Retailer Wary of RYO-Machine Rules

'Manufacturer' permit would be unmanageable

Published in CSP Daily News

FALL RIVER, Mass. -- Charlie Saliby and his family, who own Guimond Farms in Fall River, are fighting a cigarette war of sorts--one that hasn’t officially started in Massachusetts but is hovering on the horizon, according to a report in the Herald-News.

When the Salibys’ store began struggling a few years ago, they expanded its offering by obtaining a beer and wine license. Two years ago, the store added a full alcohol license. The family also owns a laundromat next door.

One of its largest investments came recently in the form of two high-tech “roll-your-own” cigarette machines that allow smokers essentially to buy less-expensive pipe tobacco and cigarette rolling papers, and rent the machine. The investment cost $32,500 for each machine, Saliby said.

“When the price of cigarette packs went up,” Saliby told the newspaper, “customers started buying loose tobacco rolling tubes and rolling their own cigarettes at home.”

Then the federal tax on cigarettes increased from 39 cents to $1.01 a pack. And Massachusetts’ taxes jumped $1 to $2.51 in 2009, making it one of the highest-taxing states, according to the report.

Meanwhile, 8-ounce packages of pipe tobacco are taxed at a fraction of cigarette tobacco packs the past two years, according to published reports.

Saliby sells those products, including machines that roll individual cigarettes for $40 to $50.

For the person needing to roll a pack or two daily, that can take a long time, typically upwards of two hours to roll the 10 packs that come in a carton.

Using the RYO machines that are available at 1,700 retail outlets and 40 states across the nation, a customer can produce 200 machine-rolled cigarettes in 10 to 15 minutes, Saliby said.

At about $3 for 20 cigarettes, the number in a pack, it’s less than half of what most manufactured cigarettes cost, Saliby said.

But Saliby has reason to fear the word “manufacture,” based upon what regulators are doing in other states and overtures from the Massachusetts attorney general’s office and federal initiatives.

“They’re trying to say people using the machines are manufacturers,” Saliby told the newspaper. He emphasized that customers operate the store’s RYO machine as they would at home using smaller, personal, roll-your-own machines.

Retailers like him and marketers and lawyers involved with the RYO machines have been gearing up for battle over the past couple of years.

According to Bryan Haynes, attorney for RYO Machines in Richmond, Va., the U.S. Tobacco Tax and Trade Bureau of the Treasury Department issued a significant ruling on Sept. 30, 2010.

“They said any business offering these machines in a retail store for consumers to produce their own cigarettes, they have to obtain a permit … in order to allow consumers to rent the machines,” Haynes told the newspaper.

It would be the same costly permit a manufacturer such as Philip Morris or R.J. Reynolds needs to obtain.

In late 2010, lawyers for RYO Machine obtained a temporary restraining order, then an injunction, in Girard, Ohio, stopping the federal mandate, Haynes said.

Still, Haynes said there have been court cases in a half-dozen states, one in New Hampshire that went to the Supreme Court and favored the state being able to collect cigarette taxes on an RYO machine owner.

“The machines are becoming more and more popular,” Saliby said.

He said at his store, open seven days a week, there are 25 to 35 customers daily, more on weekends, using the machines. He’s added a couple of employees, bolstered by increased tobacco and other sales, he said.

“I got these machines to give my customers an alternative to rolling their own cigarettes at home,” he said.

Keywords: 
cigarettes