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June,
2007

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

HBI International Spins off Manufacturing and Distribution into New Company, Allied Tobacco

Phoenix, AZ - HBI International, an independently-owned producer and distributor of RYO products, has spun off its manufacturing and distribution division into a new company, Allied Tobacco.

Brian Morrissey, a former regional sales manager for Swisher International, has been selected to run the new company.

Allied Tobacco is now in charge of all former HBI Tobacco brands including Elements rice rolling papers, RAW unbleached natural rolling papers, Juicy Jays Flavored Rolling Papers, Juicy Blunts, Kingpin Blunts, Laramie tobacco products, Zen tobacco products, and Three Castles tobacco products.

Allied will service all chain store and large distributor accounts. According company spokesman Charles Bachmann, the move will enable HBI to better concentrate on its core business, selling tobacco products direct to independent stores and smaller distributors. HBI started off as a small DTS distributor of tobacco merchandise, but shifted from a distributor to manufacturer over the past decade. The spinoff will allow the companies to better support both markets.


ST Cigar Group to Acquire BAT’s Belgian Cigar Business

London - British American Tobacco Plc said it has agreed to sell its Belgian cigar business, Tabacofina-VanderElst, to ST Cigar Group Holding B.V., a Dutch-based subsidiary of Skandinavisk Tobakskompagni A/S.

London-based BAT, the world’s second largest cigarette group, said the deal includes a factory in Leuven, just outside Brussels, as well as brands such as Corps Diplomatique, Schimmelpennick, Don Pablo, and Mercator. No price was given for the business, which had gross assets of $41.7 million on December 31, 2006. The company says that it expects the acquisition will be completed in a few months.

Tabacofina-VanderElst manufactured 420 million cigars in 2006, of which approximately 200 million were for the Belgian market where the company says it is the market leader with a share of more than 40%. The rest of the total volume is either sold to various export markets, or consists of contract manufacturing for third parties. The main export markets are France, the Netherlands, and Italy.

ST Cigar Group in Eersel, The Netherlands—also known to the trade and consumers as Henri Wintermans which it acquired in 1996—is one of the largest cigar companies in the world. The company has 11 subsidiaries in nine different countries and employs some 2,200 people. Its main markets are the U.K., France, Canada, and Denmark. The group says its Café Crème line is the best selling small cigar in the world.

STCG’s c.e.o. Rob Zwarts said that the acquisition comes at a time when the competition between players in the international cigar market is expected to intensify. “Growing economies of scale is one of the key elements in defending and improving our current position,” said Zwarts.

Earlier this year, ST Cigar Group acquired Nashville, Tenn.-based CAO International, Inc., a highly visible player in the premium handmade cigar market. As part of its new corporate ownership, CAO will take over distribution of Cafe Crème and Nobel Petit cigars, previously imported and distributed in the U.S. by Davidoff of Geneva, starting in July.


Second Imperial Bid for Altadis S.A. Rejected;
Private Equity Group Tops Imperial Bid, then Dissolves


Madrid - Altadis S.A. rejected an improved second bid by Imperial Tobacco on April 10 totaling $16 billion (47 euros per share), up from $15.3 billion (43 euros per share) on its first offer. Altadis, the world’s largest cigarmaker but an even bigger maker of cigarettes, said the bid failed to “reflect its prospects for future growth.”

Meanwhile, a private equity consortium comprising CVC Capital Partners and France’s PAI was conducting full due diligence after trumping Imperial’s offer with a 50 euro per share offer, but PAI subsequently left the consortium, leaving CVC Capital to forge ahead seeking new partners.

Analysts have been expecting a deal between Altadis and Imperial to go ahead since it has the support of shareholders and would make sense strategically. However, the price has become a sticking point. Altadis has refused to open its books to Imperial at the proposed 47 euro pre share, while Imperial continues to say its bid represents “a fair price.”

If private equity were successful it would be likely to sell Altadis’ cigarettes division, which includes the Gauloises and Fortuna brands, to one of its rivals.


