blu went to Imperial when the aside, the announcement that blu was merger was announced in mid-July. changing hands rocked the nascent “Bottom line, it was a business e-cigarette industry, leading to much decision” to retain Vuse as the sole e-cig speculation about how the transaction— brand sold by the company when it assuming it goes through—will affect

40 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 “As we anticipated, blu, as the category leader, will likely be pressured with the current national rollouts of MarkTen and Vuse, as well as from the robust growth in the personal vaporizer/VTM [vapor, tanks, mods] category.”

the dynamics of the e-cig/vape industry. NJOY is third with an approximate Overseas, blu is expected to strengthen 14-percent share. Imperial’s ability to compete in the Miguel Martin, president of Logic, European e-cig market according to told CNBC.com that he does not believe Ilana Elbim, an analyst in London who that blu’s change of ownership will affect was quoted in Bloomberg Businessweek. Logic’s sales. In the UK alone, the use of e-cigs has Trailing behind in fourth and fifth tripled in the past two years, reported a place is Reynolds’ VUSE (2.7 percent) study by anti-smoking lobby Action on and Altria’s MarkTen (1.5 percent), but Smoking and Health (ASH). those figures were calculated before the Here in the U.S., analysts and experts two brands expanded nationally. are speculating about all aspects of the According to Wells Fargo, there is newly combined No. 2 player (RAI), already indication that blu e-cig sales and now a new No. 3 player (Imperial), trends are decelerating rapidly. “As we including the e-cigarette fallout. anticipated, blu, as the category leader, According to recent Nielsen estimates, will likely be pressured with the current blu remains the category leader in national rollouts of MarkTen and Vuse, the convenience store channel with a as well as from the robust growth in the 44-percent dollar market share. Logic personal vaporizer/VTM [vapor, tanks, is No. 2 with about a 22-percent share; mods] category,” says Herzog.

41 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 electricALLEY

At press time, Vuse was available in the open vapor products developed about 21,000 retail locations with the by small, innovative companies who next distribution wave expected in early tend to exclusively carry only open September. vapor products, and she is concerned But regardless of which company owns about the fight Imperial now, along blu or which company is on top in the with the other big tobacco/traditional traditional e-cig world, there is a more e-cig players, will put up against pressing issue to consider as the industry open vapor. She says that big tobacco moves forward: the other, more rapidly companies who currently have only cig- growing side to the market. Based on its alike products “will use every competitive conversations with numerous retailers and regulatory means possible to squeeze across the country, Wells Fargo found out the little guys, the innovative guys, that many consumers tried traditional because those aren’t their products.” She e-cigs and, dissatisfied, either went back doesn’t expect big tobacco to lose market to combustible cigs or graduated to share to open system/vaping products personal vaporizer products. easily. “We think [that] this could be the first But the RAI/Lorillard merger leaves quarter that we start to really see the vapor RAI with more than just cig-alike Vuse in trend take hold and drive acceleration in its pocket. The deal additionally agreed in the combustible cig decline rate,” Herzog principle to a “joint technology-sharing says. “Retailers are starting to either initiative” to develop and commercialize discontinue or take shelf space away next-generation products such as heat- from disposable e-cigs to make room for not-burn cigarettes and vapor products. personal vaporizers given their attractive Wells Fargo reportedly is “optimistic” growth and margins.” that RAI CEO Susan Cameron will be Cynthia Cabrera, executive director able to lead the company into its “next of the Smoke-Free Alternatives generation of growth,” which includes Trade Association (SFATA), the evolution of Vuse and vaping represents cig-alike brands as well as products. TBI

42 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 Talking Tobacco With the TMA Highlights from the 99th annual meeting of the Tobacco Merchants Association

Deeming regulations were the focus at the Tobacco Merchants Association (TMA)’s 99th annual meeting in May. Speakers and attendees representing the full range of tobacco categories—large cigars, little cigars, pipe tobacco, e-cigarettes/vapor products and, of course, traditional cigarettes—debated the potential ramifications, compared notes on the substantial equivalence application process, and generally enjoyed the chance to exchange ideas and opportunities with industry peers. The pages to follow seek to capture the flavor of this informative industry event and offer helpful takeaways from the panel discussions and presentations.

DeemeD to Raise Questions Given the wide-ranging implications the PRoblem With PRemiums Among the many debates around of the proposal, the TMA meeting The cigar industry has long lobbied Food and Drug Administration (FDA) opened with a panel discussion on against lumping cigars, particularly regulation of tobacco products is whether how each of these four categories— premium cigars, in with other tobacco the various categories of products should large cigars, little cigars, pipe tobacco products, arguing that everything from be regulated on an individual basis or as and e-cigarettes/vapor products— how the products are made to how they a whole. Coming shortly on the heels would likely fare under the proposed are used distinguish them from cigarettes of the FDA’s April proposal to extend regulations. and other traditional tobacco products. At its tobacco authority to previously unregulated marketed products, the Tobacco Merchants Association’s annual meeting served as a forum for the industry to discuss the proposed rules and how the industry should respond. The proposal, which calls for the agency to extend its authority over all products that meet the statutory definition of a tobacco product, would bring e-cigarettes, cigars, pipe tobacco, nicotine gels, water pipe/hookah tobacco and dissolvables under the FDA’s regulatory umbrella. Manufacturers of those products would, among other requirements, need to register with the FDA and report product Mitch Zeller discusses the history of FDA Tobacco and ingredient listings, only market new regulation with fellow panelist AHEAD’s Scott Ballin tobacco products after FDA review, and not distribute free samples.

44 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 Attendees from e-Nicotine Technology SFATA’s Cynthia Cabrera with Philip Morris’s Moira Gilchrist and Shawnmarie TMA’s Michelle Parisi Maryand-Chung with Swedish Match’s Jim Solyst

the same time, regulators are concerned that number of cigars introduced to the market as both restrictions on cigarette smoking since 2007 and therefore needing to submit and taxes on cigarettes escalate, smokers applications to the FDA would overwhelm may opt to switch to cigars. regulators. Cigars account for just six percent of “We went through that with smokeless total tobacco sales, ’s Barry Schaevitz tobacco, which the FDA didn’t implement pointed out to TMA attendees, adding until 2011,” agreed Christopher Casey of that large cigars are less than one-half of 1 Swisher International. “With smokeless, percent of total tobacco sales. “That really the FDA received more than 3,000 amounts to a niche segment, and we applications in what was roughly a four- that the FDA looks at premium cigars in year period. Imagine how many they’ll get that context,” he asserted. with a 10-year window. You’re talking about As a category that thrives on limited thousands and thousands of applications.” releases and flavored products, it would face What’s more, the FDA has been enormous hurdles to meet any requirements notoriously slow to review applications,

Tobacco Associates’ Kirk and Linda Wayne demanding consistency in ingredients to added Scandinavian Tobacco’s Daniel gain pre-market FDA approval. “This may McGee, who notes that of thousands of be the biggest concern facing large cigars,” applications submitted, only 21 products noted Schaevitz. “It’s a direct threat to the have received approval under the FDA’s industry’s ability to get new products on the substantial equivalence requirements. shelf, making the process cumbersome, time “Looking at industry data, the three consuming and very expensive.” largest premium cigar manufacturers Currently, FDA requirements for have approximately 6,000 active SKUs in regulated tobacco products call for any circulation—each year you have between product introduced to the market after 600 and 700 new products come into the February 15, 2007 to go through one of market,” said McGee. “That means between two paths to be approved for sale—either 5,000 and 10,000 new applications.” being deemed substantially equivalent to an Due to factors like these, McGee existing product on the market or gaining expressed optimism that the FDA will come premarket authorization from the FDA. to recognize that different products need to “The biggest concern here is that the look- be regulated differently—even going so far as ’s Noah Steinsapir and back period for cigars would be almost 10 to suggest that premium cigars be regulated Specialty Tobacco Council’s Henry C. Roehmer years,” notes Schaevitz, noting that the sheer differently than their machine-made peers.

