Republic Powers Up With Its New PoweRoll

Republic Powers Up With Its New PoweRoll
MARCH/APRIL 2014
VOLUME 17 NUMBER 2
n
Will the FDA make fine-cut, or blasting
legislation on electronic cigarettes?
The category is heating up with
these and other debates
as experts weigh
in from all
angles.
Highlights From the
TPC Show in Vegas
Cigar Sense:
Tips From the Top
J.C. Tobacco Mart’s RYO Story
PUBLISHER’S LETTER
BY ed o’connor
Are You Ready
for Vapor World Expo?
V
apor World Expo is a business-to-business show
that will be held May 7-8, 2014 at the Rosemont
Convention Center in Rosemont, Illinois, an incorporated city proximate to Chicago, with its own mayor and
political system.
Electronic cigarettes and related vapor devices have
reached the tipping point. Having passed through the fad
stage, the market is trending substantially higher and rapidly becoming a tobacco behemoth­­—innovative, unique
and capturing enormous consumer appeal. All the evidence from recent studies suggests low to no continuum
of health risks from vapor products compared to traditional
cigarettes. What’s more, the American Etiquette E-cigarette
Survey of more than 1,000 individuals, commissioned by
Mistic Electronic Cigarettes, found that 63 percent of respondents did not object to the use of electronic cigarettes
in their vicinity.
Lightning market growth poses complex questions. Answers to today’s product, regulatory and distribution issues lag consumer demand for all vapor products, likely to
be the case for the next three to five years as the industry
sorts through the Gordian market knot. Product safety, science-based regulation, store layout, dedicated shelf space,
wholesale distribution, advertising, capital planning, human
resource allocation, world supply and competitive positioning number are among the major concerns facing this nascent category. All this coupled with now-evident product
fragmentation—specifically, differentiation between the
traditional e-cigarette and, as TMA’s Farrell Delman characterizes, the “$/puff” advantage of personal or “tank style”
vaporizers.
The goal of Vapor World Expo is threefold:
1. Gather electronic medium exhibitors and suppliers at
the Vapor World Expo.
2. Bring buyers, wholesalers, manufacturers and retailers from convenience stores, drug and supermarket chains,
and the outlet store communities to consider, evaluate and
make purchasing decisions to support their electronic marketing strategies for the upcoming months.
3. Identify and attract the most knowledgeable market—
product and regulatory specialists—bringing perspective
and direction to burning marketplace issues through seminars, roundtables and attendee collaboration.
The Vapor World Expo vision for long-term electronic
product development and market success needs to evolve
as a “grand bargain” among all stakeholders. Vapor World
Expo seeks to set the stage for innovation, product safety,
harm reduction, education and market profitability. In the
same spirit as the TPC Expo, Vapor World Expo offers a big
tent approach to the market, believing an open source forum presenting alternative, and at times, conflicting points of
view allows the market to competitively sort and develop in
such a way as to foster safe products, consumer satisfaction
and profitable supply. The fact that not everyone agrees with
this philosophy gives evidence to the potential for conflict.
The Rosemont Convention Center is located proximate
to Chicago’s O’Hare International Airport. Superior accommodations and restaurants support an excellent centrally
located venue for the Vapor World event.
Vapor World is a must attend for marketers, distributors
and retailers who have a committed stake in the electronic
cigarette phenomena.
See you at Vapor World Expo!
4
TOBACCO BUSINESS
MARCH/APRIL 2014
INSIDE
THIS ISSUE
CIGAR SENSE
Mastering the Cigar Sale: 15 Top Tips 28
Two tobacco outlet retailers and two cigar retailers share their latest and
greatest to help you move more stogies.
FEATURES
COVER STORY
Scalpel vs. Sledgehammer:
Regulation…and Other E-Cig Debates
46
Will the FDA make fine-cut, or blasting regulations on electronic
cigarettes? Will “tanks” take over the market? The category is heating up
with these and other debates as experts weigh in from varying angles.
Electric Alley: Rest Insured
42
Tobacco Plus Convenience Expo Highlights
54
Electrifying S&M Brands
62
C-Store Corner:
Tobacco Categories Vying for C-Store Share
70
Trench Marketing: Reading the Signs
76
Product liability insurance is a must for wholesalers and retailers
who want to get in front of potentially devastating e-cig quality
issues—real and fabricated.
Formerly known as TPE, the TPC Expo wowed attendees with
exciting educational seminars and a bustling trade show floor.
Building on its success with LEX12, this Virginia company is
venturing into electronic tobacco products and the cigarillo market.
With cigarette sales continuing to slip, where will retailers turn?
Jessica Curnett came to the business by chance, but she deftly
turned J.C. Tobacco Mart into a raging success by keeping RYO
on the top of her customers’ minds.
Cigar Sense: Mastering the Cigar Sale:
15 Top Tips, page 28
Scalpel vs. Sledgehammer: Regulation...
and Other E-Cig Debates, page 46
TPC Expo Highlights, page 54
Publisher’s Letter....................................................................... 4
Are You Ready for Vapor World Expo?
News & Trends......................................................................... 12
Big Tobacco advances on e-cigs, CVS drops tobacco, and more
TMA Report............................................................................. 20
Breaking news from the TMA
Pipe In Hand............................................................................ 36
A Past of Pipes
Category Manager..................................................................... 38
Tobacco by the Numbers
Product Profile......................................................................... 84
A guide to new and popular outlet products
Trench Marketing: Reading the Signs, page 76
NEWS & TRENDS
MARCH/APRIL 2014
E-Cig Industry Continues Evolution
Major players rolling out e-cig lines; independents doing deals
As the e-cigarette category continues to
pick up speed, the Big Three and independent manufacturers are all jockeying for
position.
FIN, one of the leading independent
e-cigarette brands, recently agreed to a
merger with Victory Electronic Cigarettes
that will make the combined entity one of
the largest pure-play electronic cigarette
companies, with 2014 sales expected to
surpass $100 million. The new company
plans to combine the sales and marketing
depth of the FIN organization with the supply chain capabilities, international reach,
and financial strength of Victory. The deal
is expected to close in the next few weeks.
Victory, which acquired the European
e-cig company VAPESTICK for $70 million
through a combination of cash and stock,
also recently formed a partnership with
Fields Texas Ltd. to drive global distribution and strategic retail expansion. “The
addition of FIN brings instant acceleration of scale and distribution in the United
States, significantly upgrades the global
leadership team, and furthers the company’s efforts to consolidate the electronic
cigarette industry globally,” says a company spokesperson.
Atlanta-based FIN has distribution in
more than 50,000 outlets across all major
channels in the United States, including
7-11, Circle K, Murphy USA, Stripes and
MAPCO Express.
The combination of Victory and FIN pro-
vides the group greater strength to compete in the rapidly evolving and competitive e-cigarette category. The new entity
has established a convergence committee
to identify and capture major cost and revenue synergies in the areas of people and
culture, cost efficiency, and sales, distribution and marketing.
Each of the convergence areas has dedicated work teams to identify and capture
significant synergies. To date, teams have
identified more than $5 million of revenue
synergies resulting from expanding distribution of both brands and employing
a dual brand strategy. In cost synergies,
more than $10 million of savings have
been identified in the areas of production,
supply chain and marketing spending effectiveness, all of which are expected to
be achieved within 12 months of closing,
according to Victory.
“The combination of the FIN and Victory brands provides an incredible onetwo punch for distributors, retailers and
consumers, and an opportunity to further
increase shareholder value by capturing
significant cost and revenue synergies,”
said Elliott Maisel, CEO of FIN. “The combination of the FIN and Victory organizations, coupled with the leadership of Fields
Texas and VAPESTICK in Europe, creates
a company with greater potential and
growth opportunity than any other competitor in the industry.”
Meanwhile, the large U.S. cigarette
companies are pushing forward in the category. Greensboro-based Lorillard’s blu is
now in 136,000 retail outlets, and the company has also entered the European market by acquiring SKYCIG, an e-cigarette
business based in the United Kingdom.
Lorillard CEO Murray Kessler has reported
that blu eCigs captured approximately 48
percent of the total market for the fourth
quarter and approximately 47 percent for
the year.
“Lorillard has established itself as the
clear leader in the e-cigarette category in
2013,” he claimed in a recent call with investors. Looking outside the U.S. market,
Kessler explained the company is rebranding SKYCIG e-cigarettes to blu and will roll
out the product across Europe by midyear. “I believe [we] have only scratched
the surface of the category,” he added.
Winston-Salem-based RAI’s subsidiary
R.J. Reynolds Vapor is also focusing on
the category, most recently by expanding its VUSE digital vapor cigarette, which
debuted in Colorado in July, followed
by its introduction in Utah. “VUSE continues to deliver outstanding results in
Colorado and remains the market leader
in the state,” Daniel Delen, RAI president
and CEO recently told investors during
an earnings call, adding that VUSE has
helped drive growth in the e-cigarette category as a whole in Utah. “Since VUSE
was introduced in July, the e-cig category
has tripled in size.”
JM Tobacco Expands Website
New design incorporates a direct sales company store
JM Tobacco has completely redesigned
its website (www.jmtobacco.com), adding several new pages and features for
greater reader-friendliness and interactivity. “Probably the most important new
page resulted from smokers’ requests for a
company store page, from which they can
buy direct[ly] from JM Tobacco,” says JM’s
president, Anto Mahroukian, who notes
that JM Tobacco fans have previously relied on the old site’s store locator page to
find the closest of JM’s 900 retailers nation12
wide.
TOBACCO BUSINESS
MARCH/APRIL 2014
“[This] did not serve smokers without
nearby access to our products,” he explains, adding that the company continues
to protect its retail partners by limiting sales
to service only brick-and-mortar retailers.
“Consumers can now buy direct[ly] from
[our company store] page, but only if no
JM retailers exist in their zip codes. We will
not undercut brick-and-mortar shops by
discounting our direct sales. We feel this is
equitable to all concerned.”
JM’s site also introduces two pages that
keep visitors informed and involved: “JM
Blog” and “JM News.” The former encourages communications between readers,
the company, and each other, while the latter apprises them of the company’s latest
products and activities. “We have found
that the free interchange of news and views
is a bonus for both our customers and ourselves,” says Mahroukian.
NEWS & TRENDS
MARCH/APRIL 2014
Altria Buys Green Smoke’s Vapor Biz
PM USA’s parent company pays $110 million in cash to expand
its Nu Mark e-cigarette business.
Altria Group’s subsidiary Nu Mark has entered into an agreement to acquire the evapor business of Green Smoke and its affiliates for approximately $110 million in cash.
Founded in 2008, Green Smoke sells both rechargeable and disposable e-cigarettes and
had around $40 million in revenues last year.
The company has operations in the United
States and Israel, although most of its sales
are in the U.S.
The move will significantly expand Altria’s
vapor division, which currently consists of its
Nu Mark e-cigarette company and its recently introduced disposable brand MarkTen.
“Nu Mark’s entry into the e-vapor category
with its MarkTen product was an important
development in Altria’s innovation strategy,”
says Marty Barrington, Altria’s chairman and
CEO. “Adding Green Smoke’s significant evapor expertise and experience, along with
its supply chain, product lines and customer
service, will complement Nu Mark’s capabilities and enhance its competitive position.
Further[more], Green Smoke’s culture of
innovation and history of producing highquality products are consistent with Altria’s
culture.”
The agreement includes provisions for
Altria to retain key Green Smoke management infrastructure and talent. “We are very
pleased to be joining the Altria family of companies,” says Robert Levitz, Green Smoke’s
CEO. “We are dedicated to innovation and
believe joining Nu Mark will help us deepen
that expertise and create new opportunities
for our customers, our employees and our
products.”
Analysts see the move as a strong strategic
play by Altria. “Altria took a deep scan of the
entire e-vapor space and felt Green Smoke
was the right fit at the right time,” says Bonnie Herzog, tobacco analyst for Wells Fargo,
who pointed out that the deal will help Philip
Morris develop a portfolio of e-vapor brands
to complement its MarkTen product line. “We
believe that Altria can leverage its sales force,
retailer relationships, and marketing expertise to quickly bring broader distribution to
Green Smoke,” says Herzog, who also hopes
the category as a whole will benefit from the
acquisition. “From a regulatory perspective,
this acquisition may put further pressure on
the FDA to regulate e-vapor products as they
become increasingly more mainstream.”
Highlights
Rhode Island
Seeks E-Cig
Tax
Rhode Island Governor Lincoln
Chaffee wants to impose an 80
percent tax on e-cigarettes, citing a belief that “electronic cigarette laws should mirror tobacco
product laws.” Opponents are
protesting the proposed tax,
saying it will incent smokers to
continue smoking and fail to produce the additional revenue the
state is after as e-cigarette users will simply buy out of state.
Illinois E-Cig
Proposal
Commissioner Jeffrey Tobolski
(D-McCook) of Cook County, Illinois plans to introduce a proposal that will require e-cigarettes to
be sold from behind retail store
counters, and ban their sales to
minors. Chicago, which is the
county seat, approved a similar
measure last month.
Hawaii
In Hawaii, the Senate Health
Committee and Commerce and
Consumer Protection Committee passed a Senate bill that will
raise the legal age to purchase
tobacco products and e-cigarettes from 18 to 21. However,
the committee deferred another
measure that would have imposed an excise tax on e-cigs.
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TOBACCO BUSINESS
MARCH/APRIL 2014
NEWS & TRENDS
MARCH/APRIL 2014
CVS Dumps Cigs
The nation’s second-largest drugstore chain says it will no longer sell
tobacco products.
CVS Caremark plans to phase cigarettes, cigars and chewing tobacco out of its 7,600
drugstores by October 1, a move that will
reportedly cost the chain $2 billion in annual
revenue. A company spokesperson says that
exiting tobacco will help it grow the health care
side of its business, which includes operation
of health clinics that administer flu shots and
help people manage chronic illnesses like high
blood pressure and diabetes.
“We’ve come to the conclusion that cigarettes have no place in a setting where health
care is being delivered,” says CEO Larry Merlo.
