Tobacco Shops Offering Customers Automated Cigarette-Making Machines

At least four roll-your-own discount cigarette online shops that offer premium cigarettes store at half the price of a carton of brand-name cheap cigarettes have opened around the state in the past year. Customers save money by rolling their own online cigarettes on an automatic cigarette-rolling machine that produces 200 cigarettes in about eight minutes.

Typically, customers pay about $40 for 8 ounces of loose tobacco, 200 hollow cigarette tubes and the use of the machine. Employees tell customers how to operate the computerized rolling machines.

"We just talk the customers through the process," said Michael Horak, general manager of the Tobacco Place in Wethersfield, which has two of the machines. Tobacco Place opened two weeks ago.

The machine, which costs about $40,000, automatically fills each tube with cigarettes online and then ejects the finished cigarette into a collection bin, an eight-minute process that produces the equivalent of a carton of buy cigarettes —10 packs of 20.

But state officials say operating the machines without a cigarette manufacturer's license is illegal.

In August, Attorney General George Jepsen, on behalf of Kevin B. Sullivan, state commissioner of revenue services, filed a lawsuit in Superior Court in Hartford against Tracey's Smoke Shop and Tobacco LLC for illegally manufacturing cheap cigarette online at its two stores in Norwalk and Orange.

Tracey Scalzi, the stores' owner, said she owns four of the machines at the two stores, which opened about a year ago.

The Department of Revenue Services claims the machines are commercial cigarette-making machines and retailers who operate them must obtain a cigarette-manufacturing license and pay the associated fees and tariffs, including Connecticut's cigarette tax, which adds $3.40 to a pack of cigarettes.

"We don't see ourselves as manufacturers; the customers make them themselves," Horak said.

The attorney general's office would not comment on the lawsuit because the matter is pending, awaiting the court's decision.

If the court finds in the agency's favor, those who continue to operate the machines could face potential arrest, hefty fines and loss of their existing cigarettes sales licenses, DRS spokeswoman Sarah Kaufman said.

Despite the pending lawsuit, two tobacco shops that offer customers the use of the machines have opened in Bristol and Wethersfield.

Store owners say the machines are roll-your-own devices that only produce enough cigarettes for personal use.

"You can go next door to the gas station and buy tobacco. You can buy the [cigarette] tubes, and you can buy the roll-your-own machines — I sell a couple models here, a $49 machine and an $8 machine. The only difference is my machine is bigger," said Michael Hatzisavvas, who opened Big Cat's Smoke Shop in Bristol seven weeks ago.

"We don't do the manufacturing. I don't touch the machine," Hatzisavvas said. Like the other stores, Big Cat's four employees tell customers how to operate the machines.

Hatzisavvas, a former restaurant owner, said he's aware of the lawsuit, but decided to open a store anyway.

"I am worried. It crosses my mind that they'll shut me down. But how can they do this? I thought this was a state that liked small business," Hatzisavvas said. "Why would they want to shut a business that's providing work for local people?"

The machines, made by RYO Machine LLC, a Cincinnati company, began appearing making a few years ago. Bryan Haynes, an attorney representing the company, which was founded in 2008, said RYO's machines are not in the same league as commercial cigarette-making equipment.

"The advanced machines used by companies like Philip Morris and R.J. Reynolds will produce 20,000 cigarettes in a minute," said Haynes, a partner at Atlanta-based Troutman Sanders LLP.

"We're talking about horses and buggies vs. fighter jets."

Wisconsin and Michigan have filed lawsuits similar to Connecticut's, claiming that the product is a commercial cigarette-making machine and its use requires a cigarette-manufacturing license.

New Hampshire's Supreme Court and the Alaska's Superior Court have found that using the machine constitutes cigarette manufacturing, "regardless of … who loads the machine and presses the 'start' button," according to court documents cited by Connecticut officials.

A federal appeal filed by the Alcohol and Tobacco Tax and Trade Bureau is under consideration in a U.S. District Court in Ohio to decide whether RYO's equipment should be classified as a commercial cigarette-making machines. A spokesman for the agency would not comment on the matter because "it is in court right now."

"There are now 1,700 of our RYO Filling Stations in 40 states," said Phil Accordino, the company's chief executive.

"We are providing a more convenient service to our customers that have either been rolling their own cigarettes at home for years or have found us to be a less expensive alternative to other larger brands," Accordino said.

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Pocono Smoke Shops

The two cigarette-making machines incessantly click and clank as they crank out a nicotine addict's dream: A carton of smokes for $24.99 plus tax.

The operators of Tobacco King and Smokes 2 Go have two machines in each of the shops here, and are planning to open two more stores in the community by the end of the year, with as many as six more machines. The rapid expansion and investment — each machine costs $35,000 — have been fed by an inundation of customers eager to save a buck.

The machine debuted in Matamoras in late June, a year after the company installed one in Honesdale. The manufacturer, RYO Machine Rental LLC of Ohio, has distributed more than 1,000 machines in 35 states.

It's not unusual, said Derrick Gordon, sales manager, for customers to line up for waits of two hours on weekends. Two more machines are to be installed today at the Smokes 2 Go store in East Stroudsburg.

The reason for the popularity is dollars and cents.

The cheapest cartons in New York state can be $80. Cartons go for around $70 in Pennsylvania.

Pennsylvania does not tax loose tobacco, unlike packaged products. The only package that the machine-made cigs come in is a clear plastic freezer bag, into which the finished smokes shoot from the bottom of the contraption. Patrons can buy colorful plastic cigarette cases for $2.

"It's the price," Bill Gilmore of Middletown, N.Y., a retired MTA bus operator, said of what prompted his 20-mile Monday morning jaunt. "Even if they didn't have the machine, I'd come here. Taxes on gas, taxes on cigarettes, taxes on everything are less in Pennsylvania. I love Pennsylvania. I just happen to live in New York."

Rosalie Scioscio and Cynthia Everson, both of Milford and co-workers at a healthcare facility, were also stocking up.

"Maybe go on a vacation, or a better vacation," Everson said of her savings.

The machines are fed loose cigarettes online and paper through openings on top and at the front. Customers load them and click three buttons to start the process. Gordon, the sales manager, shows the customers what to do, and then stands back.

"Employees can't make the cigarettes, or else they'd be manufacturers," said Eddie Miles, the marketing director. "The customers make the cigarettes."

It's a distinction that has been disputed by federal authorities who want retailers to pay manufacturing taxes. The machine-maker and an Ohio retail store sued last year after the government sought to close stores hosting the machines. The case is ongoing.

New York has no problem with its citizens journeying to the Keystone State for tobacco. If they buy no more than two cartons, a use tax would not apply, said Ed Walsh, spokesman for the Department of Taxation and Finance.

States like Pennsylvania are waiting for the outcome of the federal lawsuit before making any decisions about the machines, said Elizabeth Brassell, spokeswoman for the Department of Revenue. She said there were more than 100 machines in the state as of January.

"In New York state, a carton sells for $100, and we can't afford to smoke cigarettes at those prices," Betty Wilchek of Chester, N.Y., said as she waited to make two cartons. "Me and my neighbors, we all come here. It's worth the 29 miles."

Wilchek said she enjoys smoking cigarettes, and that the machine "makes it harder to stop. We haven't seen these prices in eight years."

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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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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.’ ”

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