The Pacific Cigar Company Wins Landmark Cuban Cigar Trademark Infringement Case

Singapore - The Pacific Cigar Company (Singapore) Pte Ltd., the exclusive distributor for Asia Pacific of all cigars manufactured in Cuba from Habanos S.A., has won the first tobacco trademark infringement case in Singapore that involves counterfeit cigars. The operators of the Singapore firm Cigar Affair, Jacob Quek Gim Siew and his wife, Esther Goh Soo Im, were convicted on May 21st of possession with intent to sell and of offering for sale more than fifteen hundred counterfeit cigars, to which the trademarks Cohiba or Partagas had been falsely applied. Goh was also convicted of two additional charges of having sold two boxes of counterfeit Cohiba and Partagas cigars. The trademarks are owned by the Cuban-based Habanos S.A.

Many of the cigars seized from Cigar Affair purported to be Cohiba Robustos Limited Edition cigars and Partagas Piramides Limited Edition 2001 cigars, two cigars never actually produced by Habanos S.A. as limited editions.

Cigar Affair was not just a cigar retailer; it was also a wholesaler and an exporter. During the trial, Jacob Quek told the court that Cigar Affair’s clients were well-heeled and included reputable hotels and fine dining places.


South Dakota Senator Bemoans Falling Tobacco Sales

Rapid City, SD - A big problem is looming for South Dakota’s state government, and it all stems from rapidly falling sales of tobacco products, according to state Sen. Bill Napoli, R-Rapid City.

Effective Jan. 1, the state tax increased by $1 for a 20-stick pack of cigarettes and by $1.25 for a 25-cigarette pack. The OTP tax jumped from 10 percent to 35 percent of the wholesale price.

Voters approved the increases in the 2006 general election. The 2007 Legislature passed bills to use extra money from the tobacco tax to boost spending on education, cut local property taxes, and support health care for poor people. But Napoli said the funding source already is starting to dwindle.

“I am still laying awake at night looking at the ceiling, saying, ‘Who the hell thought this up? Who figured this deal out?’ Because man, I’ll tell you what, this is going to be a mess in the next two to three years,” he said.

Officials said tobacco sales dropped dramatically in the first three months of 2007 and Napoli expects a 50 percent sales drop within the next five years, adding that the effects will already be evident during the 2008 legislative session.


Star Scientific Licenses Cigarette Brands to Tantus Tobacco, Reports Q1 Earnings Loss

Petersburg, VA - Star Scientific, Inc., announced that on May 10 it executed an exclusive seven-year license agreement with Tantus Tobacco LLC for Star Scientific’s three cigarette trademarks: Sport, Main Street, and GSmoke. The agreement includes a provision under which inventoried cases of cigarette product bearing the trademarks will be sold to the licensee.

Tantus made an initial payment of $600,000 on May 10, under the terms of the agreement, and then will make monthly payments of $100,000 for 24 months. Thereafter the licensee will make $3000 monthly payments for the duration of the agreement. Star Tobacco will retain the ability to manufacture and sell cigarettes, but intends to focus on the manufacture and sale of its very low- TSNA dissolvable smokeless tobacco product, Ariva and Stonewall Hard Snuff.

Dissolvable smokeless tobacco sales have accounted for a minimal portion of the company’s revenue over time. However, first quarter 2007 sales of Ariva and Stonewall Hard Snuff increase 136 percent compared with sales for first-quarter 2006, and the company continues to explore licensing opportunities for those products with other tobacco companies.

For the first fiscal quarter ending May 10, 2007, Star reported an operating loss of $4.5 million, compared to an operating loss of $3.1 million for the same period in 2006. Sales for the first quarter totaled $4.4 million, compared to $8.5 million for the first quarter 2006. The company cited pressure in the discount market segment in the four non-MSA states and a $1.00 per pack cigarette excise tax in Texas as prime factors negatively impacting its cigarette sales.


Hookah Wholesaler, Bahrani Distribution Corp., Launches Retailer-friendly Wholesale Site

Tampa, FL - Bahrani Distribution Corporation of Tampa, Fla., announced the launch of a new wholesale hookah site. The site is intended to streamline the ordering process for wholesalers, retailers, and shop owners alike.

“The site is intended to make everything easier for people on the retail end of the hookah market” said President Aaron C. Butts. “It takes what would conventionally require picking up the phone and placing an order, or sending a fax, and turns it into an all-inclusive website, where we’ve done all the think-work for you.” This addition to the Bahrani family offers a wide variety of hookahs and accessories for purchase at wholesale pricing, even including a drop-ship option for retailers to simplify their business.

