Legislation Could Deal Roll-Your-Own Cigarette Stores a Kick in the Ash

It’s been a seesaw battle for the past year, but it looks like a legislative deathblow will be written into law for local tobacco retailers that offer cigarette-rolling machines at their businesses.

President Barack Obama is expected to sign a federal highway bill on Friday that includes a provision redefining roll-your-own (RYO) cigarette stores as manufacturers of cigarettes. As a result, small RYO tobacco stores like Ciggy Shack in Menomonee Falls will be required to pay the same taxes and obtain the same permits as big-name tobacco manufacturers to continue allowing customers to use rolling machines on the premises.

Rather than dig deep into their pocket books, RYO storeowners are simply shutting down their machines, which could force some of these businesses to close completely. Once Obama’s pen signs the bill, it will be illegal to roll cigarettes in the store.

The law still allows the businesses to sell rolling machines, the tobacco, and papers; however, thrifty smokers will need to take their raw materials home and roll them from there.

Kent Kreuger opened Ciggy Shack just over a year ago to capitalize on a new business opportunity emerging around the country. The rolling machines were the main draw for his customers.

Krueger sells tobacco, papers and filters at Ciggy Shack, and for a fee customers can rent one of three large RYO machines that roll the cigarettes. A customer can build his or her own box of smokes, equivalent to a carton, for about $30 — avoiding significant tax charges.

That’s less than the $35.21 just in taxes charged on a typical carton of 200 cigarettes purchased at a convenience store. Roll your own tobacco is taxed at $24.79 per pound at the federal level, and a pound yields approximately two cartons worth of homemade cigarettes.

The federal law is going to make business difficult at Ciggy Shack.

“A substantial part of our business is going to lost, and will have to probably cut back the hours of employees,” said Cheryl Peters, Krueger’s sister and Ciggy Shack marketer. “It’s kind of devastating to start a business like that, then have someone tell you can’t operate that anymore.”

Throughout Wisconsin, 110 rolling machines operate in 84 retail outlets. In total, the businesses employee anywhere from 300 to 400 people. The new law could cause many of those people to lose their jobs if businesses close.

“This law will put 300 to 400 people out of work in Wisconsin,” said Paul Carne, of RYO machine distributor WISUP, LLC. “Many of whom came out of the unemployment line in the first place.”

An employee at Smokes I on Appleton Avenue in Menomonee Falls also said they will cease providing small toaster-sized rolling machines to adhere to the law. Customers could roll a carton of cigarettes in about 45 minutes to an hour. A large-scale manufacturer can pump out 20,000 cigarettes per minute.

Small business owners are framing the legislation as a battle between big tobacco and the proverbial “little guy.” In fact, according to the Chicago Sun-Times, Altria-owned Phillip Morris USA has strongly supported the legislation.

“They are cigarette manufacturers,” David Sutton, a Philip Morris spokesman, told the Sun-Times. “And [they] should make tax payments, be regulated by the FDA and make state settlement payments just like other cigarette manufacturers.”

Friday’s legislative signing isn’t the first battle RYO retailers have fought in Wisconsin. In September 2011, the Wisconsin Department of Revenue put RYO businesses on notice to cease operating their rolling machines. Business owners could face fines or seizure of property for failing to cooperate.

However, the machines started a month later after a Dane County Circuit Court judge issued a temporary restraining order preventing the DOR from taking steps needed to force roll-your-own tobacco business owners to comply with certain regulations. They have been rolling since then.

In October, the United States Alcohol and Tobacco Tax and Trade Bureau ruled that a business operating a cigarette-making machine at its premises is engaged in cigarette manufacturing, and must obtain proper permits.

However, a U.S. District Court in Ohio filed a temporary restraining order preventing the federal bureau from enforcing the provisions outlined in its decision. Local and state governments across the country have been working to craft legislation that would deem RYO businesses cigarette manufacturers.