Some other drugstore chains including the
nation’s largest, Walgreen Co., still sell tobacco,
but many independent pharmacies and chains
do not. In fact, a 2011 study in Los Angeles
reported that just 32 percent of pharmacies
sold cigarettes, and traditional chain pharmacies were far more likely to sell cigarettes than
independently-owned pharmacies. Several cities, including San Francisco, Boston and New
York City, have also considered or passed bans
on tobacco sales in stores with pharmacies for
similar reasons to those cited by CVS.
However, some discount chains such as
Family Dollar have begun selling tobacco in
recent years, recognizing the potential that the
category offers both in profit and attracting
store traffic.
Toraño’s Opens Its Vault Tour
Toraño Family Cigar’s “Blends from the Vault” tour kicked off the first
of 40 events on February 5, 2014 at Three J’s Cigar Store in Davie, Florida. The tour will feature the Toraño Family’s highly acclaimed Vault
A-008, which received a 92 rating from Cigar Aficionado, the recently released Vault D-042, and the Limited Edition Vault Gold VLE100,
which will only be available at these exclusive events. Charlie Toraño,
president of Toraño Family Cigar Company, wished to introduce an extremely limited edition third blend from the storied Toraño Vault series
for this special tour. The 100 hand-numbered, nine-count, gold brick
boxes for the tour will hold the only Gold Vault VLE100 cigars ever
produced.
Blends from the vault tour originate from the cigar “blend book”
started by Carlos Toraño, Sr. in 1982. Now over 30 years old, the book
has a record of every blend concept the Toraño family has ever worked
on, many of which the family has released over the years.
In 2011, Charlie Toraño revisited the blend book and discovered an
intriguing, yet unreleased blend: Liga A-008. After a slight modification, the Liga A-008 was released to the public and so well received by
critics that another forgotten blend from the book was modified, the
Liga D-042. The Vault Gold VLE100 cigars are from yet another unreleased blend from the blend book, also modified to complement the
vault series perfectly.
The Blends from the Vault tour will feature at least two lucky winners
at each event. Each winner will walk away with a box of Vault Gold, a
blend conceptualized by the Toraño family but never produced.
“The Blends from the Vault cigars are a celebration of the Torano
family’s legacy and I am extremely excited about being able to share
this part of our history with the public,” says Charlie Toraño. “Eventgoers can count on either myself, Carlos Llaca Toraño or Jack Toraño
to be present at each of the Blends from the Vault events and announcing the winners of the Vault Gold Brick Box Giveaway.”
TMA to Hold 99th Annual
Meeting and Conference
The theme of the event will be “Evidence-Based Science, Global
Industry Regulation, and FDA Regulation of the U.S. Tobacco and
E-Cigarette Industries.”
Topics to be covered at the TMA’s annual conference at the
Kingsmill Resort in Williamsburg, Virginia will include:
· Tobacco Harm Reduction in the
U.S. and Around the World
· Risk-Benefit Analyses of E-Cigarettes
· Population Risk Modeling for
Modified-Risk Tobacco Products
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TOBACCO BUSINESS
MARCH/APRIL 2014
NEWS & TRENDS
MARCH/APRIL 2014
Drew’s Lounge Debut
Drew Estate and Corona Cigar Company announce the first Drew Estate Lounge.
Drew Estate plans to open the first official Drew Estate Lounge at the Corona
Cigar Company’s Sand Lake, Florida location. The location is currently under
development with a significant but undisclosed investment, featuring an entirely new full liquor bar area complete
with an incredible selection of bourbon,
single malt scotch, dark rums and cognac.
Two community tables will add additional seating and a place for cigar
enthusiasts to gather with fellow aficionados. Drew Estate and their stable of
cigar brands will be tastefully displayed
throughout the lounge via custom art,
custom furniture, unique ashtrays and
other eclectic items that Drew Estate’s
Nicaraguan artists will create.
In addition to the branded Drew Estate Lounge, Corona Cigar Company
will be working with Drew Estate to
create a series of unique, limited edition, lounge exclusive offerings of Liga
Privada, Undercrown, Natural, Tabak
Especial, Nica Rustica and Herrera Esteli cigars, available in summer 2014.
“Since the infancy of both Corona
Cigar Company and Drew Estate, Jon,
Marvin and I have not only had a close
business relationship, but a long personal relationship built on trust, respect and an incredible passion for all
things cigars,” says Jeff Borysiewicz,
owner of Corona Cigar Company, explaining the endeavor. “Drew Estate
and its entire team, both in the U.S.
and Nicaragua, are incredibly talented
and we are proud of our long-standing
relationship with them.”
“It was 3 a.m. on some random day
in 1999 when Jeff Borysiewicz walked
by our little factory in Estelí, Nicaragua and saw us working, prepping the
boxes for the release of the Natural by
DE line,” adds Drew Estate co-founder
and namesake Jonathan Drew, recounting the origins of the partnership.
“Half the factory had no roof; we were
drinking borrowed iced tea while we
placed bands on each cigar ourselves.
Jeff told me that he respected our hard
work and humility…[and] the rest is
In Memoriam
Myrna Sherman
Wife of Joel Sherman of the cigar and cigarette company
Nat Sherman, Myrna Sherman was fatally struck by a car
during the 2013 holiday season. Mourned by her children
Bill, Larry and Michelle, Myrna was actively involved in a
number of charitable and community organizations, especially The Davis Phinney Foundation for Parkinson’s disease. In lieu of flowers, the family requests that donations
be sent to the Michael J. Fox Foundation for Parkinson’s
Research or to Dr. Susan B. Bressman, M.D., Chairman,
Parkinson’s Research Department at Beth Israel Medical
Center, 10 Union Sq. East, Suite 2Q, New York, NY 10003.
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TOBACCO BUSINESS
MARCH/APRIL 2014
Nancy Elizabeth
Gallagher
Nancy Elizabeth Gallagher, matriarch of the Gallagher family, which operates The Cigarette Store Corp in Boulder,
Colorado, passed away on January 25. In lieu of flowers,
contributions can be made to Juvenile Diabetes Research
Foundation (Denver Chapter) at rockymountain.jdrf.org, the
Cystic Fibrosis Foundation (Colorado Chapter) at cff.org/
chapters/Colorado, the Alzheimer’s Association (Colorado
Chapter) at alz.org/co, or the Sacred Heart of Jesus, Boulder, Colorado at shjboulder.org.
TMA REPORT
By FARRELL DELMAN
Breaking News From the TMA
The following are excerpts from harm reduction,
tobacco regulation and other tobacco-related news.
On harm reduction…
…San Francisco, California-based
Ploom, inventor and manufacturer
of the premium vaporizer Pax, which
heats tobacco without producing
smoke, said that following the discovery
of counterfeit products containing
plastic materials that are not stable at
operating temperature, it conducted
investigations to locate manufacturers
of the fake products. The company
initiated legal actions in China to stop
the production and sales of fakes, noting
that Ploom’s foremost goal is to protect
consumers from poorly performing and
potentially unsafe counterfeit devices.
…The Guardian reports that e-cigs
could be available as “medicines” on
the UK’s National Health Service by the
end of 2014. At least two companies—
Nicolites and Nicoventures (BAT)—
have started the process to obtain licenses
20
TOBACCO BUSINESS
MARCH/APRIL 2014
from the Medicines and Healthcare
Products Regulatory Agency (MHRA).
…Misguided regulation of e-cigs
based on concerns that are not backed
by sound evidence may have unintended
consequences for public health,
stated a Journal of Therapeutic Advances
article titled “Achieving Appropriate
Regulations for Electronic Cigarettes”
by Daniela Saitta, Giancarlo Antonio
Ferro and Riccardo Polosa from the
University of Catania in Italy. The
authors recommend that regulators
consider science-based regulations like
good manufacturing practices (GMP),
childproof containers for nicotine liquids,
reporting on the contents of e-liquids
to regulators, and “clear, accurate and
detailed labeling about the contents and
the hazards associated with [e-cig] use.”
…Analysts at Wells Fargo said
Nielsen’s U.S. c-store data on e-cigs
indicates that their dollar sales grew 45
percent in the four weeks ending with
Farrell Delman,
President, TMA
January 18. A 54.8 percent equivalent
unit growth was partially offset by net
pricing of -6.3 percent, suggesting an
increased penetration of e-cig kits that
offer a lower price per cartomizer, with
Lorillard’s blu retaining the No. 1
position in the c-store channel with a
45.5 percent dollar share, up 23.4 points
year over year, followed by NJOY at
No. 2 with 19.6 percent, and Logic in
the third spot with 19 percent, while
RAI’s Vuse held at 1.4 percent and
Altria’s MarkTen held at 0.7 percent.
…Nicotine is addictive, but it is the
toxins in cigarette smoke that kill, said
Joel Nitzkin, senior fellow for tobacco
policy at the R Street Institute and past
co-chair of the American Association
of Public Health Physicians’ tobacco
control task force, in a recent presentation
at the Oklahoma House/Senate hearing
on e-cigs and tobacco harm reduction
(THR). An addition of a modestly
successful THR initiative to current
TMA REPORT
An addition of a modestly successful THR initiative to
current tobacco control programs would save an estimated
1.5 to 4.8 million American lives, said Nitzkin, who noted
that the tobacco control movement is opposed to THR
because it has a goal of a tobacco-free society and because
it receives support from major drug companies.
tobacco control programs would save an
estimated 1.5 to 4.8 million American
lives, said Nitzkin, who noted that the
tobacco control movement is opposed to
THR because it has a goal of a tobaccofree society and because it receives
support from major drug companies.
Nitzkin asserted that e-cig companies do
not recruit teens, and e-cigs do not lead to
cigarette use or produce vapor containing
high levels of organic chemical toxins
measurably above background levels.
…Commenting on New York Times’
health reporter Jane Brody’s article
on health officials’ efforts to reduce
smoking and the existing cessation
methods available, the American
Council on Science and Health said
that although Brody “acknowledges that
current aids for quitting, such as nicotine
substitutes, low-dose antidepressants,
hypnosis, and acupuncture, are not very
effective,” she “stops short of endorsing
the newest and likely most effective aid:
e-cigarettes,” a position that ACSH’s
Gilbert Ross said “parrot[s] the party
line of the CDC, the FDA, the ACS
etc. etc. and Stan Glantz, thereby doing
a terrible disservice to her smoking
readers who are desperate to quit.”
…During a recent discussion on e-cigs
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TOBACCO BUSINESS
MARCH/APRIL 2014
with host John Hockenberry on the
morning news program “The Takeaway,”
Dr. Michael Eriksen, founding dean of
the School of Public Health at Georgia
State University and former director
of the CDC’s Office on Smoking and
Health, said among other things that:
smoking kills because of smoke; nicotine,
though not benign, is better than smoke;
almost without exception, e-cigs are
generally safer to use than smoking;
and that e-cig concerns include dual
use,
re-normalization/glamorization
of smoking, and the possibility of
non-smokers and teens using e-cigs
and developing a nicotine addiction.
…The Electronic Cigarette Industry
Group
(ECIG)
in Tallahassee,
Florida announced the opening of
its Washington, D.C. office and the
addition of J.P. Moery and his firm,
The Moery Company, to the ECIG
team, with Moery to serve as the
managing director of the D.C. office.
…During a joint legislative panel
hearing in Oklahoma on January 22 on
the pros and cons of promoting e-cigs
as a means to reduce smoking, e-cig
supporters including Oklahoma Vapor
Advocacy League Chairman Sean Gore
focused on taxation and regulation by
arguing that taxing e-cigs at the same
rate as cigarettes would reduce an
incentive for smokers to switch to the
devices, which they say are much less
harmful, while critics like State Health
and Human Services Secretary Terry
Cline and the American Cancer Society’s
deputy medical officer Dr. Leonard
Lichtenfeld said existing evidence on
e-cigs is not enough to recommend
the devices as a safer alternative
to cigarettes or as a cessation aid.
…Philip Morris International said
that it will invest up to $683.8 million
“into its first manufacturing facility in
the European Union and an associated
pilot plant” near Bologna, Italy,
which would produce its “potentially
reduced-risk tobacco products,” and
when fully operational would have
combined annual production capacity
of up to 30 billion units by 2016.
…In a commentary in the January 8
issue of the Journal of the American Medical
Association, Dr. David B. Abrams,
executive director of the Schroeder
Institute for Tobacco Research and
Policy Studies at Legacy Foundation,
examines the “promise, from a harm
reduction perspective, and the peril, from
an abstinence perspective,” of e-cigs. He
TMA REPORT
says that the device has the “potential
to make the combusting of tobacco
obsolete,” and that “tobacco control
experts must be open to new strategies” if
e-cigs represent the new frontier, though
“statements based on ideology and
insufficient evidence could prevent the
use of this opportunity” before it becomes
part of a harm-reduction strategy.
…The
American
E-Liquid
Manufacturing Standards Association
(AEMSA) had its third “listening
session” with the FDA on December 19,
at which Dr. Konstantinos Farsalinos,
a cardiologist recognized as a leading
e-cig medical researcher, made a primary
presentation on his study on plasma
nicotine absorption levels (PNLs), which
tested nicotine delivered from both
“cig-alikes” and representative PNLs
from a “new generation” device used
by experienced e-cig consumers and
novice e-cig users (tobacco smokers),
and found that “PNLs from cig-alikes
were dramatically lower as compared
to tobacco cigarettes” and that the new
generation device “showed evidence of
being more efficient at nicotine delivery
than the cig-alikes and came closer to
tobacco cigarette PNLs over time, yet
indicated tobacco cigarettes still deliver
substantively more nicotine puff-forpuff,” while novice e-cig users’ PNLs
indicated less nicotine absorption
compared to experienced e-cig users.