46 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 navigating substantial eQuivalenCe

Many in the industry have been grappling with the prospect of gaining FDA approval to market both new and existing products, and many more companies now expect to be facing that challenge under the agency’s proposed deeming regulations. Veterans of the process say that there is good reason for concern. “The FDA is increasing the rate at which they are rejecting incomplete applications (or submissions), yet we don’t know what constitutes a complete application because they have yet to tell us the criteria,” Lorillard Tobacco’s Neil Wilcox told the TMA meeting’s attendees. “We’ve asked in every way possible, but they will not answer the question.” Given that lack of detail, Wilcox recommends following what guidance there is vigilantly and including as much detail as possible. “Pretend you’re the reviewer looking at your own submission, and make sure that you’re communicating everything [that] they may want to know,” he suggests, adding that responses to any ensuing queries should be similarly thorough. “During the scientific review part of the process with Newport, we received an advice verification letter, or request for more information. We submitted an additional 3,000 pages to answer those questions and then had a two-hour phone call [with the FDA] a Founder and former pres- few months later.” ident of National Vapers Attention to detail is also important, noted Carl Ioos of Republic Group, who has Club, Spike Babaian giv- ing a presentation on the been through the process and had several products approved. “If you are new to this evolving technology of process or just getting ready, do it one product at a time,” he said, explaining that first- e-cigarettes and vaping time applicants will be able to apply their learnings to their future applications. “Be devices. careful to label the contents carefully—50,000 applications go into that one control center each year.” Finally, it’s important to be proactive. Don’t shy away from contacting the FDA about your application, noted Ben Haas, a partner with Latham & Watkins law firm. “If you get a letter [that] you don’t understand, pick up the phone and call the regulatory process manager. If you get nowhere with that project manager, you have the right to request the help of an ombudsman for the CTP.”

“I think it is important for the industry three-fourths of cigar smokers only smoke electronic tobacco category because the to consider what provisions of the rule occasionally, and some only smoke a few category did not exist prior to February 11, are appropriate and not appropriate for days a year,” he noted. “This difference 2007. cigars, handmade vs. machine-made,” he in frequency of exposure translates into “Trying to force these products into the said. “My company is hopeful that when lower disease risk.” Family Smoking Prevention and Tobacco the CTP does issue final regulations it Control Act regulations is like fitting a square takes these distinctions into consideration neW CategoRies, neW peg into a round hole,” noted Lou Ritter, and a reasonable regulation comes up PRoblems founder of the AEMSA, who pointed out that will treat the different types of cigars For manufacturers in the rapidly that the Tobacco Control Act was written differently.” growing e-cigarette and vaping market, and enacted without any consideration of Representing the little cigar category, the substantial equivalence approval path is products under development. Cheyenne International’s Ralph Brown particularly problematic. After all, as TBI’s Also of concern is that fact that many asserted that little cigars also should not own Ed O’Connor noted in this issue’s of the manufacturers of e-cigarette and be treated as cigarettes, even though they Publisher’s letter, no predicate product vapor category products are entrepreneurial are made by machine. “Cigarette smokers against which to verify new product ventures—far too small to undergo the smoke every day, in contrast as many as substantial equivalence even exists for the rigorous and prohibitively expensive FDA

48 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 The FDA’s Dr. Cathy Backinger with the National Center for Public Policy’s Jeff Stier

TMA’s Farrell Delman welcomes attendees [From Left] Attorney panelists Damon and Associates’s [From Left] Mitch Zeller discusses the history of FDA Phil Daman, Latham & Watkins’s Ben Haas, Alston Tobacco Regulation with fellow panelists AHEAD’s & Bird’s Marc Scheineson, Keller & Heckman’s Azim Scott Ballin, Steven C. Parrish of Steven Parrish Chowdhury and Venable LLP’s David Adams Consulting Group and Swedish Match’s Jim Solyst application process. “The record-keeping on e-sticks is like imposing it on cell regulations addressing each tobacco requirements along could preclude phones. How would you like to only segment. them from compliance,” noted Ritter. be able to use the cell phone models As Troutman Sanders’s Bryan Haynes “Regulating these products in the same available before 2007?” put it, “There is nothing in the Tobacco way as cigarettes would leave consumers Control Act that mandating that with a handful of cig-alike options.” enteR oPtion thRee the FDA regulate all these different “If substantial equivalence Given the complexity involved in products in the same way. Regarding requirements were imposed, innovation regulating across categories, many in e-cigarettes and vapor products, we would be stifled and only those with the industry expressed the hope or support prohibitions on sales to minors really deep pockets could survive,” expectation that the FDA would opt and we think that consumer knowing agreed Freedom Smokeless’s Glenn against a one-size-fits-all approach to what is in the products would be a good Kessel, speaking on behalf of SFATA. regulation. Rather than attempt to apply thing, as would ensuring a basic level “Approximately 98 percent of companies existing regulatory framework to cigars, of safety and efficacy. The FDA should currently in the industry would disappear, e-cigarettes and other categories, the treat the category as new technology taking wit them hundreds of thousands FDA, the industry and the legislators that presents a likely benefit relative to of jobs. Imposing substantial equivalence should start fresh and craft reasonable the other available products.” TBI

49 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 By Renée Covino

50 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 The roll-your-own segment is very much alive and well, especially for tobacco retailers who stayed a step ahead of the “big machine” government shutdown.

ong before the large RYO punches and stay a step ahead of machine business shot up to whatever blow might come next, then fame several years ago, there was responded with good merchandising, the DIY roll-your-own (RYO) customer service and an “always ready Ltobacco and tabletop accessories to diversify” attitude. segment. Many tobacco outlet retailers did very well with the category, which Very Visible edge offered smokers an alternative to the Butt Hut of America, based in increasingly costly branded cigarette Toledo, Ohio with six stores, is one such category. savvy tobacco outlet retailer, currently And even now, two years after a operating with about 70 percent of federal highway bill essentially killed its dollar volume in RYO according the large RYO machine business in the to Don Stienecker, vice president of summer of 2012, there is still a very operations. Butt Hut of America’s RYO lucrative business in at-home RYO. It edge is immediately apparent to its did not die with the large machines, and adult-only customers. “Most stores use certainly not for retailers who learned gondolas to merchandise. We don’t do to roll with the regulation and taxation gondolas, we do slot walls in our stores

51 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 and everything is organized cleanly dealing with small spaces, so I like the store. While they lasted, sales exceeded and inline—the RYO presentation open concept, whereby there are no expectations. hits them right when they walk in the gondolas in the middle of the floor— “We did extremely well with the door,” explains Stienecker. everything is lined up along the walls, machines; it ended up being half of our The RYO merchandising philosophy with the center of the store essentially business at its peak,” Stienecker tells for Butt Hutt of America is to let uncluttered.” Tobacco Business International. customers “see it, feel it and touch it,” as This successful merchandising But as the company followed the Stienecker puts it, keeping the tobacco appeal was a direct result of Butt tobacco talk and headlines closely, at eye level and arranging brand families Hut of America keeping ahead of Stienecker made an educated guess together. At its Bowling Green, Ohio the RYO curve ball. It followed the that the big machine business would store, this equates to 73 feet of slot wall large machine business closely and let be short-lived. “Nine months before space. Just under that, the tubes and “others test the waters first before we the highway bill put the coffin nails in, accessories are merchandised in black jumped on the bandwagon,” according we were looking beyond the machines cabinets “to complement the walls and to Stienecker. And indeed, four years and restructuring how we could keep floors—visually breaking them up,” he ago, the company bought six large RYO evolving,” he says. says. “Like most tobacco stores, we are RYO machines and placed one in every That’s where the remerchandising

