Tobacco-rolling Business

Two of four cigarette-rolling machines rumbled in a Lakewood strip mall, spewing out thin tubes of cigarettes like a slot machine paying a jackpot.

ChrisE Foley sat in front of one of the devices, scooping up cheap cigarettes and putting them in a carton-sized box.

"I've been coming here since they started in April. It's way cheaper," said Foley, a Golden hairdresser. "It's bad enough that we smoke, but this doesn't have the chemicals — it's fresher."

Roll With It, 6469 W. Colfax Ave., near Casa Bonita restaurant, sells bulk buy cigarettes for $7.51 per 8 ounces and 200 empty cigarette tubes for $2.24. Customers then rent the rolling machines for $15.24.

Total cost: $26.96, which includes $1.97 in sales taxes.

Cartons of packaged cigarettes online cost about $45 at several metro-area stores.

Partners Matt Ryan and Rick Saunders said they set out to make some money and to help customers save as well.

"This is nothing new. People have been rolling their own cheap cigarette online for years — at home, in liquor stores or tobacco shops," Ryan said. "The only thing that is different is the machine rental, which makes it easier and quicker."

Now they are concerned that their investment, three-year lease and nine jobs would be in jeopardy if the state demands taxes they don't believe they are liable for, forcing them to close. The uncertainty has shelved plans to open up four more metro-area stores.

In a July 29 letter, the Colorado Department of Revenue said Ryan and Saunders could face criminal and civil penalties, including 25 cents per cigarette.

Colorado law states: "A business that provides for the use of an automatic roll-your-own cigarette machine on its premises . . . is deemed a manufacturer of cigarettes," the department said.

The definition is part of the Master Tobacco Settlement, a 1998 agreement that most states signed with major tobacco companies to settle state lawsuits seeking to recover the costs of treating Medicaid patients who smoke.

The Revenue Department said in correspondence that Roll With It must be certified as a manufacturer, obtain a cigarette-distributors license and pay into an escrow account required by the Master Tobacco Settlement.

"Now that we were considered manufacturers of cigarettes, we needed licenses to bring in untaxed tobacco and we must (tax) 'stamp' the packs," Ryan said. "We contacted the state and told them we don't sell cigarettes, we don't sell untaxed tobacco and we don't sell packs."

They haven't heard anything since.

Revenue Department spokesman Mark Couch said he couldn't comment on an individual case. The attorney general's office said it is looking into how Roll With It fits into the master settlement.

Roll With It is one of about 1,000 stores with the rolling machines in 35 states, said Phil Accordino, whose Ohio-based RYO Machine Rental makes the devices.

Accordino filed a lawsuit a year ago challenging a federal government ruling that such stores are tobacco manufacturers. The case is now before the 6th U.S. Circuit Court of Appeals. No hearing has been set.

"You go into a grocery store and grind your own coffee beans," Accordino said, "but that doesn't make the store a manufacturer of coffee."