…AEMSA’s president Lou Ritter
and counsel Azim Chowdhury of Keller
and Heckman met with representatives
at the U.S. Office of Management and
Budget’s (OMB) Office of Information
and Regulatory Affairs (OIRA) on
December 16, during which AEMSA
said that: the Family Smoking Prevention
and Tobacco Control Act broadly defines
“tobacco product” to include substances
that are derived from tobacco such as
nicotine, but that “products that only
contain such tobacco-derived substances
should not be regulated in the same
24
TOBACCO BUSINESS
MARCH/APRIL 2014
manner” as cigarettes, smokeless tobacco,
RYO tobacco and other products that
contain tobacco. Tobacco-containing
products, especially those that are
combusted, are the most harmful, while
e-cigs and the e-liquid used in them
are “demonstrably less harmful,” they
explained. AEMSA also opined that:
there is little to no evidence that e-cigs
are used as a “gateway” to conventional
cigarettes; the premarket authorization
requirements in the FSPTCA should
not apply to e-cigs and e-liquids; the
grandfather date of February 15, 2007 in
the FSPTCA should not apply to e-cigs
and other tobacco-derived products that
were not contemplated when Congress
was drafting the legislation; all e-cigs and
e-liquids currently on the market should be
allowed to remain on the market without
obtaining premarket approval from
the FDA; and the deeming regulation
should allow for products already on
the market to smoothly transition
to fully regulated status and create a
reasonable premarket authorization
process for new products that focuses on
ingredient and manufacturing process
disclosures to ensure purity and safety.
…Wisconsin State Sen. Glenn
Grothman (R-West Bend), who has
introduced a bill that would exempt e-cigs
from the state’s 2010 public smoking
ban, commented that the bill is intended
to help smokers quit regular cigarettes.
…Sheriff Millard Gustafson of Gage
County, Nebraska said that he is seeking
an exemption for e-cigs at the Gage
County Detention Center from the ban
on tobacco products on county property.
ON THE FDA…
…The FDA has launched its first
public health education campaign
called “The Real Cost,” aimed at
reducing and preventing youth tobacco
use through ads specifically targeting the
estimated 10 million young people aged
12-17 “who are open to trying smoking
or who have already smoked between one
puff and 99 cigarettes in their lifetime,”
with plans to evaluate the effectiveness
of the $115 million campaign with
a longitudinal study that will follow
8,000 youths over a two-year period.
…The FDA’s Center for Tobacco
Products (CTP) participated in the
annual meeting of the Society for
Research on Nicotine and Tobacco
(SRNT) February 5-8 in Seattle,
Washington. In a roundtable discussion,
CTP Director Mitch Zeller joined
NJOY CEO Craig Weiss, OSH’s Tim
McAfee, Mayo Clinic’s Scott Leischow,
and the University of Minnesota’s
Dorothy Hatsukami in a discussion
led by the ACS’s Tom Glynn on the
potential health benefits of e-cigs.
…Until March 3, the FDA is accepting
applications for the FDA Tobacco
Regulatory Science Fellowship, which
offers mid-career professionals an
opportunity to spend a year at the Center
for Tobacco Products and “participate in
the development of science-based public
health strategies and serve as the lead
for defined projects, meet with policy
leaders, and develop new competencies.”
…Appearing on the January 21
episode of “The Diane Rehm Show” on
National Public Radio that discussed
the latest Surgeon General’s report
that expands the list of adverse health
effects caused by smoking, FDA Center
for Tobacco Products Director Mitch
Zeller said that the report “is a clarion
call that the real harms are associated
with the use of the combusted products
and principally cigarettes.” He then
noted that the FDA has an opportunity
under the Family Smoking Prevention
and Tobacco Control Act to reduce
smoking-related
morbidity
and
mortality by both informing the public
and using regulatory tools to try to shift
people away from the most harmful
forms of nicotine delivery, and further
TMA REPORT
acknowledged that “[i]f a current
smoker, otherwise unable or unwilling
to quit, completely substituted all of
the combusting cigarettes that they
smoked with an electronic cigarette at
the individual level, that person would
probably be significantly reducing
their risk,” but the challenge for the
FDA as it shapes e-cig regulation is
to figure out what the net population
level health impacts would be.
…The Department of Health and
Human Services’ Safety Reporting
Portal now has a new category
for tobacco products, providing a
standardized way for consumers and
health care professionals to let the FDA
know when they suspect an unexpected
health or safety issue with a specific
tobacco product, such as a product
believed to be damaged, defective or
contaminated, to have a strange taste
or smell, or to cause allergic reactions,
poisonings, or an unusual reaction in a
longtime user, among other problems.
…The Smoke-Free Alternatives
Trade Association’s Annual Summit
was rescheduled from January 2014 to
sometime in the spring, given that no
FDA deeming regulations have been
issued and an abundance of e-cig/vapor
conferences closed out 2013. However,
SFATA will offer a webinar free to
its members to review the deeming
regulations once they are released.
…The National Academies posted
on its website a public announcement
regarding the Committee on the Health
Implications of Raising the Minimum
Age for Purchasing Tobacco Products
(IOM-BPH-13-02),
whereby
the
Institute of Medicine will establish an ad
hoc committee of public health, medical,
and other experts to conduct a study
and prepare a report to be issued to the
FDA CTP on the likely public health
impact of raising the minimum age to
buy tobacco products to 21 and to 25.
26
TOBACCO BUSINESS
MARCH/APRIL 2014
ON OTHER tobacco news…
…As the European Parliament
considers proposed revisions to the EU
Tobacco Product Directive (TPD),
some member states, including France,
Belgium, Finland, Ireland and the UK,
are expressing strong support for the
European Commission’s proposal, while
other nations, mostly from eastern and
southern Europe, are opposing the
measure, claiming that it would harm their
economies and hurt thousands of families
that depend on tobacco cultivation
for their living. Commenting on this
opposition, EU Health Commissioner
Tonio Borg said he is worried that
economic concerns are starting to
dominate what is predominantly a
health issue, and British MEP Linda
McAvan, who is guiding the legislation
through Parliament, verbalized her belief
that the economic objections being
used by MEPs and member states are
actually coming from the tobacco lobby.
…A Nielsen survey of empty cigarette
packs collected from 20 cities and
towns in Lithuania between September
and October 2013 found that 28.2
percent of the packs were illegal.
…National Public Radio’s food news
program “The Salt” reports that even
as smoking bans spread across the U.S.,
mixologists are bringing tobacco back
to bars by using it as an ingredient in
their mixed drinks like the mezcalbased “Oaxacan Fizz” at the Father’s
Office restaurant in Los Angeles,
which is sweetened with pipe tobaccoinfused sugar syrup, the bourbon-based
“Smoker’s Delight” at the restaurant
named PX in Alexandria, Virginia,
which contains a sweet tea made with
pipe tobacco or clove cigarettes, and the
cognac-based “Step-dad” at Bar Charley
in Washington, D.C., incorporating
a dash of homemade tobacco
bitters and cynar, an Italian liqueur.
…On January 10 in the U.S. District
Court in Washington, D.C., the U.S.
Department of Justice and major cigarette
makers filed an agreement on publishing
corrective statements per U.S. District
Judge Gladys Kessler’s November 2012
ruling ordering the companies to pay for
corrective ads that say they misled the
public about the dangers of smoking.
Each company must publish full-page ads
in the Sunday editions of 35 newspapers
and on the newspapers’ websites, in
primetime TV spots on CBS, ABC or
NBC five times per week for a year, on
the companies’ websites, and on a certain
number of cigarette packs three times
per year for two years. Each corrective
ad is to be prefaced by a statement
that a federal court concluded that the
defendants “deliberately deceived the
American public.” The ads are to include
five categories of corrective statements:
1) the adverse health effects of smoking;
2) the addictiveness of smoking and
nicotine; 3) the lack of significant health
benefits from smoking cigarettes with
descriptors like “low tar” and ‘‘light;” 4)
the manipulation of cigarette design and
composition to ensure optimum nicotine
delivery; and 5) the adverse health
effects of exposure to environmental
tobacco smoke. Some of the statements
read, “Smoking kills, on average,
1,200 Americans. Every day;” “Philip
Morris USA, R.J. Reynolds Tobacco,
Lorillard, and Altria intentionally
designed cigarettes to make them more
addictive;” and “There is no safe level
of exposure to secondhand smoke.”
…TheStreet.com reports that
“discerning” marijuana smokers are
switching from pipes and other smoking
devices to vaporizers marketed for use
with nicotine liquids because they can
get more THC from vapor rather than
smoke without damaging their throats
and lungs. TB
Mastering the
Cigar Sale: 15 Top Tips
Two tobacco outlet retailers and two cigar retailers share their latest
and greatest to help you move more stogies.
H
ave you mastered the art of
selling fine cigars? Even if
you nailed it yesterday, there
is room to sharpen it today. The best
premium cigar sales tips are constantly
developing and changing, ideally with
the evolving creativity and strategy of
a particular retailer. Some of the most
successful cigar retailers stay ready to
reevaluate and readjust, utilizing their
backgrounds and expertise to develop a
specialized plan and unique allure.
Take Mike Johnson for example,founder
and owner of Holy Smokes Cigars,
operating for 10 years in Manchester, New
Hampshire. Johnson is a retired Army
sniper—specifically, he was among the elite
as a senior Scout Sniper and was in the
Army for a total of six years.
One boutique cigar vendor who
28
TOBACCO BUSINESS
MARCH/APRIL 2014
By Renée M. Covino
knows Johnson best—Victor Vitale of
Legacy Brands Ultra Premium Cigar
Company—said, “Mike’s been trained
to survive and strategize and patiently
seize opportunities, and that now goes
hand in hand with his [retail cigar]
business.” Vitale added that Johnson’s
survival tactics, combined with his ability
to “change like a chameleon with the
times,” all works together.
With that in mind, here are Johnson’s
and three other retailers’ best “of-themoment” cigar sales tips, all gathered at
TPC 2014 in January:
threat currently as big-brand vendors
who he knows he has to do business
with, but who also try to sell cheaper
to his customers online. Years ago, his
biggest threats came from a crashing
stock market, a partner being diagnosed
with a mental illness and his credit card
company’s skyrocketing interest rate.
“These are curve balls that you have
to deal with head-on; you can’t win in
defense, you have to play offense,” he
says. “You can sit around feeling sorry
for yourself or you can actually develop
a solution.”
Identify your threats and develop
a solid plan to counter them. Yes,
there are threats to your cigar business
that go beyond pending legislation.
Johnson identifies his most pressing
Pick and choose vendors correctly.
Cigar retailers need to know which
vendors will be their allies in the “war
against the Big Web Retailers,” according
to Johnson. “Choose more small-batch
1
2
cigar companies and, ideally, priceprotected vendors,” he advises. Johnson
teases his salespeople that every time
they sell a Macanudo, they owe him five
dollars. “I’ve burned a lot of bridges, but
these brands aren’t doing us any favors; in
fact, they’re ultimately trying to put us out
of business.”
Develop private label trademarks/
bundles. In addition to small-batch,
limited-release cigars, the other way brickand-mortar cigar retailers can protect
themselves is to develop bundles with
vendors who can “put your own trademark
on them,” according to Johnson.
3
Bait and switch customers. Yes,
Johnson believes it’s fair game and smart
cigar sense to bait and switch customers
from popular brands to trademarks or
your allies’ brands. He says, “You have
to face out your humidor with trending
cigars. Cigar Aficionado holds a lot of
weight with customers—it’s annoying. So
we’ll get the top 10 and put them on the
shelf. Then we’ll put a brand like Victor’s
[Vitale] next to it, or another small-batch
brand, and we’ll tell our customers, ‘If you
4
30
TOBACCO BUSINESS
MARCH/APRIL 2014
like that, try this.’ So you get them there
and then it’s like bait and switch,” but
really, he is just opening their cigar palates
to smaller brands that have merit and are
better for his store’s business.
5 Forget a one-day-only cigar event.
“One day is stupid,” says Johnson. He
believes in holding cigar events for two
weeks or all month long. It’s great to
hold a special evening cigar night, but
in Johnson’s mind it makes much more
sense to market that night as the kickoff to the event—to offer that brand’s
cigar special for a much longer period
so that customers who couldn’t make
it that evening can still get excited and
purchase the promotional offer(s). “My
sales manager and I came up with this
last year after he made a comment to
me that in his previous business—
furniture—events were held all month
long,” explains Johnson. Holy Smokes’
business increased by 20 to 25 percent
just by making that one change.
Give employees commissions on
featured brands. Johnson says it’s not
enough to get customers excited about the
6
events—employees should feel it too, with
programs that offer them commissions on
the monthly or bi-weekly featured brands.
“On these and the brands [that] we get
good margins on or whatever we want
to push, we will give our employees five
percent kickbacks,” he relays. “It prevents
them from becoming lazy.”
7
Rearrange the lounge area. One
grouping in the lounge area is not ideal
anymore, according to Johnson. “People
argue and they form groups—you can
ultimately lose customers in the long
run, especially after your lounge has been
around awhile, if you don’t account for
separate sitting areas,” he says. Of course
this is dependent on space, but Johnson
believes it’s not the size of the groupings
that count, but the arrangement. Holy
Smokes improved its customer satisfaction
and cigar sales when it regrouped the
lounge to have three different sitting areas
instead of one.
8 Don’t forget the females. Part of the
Holy Smokes lounge “clean-up” was to
make it more female-friendly, as Johnson
tells it. “It’s got to be very clean and it’s
Collett Enterprises’
Darren Collett
got to appeal to them,” he says. “Women
spend 90 percent of the discretionary
household income and we want it to
include cigars.”
Cultivate a network of websites
and social media. “You need to have
an e-commerce site—period,” advises
Johnson. “It’s a long process, but worth
the investment.” Johnson actually keeps
a network of websites; he has three
currently tied in to his cigar business.
“If you have one website, it’s not good
enough. You have to please Google now,
because of searches.” Holysmokes.com
is the company’s informational website,
while NHcigars.com is its e-commerce
site. “We also have blogs out there—
mostly propaganda blogs. We’ll write
reviews about lines we want to push
and then we’ll have back links going to
our e-commerce site. In the premium
cigar world, if you don’t have a website
to sell online, you’ll eventually go out of
business. Vendors hate it, but we’re not in
business to please vendors.” In addition to
the blogs, Johnson makes sure YouTube
9
32
TOBACCO BUSINESS
MARCH/APRIL 2014
Klafter’s
Randy Silverman
World Famous Cigar Bar’s
Rich Castiano
videos and social media outlets tied to the
business are updated regularly.
to him. “How much support we get from
a vendor is an important factor as to
whether we will do business with them,”
Silverman says.
10 Seek extra vendor support. Sure,
you have cigar vendors offering event
and merchandising support, but ask
them to go the extra mile, advises Randy
Silverman, president of Klafter’s, who was
a panelist on TPC’s trench marketing
panel in January. “We ask them to attend
our quarterly store managers’ meetings
so they can educate and inform our store
employees,” relays Silverman.
Regarding potential new products,
Silverman asks vendors the tough
questions, such as: what makes it more
appealing than existing products, and will
it be readily available?
Klafter’s also invites cigar vendors,
along with other vendors, to its company
trade show, which Silverman says is the
“best format for training managers and
assistant managers. Basically, vendors are
given a table to set up their products; a
small group of store managers visit[s]
each table for 15-20 minutes and then
rotate[s] like musical chairs,” according
11 Bundle cigars and take a cut in
margins. Like Johnson, Rich Castiano,
owner of multiple cigar bars in Florida,
believes in bundling cigars, but not just for
the benefit of trademarks. “We have great
relationships with cigar manufacturers
who will give us a great price on bundles,”
he says. “So instead of selling one cigar for
$7, we make it keystone and offer four for
$20. As long as it’s a good premium cigar,
we’re making money because they move.
We just did this and sold 20,000 sticks at
keystone.”
12 Use a quality air system. “It’s all
about how much you reverse the air—the
air transfer system,” advises Castiano, who
also served on TPC’s trench marketing
panel. In his cigar lounges, he also uses
electronic air purifiers (“the best money
can buy”) and he has the filters cleaned
constantly. HVAC specialists and air-
conditioning companies can put cigar
retailers on the right track with this very
important component, Castiano says.
You don’t need alcohol to hold a
great event. Even though Castiano is
fortunate to be able to have both alcohol
and cigars at his cigar bars, he recognizes
that it’s not the alcohol that makes the
event, it’s the camaraderie—getting your
customers in one area at the same time to
smoke and sample and talk about cigars
as well as other passions. Retailers who
use alcohol as the excuse to not hold
events are not strategizing correctly and
could be excusing themselves out of cigar
sales, Castiano believes.
13
14 Consider hiring a certified retail
tobacconist. That’s what another TPC
panelist did—Darren Collett, president
of Collett Enterprises—after he revisited
his premium cigar business, realizing that
after “discontinuing it and saying ‘never
again,’ times changed with better products
and better support, and we are now back
in pretty heavily.” The retail tobacconist
was hired to manage Collett’s premium
cigar category and help train associates in
important product knowledge.
Don’t fall in love with your
inventory. Sometimes the best tactic is to
keep cool on your cigar inventory—don’t get
too attached to the existing sticks, according
to Collett. “How do we really make money
in retail? We make it by turning inventory,”
he offers. “My word is to take a look at
your inventory—be honest and turn dead
or slow-moving inventory back to cash. It
does you no good to have excess inventory.
This dynamic industry warrants that we have
to be able to change our business a little bit
every day.” TB
15
34
TOBACCO BUSINESS
MARCH/APRIL 2014
A Past of Pipes
A place for pipes is also a cabinet full of memories.
By Erik Stokkebye
I
just found the old pipe cabinet
that belonged to my father, Peter
Stokkebye—what a trip down
memory lane it is!
I see a jewel...Turkey, and a beautiful
Joergen Larsen straight-grain, like
the ones he had to hide in his hotel
rooms because otherwise they would be
snapped up too quickly at the RTDA.
There is also the block of unfinished
briarwood—with the stem already
mounted—that he never had the chance
to fashion into a truly homemade pipe.
He loved the funky details, like a bit of
bamboo or a copper ring, to play up his
pipes a bit. I even remember a bright
blue pipe, which somehow never made
it into his cabinet of favorites.
36
TOBACCO BUSINESS
MARCH/APRIL 2014
The pipes are all different and all
a reflection of who he was—elegant,
classic and with a bit of whimsy. These
are not the antiques he treasured from
the fabulous tobacco museum his father
started, but everyday objects, well
cared for and meant to be enjoyed and
appreciated.
Of course, one of the strongest
triggers of old memories is smell, and
the scent of his tobaccos still lingers
on these pipes. I can close my eyes and
picture him clear as day relaxing with a
bowlful of his own Navy Flake with just
a hint of Kentucky tobacco, even though
he has been gone for more than 10 years
now.
I also appreciate the love of tobacco
he has passed on to
me, and the great
experiences
we
shared over the years
in this wonderful
world of pipes and
tobaccos. For Peter,
his pipes were almost
as much a part of
his
appearance
as his glasses. My
personal favorite is the classic that he
is brandishing in one of the last official
portraits of him. Maybe one day I’ll
fire up one of his pipes instead of just
reminiscing about Peter smoking them
himself.
Cheers!
CATEGORY MANAGER
retail trends
Tobacco by the Numbers
Highlights from Bonnie Herzog’s U.S. Tobacco Trends report
T
he times, they are a’changing. Many of the shifts
taking place in the tobacco retail landscape are, by
now, expected by the industry. Few, for example,
will be shocked to hear that tobacco volume decreased by 2
percent in 2012, according to U.S. Tobacco Trends, a February
2014 report by Bonnie Herzog, managing director of tobacco,
beverage and convenience store research for Wells Fargo
Securities. But not all categories of tobacco suffered a decline.
While cigarette volume was down 5 percent, smokeless
tobacco volume increased by 5 percent.
As many in the industry have anticipated, cigarette sales
continued to drop in 2013, while e-cigarette sales continued
to grow—reaching approximately $2 billion for the year.
“The majority of respondents from our Tobacco Talk survey
continue to be very excited about the e-cig category,” writes
Herzog. “We think consumption of e-cigarettes could outpace
combustible cigarettes over the next decade.” Blu, NJOY and
Logic have emerged as early market leaders, adds Herzog,
who also notes that while the Big Three tobacco players are
now in the category and some consolidation is likely, research
suggests that brands like NJOY, Mistic, Fin, Logic and Krave
will continue to enjoy a healthy position in the market.
“We think that e-cigs are to tobacco what energy drinks
are to beverages—highly profitable and quickly growing in
volume and shelf space at retail, and increasingly gaining
customer acceptance,” writes Herzog.
As the various tobacco companies continue to grapple for
market share, retailers are also jockeying for position in the
category. Family Dollar and Dollar General have begun selling
cigarettes, suggesting that dollar store chains may be a growth
channel for the category. Vape stores are another emerging
retail trend, although many question their long-term viability,
contending that the FDA may regulate them out of existence.
Meanwhile, CVS opted to abdicate, exiting the tobacco sales—
which accounted for an impressive $2 billion in sales for the
company—altogether.
To follow are some charts excerpted from the report that
offer a snapshot of current retail trends. TB
Total Tobacco Estimate
1200
Total tobacco volume decreased by 2% in 2012. Cigarette volume was down 5% and smokeless tobacco volume increased by 5%.
Total Tobacco Industry Volume (in millions of pounds)
5-Yr CAGR=1.0%
Volume (in millions of pounds)
1,000
4-Yr CAGR=1.5%
800
600
400
200
0
FY2003
FY2004
FY2005
FY2006
FY2007
FY2008
FY2009
FY2010
FY2011
FY2012
FY2013E*
*Estimated
Retail Channel Market Share
C-stores still top the tobacco distribution chain.
Mass & Others
Tobacco Stores
C-Stores
38
TOBACCO BUSINESS
MARCH/APRIL 2014
Grocery & Drug
C-stores continue to account for the bulk of
tobacco sales, and are also the dominant player
in the e-cigarette category.
CATEGORY MANAGER
retail trends
Retailers Report Impact
From Vape Shops
Change in Shelf
Space Allocation Y/Y
(Responses to question, “Are vape shops
impacting e-cigarette sales?”)
Q1 2013
Q2 2013
Q3 2013
Q4 2013
80%
50%
72%
47%
45%
60%
40%
56%
35%
30%
40%
33%
31%
25%
26%
20%
20%
19%
15%
10%
1%
0%
4%
YES
(Negatively impacting)
NO
(No impact)
NO
(But expect negative
impact in future)
-20%
4%
3%
1%
-1%
-5% -5%
5%
0
7% 6%
7%
Cigarettes
-7% -6%
Smokeless
-5%
Snus
-1% -1%
Cigars
E-Cigs
Chart Source: Wells Fargo Securities
Category Growth in Measured
Channels Appears to be Decelerating
E-Cig Growth Hiccup
(Percent of customers converting to e-cigarettes
from conventional cigarettes)
40%
12%
10.6%
10%
35%
10.7%
(Responses to question,
“Do you carry any ‘tank-style’ vaporizers?”)
36%
36%
30%
9.2%
8%
8%
28%
25%
20%
6%
15%
4%
10%
2%
0
5%
Q1 2013
Q2 2013
Q3 2013
Q4 2013
While annual growth for e-cigarettes is still estimated to be above 20 percent,
customers’ “switching” rate declined in the fourth quarter of 2013.
40
TOBACCO BUSINESS
MARCH/APRIL 2014
0
YES
Currently carry
NO
But plan to carry soon
NO
No plans to carry
Tank-style or “open system” vaporizers are gaining traction and taking some
share away from the “cigarette-like” style of e-cigarettes.
electric
ALLEY
Rest Insured
Product liability insurance is a must for wholesalers and retailers
who want to get in front of potentially devastating e-cig quality issues—
real and fabricated.
T
he alleged story, now resulting
in a lawsuit that was heard
’round the TPC 2014 show
floor in January, goes like this: A
Californian couple was traveling by
car to the Los Angeles International
Airport for a volunteer trip to South
America when the woman’s charging
e-cigarette emitted a strange odor. The
woman claims she saw the battery to
the e-cig dripping.
“I went to unscrew it, and the battery
started shooting fire toward me and
then exploded and shot the metal pieces
onto my lap,” she told CBS News last
summer. She also reported that her
cotton dress caught fire, resulting in
second-degree burns on her body—and
now continuing trips to a medical burn
center.
A lawsuit is not only pending against
the California-based manufacturer of
the electronic device, but also against
the retailer who sold it. It has been
reported that neither of them had the
proper insurance.
As the e-cig industry continues
42
TOBACCO BUSINESS
MARCH/APRIL 2014
By Renée M. Covino
to grow and profits continue to
climb, electronic cigarette lawsuits,
including class-action lawsuits, are
wildly spreading across the United
States. Currently, there are lawsuits
for defective batteries, intellectual
properties claims, and for injuries
resulting from electronic cigarettes
blowing up (like the one above),
according to electroniccigarettelawsuits.
com, which also reports that “some
claims have their merits, and some
do not.” It is becoming apparent that
consumers and legal firms are starting
to cash in on the industry for both the
right and wrong reasons.
And that leaves retailers who are
uninsured, underinsured, or who
purchase e-cigs from an uninsured/
underinsured supplier in a very
vulnerable position.
The China Factor
Mike Lewis, chief operating officer
of Vapor Central, a wholesaler in Kent,
Washington that supplies e-cigs and
other vaping products that are covered
by product liability insurance, has heard
a number of retailers complain firsthand of product safety and lawsuit issues
resulting from e-cigarettes purchased
directly from China.
“This is the only industry I’ve seen
where retailers are purchasing directly
from China, bypassing a wholesaler
to save a nickel,” Lewis tells Tobacco
Business. “My biggest frustration with
electronic cigarettes is that everyone is
going after price, but no one is educating
the store owners; they are oblivious to
the overseas product risks and to what
their regular insurance will cover. I have
retailers calling me back after they got
burned buying from China.”
All of the e-cigarettes that Vapor
Central supplies are covered by the
company’s product liability insurance;
retailers that purchase through them (or
any reputable supplier or manufacturer
with the proper product liability
insurance) are reportedly covered
and don’t necessarily need separate
insurance.
But retailers who are buying direct
electric
ALLEY
“Potentially, a retailer could
lose everything because of these
lawsuits. A retailer’s standard
liability insurance will not cover
it—they need separate product
liability insurance.”
or who are not buying product that is
covered by product liability insurance
are essentially playing Russian roulette
without it.
“Potentially, a retailer could lose
everything because of these lawsuits,” says
Bill Seide, owner of the insurance agency
William R. Seide Agency in Pompton
Plains, New Jersey. “A retailer’s standard
liability insurance will not cover it—they
need separate product liability insurance.”
The product liability policy that
Seide’s agency provides to cover such
products specifically states that it is “a
policy designed for those that sell e-cigs,
vaporizers, e-juice and accessories—it’s an
exclusive program just for that,” according
to him.
Interestingly, tobacco shops and
outlets that sell regular cigarettes,
cigars, and a variety of tobacco products
along with e-cigs can get the added
protection cheaper than a pure vape
shop, Seide relays. “Tobacco shops that
44
TOBACCO BUSINESS
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Safe Battery 101
Because it is the rechargeable lithium battery (Li-ion and LiMN) that is at the
forefront of these e-cig mechanical safety issues, retailers should also promote
safe battery practices to their customers to avoid potential lawsuits.
Some of these tips, as highlighted on several industry websites such as
guidetovaping.com, include:
• Charge batteries on a fireproof or flame-retardant surface such as concrete,
natural stone, or tile and use only the corresponding charger that is set to the
correct settings.
• Store e-cigarette batteries in a protective, non-conductive case.
• Do not disassemble or tamper with e-cig batteries in any way.
• Discontinue using if there is any sign of damage to the battery casing or
wrapper, including dents, bulges, rips, tears and scarring.
• Take care not to unintentionally short the batteries by exposing them to metal
objects, liquids, or by submerging them fully into any conductive substance.
• Keep batteries away from fire or extreme temperatures as they could explode
and/or vent.
• Avoid leaving charging batteries unattended.
are established and have been in business
for a number of years are less of a risk
than the vape shops that are cropping up
everywhere now,” he offers. Seide says he
has seen “regular tobacco shops” purchase
product liability for “as low as $1,800” per
year.
For vape shops it would be “a bit more,”
and for wholesalers and manufacturers
product liability policies “start in the
range of $5,000,” according to Seide.
