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February, 2009

Some Advice for RYO

In early March, the US legislature passed the S-CHIP bill, a massive tobacco tax restructuring that, on the surface, was meant to fund Children’s Health services. Who could possibly be against raising prices on “Big Tobacco” in order to serve “little children?” Apparently just George Bush, who vetoed the legislation on two occasions. However, S-CHIP turned out to be one of the first pieces of legislation signed by President Obama (for the complete tax run-down see TI Digest, page 6).

There was much fuss put up about what this bill would mean to the premium, hand-rolled cigar market which, at one point was threatened with up to a three-dollar per stick tax hike. This may have very well meant the end of the US premium cigar market, not to mention the dooming of the Dominican economy (while, very likely giving a clandestine boost to official US state foe, Cuba). In the end, cigars were levied with a workable 40 cents per stick tax increase. Aside from the economic turndown affecting all of capitalism, premium cigars will be fine in the US - for now. On the cigarette front, the tax per carton was raised from 39 cents to $1. Cigarette smoking will take a hit, but ultimately will survive - for now. There are some OTP tobacco varieties whose days in the US market may be numbered. Snuff, a very small market in the US, will see its tax structure change from 58 cents per point to $1.50 - an extra dollar for this niche market may deal it a death blow. An unbelievable levy was raised in regards to RYO and cigar wrapper taxes will go from $1 to $24.78 per pound. This is extraordinary. While the US RYO industry one of the few industries looking to benefit from a downturned economy as a cheaper alternative to cigarettes, it will have to fight for its very existence the next few years.

Unlike parts of northern and central Europe where RYO is part of the smoking culture across ethnic, social, and economic lines, in the US, RYO had basically two main contingents: 1) working class adults looking for a cheaper cigarette and 2) young and hip college kids looking to capture a home-spun rustic vibe. The first category will likely just move on to the cheapest discount cigarettes they can find, seeing little price return for the work of rolling-one’s own. The youthful “hipster” market, with the right marketing and branding, may find it’s niche, even as the prices rise. American Spirits organic brand of RYO may be the template. An RYO re-emergence could work similarly to the cigar boom of the 1990s. If it can be branded as “cool” for a certain demographic, then price starts to make less and less of a difference.

- E. D.

Tobacco International - February, 2009


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