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June,
2006

TOBACCO INDUSTRY NEWS
Production, Distribution, Regulation, Trade...

General Cigar Sues Companies for Cohiba Counterfeiting
Injunction Halts Sale of “Cohiba Caribbean’s Finest” Cigars


RICHMOND, VA - General Cigar Co., Inc., the manufacturer of Cohiba cigars and the exclusive owner of the brand’s trademark in the U.S., filed a federal lawsuit against Cohiba Caribbean’s Finest, Inc. of Las Vegas, R&E Cigars of Spring Hill, Tenn., Data Commodities Ltd., and several other distributors on May 11 seeking damages and a preliminary injunction against seven defendants who market and distribute “Cohiba Caribbean’s Finest” cigars.

At a preliminary hearing on June 1, a U.S. District Court Judge in Reno, Nevada granted General Cigar’s motion for preliminary injunctive relief, enjoining the defendants and all others from importing, manufacturing, selling, distributing, advertising and/or promoting cigars and other tobacco products bearing or using the Cohiba trademark. The injunction also stops the defendants from representing that they have any legal right to use the Cohiba trademark or designation similar to General Cigar’s Cohiba mark.

Gerry Roerty, vice president and general counsel of General Cigar, commented, “We feel that the judge’s order sends a strong message to those who continue to make false representations to consumers regarding the Cohiba brand.”

The counterfeiting operations were discovered through months of joint efforts by General Cigar’s field sales and a special task force retained by the company as part of an ongoing, nationwide effort to aggressively investigate, pursue, and eliminate such counterfeit products from the marketplace.

Cohiba Caribbean’s Finest, which filed for Chapter 13 bankruptcy protection on March 31, has attempted to gain registration of the Cohiba Caribbean’s Finest brand as a trademark for cigars under both state and federal law, according to General Cigar. In addition, it has actively attempted to secure distribution of Cohiba Caribbean’s Finest cigars to customers of General Cigar. Following the injunction, Data Commodities Ltd., removed Cohiba Caribbean’s Finest cigars from its website, but at press time was still marketing Cohiba Caribbean’s Finest Rum at www.cohibarum.com and claiming affiliation with General Cigar’s “Red Dot” Cohiba cigars. A separate website attributed to Caribbean’s Finest Cigar Co., a kiosk retailer in Cool Springs Galleria in Franklin, Tenn. was also promoting flavored Cohiba cigars clearly not manufactured by General Cigar.

General Cigar’s lawsuit seeks $1 million in statutory damages and an unspecified amount in compensatory damages.

In February of 2005, a United States Circuit Court of Appeals confirmed General Cigar’s exclusive ownership of the Cohiba mark in the United States. An entirely different Cohiba cigar is produced in Cuba by Habanos S.A. for all markets other than the U.S.


BAT to Sell Toscano Cigar Operations to Italian Group

BOLOGNA, ITALY - British American Tobacco Italia S.p.A., a member of the British American Tobacco Group, agreed in March to sell its Toscano cigar business to the Bologna-based Maccaferri Group for $114.3 million.

The transaction, which includes factories in Lucca and Cava de’ Tirreni, is subject to approval from the Italian Government and competition authorities. Completion is anticipated in the third quarter of this year.

Toscanos, or Tuscan cigars, have been produced for over 200 years, made from Kentucky tobacco imported from North America.

“Toscano is a true Italian brand,” said Francesco Valli, British American Tobacco Italia’s managing director “and we are delighted that it is to be acquired by the Maccaferri Group which has a strong Italian heritage.”

BAT acquired Ente Tabacchi Italiani (ETI) S.p.A, Italy’s state tobacco company and producer of Toscano cigars, in 2003.


Attorneys General Seek to Halt Sales of Cigarettes “Deceptively” Sold as “Little Cigars”

WASHINGTON, DC - Forty Attorneys General have filed a petition with the U.S. Department of Treasury’s Alcohol Tobacco Tax and Trade Bureau (TTB) asking the federal agency to close a loophole that allows tobacco manufacturers to sell cigarettes wrapped in “brown paper” as “little cigars.”

The petition urges the TTB to change the way its rules and regulations classify “little cigars” and to change its policy of allowing tobacco companies to classify their own products in a way that “avoids public health restrictions and taxes that are placed on cigarettes.”