Lewis concurs with that wholesale
figure, relaying that Vapor Central’s $2
million product liability policy (from
Scottsdale Insurance Company) costs the
company about $5,600 a year. TB
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TOBACCO BUSINESS
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Regulation…
and Other E-Cig Debates
Will the FDA make fine-cut,
or blasting regulations on electronic cigarettes? Will “tanks”
take over the market? The category is heating up with these
and other debates as experts
weigh in from varying angles.
he New York Post recently
reported on the growing trend
of many venture capitalists
and all the major tobacco
companies firmly investing in
electronic cigarettes. “What
was years ago a cult fad is now more than
doubling in sales annually [as seen over]
the last three years,” said Sam Hamadeh,
CEO of research company PrivCo.
Bonnie Herzog, a tobacco analyst with
Wells Fargo Securities, maintains her
bold stance from over a year ago: “We
believe consumption of e-cigs will eclipse
consumption of traditional cigs over the
next decade as e-cig technology improves
and conversion continues to accelerate,”
she reiterates.
With all the hype and hope, debate over
the category’s ultimate potential is heating
up. To follow are the top issues that those
involved in the tobacco industry feel will
determine the category’s future.
Troutman Sanders’
Bryan Haynes
Reportedly, the FDA will issue
proposed regulations for electronic
cigarettes this year, possibly as soon as this
spring. There are several issues tied to how
this will play out, but the overarching one
is whether the government agency will
regulate the category with a scalpel or
with a sledgehammer.
Bryan Haynes, a partner in tobacco
practice at Troutman Sanders law firm,
is optimistic that it might go more the
way of the scalpel. He says that he was
encouraged by the FDA’s recent stance
that the Tobacco Control Act “is not
an all-or-nothing proposition.” Like
other industry experts, he has observed
“the huge learning curve” that the FDA
undertook with traditional tobacco
products, and recognizes that “when
you add e-cigs into the mix, I’m not sure
[that] they have the capability right now”
to effectively evaluate them.
His biggest question then is: “How
much of this product is the FDA going
to regulate?” The answer hinges on
how the product is positioned—that is,
whether its legal definition is expanded
or retracted (see “Tobacco Product vs.
Medical Device vs. Something Else?”
debate on page 46).
As of late January, Cynthia Cabrera,
executive director of Smoke-Free
Alternatives Trade Association (SFATA)
47
TOBACCO BUSINESS
MARCH/APRIL 2014
More than 70 percent of retailers carry or plan to carry “open system” or tank-style vaping products.
40%
35%
36%
36%
30%
28%
25%
20%
15%
10%
5%
0
YES
Currently carry
NO
But plan to carry soon
was also feeling encouraged by the
FDA’s seemingly open dialogue with
the industry. “We think the FDA is
coming around,” she says. “Mitch
Zeller (FDA’s director, Center for
Tobacco Products) pointed out
that [e-cigs] are a good option
for people who don’t want
to use tobacco products. I
think they understand the
potential for this product
and that it is one they can
leverage to get people off
tobacco products.”
In February, the question
of whether the federal
government will regulate
e-cigs
like
traditional
cigarettes (sledgehammer) or
adopt a less-restrictive approach
(scalpel) was touched on in a
Bloomberg Businessweek Magazine
cover story. The article reported that
some health advocates support tough
regulations that would require health labels
48
TOBACCO BUSINESS
MARCH/APRIL 2014
NO
No plans to carry
on e-cigs, subject them to taxes, impose
stringent marketing and sales restrictions,
and ban the use of flavors in them.
It also indicated that Big Tobacco’s
competitive advantage will probably
strengthen once the FDA releases its
proposed regulations for e-cigs, which
analysts expect could include restrictions
on the Internet sales on which many of
the smaller players depend. Conversely, the
“more lightly the area is regulated, the better
chance the upstarts will have of taking on
Big Tobacco and winning,” according to
the Bloomberg story.
Andries Verleur, who formed V2Cigs in
2009, said that it is his “sincere hope” that
“regulators and legislators take a responsible
approach towards our category.”
The FDA has already classified electronic
cigarettes as tobacco products (vs. medical
devices), which was generally viewed as a
good thing by the industry since medical
devices are more strictly regulated. However,
that topic is still open for debate, and very
much tied to how heavily, or if at all, the
FDA will regulate certain products in the
category.
Regarding the no-regulation option,
Haynes says, “I’ve heard of e-cigs with
nicotine that doesn’t come from tobacco.
In my view, the FDA doesn’t have the
authority to regulate these products. Their
jurisdiction is not tied to nicotine, but to
tobacco.”
Then there’s the issue of whether the FDA
will evaluate e-liquids and batteries, or the
electronic parts of the e-cig. “I might suggest
that they won’t,” Haynes continues. “They
don’t have the authority or the technical
competence to look at the electronics in an
e-cig.”
As for the traditional definition debate,
Tom Kiklas of the Tobacco Vapor Electronic
Cigarette Association (TVECA) says, “We
are the ones that put this debate out there.
There are only two options: [an e-cig is
either] a medicinal device or a tobacco
product. Our position since day one has
been that we are nothing but a tobacco
cigarette with slight improvement…[the
e-cigarette category has] been around and
on the market for 400-plus years.”
SFATA, however, does not see it that
way. “We don’t agree that this is a tobacco
product; we believe it is an alternative to a
tobacco product that is very viable for the
FDA to leverage…to get people off tobacco,”
explains Cabrera. “And it’s a lot newer, it is
not 400 years old, it is a viable alternative that
could exist in its own ecosystem and should
not be treated like a tobacco product.”
This sentiment to strive for another
classification beyond what is out there
right now—a tobacco product or a medical
device—is echoed by other industry
associations. “Legally, right now there are
only two pathways, and [with] the way
we’re going now, we will be lumped into the
tobacco product area,” warns Linc Williams,
co-founder of the American E-Liquid
Manufacturing Standards Association
50
TOBACCO BUSINESS
MARCH/APRIL 2014
(AEMSA). “But just because something
is [the] law and there are only two options
doesn’t mean we have to settle; we have to
fight the fight—there are nicotine loopholes.
We don’t have to stand for just those two
options. Things can change and the fight is
worth fighting—we can change it for the
future.”
Bill Bartkowski, president of VapAria
Corporation, an e-cigarette research and
product development company, agrees.
“The judge said that if the FDA is going to
regulate [e-cigs], it needs to regulate them
as tobacco products because they’re derived
from nicotine, but I think there is some room
to negotiate. Right now nicotine is regulated
in two areas of the FDA: the CTP’s tobacco
products and in pharmaceutical applications.
There is an attempt to combine nicotine
under one regulatory authority—one or the
other—or under some combination of the
two. Given that, the discussion is ongoing,
but there is an opportunity for e-cigs to
work to get their own classification. Today’s
path is clear, but that could change.”
Public health groups generally support
e-cigs being classified as tobacco products
so as to subject the device to additional
restrictions and taxation.
This is one of the latest topics to hit
the scene. It now appears that the market
for electronic cigarettes is becoming
divided between cig-alikes (disposable and
rechargeable e-cigarettes that come in stick
form) at one end, and personal vaporizers/
tanks/open systems/modifications or mods,
at the other.
Farrell Delman, president of the Tobacco
Merchants Association (TMA), has been
following this issue closely. “Most U.S.
players invested heavily in the cartridge
business thinking there was lots of money to
be made in the razor blade model,” he says,
referring to a practice of selling a device at
or near cost and deriving profits from the
subsequent sale of supplies for that device.
“But since the cost to the consumer for the
liquid [used in a tank-style system], based on
TMA analysis, is one-twenty-fifth the cost
of a cartridge, committed users are moving
from initiation (disposables) to vaporizers,
some of which are now appearing at retail,
versus over the Internet where [the] majority
have been sold.”
One e-cigarette vendor of the cig-alike/
stick variety recently reported to Tobacco
Business that it just introduced a tankstyle product because its biggest client—
Walmart—prodded them to do so. The
company initially wanted to wait for the
FDA’s regulatory proposal, but the retail
giant pressed them to move swiftly, saying
that more and more of its customers were
requesting the tank form.
This suggests a market-changer that leaves
vendors from the other side scrambling for
more information and confirmation. “The
majors of the world want you to believe
that [the cig-alike] is the market,” confirms
Bill Seide, owner of the insurance agency
William R. Seide Agency, who insures
and closely follows the market of e-cigs,
vaporizers, e-juice and accessories. “That’s
what Lorillard, Philip Morris and Reynolds
are pushing, but the ‘in’ thing right now is
tanks, liquids and mods that center around
vaping and flavors. The problem is [that]
there is no record of those sales right now;
[cig-alikes] are tracked by Nielsen, but
nobody has any idea what this other side is
yet. I can guess from the guys I insure—it’s
in the double-digit millions.”
Even without sales data, Bonnie Herzog
and Wells Fargo Securities are tracking
the trend, and in their recent Tobacco Talk
survey, they found that more than 70 percent
of retailers currently carry or are planning to
carry tanks (see chart).
“A key trend that we see emerging is the
increasing prevalence of vapors/tanks/open
system vapor products, which we think
could be somewhat marginalizing the ‘cigalike’ e-cigs, but incrementally growing the
overall e-vapor category,” says Herzog. “A
number of vape shops have been opening up
across the country and although they are not
With cities like New York City and Chicago proposing to ban
e-cigarette use in public places, it opens up the question: Will e-cig
bans become as commonplace as bans on traditional cigarettes?
Market research firm Harris Interactive’s 2014 American E-Cigarette
Etiquette Survey, commissioned by North Carolina-based e-cig
company Ballantyne Brands, indicates that they will not. After polling
over 1,000 adults by phone in December 2013, the study found that 63
percent of the respondents, including 71 percent of men and 55 percent
of women, said that someone using an e-cig in close proximity would
not bother them. Only one-quarter of the respondents said that they
would object to someone using an e-cig nearby. Below are more stats
from the survey.
Total respondent approval rate for e-cig use at:
Sporting events
58%
Malls
47%
Restaurants and bars
45%
Offices
35%
Public transportation
35%
Movie theaters
29%
Airplanes
26%
Respondent approval rate by gender for e-cig use at:
Men
Restaurants and bars
Women
52%
38%
Sporting Events
Men
Women
65%
51%
Respondent approval rate by age for someone using an e-cig nearby:
18-34
65 and up
52
TOBACCO BUSINESS
MARCH/APRIL 2014
70%
46%
yet a threat for [c-store and tobacco] retailers, these new
shops are definitely on retailers’ radar screens. Bottom
line, retailers continue to embrace the e-cig/e-vapor
categories.”
One retailer quoted in the Tobacco Talk survey
remarking on his tank business said, “It is outpacing
all traditional e-cigs in sales with higher margins, and
consumer satisfaction is amazing.”
Another stated, “It looks like a growth segment we
can’t ignore.”
Perhaps the issue that ties both regulation concerns
and device concerns together is the debate over who is
running this industry: Big Tobacco, or the little guys.
It’s no secret that all the major cigarette makers are
now in the e-cig category. In fact, Altria recently boosted
its presence by announcing that its NuMark subsidiary
will acquire Green Smoke. Altria also launched its
MarkTen e-cig in a test market in Indiana last August.
Reynolds American is selling its Vuse brand e-cig
in test markets in Colorado and Utah; it is expected to
become available nationally by mid-2014. Lorillard was
the first major player in the market with its acquisition
of blu eCigs in April 2012. Herzog estimates that these
three players will weather about a 50 percent reduction
in conventional cigarette revenues by 2023—a fact
that is probably driving their respective moves into
e-cigarettes.
However, while these companies with deep
pockets have brought much attention to the category,
they are also behind some of the confusion. Part of
the misinformation being fed to legislators, health
advocates, and even to some consumers is that Big
Tobacco is running the show, and that the public needs
to be protected from Big Tobacco once again. This is
simply not the case, says SFATA’s Cabrera.
“This industry was built well before [Big Tobacco]
got in,” she points out. “Government should understand
that Big Tobacco is not driving this industry and they
didn’t build this industry. This vape industry was built
by small- and medium-sized companies that are
creating jobs and generating taxes for cities across the
country.” TB
Las Vegas Convention Center
South Hall 1
January 29 – 30, 2014
Tobacco Plus Convenience
Expo Highlights
Formerly known as TPE, the TPC Expo wowed attendees with exciting
educational seminars and a bustling trade show floor.
B
igger than ever, this year’s
Tobacco Plus Convenience
Expo welcomed attendees
with a whopping 36,000 square
feet of exhibits showcasing tobacco
and tobacco-related products and
accessories, including a wide array of
e-cigarettes. In addition to browsing
innovative, profit-boosting products,
attendees enjoyed a gala opening
reception at the Sky Villa on the
30th floor of the Las Vegas Hotel, as
well as seminars on the future of the
emerging e-cigarette category and
on tobacco retailing trends, as well as
peer-to-peer roundtable discussions
on product categories.
A sold-out panel discussion on the
future of e-cigarettes kicked off the
show on January 29, with panelists
from four of the category’s leading
associations offering their insights on
regulatory issues facing the e-cigarette
industry. Several of the panelists
made predictions concerning the
FDA’s much-anticipated proposed
regulations for electronic cigarettes. “I
expect to see flavor restriction, some
age restrictions, maybe some attempts
to limit nicotine density as well as
restrict the fill-your-own products,”
Bill Bartkowski, president of VapAria
Corporation, told attendees. “Whether
that survives [the] public comment
period remains to be seen.”
54
TOBACCO BUSINESS
MARCH/APRIL 2014
Panelist Linc Williams, cofounder of
the American E-Liquid Manufacturing
Standards
Association
(AEMSA),
expressed
a
pessimistic
outlook,
suggesting that the FDA might well
look to impose the same regulatory
requirements on e-cigarettes that they
are demanding of traditional cigarettes,
which would potentially decimate the
industry. “I would like to see the FDA
come up with regulations that are
narrowly focused on manufacturing
quality standards…as well as transparency
so that the public can have confidence
in [product quality],” said Williams.
