Layoffs here, layoffs there … now let’s shut down a thousand smoke shops!

Jeffrey Armstrong is a soft-spoken guy, of evident Caribbean origin. He’s the owner and sole proprietor of “The Smoke Zone,” a rented storefront next to the Quizno’s on Rancho Boulevard just north of Charleston — though it’s one of several similar “RYO (Roll Your Own) Filling Stations” in Southern Nevada.

The basic pitch? Cheap cigarettes.

The brunette pays about $28 per carton at the Paiute tribal smoke shop, on the reservation north of town, for Smokin’ Joes, which are relatively loosely packed and thus fast-burning. Quality control? A little spotty.

Armstrong advertises cartons at $21 plus change, and contends the machine in his shop can pack your cigarettes at varying degrees of firmness, generally creating a cigarette that will burn at least twice as long as a Smokin’ Joe, “so you actually smoke less, which saves you even more money.”

I called the Wal-Mart Supercenter on West Charleston. A carton of Marlboro “100s” now costs $49.70, there.

I don’t smoke. Armstrong said the regulations governing tobacco distribution are such that he was reluctant to hand the brunette a free sample, but a customer who was in the process of “rolling her own” carton cheerfully handed one over. The brunette found it a bit harder to draw than her usual brand, leading to the discussion of the ability to adjust the cut of tobacco going through the machine, the higher relative humidity of the pipe tobacco going into the machine, and most of all the tightness with which the tobacco is packed.

Ah yes, the machine.

It dominates the waiting area of the small shop, a red steel rectangle the size of an upright piano.

Armstrong insists he neither manufactures nor sells cigarettes — a legal fine point the importance of which will soon become obvious.

“I sell you the tobacco,” he says, holding up a big Zip-loc plastic bag that looks to hold about half a kilo of the brown shag. “And I sell you this empty tubes,” he says, taking down from the shelf and displaying a carton of filter cigarettes that turn out to be, well, empty.

The buyer then dumps the tobacco in the chute at the top of the machine, pours the empty paper tubes in the side, punches a few buttons of the video control screen, and — voici! — the machine goes to work chopping the pipe tobacco, spitting it into the little paper tubes one at a time, and dropping them into a tray down below, where the purchaser gathers up the finished cigarettes and packs them neatly back into the cardboard carton.

Processing a carton’s worth appears to take about 10 minutes.

“I never touch the tobacco or the cigarettes,” Armstrong smiles. For a small fee to use his machine — included in the per-carton price — you’ve just “rolled your own.”

Why are they so much cheaper? The rough-cut “pipe” tobacco is taxed at a lower rate. The federal government imposes a hefty tax on cigarette “manufacturers,” which is not paid by those who “roll their own.”

The entrepreneurs responsible for the “RYO Filling Stations” discovered a niche in the law, and introduced their cost-saving service.

Needless to say, “Big Tobacco” was not pleased.

“Now lawmakers, backed by Big Tobacco and convenience-store chains, want to declare such shops to be manufacturers,” reported Mike Esterl in the Wall Street Journal, March 16. “That would subject them to the same taxes and regulations as the broader cigarette industry, likely snuffing them out.

“Hundreds of such shops — mostly or entirely focused on the roll-your-own machines — have opened since 2009, when Congress increased the federal excise tax on a carton of 200 cigarettes to $10.066 from $3.90 and hiked the tax on a pound of roll-your-own cigarette tobacco to $24.78 from $1.0969,” the Journal reports. “The tax for a pound of pipe tobacco rose only to $2.8311 from $1.0969.”

Needless to say, Big Tobacco doesn’t employ all those lobbyists so they can just sit back and let something like THIS transpire.

Under a Senate bill passed a few days before Esterl’s piece ran in the Journal, “Any retailers making roll-your-own machines available to customers would be treated like mainstream cigarette manufacturers. The provision was included in a rural school financing amendment tucked inside the federal surface transportation bill, which still needs House approval.”

“Roll-your-own cigarette machines take advantage of an unintended tax loophole, and that isn’t right,’’ said Sen. Max Baucus, D-Mont., who chairs the Senate Finance Committee and sponsored the amendment. Rep. Diane Black, R-Tenn., introduced a separate bill, House Resolution 4134, amending the definition of a tobacco manufacturer to include “any person who for commercial purposes makes available for consumer use a machine capable of producing tobacco products.”

Governors in Virginia, South Dakota and Wyoming signed similar bills this spring. In New York, state and city authorities in March filed lawsuits against a handful of roll-your-own retailers for allegedly circumventing taxes and regulations — despite the fact ready-made cigarettes still control more than 95 percent of the market.

