Rolling With It

Given all the people who’ve quit smoking cigarettes and the rising cost of online cigarettes in an already tough economy, it’s surprising to see businesses opening throughout South Florida with names such as Miami Smokes, Cigarette Station, Ciggy Mart and Tobacco Factory. These new stores, which offer an alternative to smokers tired of forking over $66 for a carton of cigarettes, allow customers to make their own cigarettes store for as little as $19 for the equivalent of a carton.

Cigarette manufacturers must obtain a license and pay hefty fees and taxes, including a federal excise tax of $1.01 per pack of cigarettes. But those people who make buy cigarette online for personal use are not, for tax purposes, considered manufacturers. The shops opening in South Florida and around the nation help smokers take advantage of that personal-use exemption. Their customers can make discount cigarette online using a hand-cranked device that takes 90 minutes to produce the equivalent of a carton; an electric tabletop machine estimated to take up to 35 minutes; and RYO Machine Rental’s RYO Filling Station. This last machine weighs more than 700 pounds and can churn out 200 cigarettes online in eight minutes. The owners of Golden Smokes in Hollywood and Flat Out Smokes in Fort Lauderdale claim their stores will soon open with machines that work twice as fast as RYO Filling Stations.

These stores plan to sell tobacco, cigarette tubes and smoking cigarettes accessories, and to offer verbal instructions on how to operate the machines. “We, as a retailer, are not allowed to put the tobacco in the machine or touch the tubes,” says Rick Stevens, of Golden Smokes. “It’s completely up to the customer.”

Stevens will use a chart to replicate a customer’s favorite brand of cigarette. “If they smoke cigarettes Marlboro Light but want it a little more bold, we can adjust that,” he says. “So I’m looking at it more like a connoisseur.”

He says the tobacco is grown in America and free of chemicals, additives and the steep federal tax that was levied on “roll-your-own tobacco” two years ago. Before the passage of the Children’s Health Insurance Program Reauthorization Act (CHIPRA) of 2009, the federal excise tax on a pack of discount cigarettes was 39 cents, and roll-your-own and pipe tobacco were taxed $1.09 per pound. But the act increased the per-pack federal excise tax to $1.01 and raised the tax on roll-your-own tobacco to $24.78 a pound. The tax on pipe tobacco went up to $2.83-per-pound. The Alcohol and Tobacco Tax and Trade Bureau (TTB) acknowledges that the disparity between the two tax rates created a reason for people to use pipe tobacco rather ?than roll-your-own when making their own cigarettes. The agency also has noted that no regulatory standard, other than some statutory definitions, differentiates the two products.

Pipe tobacco has become the key ingredient at shops that are appearing in South Florida at roughly the same rate as Wells Fargo bank buildings. The Wall Street Journal reported that in the 14 months following the federal tax placed on rolling tobacco, pipe tobacco sales in the United States tripled.

While many smokers appear to love the shops, tobacco companies, anti-smoking cigarettes proponents and government officials are less receptive to them. In Arkansas, the shops prompted a law that banned the use of in-store commercial rolling machines starting in 2012. And in September 2010, the TTB announced that retail establishments using commercial cigarettemaking machines would be considered manufacturers under the Internal Revenue Code. By that time, David Rienzo, the assistant attorney general of New Hampshire, had sued two roll-your-own shops, arguing that companies using commercial rolling machines — some of which he said are marketed as “typically providing a whopping 300 percent return on investment in the first year” — are profiting from cheap cigarette online being made in their stores, and therefore are manufacturers subject to fees and taxes.

Phil Accordino, an owner of the Ohio-based RYO Machine Rental, which claims to have more than 1,000 RYO Filling Station machines in 35 states, including Florida, has argued that allowing customers to use such machines does not make a shop owner a manufacturer any more than a grocery store becomes a coffee manufacturer by letting customers grind beans. Accordino contested the TTB’s ruling and was granted a preliminary injunction allowing stores using his machines to continue operating — at least for now. After Michigan’s Treasury Department subsequently advised 300 shops that it considered them to be manufacturers, RYO sought and won another preliminary injunction in an Ohio court. That decision is reportedly being appealed in the Sixth Circuit Court of Appeals in Cincinnati.