“We also want to see a national age
requirement so that [varying regulation]
jurisdiction-by-jurisdiction goes away.
But what I expect the FDA to say is that
[the same good manufacturing practices
required of traditional cigarettes] are
necessary and then spend the next five
years trying to define what that means.”
Panelist Cynthia Cabrera, executive
director of Smoke-Free Alternatives
Trade Association (SFATA), expressed
the view that for this very reason the
e-cigarette category should seek to look
to designate itself as a separate class
of product. “We don’t actually agree
that electronic cigarettes are a tobacco
product,” she said. “This is a much newer,
viable alternative that could exist in its
own ecosystem and should not be treated
like [a] tobacco product by the FDA.”
Panelist Thomas Kiklas, representing
the Tobacco Vapor Electronic Cigarette
Association, countered that there are only
two options: being regulated as a medical
device or as a tobacco product. “Our
position is that we are a tobacco cigarette
with slight improvement,” said Kiklas,
who noted that taking the position that
e-cigarettes are a simple technology that’s
been around for a long time will ease its
regulatory path.
Trend Talk
Following the e-cigarette panel, David
Bishop of Balvor offered an in-depth look
at economic and category trends influencing
tobacco retailing. Bishop pointed out that while
President Obama’s pledge to raise the minimum
wage will represent a cost to retailers who rely on
minimum-wage workers, it will also give their
customers more discretionary spending income.
The president’s proposal to raise cigarette taxes
by $1, however, has no such silver lining. “If that
were to pass, it would likely trigger a 6 percent
decline relative to cigarette volume,” he noted.
Bishop closed his presentation by encouraging
retailers to get involved in grass roots efforts to
influence the wide range of regulatory actions
facing the industry, from those mentioned above
to pending regulatory action on categories like
e-cigarettes and premium cigars. “These are
exciting times; they are interesting times and
you need to be involved,” he noted.
Day two of the TPC Expo opened with a
retail panel on marketing tactics (see Trench
Marketing, p. 76, for highlights) followed by a
presentation by Nancyellen Keane and Bryan
Haynes of Troutman Sanders. Keane discussed
the long and winding road to obtaining FDA
approval to bring “new” tobacco products to
market, noting that only a handful of new
products have been approved by the FDA and
A Teeming Trade
Show Floor
The TPC trade show floor opened
at 10 a.m. and immediately
bustled with activity as retailers
began browsing the thousands of
products on display. The exhibit
hall also featured the popular
Cigar Bar & Lounge, where
attendees taking a break enjoyed
complimentary beverages, as
well as—for the first time—a
vaping lounge, catering to
attendees and exhibitors seeking
a comfortable space to enjoy
using their electronic devices.
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TOBACCO BUSINESS
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Las Vegas Convention Center
South Hall 1
that all approvals and denials issued thus far
January
29 – 30, 2014
have been the proverbial “low hanging
fruit.”
“The limited approvals appear to have been
easy calls with ingredients in the new products
having been reduced or eliminated as compared
to the predicate product,” she reported. “Some
applications were summarily denied because
basic info required was not included and at
least one or more products could not show
grandfather status.”
Following
Keane’s
remarks,
Bryan
Haynes urged manufacturers and retailers
to communicate with the FDA, particularly
following the report on suggested deeming
regulations that the FDA is expected to
issue in the spring. “All of you need to be
submitting comments to the FDA when
the rule becomes published; the FDA has
to consider those comments,” he said. “It is
important that they be substantive, [and] well
thought-out, because the FDA will summarily
reject comments like, ‘You all are stupid, you
are trying to destroy the industry.’ You need
to think about how the deeming regulations
will affect how you do business and comment
accordingly.” Ultimately, noted Haynes, no one
can predict what the FDA will decide—but
industry needs to do what it can to influence
the regulatory landscape.
TPC’s Roundtable Forums
The peer-to-peer category roundtables
were a big hit with attendees who enjoyed
exchanging ideas on building a premium
cigar clientele, marketing electronic
cigarettes, protecting patents and more.
Las Vegas Convention Center
Highlights From the South Hall 1
Verona Sky Villa
Reception
January
29 – 30, 2014
TPC’s Opening Night Reception was once again held in the fabulously
appointed Verona Sky Villa on the 30th floor of the Las Vegas
Hotel. Once called home by Elvis, this luxurious 15,000-square-foot
penthouse features its own pool and outdoor patio. Music, great food
and an open bar made for a memorable evening.
Winning Big at Kretek
Kretek International held its annual prize
drawing giveway on day two of the show.
Several prizes were awarded before the grand
prize—a Rolex watch.
The winners:
Ron Jung of West Bend,
Wisconsin-based Smokes
Michael Klingerman of Easton,
Pennsylvania-based Famous
Smoke Shop
Rolex winner Promod Patel of
Pennsylvania’s Mountaintop
Tobacco with Kretek’s Hugh
Cassar and friends
Las Vegas Convention Center
South Hall 1
January 29 – 30, 2014
Show
Spotlight
60
TOBACCO BUSINESS
MARCH/APRIL 2014
Electrifying
S&M Brands
“W
Building on its
success with LEX12,
this Virginia company
is venturing into
electronic tobacco
products and the
cigarillo market.
By Jennifer Gelfand
62
TOBACCO BUSINESS
MARCH/APRIL 2014
e’ve been busy,” Steven
Bailey, president of S&M
Brands, told TBI at the
recent Tobacco Plus Convenience
Expo. Judging by the wide array
of new products on display at the
company’s booth, it was something of
an understatement.
S&M Brands, which makes Bailey’s,
Tahoe and Riverside brand cigarettes,
as well as LEX12 sweet-tipped little
cigars, is not a newcomer in the tobacco
business. Founded in 1993 by Mac and
Steven Bailey, the company debuted
its LEX12 sweet-tipped little cigars
in 2012 at the TPC show to a warm
reception. In 2013, it added Sweet
Chaos and Menthol Chrome in both
tins and grab-and-go four packs, and
this year the company has introduced
Napa Night in tins and grab-andgo four packs. The company is also
extending the brand to encompass
LEX12 Wides Cigars, four SKUs
of cigarillos (see sidebar, “Sensational
Cigarillos”), and an extensive offering of
vapor products, including a disposable
e-cigarette line in an impressive array of
16 flavors. The same proprietary flavors
are available in 12 ml bottles for use in
liquid vaporizers. The company is also
offering rechargeable liquid and dry
herb vaporizers (see sidebar, “S&M’s
Electrifying Lineup”).
S&M Brands has had these
products in limited markets since July
of 2013 in anticipation of imminent
FDA regulation of the category. “We
approach all business from a longterm perspective, and we don’t think
there is any chance that conventional
e-cigarettes will be regulated out of
business,” says Bailey. “Will it look
the same as it does today? I highly
doubt that, but we have positioned
our products for the long term. I see a
good proportion of this portfolio being
around 20 years from now.”
Sensational Cigarillos
Sure, e-cigarettes are getting a lot of attention lately, but cigarillos
are another category that’s going strong. With its LEX12 Blend #7,
S&M has debuted four SKUs of this popular tobacco product: Classic
(pipe), Sparkling Moon (white grape), Blue Magic (blueberry) and
Napa Night (red wine). All are made in the Dominican Republic and
packaged in a resealable “LEX Lock” foil pouch to ensure freshness.
While the company is well aware that flavored products are on the
FDA’s radar—hence the names that evoke but don’t specify flavors—
Steven Bailey intends to make hay until a firm ruling appears.
“Because of the politics around flavored products, I’m not confident
that all of these products will be around in two years,” he says. “Do
I believe children can’t wait to try Napa Night? I would say no. But
there will always be the argument that flavors appeal to kids, so we
have to be realistic.”
S&M’s Electrifying Lineup
The Bailey’s, Tahoe and Riverside cigarette brands are established
throughout the southeastern United States. These three brands,
along with Contact (a branded electronic cigarette), will also be
available in electronic versions to include disposable sticks in
84mm, 100mm, and slim versions in both tobacco and menthol
flavors as well as rechargeable and multi-unit rechargeable formats.
A major point of difference between S&M’s products and those of
its competitors is the standard tin packaging, which creates a natural
link between the quality units offered and consumer perception of
its brands. The MSRPs for the disposable lines will be $9.99 and
the rechargeable units will range from $13.99 and $39.99.
The LEX12 E-Sense line of disposable e-cigarettes is available
in 16 flavors: Classic, Menthol Chrome, Sweet Chaos, Napa Night,
Free Spirit, Temptation, Midnight Dream, Blue Magic, Ragin
Cajun, Carnal Ecstasy, Broken Dawn, Blonde Essence, Red Krush,
Exotic Fusion, Wild Passion and Sparkling Moon. All are available
in standard tin packaging and a 700-puff format with an MSRP
of $9.99.
The company offers two “jump-pack” rechargeable units:
• The regular jump-pack is a multi-stick rechargeable unit
(Bailey’s, Tahoe, Riverside and Contact) with five cartomizers [and]
two batteries. “The way it is designed lets you keep a battery charged
at all times [and is the] same size and shape as a pack of cigs, so for
a consumer who wants to keep something always charging, it’s a
great entry level,” says Bailey, who reports that the MSRP for the
unit is $39.99.
• The mini jump-pack (in Bailey’s, Tahoe, Riverside and Contact)
is a small rechargeable unit, cartomizer and USB charger for a
$13.99 price point.
Additional electronic products available from S&M Brands
include the LEX12 Staple, which is a rechargeable liquid vaporizer
that can be used in conjunction with the LEX12 16 e-liquid flavors,
which is packaged in a tin, and the LEX12 10 Penny and 20 Penny
dry herb-smoking devices.
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TOBACCO BUSINESS
MARCH/APRIL 2014
“LEX12 is not a
product that people
smoke like a cigarette.
It’s more of an afterdinner or with-acocktail product.”
A Bailey Backgrounder
Steven Bailey hails from a Virginia
family that has been in the tobacco
business for more than a century. His
father, Mac, was a tobacco grower
who started Golden Leaf Tobacco
Company in 1980, a company that
continues to supply tobacco to
processors and manufacturers today.
In the ’90s, Mac called on Steven to
help him develop his own cigarette
brand, an endeavor that eventually
yielded Bailey’s: a blend of 40 different
types of 90 percent American-grown
flue and burley tobaccos and a touch
of Oriental tobacco. The family
decided to form a sister company to
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TOBACCO BUSINESS
MARCH/APRIL 2014
sell the cigarettes, and S&M Brands
was born. The Tahoe and Riverside
cigarette brands soon followed.
All of S&M’s cigarette brands
are now firmly entrenched in the
southeastern states in which they’re
sold (Virginia, West Virginia, North
Carolina, South Carolina, Maryland,
Delaware, Georgia, Tennessee and
Kentucky).
In 2012, Bailey debuted LEX12
little cigars, a product that is smooth
and pleasurable to smoke and also has a
pleasant aroma. Like the rest of S&M’s
brands, the cigars are machine-made
and contain American-grown tobacco.
“LEX12 is not a product that people
smoke like a cigarette,” explains Bailey,
who sees it as a “bridge” product. “It’s
more of an after-dinner or with-acocktail product.”
With LEX12 now a well-established
brand, the company is leveraging its
name recognition with a steady stream
of new products. Visit LEX12.com for
more information.
“This whole category will evolve
quickly over time. In terms of technology,
what we look at today might be totally
different by this time next year.”
In developing the vapor products,
Bailey, who is a smoker, worked
diligently to duplicate the smoking
experience. “Most of the electronic
products out there don’t do that,” he
says. “For me it all boils down to the
flavor profile. As a smoker, I recognize
that if I’m not willing to smoke it day in
and day out, no one else will be. That’s
how I measure it.
“Our products are as close to
duplicating the smoking experience
as any electronic product I have tried,”
adds Bailey, noting that he expects
innovation to continue to drive the
electronic cigarette sector. “This whole
category will evolve quickly over time.
In terms of technology, what we look at
today might be totally different by this
time next year.”
Quality is central to S&M, and its
new products are manufactured in
keeping with the company’s “made in
the USA” philosophy. “There are a lot of
price points out there in this category,
but I know that consumers appreciate a
high-quality product,” explains Bailey.
“All of our juices are made in the U.S.
and come with childproof caps, which
we think is really important.” TB
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C-STORE CORNER
Tobacco Categories
Vying for C-Store Share
With cigarette sales continuing to slip, where will retailers turn?
By Jennifer Gelfand
T
he c-store retail sales landscape
is continuing to shift. Cigarette
sales in convenience stores
dropped another .9 percent in 2013
according to research by Balvor/
Convenience Store News. However, smaller
tobacco categories including electronic
cigarettes, pipe tobacco, smokeless and
cigars saw a bump in sales, suggesting
that retailers may need to evolve with the
changing demands of tobacco consumers.
Both moist snuff and snus gained
ground in c-stores last year, with sales
boosts of 7.9 and 2.9 percent, respectively.
“Obviously the increase in smoking
restriction has been a challenge for [all
combustibles],” says David Bishop,
managing partner of Balvor, a Barrington,
Illinois-based sales and marketing firm.
“You’ve seen an explosion in smoking
bans since 2009—dramatic changes in
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TOBACCO BUSINESS
MARCH/APRIL 2014
where you could smoke, whether that
be a cigarette or cigar. As those changes
occur, so does the behavior of smokers.
The headwind for combustibles becomes
a tailwind for smokeless.”
This trend might also seem to lay the
groundwork for the already growing
popularity of electronic nicotine devices
(e-cigarettes, e-cigars, etc.), which emit
vapor rather than smoke, to gain even
more momentum. However, Bishop is
quick to note that the same legislation
banning cigarettes may soon pertain
to electronic alternatives as well. “We
are facing the [way of ] thinking, ‘If it
walks like a duck, looks like a duck and
acts like a duck, it must be a duck.’So
places like New York City are enacting
bans on e-cigarette use, and New
Jersey is considering a statewide ban.
Clearly, e-cigarettes are not immune to
restrictions.”
What is a c-store retailer to do in
the face of shifting consumer demand
coupled with an uncertain regulatory
future? With sales of electronic cigarettes
up 67.9 percent in 2013 and industry
observers painting a rosy picture of
their future potential, many retailers
have opted to expand their offerings of
e-cigarettes and take their chances with
what looms on the regulatory horizon.
