As members of Congress praised the transportation bill that passed last Friday, owners of some small tobacco shops cringed.
A measure sponsored by Sen. Max Baucus (D-Mont.) and tucked inside the bill could spell the end for hundreds of “roll-your-own” tobacco stores that have sprouted up across the nation in recent years, shop owners and tobacco experts said.
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.
The new federal law, set for President Obama’s signature, makes it harder for stores with roll-your-own cigarette machines to classify the tobacco they sell as pipe tobacco –- which is taxed at a lower rate than cigarette tobacco. It also forces the shops to obtain tobacco manufacturing permits, though many are zoned for retail use only.
“This law is not designed for people to comply with,” said Phil Acordino, president of RYO Machines, which began manufacturing roll-your-own cigarette machines in 2008.
“It’s designed to put these people out of business," he said. "They couldn’t get a manufacturer’s permit if they wanted to.”
Proponents of the new law and critics of roll-your-own shops say the stores take advantage of a tobacco tax “loophole” that Congress unintentionally created in 2009, when lawmakers boosted taxes on ready-made cigarettes to a much higher rate than that of loose tobacco.
The tax difference led to a flood of mom-and-pops that started selling loose tobacco, instead of major cigarette brands. Around 1,000 stores in 42 states installed roughly 2,000 roll-your-own machines, according to RYO Machines.
The Alcohol and Tobacco Tax and Trade Bureau in 2010 prohibited retailers with roll-your-own machines from operating without manufacturing permits, but RYO Machines secured a court injunction that put the ruling on hold.
Once Obama signs the transportation bill, with its provision that overrides the hold, Ohio-based RYO Machines said it will have no choice but to lay off its 45-person staff. Acordino expects the 1,000 shops RYO sells machines to will also close or cut workers. “The big cigarette companies don’t want anything resembling a competitor on the scene,” he said.
Large tobacco companies have fought hard alongside health groups -– an unlikely bedfellow –- to win increased taxes and stricter health standards at roll-your-own smoke shops.
But some shops aren't going down quietly, despite lawsuits brought by city and state officials alleging tax evasion. In New York, where the number of roll-your-own stores jumped from a handful to nearly 50 in the last two years, several vendors are reportedly challenging court orders to pay higher taxes on the smokes.
According to the Associated Press, the new law affecting roll-your-own shops will generate nearly $100 million annually in government revenue.