According to the Federal government, a cigar is defined as any roll of tobacco wrapped in leaf tobacco or any substance containing tobacco. Little cigars are those cigars that weigh less than three pounds per thousand - the same as cigarettes.

A cigarette, meanwhile, is defined as any roll of tobacco wrapped in paper or in any substance not containing tobacco and any roll of tobacco wrapped in any substance containing tobacco which, because of its appearance (packaging and labeling) or filler content, is likely to be offered to or purchased by consumers as a cigarette.

Traditionally, little cigars have utilized a homogenized tobacco paper that meets the federal definition of a cigar as written.

Federal guidelines allow manufacturers to self-classify their products according to the officially published definitions of cigars, little cigars, or cigarettes. The petition alleges that manufacturers routinely circumvent state and federal cigarette excise taxes, marketing restrictions, and MSA payments by simply utilizing brown paper on their cigarettes and classifying them as little cigars.

According to the U.S. Department of Agriculture, 3.77 billion little cigars were consumed in 2005, up 39% from 2.7 billion in 2004, a significantly larger increase than previous years.


Reynolds American Completes Acquisition of Conwood; Will Merge with Lane Subsidiary

WINSTON-SALEM, NC - Reynolds American Inc. has completed its $3.5 billion acquisition of a holding company that owns Conwood, the nation’s second largest manufacturer of smokeless tobacco products, from business interests of the Pritzker family.

The transaction received required approval from the Federal Trade Commission on May 23, 2006. Reynolds American funded the $3.5 billion acquisition purchase price with the net proceeds of its private offering of $1.65 billion of senior secured notes and borrowings under its $1.55 billion senior secured term loan facility, each of which also closed today, as well as available cash. In addition, RAI entered into a $550 million revolving credit facility today.

Reynolds American announced it will combine its Lane Limited subsidiary, currently headquartered in Tucker, Ga., with Conwood in order to “drive growth in the companies’ portfolio of other tobacco products (OTP)” it said in a printed statement. Lane markets a range of specialty tobacco products, including cigars and little cigars; roll-your-own and pipe tobaccos; and Dunhill and other premium international cigarettes.

The headquarters of the combined companies will be in Memphis, Tenn., and full integration of the two companies is expected to be completed by year-end 2007.


New Hampshire, California, Illinois Pass Low Ignition Propensity Cigarette Laws

CONCORD, NH - New Hampshire has become the fifth and most recent state to require low ignition propensity (LIP) cigarettes, commonly - and mistakenly - referred to as “fire-safe” in popular media. If left unsmoked, LIP cigarettes will go out instead of continuing to burn, achieved by the use of cigarette papers with “bumps” in the paper, reducing the risk of accidental fires.

New York was the first state to require such cigarettes in 2004. California, Vermont, and Illinois also have enacted similar laws. Vermont’s law took effect this year. California’s law takes effect next year and Illinois’ law in 2008. New Hampshire’s law will take effect on Oct. 1, 2007.

A number of cigarette manufacturers support the adoption of a single, nationwide standard for “fire-safe” cigarettes rather than various state regulations, but Congress has not passed legislation. Up to a dozen states have considered LIP bills over the past 18 months. The New Hampshire law would automatically be repealed if federal standards are enacted.

The American Wholesale Marketers Association (AWMA) recently held a lobbying effort in Washington, D.C. in an effort to encourage legislators in Congress to adopt legislation calling for a national standard for LIP cigarettes. The current patchwork of state regulations is working an undue hardship on many distributors and a national standard is needed, according to the association.


Veteran Tobacco Man Rick Smith Forms Independent Leaf Tobacco Company

WILSON, NC - Richard D. “Rick” Smith, who recently retired after a 39-year career buying and selling tobacco around the world for Export Leaf Tobacco Co., has formed his own leaf firm, Independent Leaf Tobacco Company.

Located in Wilson, N.C., ILTC will act as a tobacco dealer, broker, and agent, buying all types of tobacco from growers and selling it to a myriad of domestic and international customers.

Smith, born and raised on his family’s farm in Pitt County, not only worked in the tobacco field but also his family’s tobacco auction warehouse. Upon graduation from North Carolina State’s Agricultural Institute program in 1967, Smith joined Export Leaf Tobacco Co. in Wilson, N.C. as a processing plant foreman. Later, he earned a bachelor’s degree in business management.

