Tuesday, September 20, 2011

Cigarette Smokers Halve Costs

Mother and daughter smoke cigarettes a carton of online cigarettes between them each week, but Jeannetta and Shondra Maxie of Holly Hill aren't paying for Marlboros any more.

They've found a cheaper way to smoke cigarettes by rolling their own at a local business. While name brands cost more than $50 a carton, they pay almost half -- $25.99.

The Let It Roll shop is part of a national trend among smokers looking to escape high-dollar prices on cigarettes. More than 1,000 similar shops using RYO Machine Rental LLC machines have opened in 35 states over the past three years, including ones in Volusia and Flagler counties, according to the company's website.

But a ruling by a federal agency that these businesses fall under the regulations for manufacturing could cloud their future. A federal lawsuit by the RYO company has delayed enforcement of the ruling and store owners predict the suit will take years to settle.

For the Maxies, the best part, they say: "It's cheaper." The two women make a once-a-week trip to the year-old shop at 701 Ridgewood Ave.

They buy loose pipe tobacco, similar in blend to their favorite brand name, and dump the rough-cut leaves into a filling station. They load paper tubes, which are part of the bargain price, and wait for their buy cigarettes to pop out into a carton-shaped plastic-tub -- at a few dozen a minute.

"The drawback is doing it yourself, and they only guarantee you get 190 cigarettes," said Jeannetta Maxie, 41, who comes from a family of six siblings, all of whom are smokers except one.

Commercial cartons have 200 cigarettes.

"It's not worth worrying about the difference," because most of the time she gets nearly 200, she said. Additionally, she chooses rolled cheap cigarette online that weigh 1.5 grams, denser than commercial brands, which contain less than 1 gram of tobacco. "They last longer," she said of the roll-your-own cigarettes.

Two soccer dads in St. Petersburg, whose careers hit the skids when the economy sank a few years ago, own the Holly Hill business and four more retail shops in Orange City, Sanford, Gainesville and Altamonte Springs as part of their franchise territories of Volusia, Seminole and Alachua counties.

Rich Boensch, 40, a former stock trader, and Jay Goldberg, 45, a former mortgage banker, were brainstorming business ideas when they learned about the hand-rolling machines.

They said they are having phenomenal success -- with an average of 1,000 customers each week at each location.

"The tax difference between pipe buy cigarette online and cigarette tobacco" accounts for the savings, Boensch said.

"Cigarette cut is taxed at $24.78 per pound and pipe cut at $2.83," he said. "Tobacco leaves for discount cigarettes are cut four times; for pipes, three times."

Congress in 2009 sharply raised the federal excise tax on rolling cigarettes for sale to help pay for the expansion of a children's health-insurance program supported by President Barack Obama, according to a Wall Street Journal story in August 2010. That led to more use of pipe tobacco, creating a tax loophole that cost the U.S. government more than $345 million in the first 15 months of the tax increase, the newspaper reported.

In September 2010, the U.S. Department of the Treasury, Alcohol and Tobacco Tax and Trade Bureau ruled the machines constitute manufacturing. That ruling could make it impossible for the continued operation of roll-your-own shops.

But about two months later, the Ohio manufacturers RYO Machine Rental sued the Treasury Department in federal court there. And by December, the company, which has a patent pending on the machines, won an injunction in the dispute.

Neither Boensch nor Goldberg is concerned about the intervention by the federal government and the pending lawsuit.

"It'll take years to settle," Boensch said. "It's compared to industries like a laundry-mat or a make-your-own brewery."

Bea Gonzalez, spokeswoman for RYO, which has been in operation since 2008, said the company's position is "the industry believes that the federal definition of a 'manufacturer' makes it clear that RYO retailers are not manufacturers."

The company contends the cigarettes online are clearly for personal use as the machines are too slow to produce mass quantities for public sale, and the machines lack any capability to package or label any packages required of manufacturers.

In Florida, the Department of Business and Professional Regulation, Division of Alcoholic Beverages and Tobacco, regulates the establishments but only requires a retail operator's business license, said Beth Frady, spokeswoman.

"Florida's state definition of tobacco manufacturer incorporates the federal definition," Frady said, and the state is monitoring the lawsuit. "At this point, there is nothing more required by state law (than a business license)."

The Florida Department of Business and Professional Regulation website mentions the litigation and cautions that "each situation may vary" when people apply to open one of the shops.

The roll-your-own shops try to buy as many products locally as possible for their business, such as signs, logo shirt and auxiliary products like lighters, Boensch said.

Their general manager for all five stores is Jason Szurgot, 25, of Port Orange, a Spruce Creek High School graduate. Szurgot said he was waiting on tables and started as a part-time worker at Let It Roll but now said he is drawing a $40,000 salary.

"It's fascinating to see the machines work," said Rose Schuhmacher, executive director of Holly Hill Chamber of Commerce. The owners joined the chamber more than a year ago, before they opened, she said.

Another similar store in Edgewater, Pam's Tobacco Road, owned by Pamela and Mike Fiello, operates with the same roll-your-own machines.

Boensch said that store was opened before he and his partner bought the Volusia County franchise. It is allowed to remain, and Boensch can't open any new shops within five miles of Pam's.

The owners of Pam's Tobacco Road wouldn't comment. But a customer there said a draw for her, beside the cheap price, is the paper tubes do not contain fire retardant chemicals that are found in commercial cigarettes.

Unlike commercially produced cigarettes, which must carry explicit warnings about the dangers of smoking cigarettes, roll-your-own cheap cigarettes do not come with any health warnings.

A Flagler County franchise in Palm Coast, Smuggler's Tobacco, 110 Flagler Plaza Drive, has a roll-your-own setup and one customer there said it's always busy.

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