RYO Machines LLC of Ohio, the largest maker of the machines, has hired its own lobbyists and lawyers. “The company and affected tobacco shops say they have no way of complying with the regulatory requirements of being a cigarette manufacturer,” The Journal reports. “They say they haven’t broken any laws and that large tobacco companies are trying to extinguish competition.

“I’m David fighting Goliath,’’ said Phil Accordino, part-owner of Girard, Ohio-based RYO Machines, which began manufacturing the nearly five-feet-high machines in 2008. The company has sold about 1,900 machines to tobacco shops in more than 40 states, including roughly 1,000 last year. Stores pay a bit more than $30,000 for each machine, which takes two to three seconds to roll a cigarette — roughly a thousand times slower than machines at big cigarette manufacturing plants.

“The transportation bill was a very, very dastardly way to come at us with attaching this type of an amendment to the bill, a bill that’s very necessary for Congress to pass, as far as the road projects,” says Accordino.

“Everyone understands how backhanded this was, but that’s the way they play.”

If legislation requires small business owners to pay the full amount of taxes on roll-your-own cigarettes and pass the cost to customers, “We’d be out of business,” Matt McCune, co-owner of M&M Tobacco in Middletown, Ohio, told the local Middletown Journal.

The Alcohol and Tobacco Tax and Trade Bureau declared in 2010 that retailers with roll-your-own machines are manufacturers, but RYO secured a preliminary injunction in a federal court in Ohio. RYO also has won injunctions in a handful of states, including Connecticut and Wisconsin.

The likelihood they’ll win in the end? Come on.

THIS AIN’T LAISSEZ-FAIRE CAPITALISM

Two major things are worth noting, here. First, if the big tobacco merchants were true laissez-faire capitalists, their reaction would have been “Taxes so high that they discourage customers from buying our products are inherently anti-business. The solution is to lower OUR taxes so we can sell for the same, lower price.”

That would have been a harder sell, of course. Tobacco Prohibition zealots would have shrieked at the notion of generally cheaper cigarettes, and then there would be the predictable lies about what such a tax reduction would “cost” government. (Lower tax rates impose no “costs” on government — they simply reduce government revenue, which would require the abandonment of some of Washington City’s most senseless and costly regulatory boondoggles, which would be A Good Thing.)

Instead, in a move so predictable that we hardly notice, Big Tobacco took the opposite stance, holding that high taxes and regulations are so good that they should be imposed on everyone.

Recall that, back in the 1930s, major American business organizations sang the praises of the “industrial policies” of Fascist Mussolini and even Adolf Hitler. “Fascist” and “Nazi” have become randomly used hate-words applied to any smaller-government conservative, these days, but the defining policies of those regimes had less to do with jackboots and goose-stepping thugs than an economic policy that allowed the rich Junker class to retain title to their corporations and their profits, so long as they would tolerate close government regulatory supervision and “direction.”

Corporate owners grew happy in these “business-government partnerships” not because they allowed healthy competition, but because they stifled it. Costs might go up, but those tax- and regulatory costs could be safely passed along to consumers so long as upstart competitors were nipped in the bud by a regulatory state whose onerous mandates could be met only by established outfits with scores of lobbyists, lawyers, palm-greasers and bag men already on the payroll.

Big Business and Big Government working hand-in-hand to stymie the “creative destruction” of true capitalism, ain’t capitalism. It’s nothing like the ideal laissez-faire economic system — a free market restrained only by courts to punish theft and fraud — that America approached in the 19th century, but from which we have been radically diverging since 1913.

Instead, it’s an economic system which the dictionaries recognize as “Fascism,” or “State Socialism.”

The second thing worth noting about the likely squashing of the Roll-Your-Own shops — which will probably resemble the dramatic conclusion of the animated short subject “Bambi Meets Godzilla”?

Our politicians say they’re desperately searching for ways to “create jobs.” The RYOP entrepreneurs came up with $30,000 apiece to buy these rolling machines, then probably invested twice that much again in rent, advertising, business licenses, and everything else our hostile modern regulatory state now requires.

Yet the minute Mr. Tobacco Lobbyist rang Your Favorite Congresscritter, it was “Shut down a thousand-odd small businessmen, crush their dreams and throw them back on the street? Yes, Sir, Yes sir, three bags full!”

One Comment to “Layoffs here, layoffs there … now let’s shut down a thousand smoke shops!”

  1. Jim Says:

    Don’t be too sure that RYO will loose this one. The “electric cigarettes” (vaporizers) were attacked by Big Tobacco and Big Government. They tried to classify vaps as “drug delivery systems” that the FDA would regulate. They failed when people started asking why cigarettes were not also considered a drug delivery system.

    I do think that RYO will likely loose. They just can’t pay the politicians what a tobacco company can.

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