Altria and Anti-Smokers Aim to Close Roll-Your-Own Shops

Roll-your-own Machines

Todd Ridge stopped smoking Camel Lights last year after taxes pushed the price to $4.60 a pack. Now he makes his own cigarettes at the Liberty Tobacco store in Archdale, North Carolina , cutting his habit’s cost in half.

Roll-your-own Machines

Roll-your-own machine

Over the past 4 1/2 years, mom and pops have installed more than 1,900 roll-your-own cigarette machines in 42 states, according to RYO Machines, which makes them. Taking advantage of a loophole in federal tax laws, some retailers are selling tobacco labeled as the pipe variety, which is taxed less, even though it often winds up in cigarettes.

Liggett Group says it’s losing sales to the roll-your-own upstarts. The discount tobacco maker and Altria Group Inc. (MO) are fighting alongside health advocates — after decades at odds — to press Congress and the Food and Drug Administration to equalize tax payments on various forms of tobacco and to enforce the same health rules imposed on major producers.

“Tobacco is tobacco,” Liggett Chief Executive Officer Ron Bernstein said in an interview at the company’s headquarters in Morrisville, North Carolina. “All we want is a level playing field.”

The US in 2009 boosted taxes on a carton of cigarettes to $10.07 from $3.90 and raised levies on an equivalent amount of roll-your-own cigarette tobacco to $10.07 from 45 cents. Makers of pipe tobacco won a smaller increase — to $1.15 from 45 cents — by convincing Congress that sharply higher taxes would “demolish” them, said Craig Williamson, president of the Washington-based Pipe Tobacco Council. The tax disparity led some small processors to start mislabeling their product as pipe tobacco, he said.

Tax Revenue

The US has lost $1.3 billion in tax revenue from mislabeled pipe tobacco since 2009, according to Liggett, owned by Miami-based Vector Group Ltd. (VGR) Shipments by Altria’s Philip Morris USA sank 4 percent last year compared with a 3.3 percent drop in 2008.

The US government loses $9.36 in tax revenue for every carton of roll-your-own cigarettes filled with pipe tobacco, according to Richmond, Virginia-based Altria, which makes one of every two cigarettes sold in America. The company’s Marlboro is the top-selling US cigarette brand.

The cheaper prices encourage consumers who otherwise would quit or cut back to keep smoking cigarettes that carry no health warnings, said the Campaign for Tobacco-Free Kids.

The US Senate sided with Big Tobacco two weeks ago, passing a $109 billion highway appropriations bill with an amendment that would classify tobacco shops with roll-your-own machines as tobacco manufacturers. That means cigarettes made in roll-your-own machines would be taxed at the same rate as Marlboros and Camels.

Pipe Tobacco

While the amendment would help solve the issue of roll- your-own machines in stores, “smokers would still be able to buy the cheap, lower-tax pipe tobacco and roll their own cigarettes at home,” said Vince Willmore, a spokesman for the Campaign for Tobacco-Free Kids in Washington. The group agrees with Liggett that loose tobacco and cigarettes should be taxed equally.

Declaring retailers to be manufacturers “would put us out of business,” said Josh Justice, 25, owner of the Liberty Tobacco in Archdale and a second location in nearby High Point. He estimated the machines in his stores have cranked out 7 million cigarettes since opening almost a year and a half ago.

“It’s another effort to put the small man out,” said Ridge, 46, as he returned to Liberty Tobacco last week for a week’s supply for him and his wife, Angie. Ridge pays about $9.95 for the tobacco, $2.52 for 200 tubes and $9.19 to rent the machine.

“The cost is half and they taste good,” Ridge said.

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