52 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 of the at-home RYO business came families together to make it easier on (very loyal) employees at Butt Hut in. Here are the company’s top best our customers to shop the selection,” of America have tried the different practice strategies for the category, still Stienecker explains. brands of tobacco and thus are able very much in play: Get fresh with tobacco. “We are to provide customers with very good Roll out some clean line mer– known for fresh tobacco,” Stienecker product knowledge and flavor advice. chandising. Spinners and gondolas were says. “Everybody who works for us Stienecker himself subscribes to this eliminated while slot walls were brought is very conscious of rotating stock, sales prerequisite in an even more in to Butt Hut of America. The floors so we never have dry product. If five overarching way: “I won’t sell anything were redone and a visually appealing people get dry product, they each tell I haven’t personally tried,” he says. plan started to come together. 17 people and our business is gone.” Demonstrate the tabletops. Yes, Go wide on tobacco. Lines of Tobacco overstock is kept humidified at that’s right, Butt Hut of America tobacco were expanded at Butt Hut Butt Hut of America—in the Bowling employees show customers how to of America. “Most other tobacco Green store, which was previously a use the at-home rolling machines in- stores feature three to four brands; we bank, the walk-in humidor has history: store—legally, using shredded paper. carry 15 to 20 brands of both regular it was previously the bank’s vault. “They’re not using tobacco, which isn’t and pipe tobacco and we put brand Try the tobacco. Most of the allowed, but actually we have shredded

54 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 paper the same size and weight and cut of America rebuilding its RYO who really brought the people back as the tobacco, and they show them in different form even before the into our stores,” Steinecker says. “Our how to load it,” Stienecker relays. “They government bomb hit. “We were doing employees know everybody. They explain not to put too much tobacco the remodel at the end of the machine know their names and they called all in, and essentially all of the tips to get era. We knew what it was coming to of them, they know what each one them rolling at home.” and we wanted to stay one step ahead,” smokes, and they helped them switch Don’t be margin-hungry. “ To explains Stienecker. “We considered from the big machines to the little— survive in this business, we had to what strategy we would take if the they walked them through the steps for lower our prices and our margins,” says machines went away; we put a game doing it at home. It is our employees Stienecker. plan together.” who ultimately retained our RYO Get the ad word out. “We started The chain also relied on the customers.” advertising the remerchandised RYO customer service skills of its long-term in the local papers. We let people know employees to get customers back into still recouping we’re still here, and this is what we’re its stores. “Sure, we thought ahead So did Butt Hut of America recoup offering,” he adds. with our marketing and merchandising the RYO business it had when the All this tallied up to Butt Hut strategies, but it was our employees large machines were in play? Not quite:

56 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 “We’re still recouping,” Stienecker Kentucky enjoyed the big-guns, But it also noticed that some of its admits, adding that the company is large RYO machine business “while big machine RYO tobacco customers doing this by always staying open to it lasted,” according to Bill Grantz, then turned to filtered cigars when the diversifying. In the case of the lost owner and operator. “We had them in machines went away as an alternative RYO business, convenience items like about six [of 18] stores and it was a to paying the outrageous prices of a beer, wine and lottery were also brought very good money-maker for us because regular carton of cigarettes. Again, in recently as an added survival tactic. we offered something that nobody else Cox’s adjusted with product selection, “We set our business above-bar and in those areas offered. We became a recognizing that “we never really lost believe that 90 percent of why we’re still destination for RYO.” that big machine RYO customer, they in business is our customer service, our And when it went away, Cox’s quickly just went a different route,” according merchandising and our marketing— adjusted to the patterns its customers to Grantz. finding life in existing categories and took on. A majority did switch to But the trick to truly recouping the new ones,” says Stienecker. rolling at home with tabletop machines lost RYO business is to stay open to Like Butt Hut of America, Cox’s and tobacco, and the chain amped up new opportunities all around, believes Smokers Outlet in Louisville, selection and customer service. Grantz. The traditional RYO tobacco

58 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 and tubes business is alive and well one that took a slight hit according we’re not sure exactly where those and doing great business for the chain, to Randy Silverman, president of lost five customers are today,” he but it is part of a “great shot in the the 15-store chain based in New admits. arm” trio—as Grant classifies it— Castle, Pennsylvania. “For us, we Silverman speculates that perhaps along with eCigs and vapor products/ saw continuous declines when the some were lost to a few of the accessories. big machines were in business, and former large machine operators who Cox’s stayed a step ahead of the then when they went out, the decline successfully converted to tobacco big machine shutdown by continually stopped,” he tells TBI. “Now that retailers; others might have gone diversifying and evolving. Others decline has flattened out. We didn’t see to the dollar stores that now carry stayed a step ahead by never getting the rebound of what we lost entirely, tobacco products. involved in the first place. But that but it’s still a very good profit.” Regardless, “putting the brakes on had ramifications, too. Silverman elaborates that, the decline was the biggest thing for For Klafter’s, which never got into hypothetically, “if we were at 100 us,” he relays. Similar to the others, the RYO machine business despite customers a day prior to the machines RYO tobacco is alive and well in his considering it at one time, tabletop and we went down to 90 when they stores, as part of a constantly evolving RYO remains a strong category, albeit died, we are back up to 95 now. But mix. TBI

60 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 Premium Tobacco’s Bazaar Once again, the annual IPCPR show drew hundreds of attendees.

By Ed O’Connor

n July 19 to 23 the International by the attendees. More time spent Pipe and Cigar Premium shopping relates to more business being ORetailers converged in Las done. Better understanding requires Vegas to attend the 82nd IPCPR drilling down and listening to exhibitor show at the Sands Expo Center. The response. When asking, “How’s the exhibitor directory listed 473 exhibiting show?” in the heat of the activity, the companies, primarily from the premium truth requires a gut indicator. A Kenny cigar market. Pipe tobacco and tobacco Rodgers line is reminiscent: “Don’t accessories, plus a handful of electronic count your money while you’re sitting tobacco companies rounded out the at the table.” And many can’t or won’t mix. give a definitive answer. The show floor was sold-out, Overall, the show was another good stretching the limit of the Sands outing for the exhibitor community. As venue. This show’s industry support a small Miami-based cigar producer and and extensive exhibit floor—which marketer put it, “This is my best selling paralleled that of Tobacco Plus show in the many years I’ve exhibited.” Convenience Expo, the largest OTP- A medium-sized cigar company opined, only show—suggest that the tobacco “There’s nobody here, but I’m doing industry remains a vital and exciting business.” His booth was busy and place to hang one’s commercial hat, his staff was writing orders. Another despite its challenges and the FDA- tobacco company senior executive proposed additional regulations. dubbed it “a good show.” The president Having attended and observed the of a giant cigar company reported, “We IPCPR show for 20 years, I now expect always do well at this show. It serves complaints about attendance—or the to reinforce the relationships we have lack thereof. Due to the size of this established over many years.” market segment, 2,400 to 2,600 retail The IPCPR event plays to a tight company members, and the huge venue, cadre of premium tobacco exhibitors attendees get swallowed by the sheer and attendees. It’s not an exaggeration size of the event. Exhibit spaces range to suggest that everyone knows from single 10-foot-by-10-foot booths everyone there. More than just a trade to one that encompasses sixty 10-foot- show, it’s a happening family reunion. by-10-foot booths equivalent to two The difference here, if you’ve ever been large premium tobacco stores. While to a family reunion, is that everyone is perceived attendance is an indicator polite to one another and has a good of show vitality, an unaccounted for time. The IPCPR show, at 82, is still metric is the time spent shopping going strong. TBI

62 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 Mixing it Up with MiaMi Cigar

In July, Miami Cigar held its 25th anniversary celebration at the chic nightclub Hyde Bellagio. Guests enjoyed a variety of Miami cigars, lively music and cocktails, as well as a stunning view of the spectacular Bellagio water show from the club’s floor-to-ceiling windows. The event also celebrated a passing of the torch, with Nestor Miranda handing day-to-day operations to his son-in-law Jason Wood.