In fact, 80 percent of them increased the
number of brands offered since last year.
However, research shows less than onethird of retailers intend to expand shelf
space devoted to other tobacco products
this year, Bishop says. That reluctance
stems in part from concerns about taking
space from cigarettes and the potential
effect on retail contracts. “The balancing
act,” he says, “is complicated by the fact
C-STORE CORNER
[that] there’s a lot of money at risk when we talk about
shuffling between those two major categories.”
Retailers also are cautious because no one knows when and
how the U.S. Food and Drug Administration (FDA) will act
on major regulatory proposals, including a ban on menthol
cigarettes, harsher warning labels on smokeless tobacco, and
calls for more restrictions on e-cigarettes and flavored cigars.
Pending state legislation is also acting as a lock on the “latent
potential” of other tobacco products (OTP), he says.
“What retailers want is some clarity and certainty,”
Bishop says. While the right assortment of cigars and
smokeless offers growth potential for c-stores, “some of
these regulatory uncertainties could be game changers” for
those segments. TB
OTP Sales Still Rising as Cigs Drop
100%
OTP
OTP
+6.7%
90%
80%
70%
60%
CIGARETTES
-0.9%
50%
Cigarettes
40%
30%
Electronic Devices Gaining OTP Share
PAPERS
3.5%
Electronic
nicotine devices
5.1%
Pipe/cigarette
tobacco
2.2%
20%
10%
0%
SALES
While cigarettes still account for 90 percent of tobacco sales, sales of
OTP products are rising as cigarette sales drop.
Cigars
32.3%
SMOKELESS
56.8%
Tobacco Category Growth in C-Stores
SALES DOLLAR GROWTH
70%
65.9%
60%
50%
STRONGER
GM%
40%
30%
20%
10%
0%
72
7.9%
.1%
Moist Smokeless
TOBACCO BUSINESS
MARCH/APRIL 2014
Cigars Break-Even Point
2.7%
4.8%
Snus
Loose
Electronic Nicotine Devices
Source: NACS SOI data, BALVOR/CSNEWS Research,
December 2013; Nielsen data
C-STORE CORNER
Average C-Store Offers Three Brands of E-Cigs
Tobacco
Outlet Stores
Convenience
Stores
All Others
0
1
2
3
4
5
6
Number of E-Cig Brands Offered
80 percent of retailers are offering more brands today than a year ago.
Disposable Devices Still Dominate
(Percent of respondents who report carrying the subcategory)
Single Units,
Disposable
Refill
Cartridges
Kits,
Basic/Express
Single Units,
Rechargable
Multi Units,
Disposable
Kits,
Deluxe
e-Cigars
e-Hookahs
e-Liquids
0%
20%
40%
60%
80%
100%
Percent of Retailers
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TOBACCO BUSINESS
MARCH/APRIL 2014
Source: BALVOR/CSNEWS Research, December 2013
(Reflects retailers who carry in either all stores or some stores)
trench marketing
BY MICHAEL GELFAND
Reading the Signs
Jessica Curnett came
to the business by chance,
but she deftly turned
J.C. Tobacco Mart into
a raging success
by keeping RYO on the
top of her
customers’ minds.
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TOBACCO BUSINESS
MARCH/APRIL 2014
M
any people attend church in hopes of seeing a
sign that will reveal the path that their lives will
take. The sign that shaped Jessica Curnett’s
future, however, came to her in a slightly different way. “It
was back in 2011, and I was on my way to church when
I saw a sign outside the local tobacco market that said,
‘Roll Your Own Headquarters,’ so I pulled off the road to
see for myself what was going on.” The store’s owner met
Curnett, who had rolled her own cigarettes for 17 years
prior, out in front of the store at the time, and they spoke
about his store and the business for 45 minutes. “We just
hit it off,” she says, “and he asked me to come back that
upcoming Wednesday. I came back dressed up to the
nines because I sensed he had it in mind to hire me as his
manager.” As she suspected, after a short conversation,
Curnett was hired.
trench marketing
“The store carries everything from cigarettes to dry snuff in cans,
little plugs of tobacco, and cumberland twists. I’ve got dry snuff in
cans to tuck in your cheek, I carry hookahs and shisha in pieces and
parts, higher-end pipes like Dr. Grabow, and a variety of RYO brands.”
J.C. Tobacco Mart’s staff (from left to right):
Donna Collins, Linda Avella, Jessica Curnett and Emily Woods
Curnett threw herself into her job, learning everything she
could about the business and the store’s customers from her
boss. However, the tobacco industry was already undergoing
sea changes, and the job she fell in love with had lost its allure
for her mentor. “He approached me a year later and asked
me to buy the store myself or help him shut it down,” she
recalls. “I couldn’t let it go, it was near and dear to my heart,
so I took the step up, signed the paperwork in September of
2012, and things have been cruising right along ever since.”
Today Curnett is the owner of J.C. Tobacco Mart, a
thriving tobacco outlet located in Panama City, Florida
with five employees (four of whom are full-time) including
Curnett’s husband, who helps with tracking and fine-tuning
inventory, and their 19-year-old son. Like most owners of
small businesses, Curnett’s fingers are in everything. “I’m
responsible for scheduling and marketing, and I do all of
the budgets, all of the reports, speak with the accountants,
and generally make sure everyone’s happy,” she says. Her
store manager, Linda Avella, handles the bulk of ordering,
but Curnett oversees and approves the orders before they
are finalized.
RYO Remains the Heart and Soul
The store is 2,000 square feet and divided into two sections.
“One side is purely retail-oriented, housing our lottery and fax
machines, along with a wide variety of cartons and bags of
tobacco,” says Curnett. The other side serves as the “rolling
room,” and also hosts miscellaneous products like the highend pipes and e-cigarettes, including disposable, cartridge
and liquid kits, she says. “The store carries everything
from cigarettes to dry snuff in cans, little plugs of tobacco,
and cumberland twists. I’ve got dry snuff in cans to tuck in
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TOBACCO BUSINESS
MARCH/APRIL 2014
trench marketing
your cheek, I carry hookahs and shisha in pieces and parts,
higher-end pipes like Dr. Grabow, and a variety of RYO
brands, including OHM, which is my main brand.” She also
carries rolling papers, cigarillos, wraps, ashtrays and other
miscellaneous lighters, candles and incense.
Many of Curnett’s customers were loyal regulars on the
big RYO machines that once filled the store, but even now
that regulation has put a stop to the use of those machines,
Curnett’s customers know that RYO is here to stay. “I set up
tables with every type of machine a customer can use at
home, and we’ve been successful with the category because
we’ve put the product back in the customers’ hands and
made it even more affordable for them. The heart and soul of
our business is RYO.”
Going the Extra Mile Pays Off
Having something for everyone who walks in the door is what
has made J.C. Tobacco Mart successful. “I think it’s important
that I have everything available for whoever comes in, and it’s
important for my customers to know that if I don’t have it, I’ll
find it for you,” says Curnett. “I’d rather go the extra mile to
order something special that a customer wants than have 60
of something that no one wants.” Her store has two displays
for high-end cigars, but Curnett pines for a walk-in humidor.
“My store’s demographic isn’t as keen on high-end cigars, and
walk-ins can be very costly if you don’t have the right clientele
to justify it, but it’s one of my dreams for the store.”
Curnett caters primarily to the middle class, she says.
“We’re all out here trying to make it work, so the more
solutions and alternatives I can give them, the better. This is
the last legal vice we can hold on to, so I want to make sure
my clients are getting a healthier product if that’s possible,”
she says. “These are blue-collar folks, including the milkman,
the street sweeper, and lots of seniors, and I’m working hard
to take care of my people.
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TOBACCO BUSINESS
MARCH/APRIL 2014
“I’m seeing a lot of my customers go through economic
struggles, and it shows up in many different ways,” says
Curnett. The most prominent one is customers adopting
filtered cigars after having smoked cigarettes. “I’m not the
king of this industry, but I don’t think filtered cigars were
meant to be a replacement. They were a supplement, and
they can be harsh because people are smoking them like
cigarettes, not cigars. I’m also seeing elderly customers come
in asking, ‘What’s the cheapest cigarette [that you sell]?’ and
that’s where RYO comes in.”
Practice What You Preach
“We [Curnett and her staff] all roll our own, and we know
the product is better,” she says. “When you’re doing it, you’re
seeing what you’re putting in there, so we work hard to put
the product back into their hands and show them that they
can afford to do it. It’s a little bit of work, and I feel bad for
folks who work 50 hours a week and don’t have time to roll.
“I like to think customer service goes a long way, and I
know it does because I feel it when I’m out shopping, but
realistically price is always No. 1,” says Curnett. “If they can
get it cheaper down the road, they’re going down the road,
but I’ve got such a turnover on my product that nothing’s
staying on the shelf. My competitors down the road only
have two products and they’re both dried out, so if I take
customer service a step further, my customers will come
back to me even though the same product costs a dollar
more in my store.”
Curnett isn’t big on advertising and admittedly has barely
scratched the surface of the Internet. Instead, she puts most
of her marketing energy into events, like Mardi Gras and
Oktoberfest celebrations where she and her team can educate
locals about the products. Similarly, she set up a dedicated
lounge area where customers can enjoy products. “It’s a very
simple rolling room decorated with drawings of James Dean,
trench marketing
Marilyn Monroe and Al Pacino smoking. A round kitchen
table surrounded by four nice chairs, a full couch, and a funky
hand-shaped chair provides a comfortable area for customers
to relax,” she says. “Coffee is always brewing, and we make
sure to have music playing on the radio to keep it fun.”
The most important aspect of her sales strategy, though, is
keeping herself and her staff educated about their products.
“If a new product comes out, or if there’s something that was
before my time, I make sure everyone tries it,” she comments.
“Know what you’re selling, and know your customers so
that when you’re telling them about what’s new, you’re both
speaking the same language.” TB
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TOBACCO BUSINESS
MARCH/APRIL 2014
Curnett’s son (and employee), Jesse,
enjoying some alone time in the lounge.
PRODUCT PROFILE
MARCH/APRIL 2014
Arango Adds Private Label
“We are pleased to include Romeo & Julieta as the most recent addition in our new
‘Clasico’ series of premium cigars,” says Michael Gold, Arango Cigar’s president,
in announcing the company’s latest premium cigar offering. “Unlike the original
two Clasicos, which are patterned after General Cigar Company’s top-selling Macanudo and Punch brands, Romeo y Julieta Clasicos are a product of Altadis USA.”
All three Clasico lines are made exclusively for Arango and have natural wrappers. Their make-ups and blends are comparable to the Altadis and General Cigar
brands they are patterned after. Romeo y Julieta Clasicos are medium-bodied with
an Indonesian wrapper, while medium-bodied Punch Clasicos have an Ecuadorean
wrapper, and the mild-to-medium-bodied Macanudo Clasico features a Connecticut shade wrapper.
The Romeo y Julieta Clasico frontmarks, like the original two lines, pay tribute
to notable Chicagoland areas: Mag Mile (5.5x44), Windy City (5x50), Bucktown
(6.125x52, Belicoso) and Gold Coast (6x60). Their suggested prices range from
$6.75 to $8.40.
Clasicos are presented in 15-count boxes, an affordable, space-saving and novel
feature of the line. “Another significant advantage for brick-and-mortar tobacco
shops is that Arango does not sell Clasicos to mail-order or Internet retailers,”
notes Gold, who adds that the full Clasico lineup is currently available. Arango
Cigar, 800-222-4427
Debuts From Davidoff
Davidoff has released two new assortments. Its “Inspirational Robusto” assortment offers cigar aficionados an assortment of three exceptional cigar blends and
complex aromas. The new assortment features three cigars:
•The award-winning Davidoff Nicaragua Robusto, launched in late 2013;
• The “Millennium Blend,” which showcases Davidoff’s sophistication in blending and complexity of aromas; and,
• The “Puro d’Oro,” the first Davidoff Dominican Puro with its intense and complex blend wrapped in a unique Yamasá wrapper.
The Davidoff “Short Pleasures” assortment offers four ideal cigars for those
short, relaxing moments in a hectic life. It includes a selection of Davidoff’s rich
blends that can be enjoyed in 30 to 45 minutes. Thanks to the different cigar formats and blends, modern cigar lovers can discover and enjoy, depending on
their mood and the time of day, the milder “Entreacto” and “Grand Cru” No. 5,
or the richer and more intense Millennium Blend Short Robusto or Davidoff Puro
d’Oro Gorditos. The cigar strength indicator inside the assortment pack helps you
choose the right cigar for a specific occasion. Davidoff, www.davidoff.com
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TOBACCO BUSINESS
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PRODUCT PROFILE
MARCH/APRIL 2014
Royal Gold and Drew Estate Team Up
Styling from
Sapphyre Hookah
Royal Gold Cigars has partnered with renowned cigar manufacturer Drew Estate
for its latest premium, hand-rolled cigar release: Nirvana Cameroon Selection.
The new cigar features a luscious, light-brown, Rosado wrapper grown in the
Eastern province of Cameroon, Africa.
The origin of the Cameroon seed varietal is Sumatra Indonesia, which has
been grown in Africa for over 60 years. The balance of the blend consists of fillers from Nicaragua, specifically Jalapa and Estelí, along with a portion from the
Jamastran region of Honduras. The binder is San Andreas tobacco from Mexico.
“The beauty behind the Nirvana blend is the combination of [a] Cameroon
wrapper and Nicaraguan filler leaves,” says Drew Estate co-founder Marvin
Samel. “Cameroon leaf is from Africa and is known for its sweetness and a natural sweet, spicy taste. Blending the strength, body, and richness of the Nicaraguan tobacco with the Cameroon allows a nuanced and layered depth to really
come through. This is not an old-fashioned mild Cammy. Quite the contrary.”