As legal matters surrounding rolling machines continue wending through the courts, the TTB is evaluating how to distinguish pipe tobacco from roll-your-own and has stated that its findings may lead to new rule proposals. Meanwhile, the roll-your-own smoke cigarettes shop trend marches on. Smokers want cheaper cigarettes for sale and more alternatives, and people who provide a means for them to achieve that goal stand to profit.

Ciggy Mart, which opened last month in Palmetto Bay and soon will open another store in Miami, invites customers to “avoid paying federal manufacturing excise taxes” by making cigarettes for sale from a variety of “all-natural and chemical-free tobacco” from the fields of North Carolina. General manager Scott Acker says customers can produce cartons using three options that take anywhere from eight to 90 minutes to complete and cost from $19.90 to $27.90.

Cigarette Station, which opened stores in Hialeah and Homestead and is planning six more, also offers several options, including the RYO Filling Station. Josh Gimelstein, who owns the business with his two brothers, says their father was a cigar and cigarette manufacturer and that their 86-year-old grandmother still works daily at Zelick’s Tobacco Corporation, her store on Lincoln Road in Miami Beach.

Roll-your-own shops are as much about offering natural tobacco as they are about affordability, says Gimelstein, whose prices begin at $21.99 a carton. “You’re going back to an era when people rolled their own, before they started adding horrible chemicals to their tobacco,” he says. In addition to pipe tobacco, Gimelstein plans to sell certified organic tobacco.

While he acknowledges that cigarettes for sale are unhealthy, he says his goal is to allow customers to choose the best possible tobacco within their budgets. He says the concept has been warmly received, and the Hialeah store is selling more than 30 cartons a day just seven weeks after opening.

Stevens, of Golden Smokes, says he and partners Same Yorlendis and Tim Foran, all of whom work together at a Fort Lauderdale company that sells marine-waste-management systems, are anxious to open their shop. So is their co-worker Bill Demler, who will open Flat Out Smokes with partner Colleen Shobert.

These co-workers became interested in the roll-your-own concept after their general manager opened a store in Washington state. Within six weeks, Stevens says, the store was selling 65 cartons a day. Stevens and his partners approached RYO Smoke Smart about purchasing a $5,000 territory and two $25,000 rolling machines. Stevens says the $5,000 will ensure RYO Smoke Smart will not sell another machine in his territory, which he says is about five square miles. Demler and Shobert struck a similar deal and have decorated their shop with a Key West-style theme. Both shops planned to open in early June. But the machines have yet to arrive from RYO Smoke Smart, which Stevens says has experienced “manufacturing delay after manufacturing delay.”

Corey Fischer, the president and CEO of RYO Smoke Smart, didn’t return City Link’s phone calls, but Golden Smokes and Flat Out Smokes are scheduled to open Sept. 5. “Our machines are to be delivered the week prior,” Stevens says. “We’re keeping our fingers crossed.”

Jonathan Silva, the manager of Tobacco Factory, doesn’t need superfast machines at his shop in a Pompano Beach strip mall. The former signmaker owns several electric tabletop devices estimated to produce a carton’s worth of cigarettes for sale in 20 minutes. Customers load the tobacco, insert a tube, push a button, hear a whir, remove their cigarette, and repeat the process until they’re finished. In addition to tobacco and cigarette tubes, Silva plans to stock hookahs, cigars, packaged cigarettes, rolling papers and other smoking cigarettes needs. He’ll also sell coffee and bowls of yuca soup from an old family recipe.

His Fresh Choice machines don’t promise a carton in four minutes, or even eight, but they also weren’t a $25,000 investment. Fresh Choice sells its machines for $499; Silva sells them for only a dollar more. “They’re household items,” he says. “You can put them in a house, buy the tobacco from us and roll your own.”

Charging $2.83 a pack and $18.87 a carton, Silva isn’t worried about competition from stores that use faster machines. “I tell everybody, ‘We have more time than money nowadays,’ ” he says. “If it’s going to take a little longer, and you’re gonna save the money you have, it’s a big deal.”

By using Fresh Choice machines, Silva’s business may escape the federal scrutiny faced by his competitors, who are wondering how long they’ll be able to keep things rolling. It seems their ability to continue connecting smokers with a faster means to make less-expensive cigarettes for sale will be decided by the courts.

Flat Out Smokes’ Demler says he initially was concerned about potential rulings, but after conducting some research, he felt confident enough to venture into the business. “Something might come along down the road,” he says. “But what it is, I think, is, 'Just get into the business, try to make your money and if it happens, it happens.’ ”