63 TOBACCO OUTLET BUSINESS SEPTEMBER/OCTOBER 2014 ExpLoring the possibiLitiEs By Jennifer Gelfand of pos

et’s face it—in this business, essential for this retail channel also make inventory control is everything. it difficult. In fact, most point-of-sale LHaving too much on hand (POS) systems simply can’t cope with means you’ve got far too much cash tied the challenges specific to tobacco retail— Created up in your stockroom. But if you have too which is how FasTrax came to be owned little, your customer just may walk out by a tobacco retail chain. for tobacco the door empty-handed—and may never “We looked at lots of other POS come back. systems, but nothing compared with the retailers by a “We never want to risk being out of one we were using at the time,” explains stock,” says Darren Schwartz, president Doug Nolan, vice president of Smokers tobacco retailer, of FasTrax and owner/operator Choice, recounting the company’s FasTrax offers of 56 Smokers Choice stores (see decision to buy an Alabama software Trench Marketing, p. 76). “Inventory company and launch a side business in much more management is huge in this business.” 2008. “Unfortunately, that company was While true for all retail businesses, going bankrupt, so we flew down and than inventory that assertion is particularly applicable to made the owner an offer he couldn’t stores that sell tobacco, operate on thin refuse.” management. margins, cater to extremely brand-loyal In the years since, Nolan and Schwartz customers, and carry products frequently worked diligently to enhance the system, targeted by thieves. But the same factors using their own stores to develop and that make inventory management fine-tune a robust database platform able

64 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 “Tailored to track inventory in real-time as they scanned at the register and inventory originally envisioned, plus much more. levels automatically adjusted as sales are for tobacco Tailored for tobacco stores, the system made. Owners and managers can see at a comes preconfigured with thousands and glance where they stand on stock levels stores, the thousands of channel-appropriate SKUs, and use handheld wireless devices to log which saves the store management from in purchase orders on receipt, spot-check system comes having to enter them all manually. “If inventory, and generate purchase orders they’re using another system, they can that will keep them in stock without the also transfer that information into our expense of carrying surplus inventory. preconfigured database,” adds Nolan. In fact, retailers can check inventory with thousands Once the system is in place, items are levels anytime, even during store hours, and thousands of channel- appropriate SKUs.”

65 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 “The reporting capabilities of the system help make sure that you get paid properly by manufacturers. Ninety percent of the POS systems out there don’t do and choose from a variety of options for need to sit there and enter them all in. buydowns properly.” creating purchase orders. For example, It’s a huge time savings.” a retailer may want to tailor inventory levels to historic monthly sales patterns, Perfect Pricing keeping a minimum of 10 days’ worth Prices can also be updated globally by of product on hand at the beginning of individual SKU or by brand—a function the month and eight in stock for the that is particularly helpful with buydowns remainder of the month. “The system and other price changes unique to tobacco will generate a suggested order, and products—at any time. “We are able to also show you the 52-week high and enter the date and time that a buydown your 52-week low sales figures for that should start and when it should end,” item so that you can choose to raise or explains Nolan. “The reporting capabilities lower the order amount based on that of the system help make sure that you get information,” says Nolan, who notes paid properly by manufacturers. Ninety that the system reduces paperwork percent of the POS systems out there don’t dramatically. “We communicate elec– do buydowns properly.” tronically with most wholesalers and FasTrax is able to handle tobacco- we’re able to send and receive orders so specific issues that some POS systems that if there are any changes, you don’t have difficulty with, such as reconciling

66 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 carton inventory and pack sales or boxes of crashes, you can put in a new hard drive, employees and curb theft. “Ninety percent premium cigars and individual cigar sales. connect to corporate and push all the sales of employees who steal do so by voiding, Retailers can also use the system to generate information back down into the system,” canceling or returning an item and taking reports on which products are selling well says Nolan. money out of the register,” explains Nolan. and which are not. In the case of multiple “We time-stamp those transactions and stores, the system can even be used to shift Leaving Loss Behind let you run a void-cancel-return (VCR) a product that isn’t moving in one location Efficient inventory management, by report that shows all of those transactions to a store where it’s selling well. nature, helps retailers recognize and curtail and the corresponding time stamp so For chains, prices can be adjusted theft. When there is an issue, being able you can look to see who was working the globally or, if a chain wants to tailor its to check inventory between shifts helps register and what customers were in the pricing to specific locations, by individual stores to identify those responsible. store.” That timesaving feature eliminates store. “All of your data is backed up at But FasTrax POS system has additional the need to sift through days of recorded the corporate office, so if a store system features geared toward monitoring security camera footage.

68 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 A built-in biometric fingerprint reader always ask people, ‘Can you put a price tag send email notifications.” feature helps ensure that employees on your time?’” he asks. “Because in time Going forward, the company plans don’t clock each other in or out. “We savings alone, it pays for itself.” to continue to evolve, notably by use fingerprint technology, so there is no FasTrax continually updates and adds adding a streamlined version of FasTrax more ‘buddy punching’ where someone new features to its systems, informing appropriate for single store retailers, says asks a friend to punch him [or her in or] customers via email about updates, Schwartz, who hopes to launch that out,” explains Nolan. which can be downloaded for free by product by year-end. There’s no denying that a POS system subscribers. “We have a virtual server “We believe we are delivering the is an investment. Retailers pay $2,000 per setup to push down updates regularly Ferrari of POS systems,” he says. “When register license to install the FasTrax system every 10-12 weeks, which is an automated someone looks at the work the system and $50 per license for unlimited support, process,” explains Nolan. “However, is doing for them, they quickly realize says Nolan, who notes that the capabilities when there is a large update requiring [that] it’s the best employee they will ever more than make up for the investment. “I the computer to be restarted, we then have.” tbi

69 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 C-STORE CORNER

Merger Mania Fuels Debate

By Jennifer Gelfand

The prospect etailers see the potential for negatives, including the possibility both positive and negative of a duopoly squeezing smaller of an Rdevelopments from the recently manufacturers and, as a result, cutting announced deal between RJR and retail cigarette margins even more. R.J. Reynolds/ Lorillard. Many feel that the industry C-store retailers also continue as a whole will benefit from having a to express enthusiasm about the Lorillard strong No. 2 contender competing with vapor/tanks/mods (VTMs) category, Altria, according to results of a retail despite a slowdown in the growth of merger is survey by Wells Fargo. Respondents e-cigarette sales. “The outlook remains representing more than 30,000 c-stores robust for the vapor category, [which getting mixed in the U.S. expressed the hope that is experiencing] 23 percent annual the merger will bring a more rational growth, with VTMs expected to reviews from pricing environment, as well as greater comprise 50 percent of the vapor mix resources and marketing support behind in c-stores versus 30 percent today,” c-store retailers. the emerging vapor category. wrote Bonnie Herzog, a senior analyst However, many also see potential in Wells Fargo’s tobacco division,

smokeless Category Volume Growth (Year-to-Year) Smokeless tobacco category volume continues to grow steadily in c-stores. 6%

5% 5% 5% 5% 5% 5% 5% 5% 5% 5%

4%

3%

2% % Volume Growth % Volume

1%

0% Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014

Actual Figures Estimated

70 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 C-STORE CORNER

e-Cigarettes vs. VTMs All c-store survey respondents report carrying e-cigarettes; 85 percent also carry VTMs.