The new Nirvana line is offered in five sizes, including a 6x46 Corona Gorda,
5x52 Robusto, 6x52 Toro, 6x54 Torpedo and finally, a 4x44 size called the “Silencio.” The first shipment of Nirvana will be shipped in unique, limited edition,
wooden display boxes featuring beautiful silkscreen graphics. Royal Gold Cigars,
800-524-4406, [email protected], www.royalgoldcigars.com
Sapphyre Hookah is an exciting new
line of flavored electronic hookah
from ECO-CIGS. With a rich metallic
finish, Sapphyre Crystal tip and 600
puffs of zero-nicotine flavor, Sapphyre
Hookah e-cigs appeal to a wide range
of adult customers—and delivers the
quality, margin and value retailers expect from the Sapphyre brand.
Sapphyre Hookah comes in eight
great flavors, including Blueberry
Mint, Mango Tango, Green Apple,
Strawberry Fields, Peach Passion,
Grape Explosion, Watermelon Heaven
and Chocolate Mint. Each Sapphyre
box includes five each of four flavors
at an MSRP of $8.99. ECO-CIGS, 855326-2447 (x106) or tony@eco-cigs.
com
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TOBACCO BUSINESS
MARCH/APRIL 2014
PRODUCT PROFILE
MARCH/APRIL 2014
Electronic Cigarettes U.S. Automated
Filling, Assembly & Packaging
Freedom Smokeless, a Southern California-based producer of electronic
cigarettes, unveiled new, U.S.-built, high-speed electronic cigarette automation machinery at the recent TPC 2014 show in Las Vegas. Freedom, in the
e-cig industry since 2008, offers complete, turnkey automated solutions designed specifically to bridge the gap between China and America, making ecig and cartridge liquid filling, assembly and packaging an affordable reality. Freedom’s business is focused on OEM and ODM precision manufacturing of electronic cigarettes. In 2011, Freedom began the design and construction of its high-speed automated filling and assembly production lines
with the assistance of U.S. automation engineers. The first of six customdesigned “made in America” machines has been installed in Freedom’s
Southern California, FDA Registered, ISO- and GMP-compliant facilities. By
May 2014, all six automated lines will be up and running with the capacity
of producing over four million units per week (disposable and cartomizer).
“The response at the recent TPC show was overwhelming,” says Glenn
Kassel, Freedom’s president and co-founder. “When watching the video of
our automated production, people were amazed that we had developed
such sophisticated technology, especially our built-in quality assurance features.” Freedom’s automation includes precision filling, gluing, capping, a
patent-pending fusion feature (for soft-tip disposables and for a first-of-itskind soft-tip cartomizer), QC inspection with pressure testing, LED validation, a visual puff test, labeling, and silicon over-capping.
“Our quality assurance protocols include audits at every level of manufacturing from raw materials, sub-assemblies, WIP and finished goods in addition to regularly scheduled, consistent on-site factory inspections,” says
Michael Lewis, Freedom’s CEO and co-founder. “We use the very finest U.S.made e-liquids, which are all batch tested by accredited third-party labs. Our
packaging and printing is handled locally at ISO-certified facilities. It’s taken
us several years to create this world-class production system; our customers will attest that our consistent high quality and extremely
efficient manufacturing and finished goods production allows
them to focus on sales instead
of facing all the challenges that
can arise when working with
foreign vendors.” Freedom,
www.freedomsmokeless.com 88
TOBACCO BUSINESS
MARCH/APRIL 2014
Miami Cigar Debuts Anniversary Humidor
Twenty-five years ago, Nestor and Mariana Miranda began distributing cigars out of the trunk
of a car, visiting accounts that Nestor Miranda
had built relationships with through his many
years in the liquor business. That endeavor
eventually evolved into what is today one of
the nation’s largest premium cigar distributors.
To commemorate this accomplishment, Miami Cigar & Company has decided to release
a limited edition 25th Anniversary Humidor
containing cigars from the two factories that
helped them reach this milestone. “We are
very excited to be working with La Aurora and
My Father Cigars on this project,” says Jason
Wood, Miami Cigar’s vice president. “Twentyfive years would not have been possible without the help of the Leon and Garcia families
and we thank them for that.”
This piano-finished humidor has the capacity for 75 cigars. It will contain 20 Toro-sized
cigars, each packaged in their own individual
coffin. The individual cigar will have a secondary band denoting its country of origin. Total
production on this limited release will be 500
humidors set to hit the U.S. market in midMarch.
“I feel privileged to be a part of this historic
milestone,” says Wood. “What the Mirandas
were able to accomplish is something that I
can only hope to duplicate in the 25 years to
come. They have provided us with the blueprint; now with the help of everyone at Miami
Cigar, we look forward to an amazing run continuing their legacy.” Miami Cigar & Company,
www.miamicigarcompany.com
PRODUCT PROFILE
MARCH/APRIL 2014
Super Limited
by Nat Sherman
This New Haus
Mistic introduced its new Haus Personal Vaporizer at the Tobacco Plus
Convenience Expo in Las Vegas in January. The device will be sold nationwide in mass-merchandise, convenience, dollar store and grocery retail channels, including Walmart, Circle K, The Pantry, H-E-B, Winn-Dixie
and Bi-Lo, and other national and regional distributors.
“Mistic is setting the standard for quality, value and taste within the
electronic cigarette and vaping industry,” said John Wiesehan, Jr., CEO of
Mistic. “Our retail partners chose Mistic to develop Haus because of our
reputation for quality and increasing demand among adult smokers who
want to create their own vaping experiences as they transition away from
traditional cigarettes.”
Offered in blue or black with stainless steel fittings and a light activated on/off control, Haus features a streamlined, lightweight design and a
high-powered lithium ion battery at a suggested retail price of $24.99.
The Haus Personal Vaporizer is a complete starter system, equipped with
a specially designed unit and tank with a soft handle for added comfort, a
lithium ion battery, a USB charger, and a lanyard for easy carrying access.
“We listened to what our retailers wanted and developed an individual personal vaping unit to be rolled out nationally across multiple store
channels,” says Wiesehan. “Haus also provides the added convenience
for consumers of being available nationally from a trusted brand of vapor
products and accessories.”
Allowing vapers the flexibility to choose from a variety of taste profiles,
five distinct blends will be available to use with the Haus Personal Vaporizer: American Blend, Cool Ice, Washington Red, Java and Ocean Mist.
Retailing at $7.99, Mistic’s e-liquid, like all of its other electronic cigarette
products, is made and bottled in the United States. Mistic, www.misticecigs.com
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TOBACCO BUSINESS
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Nat Sherman is offering a limited production
format in three of their most popular blends
from the Dominican Republic: The Timeless
Collection, 1930 and Sterling. The Super
Lancero measures 8x38, a half-inch longer
than a traditional Laguito No. 1 Vitola. “The
lancero format is an extremely elegant size,
allowing the smoke’s flavor to remain focused, without incorporating as much air into
the smoke as larger ring gauges do,” says
Michael Herklots, executive director of retail and brand development for Nat Sherman
International. “The extra length of the cigar
gives greater opportunity for the experience
and flavors to change and develop from start
to finish, while keeping the smoke cooler longer.”
“The Super Lanceros are manufactured in
limited quantities at The Quesada Factory
[formerly known as MATASA] in Licey, Dominican Republic, just outside of Santiago. Only
one team of rollers is tasked with making this
coveted size,” adds William Sherman, executive vice president of Nat Sherman. “Small
ring gauges are among the hardest vitolas to
make, as it’s very easy to under-fill or overfill. We have one expert team in the factory
that is carefully bunching and rolling these cigars to ensure they’ll draw
and burn perfectly.” The
Super
Lancero
Timeless
Collection
comes packed in boxes
of 10 cigars with an MSRP
of $110 per box, the 1930
Super Lancero is $150
per box, and the Sterling
Super Lancero is $180
per box. Nat Sherman,
natsherman.com
PRODUCT PROFILE
MARCH/APRIL 2014
A Powerful Roll
Republic Clears
Things Up
Republic Tobacco’s new Kwik Kleer Lens
Wipes are individually-packaged wipes
with a clean, fresh scent. The moistened,
non-abrasive sheets clean eyeglasses,
sunglasses, cell phone screens, computer screens and more. Ten individual
foil-sealed packages are packed per box
for 99 cents each, or a three-tier counter
merchandiser ships ready to sell with
48 boxes per display. Republic Tobacco,
800-288-8888
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TOBACCO BUSINESS
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Republic Tobacco has launched the PoweRoll Electric King Size Cigarette Machine by TOP-O-Matic, which combines one-touch automatic operation with
the quality and durability of the popular TOP-O-Matic line. The PoweRoll machine comes with tamper and cleaning tools, instructions, and a one-year,
one-time limited warranty, all packaged in its own carrying case.
With the PoweRoll, cigarettes are made in seconds with three steps: fill the
tobacco chamber, place a tube on the nozzle, and push the start button. The
PoweRoll King Size Cigarette Machine is individually boxed and sold in cases
of four units that display in a small footprint on a counter or shelf. Republic
Tobacco, 800-288-8888
WOW
E-Cigarette
Vapor4Life recently introduced its WOW Vapor
King disposable e-cigarettes at the Tobacco Plus
Convenience Expo in Las
Vegas. After four years in
development and more
than 200 hours of taste
testing, the Vapor4Life
company has released a disposable e-cig available in two flavors: Tobacco
and Menthol. Both flavors are available in Regular (2.6 percent nicotine) and
Strong (3.6 percent).
“For years I’ve been trying to find the perfect solution for a disposable
e-cig. I have tried over 500 brands of disposables,” says Steve Milin, Vapor4Life founder and CEO. “Nothing cut it. My disposables deliver a true smoking experience: perfect tobacco flavor, a realistic throat hit and huge vapor.”
Vapor4Life, www.wowvapor.com
PRODUCT PROFILE
MARCH/APRIL 2014
Announcing Voodoo
Hookah Accessories
A Stand-Up Idea
The new XistiX’s Cigar Clip and
Stand accessory allows users
to clip the cigar near the band
and continue normal smoking
methods, as well as stand the
clip up on a flat surface. The
clip and stand has the capability
of grasping anything from a
cigarette-sized object all the
way up to an 80-ring gauge
cigar. The stand also allows
cigar smokers to “go beyond
the band” and smoke cigars all
the way to the nub. XistiX, www.
xistixcigaraccessories.com
PRODUCT PROFILE
Kretek International announced
several new additions to its lineup
of Voodoo Hookah products. Joining Voodoo traditional hookahs and
new e-hookahs are a full line of 20
shisha flavors with matching flavors
in Voodoo Steam Stones. The 20
exotic flavors are divided into four
pre-packed collections of tropical and blended fruit, berries, citrus and coconut. Flavors
include Guava Sunrise, Chill Berry and Wet Kiss Mango. Each flavor combo is created
to deliver the perfect balance of top-quality hookah tobacco and natural ingredients for
hookah lovers.
Voodoo Steam Stones are 100 percent natural mineral complexes selected for flavor
and moisture absorption. Steam stones produce no smoke and contain no nicotine, but
deliver all the exotic flavor of shisha.
“Our goal with Voodoo Shisha and Steam Stones is to take this traditional form of
tobacco enjoyment forward to current adult tobacco users who are looking for relaxation and an escape from the increasing regulation of the cigarette marketplace,” says
Kretek Marketing Director Rick Chandler. “Our Voodoo now encompasses a wide range
of electronic, hookah, and smoke-free tobacco products and accessories.” The Voodoo
brand also includes hookah charcoal, hookah torch lighter and the fast-growing Voodoo
disposable e-hookah in eight flavors with 800 puffs. Voodoo offers products created to
ensure the most enjoyable smoking experience possible. Voodoo’s goal is to provide
the best products and accessories at the very best prices. Kretek International, www.
voodoohookah.com, 800-358-8100, [email protected]
JANUARY/FEBRUARY 2014
Zooming Along
Zooming Along
Vector Group announced the launch of indirect subsidiary Zoom E-Cigs’ ZOOM
Vector Group recently announced that its indirect subsidiary, Zoom E-Cigs will
electronic cigarette brand nationwide in January. ZOOM, a superior disposable,
launch its ZOOM electronic cigarette brand nationwide in January of 2014. Zoom’s
non-rechargeable line, is the company’s first e-cigarette product. Sales and distrifirst product, a superior disposable, non-rechargeable line, will be the company’s
bution of the brand is managed by Liggett Vector Brands. ZOOM premium e-cigs
first e-cigarette. Sales and distribution of the brand will be managed by Liggett
will feature tobacco and menthol flavors in bold and smooth styles. This product is
Vector Brands. ZOOM premium e-cigs will feature tobacco and menthol flavors
not available nationwide in single and convenient three-pack formats and consists
in bold and smooth styles. Products will initially be available nationwide in single
of low-weight 100mm devices, a length that is familiar to smokers of conventional
and convenient three-pack formats and feature low weight 100mm products, a
cigarettes.
length that is familiar to smokers of conventional cigarettes.
Developed in combination with XEO Int., a Hannover, Germany-based e-cigaDeveloped in combination with XEO Int., a Hannover, Germany-based e-cigarette design and engineering company, ZOOM disposable e-cigs feature an exrette design and engineering company, ZOOM disposable e-cigs feature an exclusive, 130mAh battery that delivers at least 300 TRU-PUFFS, the equivalent of
clusive, 130mAh battery that delivers at least 300 TRU-PUFFS, the equivalent of
approximately two packs of conventional cigarettes. ZOOM products use a propriapproximately two packs of conventional cigarettes. ZOOM products use a proetary U.S.-made e-liquid which produces a premium quality vapor stream with the
prietary U.S.-made e-liquid which produces a premium quality vapor stream with
consistent delivery of traditional tobacco and menthol flavors preferred by smokthe consistent delivery of traditional tobacco and menthol flavors preferred by
ers. ZOOM features a soft-tip filter and proprietary packaging to complete the bestsmokers. ZOOM features a soft-tip filter and proprietary packaging to complete
in-class e-cigarette experience. Vector Group, www.zoomecigs.com
the best-in-class e-cigarette experience. Vector Group, www.zoomecigs.com
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aDvERTIsER
TOBACCO BUSINESS
MARCH/APRIL 2014
INdEx
Altria Group Distribution Company
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Nat Sherman
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