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Nov./Dec.
2000

TRENDS AND TRENDSETTERS IN SPECIALTY TOBACCO RETAILING

Court Upholds California's Proposition 10 Tobacco Tax;
Industry Vows Appeal

SAN DIEGO, CA - A San Diego Superior Court judge has rejected a broad legal challenge that sought to halt the collection of tobacco taxes under Proposition 10, the 1998 initiative that substantially raised California OTP and cigarette taxes to fund early childhood development programs across the state.

A coalition of tobacco sellers, including the California Association of Retail Tobacconists (C.A.R.T.), had argued that the measure championed by actor-director Rob Reiner improperly linked two separate issues: tobacco taxes and children's health. Judge Ronald Prager ruled, however, that there was a credible link between the two since children are hurt both by second-hand smoke and tobacco use by expectant mothers.

Some $700 million a year generated by the tax is being distributed to a state commission and 58 county commissions to establish a range of programs benefiting children.

The plaintiff's main goal had been to "establish the fact that these county commissions and the state commission really operate outside the government and that they effectively have written the legislature, the governor and our elected representatives out of the process of spending almost a billion dollars a year and that as taxpayers that is something we should be worried about."

The judge also rejected arguments that the proposition created an illegal double tax on non-cigarette tobacco products, that money had been wasted, and that the tax should be considered a property tax, among others.

Judge Prager noted that California voters had the opportunity in 1999 to overturn Prop. 10 with a counter measure, Prop. 28, but rejected the measure by an overwhelming 72 percent.

Charles J. Janigian, president of CART, said the ruling by no means signalled the end of the fight, and that Prop 10 opponents in the industry remain optimistic. An appeal of the case is planned.


Vegas Cigar Dealers Sue State Over Tax Dispute
LAS VEGAS, NV - Four Las Vegas wholesale and retail cigar dealers are suing the Nevada Department of Taxation, alleging it is incorrectly taxing them. Malecon Tobacco LLC (Freyboys), Sowle & Associates Inc., D&S Enterprises Inc., and Churchill's Tobacco Inc. claimed in Clark County District Court lawsuit that they buy the majority of their tobacco products from unlicensed out-of-state wholesalers. They allege that state's taxation method isn't constitutional because it isn't based on the wholesale price the pay as required by law.

Nevada law defines the wholesale price as the established price for which a manufacturer sells a product made from tobacco, other than cigarettes, to a wholesale dealer before any discount or other reduction is made. But the Taxation Department allegedly demanded that the tax be measured by the full invoice price for tobacco products purchased from out-of-state wholesalers, the suit said.

"The tax is based on a price higher than the wholesale price because the products have gone through several middlemen before they reach the Nevada wholesale dealers," plaintiffs attorney John Bartlett said.

The defendant's attorney has not commented on the allegations.


Nat Sherman to Re-Launch Website
Joins E*Trade in Co-Marketing Agreement

NEW YORK, NY - Redscope, which is redesigning the Nat Sherman cigar company's website, has announced that Nat Sherman and E*Trade will use 40-year-old pre-Castro Cuban cigars to lure visitors to their sites as part of a co-marketing agreement.

Investors will be given $100,000 worth of play money to invest on E*Trade. Nat Sherman will link to E*Trade while the promotion is running. The wisest investor will win the cigars, and the winner will be announced on tax day - April 15, 2001.

Nat Sherman plans to reach out to customers with e-mail and direct mail to raise awareness about the promotion, which begins in Decemberwhen Redscope completes the design of the website, www.natsherman.com. Nat Sherman's award-winning e-commerce website has not been operable since March due to hosting issues.


Havana Republic Joins Harrah's New Orleans
NEW ORLEANS, LA - Havana Republic Inc. has formed a joint venture with JCC Casino Company to open a Havana Republic retail store on the floor of Harrah's New Orleans Casino. Under the terms of the agreement, Havana Republic will design the retail space, manage the retail component and the floor coverage, and will assume responsibility for day-to-day operations. JCC will provide space on the casino floor, build out the space as designed, and share equally in the cost of inventory and systems. "In keeping with our growth strategy," commented Stephen Schatzman, president of Havana Republic, "the new Havana Republic Harrah's location could produce at least a million dollars per year in sales and is expected to be profitable beginning with its first quarter of operation."


Robusto's Marks 5th Year with Expansion, Grand Reopening
BELLEVILLE, IL - Robusto's smoke shop, in a Belleville, Ill., recently marked its fifth anniversary and an expansion with an October Grand Re-Opening. The week-long event, which included give-aways, contests, and raffles, was not only a celebration of the St. Louis, Missouri-area store's first five years, but also of its recent growth, which has included the addition of fine liquors, wines, and imported beers and the creation of the Conversation Lounge, a place to gather, relax, and enjoy a good cigar.


Brown & Williamson to Sell Direct to Consumer
Files Suit Against New York State over Internet Sales Ban

LOUISVILLE, KY - Brown & Williamson, the third largest cigarette manufacturer in the U.S., has announce plans to sell cigarettes directly to consumers vial mail order, telephone, and, eventually, the Internet. The company said the plans were in response to limited shelf space at U.S. retailers that is driving retailers to carry only the most popular cigarette brands.

The tobacco maker intends to market its less popular brands - including Carlton, Tareyton, and Raleigh - through a subsidiary called BWT Direct, LLC.

Following on the heels of this announcement, the company filed suit in Manhattan federal court to overturn a New York state law banning the sale of cigarettes in the Internet. The suit alleges that the law - which makes it a crime to ship or transport cigarettes sold via mail order, telephone, or the Internet to New York residents - is an "unconstitutional interference with commerce." The statute, signed in August by Governor George Pataki, is the first of its kind in the country.

"The Constitution prohibits any one state from regulating avenues of national commerce such as the Internet, the U.S. mails, and interstate shipping," said David Remes, an attorney representing B&W.

B&W's direct selling program will launch first in California, Kentucky, Florida, Georgia, Michigan, North Carolina,Texas, Oregon and Massachusetts, and will expand to other states later.



SMOKESHOP - December 2000