100% 100% 85%

80%

60%

40% % Volume Growth % Volume

20% 15%

0% 0% 0% 0% Yes - Currently Carry No - But plan to carry in next 6 mo. No - No plans to carry

E-cigs VTMs

Changes in shelf space by Category E-cigarettes and vapors/tanks are still winners in the push for shelf space. 80% 72%

60% 56%

40% 31% 30% 26% 21% 20% 18% 18% 7% 7% 6% 5% 4% 4% 3% 2% 0% 1% 0% 0% 1% 1% 0%

% Volume Growth % Volume 0% -1% -1% -1% -1% -2% -2% -2% -5% -5% -5% -3% -7% -6% -20% Q1 - 2013 Q2 - 2013 Q3 - 2013 Q4 - 2013 Q1 - 2014 Q2 - 2014

Cigarettes Smokeless Snus Cigars E-cigs Vapors/Tanks

who sees new vapor brands launched today). We believe Vuse and MarkTen carrying VTMs and the remaining 15 by the larger manufacturers fueling could help re-accelerate e-cig category percent said that they plan to add them future growth. “Though most stores growth.” within six months—although some are have not gotten Vuse or MarkTen yet, More and more c-store retailers expressing concern that the market is these brands are expected to comprise are carrying VTMs in addition to saturated. “As new vapor shops open 20 percent of c-stores’ vapor mix in e-cigarettes. Approximately 85 percent and other retailers get in[to] the six months (up from seven percent of respondents reported already business, the small base of customers

72 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 C-STORE CORNER

e-Cigarette Brand expansion Companies/brands making the most progress in securing additional shelf space. 20% 18% 16% 14% 12% 10% 8% 6% % Respondents Who Said this % Respondents 4%

Brand Gained the Most Shelf Space in 2013 2% 17% 14% 10% 7% 7% 7% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 3% 0% blu eGo Real Faze haus Vuse Tryst Logic Lotus VaporX NuMark MarkTen JustJuice Seminole Criss Cross E-Generation 21st Century

are pushed all over,” said one c-store respondent. “There aren’t are Vape shops impacting C-stores’ e-Cigarette sales? enough users today to support the Most retailers see an impact now or expect one in the future. offering in the market.” 50% “There are way too many out 47% 46% there,” agreed another respondent. 45% “I am starting to see price reductions 42% 40% in the e-juice and components, so it will be interesting to see where 35% 35% it all leads.” 33% 33% 30% Overall, however, the category continues to inspire enthusiasm 25% with the majority of retailers 23% 21% 20% 19% surveyed expecting gross margins % of Respondents from vapor products to exceed that 15% of combustibles by 2018. As one c-store owner noted, “I think there 10% is [growing] consumer acceptance 5% on vaping. Unless the government changes things drastically, it will 0% Yes - Negative Impact No Impact No Impact Currently - But Expect continue to grow. If they tax it, how Negative Impact in Future they do so will determine what happens to this going forward. If consumers think it is better for Q4 2013 Q1 2014 Q2 2014 them or a less expensive option, I think you will have more people TBi Source: 2Q14 U.S. Tobacco Talk Retailer Survey, Wells Fargo trying it.”

74 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 By Jennifer Gelfand GoING GREEN KeyTag1’s Braun Barski shares five green marketing Tips for businesses.

o matter what 4. reward YoUr kind of business CUstomers Nyou run, there for Green are ways for you to run a PraCtiCes greener business and there are Get your customers to join also green marketing strategies you in the effort to go green. you can employ to spread those eco- You can encourage your customers friendly practices to others. Here are a by offering them a discount or coupon few ideas to get you started: brand. When it comes to choosing in exchange for bringing their own which products to purchase for reusable shopping bags and reusable 1. Conserve PaPer these purposes, you might want to cups or foregoing a bag at checkout. Your Instead of passing out paper flyers check out GreenSeal.org. Green Seal customers will notice that you’re doing and promotional materials, save paper empowers companies to create a more what you can for the planet and appreciate by sending email newsletters. You’ll sustainable world by helping them the opportunity to do their share. cut down on waste and litter, and your find green products and services. You business will benefit as well. After all, can find anything from writing paper 5. BUild a stronG soCial you never know where those paper flyers to construction materials to cleaning media PresenCe will end up, but with email marketing products and food packaging on their Social media is a great way to market you know exactly who your emails are website—and everything is green. your business—plus it’s safe for the going to, as well as who actually opens planet and economical for you. Creating and reads them. What’s more, you can 3. start an e-CommerCe site a business profile on Facebook, Twitter, include graphics, contests, links, articles Not all businesses sell their products Google+ and Pinterest is free and you and other material you would never be online but it is definitely a good place to start can use those services to keep customers able to fit on a single flyer. if you want your business to go green this and fans updated on the events of your year. By selling online, you are expanding business, new items, special promotions, 2. Use Green seal ProdUCts your customers from a local area to the contests, etc. It’s also a great way to The products you use at your entire country or even several countries. personally interact with your customers business may likely have your company When people can buy your products online and get feedback from them. logo and other information printed on they won’t have to drive to your store, which them in order to further promote your keeps pollutants out of the air. ­—Braun Barski is CEO of KeyTag1, LLC

75 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 trench marketing BY MICHAEL GELFAND

SmokerS ChoiCe: The Big 50 and Beyond

Despite an inhospitable home turf, this rock hill, new York-based chain now has more than 50 locations and counting.

he deck is very much stacked against Smokers Choice, and long Thas been. Its home state of New York has the highest tax on tobacco of any state ($4.35 per pack), as well as formidable property taxes and a high crime rate. Yet, the company has consistently managed to stay on a growth track since 2002—when Darren Schwartz took over what was then a 16-store chain. “A lot of people don’t understand how we’re growing in a market that doesn’t support growth and where it’s so difficult to trade in what we sell,” says Schwartz, whose recent purchase of a six-store chain brought his store count to 56 locations in New York and Pennsylvania. “Where people have a tough time, we thrive.” A big piece of that success puzzle is FasTrax, a point-of-sale system developed specifically for tobacco retail that enables

