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June,
2008

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

AWMA & NATO Jointly Oppose FDA Bill

Washington DC. - Recently, the American Wholesale Marketers Association (AWMA) and the National Association of Tobacco Outlets (NATO) issued a joint letter to the 435 U.S. Representatives expressing concerns that both of these organizations have with H.R. 1108, the bill in which the Food and Drug Administration (FDA) would be granted regulatory authority over tobacco products.

If the bill passes, the FDA would be allowed to put into place tobacco product restrictions with no statutory obligation to consider the potential impact on small businesses or distributors and retailers involved in the legitimate sale of tobacco products, such as the costs related to remodeling and refitting store displays and checkout areas to conform with any new regulations or restrictions.

A major concern of the AWMA and NATO revolves around the potential prohibition of tobacco and tobacco products. In a press release, the AWMA said, “It is conceivable that when drafting regulations, the FDA could adopt such onerous restrictions on the distribution, promotion, advertising and sale of tobacco products that wholesalers and retailers would be unable to comply with such regulations and that these businesses would be forced to discontinue offering tobacco products to American consumers.”

Another concern regards the establishment of “user fees” to “support an entirely new bureaucracy,” the Center for Tobacco Products. “The user fees would amount to $5.47 billion from Fiscal Year 2008 through Fiscal Year 2018, plus another $712 million each subsequent year. Given the amount of the user fees and the use of the revenue to fund the Center for Tobacco Products, the fees would more appropriately be labeled a new tax that would be borne by consumers in the form of higher prices for tobacco products.”


Santa Fe Natural Tobacco Co. Now Handling RJR’s Marshall McGearty, Dunhill Superpremium Brands

Santa Fe, NM - R.J. Reynolds Tobacco Co. has transferred its super-premium Marshall McGearty and Dunhill cigarette brands to its Santa Fe Natural Tobacco Co. unit.

“We believe the superpremium category in tobacco is underdeveloped domestically compared with superpremium products in other consumer categories such as liquor and beer,” said spokesman David Howar. “We believe Santa Fe is uniquely positioned to explore the potential for superpremium-brand growth given the expertise in its own brand.”

Marshall McGearty cigarettes were being tested in a special smoking lounge in Chicago that closed at the beginning of the year due to the Chicago smoking ban, and at retail stores in Chicago and Seattle. A pack sells for $9 in Chicago, which includes $3.86 in taxes.

When the lounge first opened, it was seen as a possible blueprint for other locations throughout the country. Reynolds came close to opening a second lounge in downtown Winston-Salem last year, but dropped those plans. Howard said that the expansion of smoking restrictions, nationally and regionally, prompted a change in its marketing strategy for the brand and it is now concentrating on distribution in retail markets instead.


Mixed Verdict from Philadelphia

The Commonwealth Court invalidated Philadelphia’s so-called “blunt ban” which banned the sale of tobacco products that can be used for drugs, but it also said that the city could stop retailers from selling tobacco drug paraphernalia, including single cigars, blunts, and rolling papers if they know the items would be used for drugs like marijuana or cocaine. However, the panel denied the city's ability to stop the sale of flavored cigarettes and single cigarettes known as “loosies.”

Manufacturer, Importer Claim Brazilian Brands

In March, retailers received letters from two different companies, each asserting that they were rightful trademark holder to the Brazilian-made Alonso Menendez, Aquarius, and Dona Flor cigar brands.

The first letter to arrive and claim ownership of the brands came from cigar maker Menendez Amerino & Cia. Ltda., saying that it was no longer represented in the U.S. by importer and distributor Brazil Cigars & Tobacco, due to a breach in contract, and if BC&T offered the brands in question, the cigars “will not be the real one, since the original brands will be sold in the U.S. by a new distributor.”

This was quickly followed by a responding letter from Brazil Cigars & Tobacco, saying that they, not Menendez Amerino, were the owners of the brand, and if Menendez tried to sell the brands in question, they would not be legitimately doing so.

Both companies said they intend to separately exhibit at the 2008 IPCPR Trade Show in Las Vegas in July, and will be selling the exact same product.


Guantanamera Cigar Loses Round in Trademark Battle Against Cuba’s Habanos, Will Appeal

Miami, FL - Guantanamera Cigar Company (GCC) is appealing a U.S. Trademark Trial and Appeal Board (TTAB) ruling over the right to register the trademark ‘Guantanamera.’

Following a six-year battle, the TTAB ruled against GCC, saying that the trademark ