Roll-Your-Own Cigarette Stores Pay Price For Encroaching On Big Tobacco's Turf

A new kind of cigarette store has encroached on Big Tobacco's turf.

The stores sell smokes at dramatically reduced prices by offering loose tobacco, which customers can convert into finished cigarettes using in-store machines, all for around half the cost of major brands like Marlboro.

But the end could be near for roll-your-own cigarette stores, amid outcries from large tobacco companies against a tax loophole that has allowed the stores to thrive, according to a recent Bloomberg report.

Congress in 2009 boosted taxes on ready-made cigarettes at a much higher rate than it did on loose tobacco. The tax difference led to a flood of mom-and-pops that started selling loose tobacco, instead of major brands, and that installed more than 1,900 roll-your-own cigarette machines in 42 states over the past four and a half years, according to data the Wall Street Journal retrieved from RYO Machines, which makes them.

Now lawmakers, backed by Big Tobacco, want shops using the machines to pay the same tax rate as mainstream cigarette manufacturers. "Tobacco is tobacco is tobacco," the CEO of a major North Carolina tobacco producer recently told Bloomberg. "All we want is a level playing field."

Under a Senate bill passed in mid-March, retailers with roll-your-own machines would be forced to pay the same tax rate as retailers that sell ready-made packs. The tax hikes, which still need House approval, could burden roll-your-own retailers to the point of bankruptcy and, in turn, put money back into the pockets of major producers.

Already, the shops are feeling a regulatory backlash. Several states, including New York and Kansas, have filed lawsuits against roll-your-own shops alleging that they are evading taxes by paying rates reserved for sellers of pipe tobacco.

"This isn't about taxes; it's about market share," Phil Accordino, co-owner of a roll-your-own machine maker, told The Plain Dealer, a Cleveland metro.

"It's not about anything but the major trying to force the little guys out of business," Accordino said.