76 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 trench marketing

the chain to manage inventory in real-time. In fact, an early also improvised in many areas ranging from store design and version of FasTrax was such an integral component of Schwartz’s category management to employee training. Here are a few business as far back as 2008 that when the software company ways Schwartz stands out from his competition. that originally developed it began to flounder, he and his vice president, Doug Nolan, flew down to Alabama and bought it. GivinG Lottery a LittLe Love Since then, using their own stores as a test market, the duo has Most retailers view lottery as a traffic draw, and, accordingly, continually refined the system. relegate it to as little space as possible and a sign in the window. Today, the system enables the company to keep close tabs Not so with Smokers Choice. “We turned it into a whole on its inventory, create and process orders, manage existing category unto itself,” says Schwartz, who did his homework inventory, and curtail theft. Using handheld scanning devices, to make the most of the category. “I called New York Lottery district managers conduct complete inventories on each store and asked for the best store in New York with lottery and we during operating hours and reconcile those figures with sales really embraced it.” Once the store managed to control ticket records every three weeks—a paperless process that once theft—early on, it took a huge hit when an employee scratched involved handwritten record-keeping and employees working through a bunch of tickets and then burned through dozens after hours. more trying to win enough to pay off the first batch–it became “FasTrax gives us the ability to truly control our inventory, a big profit center. which is critical in this business,” says Schwartz. “Inventory is “You have to manage lottery daily,” says Schwartz. “Now we everything. You never want too much or too little, and you don’t have a reconciliation program on our computer and we do it want it walking out of the store.” (For more on FasTrax, see between every shift.” “Exploring the Possibilities of POS,” p. 64). While efficient and easy inventory management isa ContinuaL ConstruCtion cornerstone of Smokers Choice’s success, the company has With 50 stores to maintain and new locations to outfit each

78 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 trench marketing

year, Smokers Choice is able to justify a full-time construction crew, which, in turn, enables the company to continually update and evolve its stores. Busier stores are updated more frequently, notes Schwartz, who says the company is in the process of updating its look. “Our new look is more upscale with brick-red walls, cherry wood fixtures and tile floors,” he explains. “People like to be in an inviting environment.” Some larger highway Smokers Choice stores have drive- thrus that enable out-of-state customers to easily pick up a few cartons while in lower-tax Pennsylvania. But Schwartz has found that having restrooms available for customers draws clientele into the store and boosts sales of coffee, beverages and snacks. “Restrooms are huge,” he says. “We think about what our customers are looking for, and that’s something people who are traveling need and appreciate.” Hot for HookaHs Smokers Choice also excels at spotting and proactively responding to trends, as evidenced by the company’s relatively recent move into hookah lounges. It now has six Ha Ha Hookah lounges: five adjacent to existing stores and one freestanding location. “We’re in a lot of college towns now because freshman and sophomores are too young to go to places that serve alcohol and need somewhere to go,” explains Schwartz. “This offers them a place where they can hang out with friends and have coffee, tea or a snack.” Having the lounges also helps bring traffic through the retail stores and drives sales in the hookah category. In fact, some customers come from as far as 20 to 30 minutes away, notes “if a sales clerk asks Schwartz. All of the lounges feature marble tables, leather couches and every customer large screen televisions. One 3,000-square-foot lounge in Troy, New York even has a DJ and a dance floor. “We’re in the process who comes in, of changing the look and décor to make them more Middle Eastern-themed,” says Schwartz. “We’re adding tapestries and ‘Do you want a lottery ornate lamps. They’re not where I want them to be just yet but ticket?’ or ‘how about they’re on track to get there.” vyinG for vape a with that?’ Like many in the industry, Schwartz is embracing the you can add to the e-cigarette and vaping category with a store-within-a-store concept. The section occupies a prominent spot in the store bottom line.” and employees receive incentive pay for devices they sell, which is something the company also does with make-your-own (MYO) devices. “The idea is that if you sell them the device, they’ll come back regularly to buy the supplies for that device,” explains Schwartz. “It’s like selling an ink jet printer cheap and

80 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 trench marketing

making profit on the replacement cartridges.” Tackling the issue head-on could help on two fronts: employee Smokers Choice offers a full range of vaping products, retention and incremental sales. Once again, Schwartz decided including a line of its own Choice vape devices. It also plans to to look to the retail landscape for solutions, search out stores introduce its own brand of e-juice by year-end. that excel at motivating and retaining workers, and look for ways to emulate best practices. The company used that research enGaGinG empLoyees tHrouGH inCentives to develop a training process focusing on three imperatives: Next on Smokers Choice’s agenda is a revamped employee business processes, product knowledge and sales skills. training and incentive program. Most tobacco retail chains The program is still under development, but Schwartz struggle with employee retention and Smokers Choice is no envisions a more sophisticated sales training program that exception. After all, workers who are paid minimum wage tend incorporates role-playing and rewards employees for achieving not to be the most ambitious employees. In fact, they often sales goals. aren’t all that motivated to show up for work, let alone go the “If a sales clerk asks every customer who comes in, ‘Do extra mile. At a time when innovations in categories like vapor you want a lottery ticket?’ or ‘How about a lighter with that?’ products are coming fast and furious and consumers need more you can add to the bottom line,” he says. “We’re putting guidance than ever, employees who lack motivation and can’t suggestions like that right into the FasTrax POS system so demonstrate product knowledge are particularly problematic. it will prompt them to be more proactive. Ultimately, we’re “Turnover was high, and every time we got a new person we looking to develop partnerships with our employees, so that had to have two people on shifts until the new employee [was] they make minimum wage but have the potential to earn trained,” Schwartz comments. “It was very expensive.” significantly more money through incentives.” TBi

82 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 PRODUCT PROFILE SEPTEMBER/OCTOBER 2014

Buena Vista Is Back

MGM Cigars has announced the return of the Buena Vista brand cigars to the United States. In 2011, Buena Vista cigars made a buzz with a brief appearance on the U.S. cigar scene, with the Buena Vista Prominente receiving a 94 rating in Smoke Maga- zine and the Buena Vista Robusto ranking among Cigar Journal’s “60 Cigars That You Should Try.” But circumstances beyond the manufacturer’s control hindered development and the entire production of 200,000 cigars was stored in temperature and humidity-controlled cedar conditioning rooms until 2013. At that point, José E. Borges Batista, founding partner and current president of MGM Cigars, arrived in the United States with plans to press ahead with the MGM Cigars project. “The MGM Cigar[s] project and first brand [of] Buena Vista cigar[s] was nothing more than a dream in 2009,” says Borges. “It quickly caught flight only to be put to bed for a DjEEP’s short while. I am thankful to have relocated to the United States where I am free to forge ahead with our project. We look forward to re-introducing the Buena Vista cigar brand Merchandising Maven which pays homage to all who, through music and from one generation to another, Kretek International has announced have kept the Cuban traditions, values and joie de vivre alive.” the roll out of its new DjEEP 108-count Buena Vista Reserva 2008 is a well-balanced cigar of medium strength. It’s crafted combo merchandiser featuring new by Cuban master rollers, who expertly mix a filler of select tobacco, harvested in the award-winning Worn Denim . Dominican Republic and aged for two years (2008 to 2010), and then dress it with an The Worn Denim series of lighters elegant Habano 98 wrapper from Ecuador. These cigars have rested in cedar condition- features photo-images of the most ing rooms for three years surrounded by an optimal temperature and level of humidity. comfortable jeans on the planet from This process accents and balances the tobacco’s nuances, ensuring the connoisseur a one of the most dependable and durable lighters on the planet. The new DjEEP uniquely pleasurable experience. display will be a companion unit to The Buena Vista brand is presented in boxes of 10 units and comes in nine vitolas: DjEEP’s popular Marilyn Monroe combo Prominente (7x49), Sublime (6.3x54), Piramide (6.3x52), Doble Robusto (5.5x52), Ro- display (DPPPD5), which also carries busto (5.3x54), Corona Larga (4.8x50), Corona (5.1x46), Petit (4.9x52), Short popular Classic and Chrome Luxury Churchill (4.3x54) MGM Cigars, MGMCigars.com designs. All DjEEP lighters have proper DOT and HAZMAT certification. Kretek International, 800-358-8100, salesinfo@ kretek.com.