Over the years, he served Export Leaf Tobacco, a subsidiary of Brown & Williamson Tobacco, as a leaf buyer and supervisor and was named senior manager of leaf sales in 1991. Eight years later he was promoted to director of leaf buying and sales. With the merger of Brown & Williamson with R.J. Reynolds Tobacco Corp. in 2004, Smith became director of leaf sales for Export Leaf, now a division of R.J.R. Tobacco.

In addition to being responsible for all leaf buying and sales for B&W, and most recently R.J.R., Smith has also been extensively involved in the company’s corporate and government affairs and farm relations activities.

Smith has established the headquarters of Independent Leaf Tobacco at a former tobacco warehouse in Wilson, NC, and he continues to be actively involved in the family farming and warehousing operations in Pitt, Edgecombe, and Wilson counties.

Independent Leaf Tobacco Co., P.O. Box 606, Wilson, NC 27894, Tel: (252) 237-9600, Fax: (252) 237-9601, Email: sales@independentleaf.com, Web: www.independentleaf.com


Cigar Sales Expert Victor Vitale Creates “The Cigar Agency,” Regional Sales Agents

NASHUA, NH - Victor Vitale, who served as a regional sales representative for Ashton Distributors in New England for seven years, has assembled a group of New England sales agents specializing in the cigar industry under the auspices of The Cigar Agency.

“The Cigar Agency actively promotes brands, educates staff, and merchandises shelf space to attract consumers and increase each retailer’s bottom line,” Vitale explains. The firm actively represents cigar brands and industry-related products for manufacturers and distributors. “Beyond placing products, our agents analyze local sales trends, develop fresh strategies, create statistical reports, and consistently visit all tobacco dealers on a set rotation. We firmly believe not only in proper product distribution but ‘distribution intelligence’ of the brands and companies that we represent,” says Vitale. “Our sale ends when the retailer has sold the product. We offer a systematic, structured approach not yet implemented in the cigar industry.”

The Cigar Agency is a dedicated team of four full-time agents whose sole mission is to deliver strategies that increase and solidify each brand’s market share. “Producing 168 hours per week in a single territory will saturate New England tobacconists, consumers, and prospects with one-on-one communication about the promoted brands,” says Vitale.

Prior to joining Ashton, Vitale served as a retail sales associate at Holt’s Cigar Company for three years in the financial district of Philadelphia.

The Cigar Agency, 76 Northeastern Blvd, Suite 25 - B, Nashua, NH 03062, Tel: (267) 549-3714.


Minnesota ‘Health Impact Fee’ is Upheld

MINNEAPOLIS, MN - The Minnesota Supreme Court upheld the state’s 75 cent per-pack Health Impact Fee on cigarettes, overturning a lower court’s decision that the fee violated the 1998 Master Settlement Agreement.

In its ruling, the court stated that “the terms of the settlement agreement do not unmistakably relinquish the state legislature’s sovereign authority to impose such an exaction on tobacco products in order to recover health care costs related to the use of tobacco products and to discourage smoking.”

Major cigarette companies and distributors sued Minnesota last year over the fee - considered a flat tax on cigarette companies to supplement declining tobacco Master Settlement Agreement (MSA) payments. Similar fees have been proposed in Kentucky and Indiana.


Roberto Duran Backs Adan y Eva Cigars, to Appear at RTDA 2006

POMPANO BEACH, FL - Roberto Duran, former World Boxing Champion, is putting his promotional weight behind Adan y Eva cigars and its new distributor.

“Roberto Duran loves Adan y Eva cigars,” says Greg Wilhelms one of the partners in Eden’s Gate LLC, the exclusive importer of Adan y Eva in the United States, Mexico, and Canada.

The cigars are hand made in the Dominican Republic by Cuban Desire Corp. Duran will be appearing in the Cuban Desire booths at the 2006 RTDA trade show in July, endorsing Adan y Eva cigars and signing autographs.

Eden’s Gate, LLC is a Nevada-based, family-owned and operated corporation with facilities in California, Florida, and Maryland and a warehouse located in Pompano Beach, Florida. In addition to being the exclusive agent for Adan y Eva cigars, the company will reintroduce the Emilio Reyes collection from the Dominican Republic at the RTDA 2006 trade show, where the company will have 11 booths. The Emilio Reyes collection is comprised of D.R.G. Dominican Republic Gold, Trader’s Reserve, Los Reyes Unidos, Flor de Los Reyes, Evita, and Pirata.



SMOKESHOP - June, 2006