The drop-ship feature sets Bahrani apart from any other wholesale hookah supplier. With the drop ship service, registered wholesale account holders can simply select “drop ship” as an option for their order. Bahrani issues a full guarantee that they will not market themselves to wholesalers. They even go a step further by including a hookah user manual branded to the wholesaler’s company name.

Bahrani Distribution Corporation caters to wholesalers by even providing a catalog branded with their clients seal and contact information, and drop-shipping with no traceable information. Bahrani also registered a non-branded DBA to use as the shipper name to be shown on the FedEx Ground shipping label. Wholesalers can apply online at www.hookahdistributor.com and retail shoppers can still order online at www.smokeandhookah.com.


India’s ITC Buys Out King Maker Marketing

New Delhi - India’s largest tobacco maker, ITC Ltd., has acquired the remaing 49 percent stake in Paramus, N.J.-based King Maker Marketing, Inc. (KMM) for an undisclosed amount, making the company a wholly-owned ITC subsidiary effective May 9, 2007, the company said in a statement.

ITC Ltd. became a majority shareholder of King Maker in November, 2006 when the company raised its stake to 51 percent. King Maker is a marketer and distributor of its own premium cigarette and tobacco brands including Checkers, Hi-Val, Gold Crest, and Ace. King Maker’s line of products is exclusively manufactured by ITC Ltd, one of the largest publicly traded companies in India.


Swisher, John Middleton Settle Legal Dispute
Litigation Dropped, Swisher to Make Changes to Blackstone


King of Prussia, PA - Swisher International, Inc. and John Middleton, Inc. announced a settlement of a three-year legal dispute initiated by Middleton against Swisher in the U.S. District Court, Eastern District of Pennsylvania.

The settlement agreement, according to a May 21 statement released by Middleton, does not constitute an admission of liability by any of the parties. Under the terms of the agreement, both parties will drop the charges raised in the litigation and the related opposition to Middleton’s pending trademark application. In addition, under the terms of the agreement:

  • Swisher will modify the trade dress of its Blackstone mild vanilla tip cigarillo by changing the shade of its brown wrapper, altering the design of its plastic tip, and modifying the ivory color of the tip;
  • Swisher will change the graphics used on its Blackstone packages and displays to further separate the world “mild” from the brand name Blackstone and will also make other minor changes in its package, display, and advertising graphics;
  • Swisher will avoid producing any tip cigarillo product which features more than two of five style elements of Middleton’s Black & Mild cigar as specified in the settlement agreement;
  • Swisher will agree to withdraw its opposition to Middleton’s pending trademark application related to the trade dress of the Black & Mild cigar. Middleton will agree to refrain from asserting any claim against any Swisher product based on the trademark or registration provided that such product complies with the conditions in the settlement agreement.
All of the changes will take effect no later than six months from the date of agreement. Swisher International accounts for one-third of the nation’s cigar sales is America’s largest cigar exporter.

Zippo Celebrates 75th Anniversary with Hometown Celebration

Bradford, PA - Zippo Manufacturing Company, maker of the windproof Zippo lighter, will celebrate its 75th Anniversary July 27–28 in Bradford, Penn., by hosting a celebration weekend with several one-of-a-kind events.

At dusk on Friday, July 27, spectators along the downtown parade route will participate by lifting their Zippo lighters for a once-in-a lifetime “Zippo moment” in celebration of the “name in flame” and its status as an American original. Illuminated floats will be joined by cars, bands, dancers and marchers as they sparkle, twinkle and shine during the nighttime procession. Afterwards, parade-goers will watch as brilliant colors burst across the sky in a spectacular fireworks show.

A Celebration Auction, on Saturday, July 28, Zippo is releasing several rare lighters from the corporate archive that hold significant value for the company and collectors, including a 1933 Zippo lighter from the first year of production. Previously, at the 2001 Zippo Tokyo Swap Meet, an original 1933 lighter was purchased for $18,000. The goal is to exceed that price in celebration of 75 years. Visit www.zippo.com for more information.



SMOKESHOP - June, 2007