D&R Expands E-Cigs

Daughters & Ryan has introduced five new electronic cigarettes and five new elec- tronic hookahs under its most popular brand names. The e-cig introductions include Cockstrong (robust, black paper and tip, 28mg), Ramback (bold, cork tip, 24mg), Rowland (full, cork tip, 18mg), Windsail (smooth, white tip, 11mg) and Wingate Men- thol (cool, cork tip, 18mg). The e-hookahs are the company’s Dr. Shisha brand, avail- able in nicotine-free cherry, chocolate, grape, mint and strawberry. All 10 styles are disposable and last for around 500 puffs. The soft tip and 100mm length make them extremely comfortable to draw from. Daughters & Ryan, 919-284-2058, [email protected] 84 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 PRODUCT PROFILE SEPTEMBER/OCTOBER 2014

A.J. Fernandez’s Brand New World

A.J. Fernandez Cigars recently un- Daughters & Ryan veiled New World, a value brand puro created by A.J. Fernandez and his fa- Miami Cigar & Introduces TE-Liquids ther, Ismael Fernandez, who recently joined the company after retiring from Company to Distribute Daughters & Ryan has debuted five 17 years with the Plasencia family. Hfbarcelona new e-liquids based on D&R’s most The cigar’s name pays homage to the popular tobacco brands and 14 new discovery of the “mystical smoking Miami Cigar will become the official ex- flavored e-liquids under its Dr. Shisha leaf” by Europeans when their ships clusive distributor of Hfbarcelona in the brand. D&R e-liquid strengths include landed in what was then called the United States this summer. Hfbarcelona Cockstrong (28mg), Ramback (24mg), “New World,” explains A.J. Fernandez. is a Spain-based company that offers a Rowland (18mg), Windsail (11mg), and “The team at A.J. Fernandez Cigars is wide array of sleek and stylish humidors, Wingate Menthol (0mg). The Wingate grateful for the amazing support we lighters, cutters and other cigar accesso- Menthol e-liquid can be mixed with any have received from the consumer[s] ries. Hfbarcelona products are known for of the other e-liquids for a custom men- and therefore will offer the New World their distinct luxury appearance and are thol blend. Dr. Shisha e-liquids are all Cigar at a value price as we invite ev- designed specifically for the consumer nicotine-free and available in 14 popu- eryone to join us on our New World who is looking to add a unique touch to lar flavors: grape, cherry, strawberry, journey.“ their collection. banana, raspberry, orange, blueberry, The New World blend is an elegant The distribution arrangement will peach, watermelon, mango, vanilla, box-press cigar adorned with a cigar debuted at this year’s International Pre- clove, chocolate, and coffee. Dr. Shisha band that depicts the Europeans landing mium Cigar & Pipe Retailers Association and D&R e-liquids can be combined on the shores of the New World. As with show where Miami Cigar introduced the together in the vaporizer to create per- every A.J. Fernandez cigar brand, New following Hfbarcelona products: sonal e-liquid fusion blends, with or World is a carefully handcrafted cigar • Three travel humidors: three-, five- without nicotine. All 19 D&R and Dr. blended under strict supervision of the and 10-count, Shisha e-liquids are manufactured in company in its Estelí, Nicaragua factory. • Two tabletop humidors: a 100-count the U.S. and are available in 10ml bot- A medium- to full-bodied cigar, the and a 150-count, and tles, with 12 bottles in a box. New World is composed of a Jalapa • Three cigar accessories including “We worked very hard to create our Valley binder and a filler blend of Viso an , dual-blade cutter and single e-liquids with exceptional flavor, ap- Ometepe, Condega Ligero and Esteli- torch lighter. pearance, and value price,” says Mark Finca Soledad Ligero. At a suggested “We take pride in providing our cus- Ryan of D&R. “Our combination of retail price of $6, New World Cigars tomers with top-quality premium cigars,” brand recognition and range of flavors are packaged in a 21-count box and says Jason Wood, vice president of Mi- and nicotine will appeal to every con- come in four sizes: Navegante (5.5x5 ami Cigar. “It only makes sense to extend sumer and enhance the profitability for Robusto), Almirante (5.5x55 Belicoso), to those same customers a flight of top- every retailer.” Gobernador (6.5x55 Toro) and Virrey shelf quality cigar humidors and acces- Daughters & Ryan, 919-284-2058, (6x58 Gordo). A.J. Fernandez, ajfer- sories. We are honored to welcome them [email protected] nandezcigars.com into the Miami Cigar & Company family.”

86 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 PRODUCT PROFILE SEPTEMBER/OCTOBER 2014

D&R Debuts Kits

Daughters & Ryan (D&R) has introduced three new vaporizer kits: the D&R EGO kit, the D&R Queen kit and the D&R King kit. The EGO kit comes with two 650mAh rechargeable batteries, two clearomizers, wall and USB chargers, a needle bottle and an instruction manual. The EGO is available with five different color batter- ies: satin chrome, black, white, blue and pink. The King and Queen kits include two 900mAh rechargeable batteries, two clearomizers, wall and USB chargers, a needle bottle and an instruction manual. The Queen is available with five different designer A New Generation color battery covers. The King is available with five different stylish metal and black battery covers. Phillips & King International and Erik Stok- D&R also has countertop displays available for all three vaporizer kits and ac- kebye have announced the launch of a cessories at special discount pricing. “We worked very hard to develop premium new 4th Generation pipe tobacco blend— vaporizers at a value price. Our combination of brand recognition and range of the 1982 Centennial Blend. “The 1982 vaporizers, e-liquids and accessories will appeal to every vape consumer and en- Centennial Blend celebrates our family’s hance the profitability for every retailer,” says Mark Ryan, owner of Daughters & 100-year anniversary in the tobacco busi- Ryan, who notes that each kit comes packaged in a reusable, high quality, attractive ness,” says Erik Stokkebye, who describes storage box. the 1982 as a slow-burning mixture com- Daughters & Ryan has a complete line of accessories to complement the sales of prised of golden Virginias, sweet and soft the King, Queen and EGO vaporizers. Replacement CE5 clearomizers are available mild Black Cavendish, light Burleys, and in four colors (blue, blended with small plugs of navy flake red, black and clear), and the new bottom fill CE7 clearomizers are available in to ease the burning. “French vanilla and seven colors (clear, black, red, blue, purple, yellow and green). Four select colors Blackberry top dressing is added as a final of premium neck lanyards are available (blue, red, black and white) and D&R has step, creating an outstanding room note seven colors of replacement mouth tips in stock (blue, red, green, yellow, purple, and a distinctive taste experience.” black and white). Suction-cup tabletop stands are available in Blue, Red, Green, The 1982 Centennial Blend is available Pink and White, and sturdy, hard-shell, zippered cases are available in blue, red in 1.40-ounce tins—a new size also being yellow, green, pink and black. All of D&R’s vaporizer accessories are interchange- offered in the 1957, 1897 and 1855 blends able between the King, Queen and EGO. Daughters & Ryan, 919-284-2058, gloria@ along with a wire rack display. Phillips & daughtersandryan.com King International, pkcigar.com

88 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 PRODUCT PROFILE SEPTEMBER/OCTOBER 2014

Sindicato Announces Photo Contest

On July 1, Sindicato Cigars began ac- cepting entries to its Perfect Pair Photo Contest. The company is in search of the perfect photograph of the perfect pairing between the new Sindicato cigar and something equally as amazing. The company is encouraging cigar lovers everywhere to post their photos on social me- dia channels with the hashtag #ThePerfectPair and a mention of @SindicatoCigars. Sindicato will award a box of their new flagship cigar, the Sindicato, to one win- ner each week for 16 weeks. Those 16 finalists will then be entered to win a 5-day, New Voodoo 4-night trip to Nicaragua including visits to multiple tobacco fields and factories where Sindicato cigars are sprouted, harvested, aged and rolled. Merchandisers To enter, visit sindicatocigars.com/promotions for details and official contest rules.

Moorpark, California-based Kretek Inter- national has announced a new series of Voodoo acrylic displays and pre-packed merchandisers, with choices ranging from a complete line of pre-packed six- count e-liquid and disposable e-vapor- izer display cartons to 74-count and 144-count permanent acrylic Voodoo merchandisers with up to 17 different SKUs of e-liquids, e-pens, and acces- sories. A 12-count refillable acrylic cube of Voodoo disposable e-hookahs is also Premium From available. Roberto P. Duran As the vaporizer section expands in mainstream channels, the Voodoo brand offers high-visibility leadership that Roberto P. Duran Premium Cigars has introduced a new grows sales. For example, E-vaporizer super premium blend: the Roberto P. Duran Cigar Brand. purchases add an average of $18 per The introduction follows the company’s release of the retail transaction. Pre-packed in six-pack Azan line of cigars at the 2013 IPCPR trade show, which counter displays that allow retailers to included the Burgundy, Premium White and Maduro show maximum flavors in minimum of Natural. The Roberto P. Duran Cigar is a super premium space, Voodoo disposable e-vaporizers cigar that pays homage to Duran’s family and his fam- offer around 800 puffs. Voodoo 10 mg e- ily’s city of origin in Cuba. liquids are also available in space-saving The Roberto P. Duran Cigar comes in four sizes: six-packs in 12 blendable flavors. Larger • The Rio Toa (5x52), named for the biggest river in Cuba at the heart acrylic displays can carry a custom as- of Baracoa, sortment of flavors and personal vapor- • La Punta ( 6x54 torpedo), a name that refers to the fort of “La Punta,” izer items. a symbol of Baracoa built in 1802, Each Voodoo e-pen and disposable • Tainos (6x56), an ode to the Tainos, or the natives of Baracoa before e-vaporizer is powered by a SuperLast the arrival of Colon, and Lithium-Ion battery, featuring an auto- • Cacique Guama (6x60), named for a Tainos chief from Baracoa who matic shutoff. Kretek International, 800- was a great fighter against the Spanish occupation. 358-8100, [email protected]. Roberto P. Duran Premium Cigars, Robertodurancigars.com

90 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 PRODUCT PROFILE SEPTEMBER/OCTOBER 2014

Charlie’s Choice: Captiva

Respected in the cigar-making industry for nearly 100 years, Toraño Family Cigar Com- pany’s Charlie Toraño has unveiled the first cigar under his own name: Charlie Toraño Captiva. Arango Goes Gold “Captiva, which is a very small island off the coast of southwest Florida, is my favorite The long-popular “CAO Gold” blend of place in the entire world,” explains Charlie cigars has joined the other benchmark Toraño, who represents the fourth generation premium cigars in Arango Cigar Co.’s in the Toraño tobacco family. “Every year I Clasico series of private label brands, all plan a summer family trip there which serves of which are exclusive to Arango and are as my getaway from the everyday [life]. It sold only to brick and mortar shops. CAO takes me back to the true essence of cigars. Gold Clasico is made by General Cigar I am able to smoke and simply relax as I feel Company usingsimilar , wrap- the pressures of life dissipate with every puff. pers and binders to those in the regular- I am able to reflect, count my blessings and market CAO Gold. The Clasicos bear the original CAO signature band with recharge my batteries. The Captiva cigar is a its iconic entwined “CAO” initials and box art. very elegant and flavorful cigar which repre- CAO Gold Clasico frontmarks, like those of the other Clasico lines, pay sents the slow rhythms of the Island.” tribute to notable Chicago areas: Mag Mile (5.5x44), Windy City (5x50), The Captiva cigar features a beautiful oily Bucktown (6.125x52, Belicoso) and Gold Coast (6x60). The cigars are pre- Ecuadorian wrapper and Nicaraguan fillers. sented in space-saving Spanish cedar boxes of 15 cellophane-wrapped The cigar is medium- to full-bodied, with cigars. notes of coffee, chocolate and sweet pep- All Clasico Series cigars come in Natural wrappers only. The wrapper pery spice. Captiva will retail between $7.95 is a tawny Ecuadorian-grown Connecticut Shade Leaf. Both the filler and and $8.95, and will come in four sizes: Ro- binder are made of Nicaraguan tobaccos, entubado-bunched for even, busto (5x52), Toro (6x50), Churchill (7x47), plug-free smoking. and BFC (6x60). Toraño Family Cigar Com- Suggested retail prices for Arango CAO Gold Clasicos range from $4.75 pany, torano.com to $6.70. Arango Cigar, 800-222-4427

92 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014 PRODUCT PROFILE SEPTEMBER/OCTOBER 2014

Sparking Cig2O Distribution

Spark Industries has announced that its popular Cig2O brand of premium electronic cigarettes, refills and e-liquids has joined its Vapage brand of JM’s New Nicaraguan specialty e-vapor products as the exclusive source for Cig2O sales to the industry. JM Tobacco has debuted a new premium cigar, “Cig2O and Vapage were developed together as complementary product JM’s Nicaraguan. The cigar, which features lines, with Cig2O being the bread-and-butter e-cigarettes and Vapage being handmade Cuban sandwich construction, is e-vapor and e-liquid,” says Spencer Thompson, president of Spark Indus- available in Sumatra and Maduro wrappers. tries. “Now they are available from one source, the manufacturer—some- Its name is derived from an all-Nicaraguan thing many of our wholesale customers have been asking for.” filler, and the binder is a maduro-fermented Spark Industries launched the Cig2O brand in early 2009 through smoke Connecticut broadleaf. The medium-bodied shops, convenience stores and other wholesale distributors. Spark owns all Nicaraguan delivers a creamy-smooth smoke trademark and patents pending and has pioneered and developed unique with hints of nuts and chocolate. technology and product features that helped establish the brand in product Anto Mahroukian, president of JM Tobacco, reliability, flavors, packaging and other merchandising items. Spark’s UPC describes the Nicaraguan as a “sweet smoke codes, item codes, unit and shipper metrics for Cig2O will be the same, and with a flavor and body tailored to the three-to- continue to be carried on all products for customer convenience. four-a-day smoker. The Nicaraguan’s [suggest- “At this point in our business, we feel that the best way to continue our ed] price tag is no deterrent at less than $3.” growth is to have direct relationships with the wholesalers and retailers that The cigar is available in the same eight sell Cig2O,” explains Thompson. “We can service them better, offer them shapes as all other JM value-priced cigars, more focused, results-oriented marketing and promotional initiatives, and from 5.5x42 Corona to 6.75x62 Gordo Grande. respond more quickly to market changes and product developments. Many Like all JM selections, the Nicaraguan comes of our existing customers have sought out a closer relationship with Spark, punch-cut and 50 cigars to a box, except for as the manufacturer and owner of Cig2O and we are looking forward to the large-girth Gordos–their boxes hold 24. building those bonds.” Spark Industries, 800-280-8089, www.cig2o.com JM Tobacco, 888-377-2667, jmtobacco.com

93 TOBACCO BUSINESS INTERNATIONAL SEPTEMBER/OCTOBER 2014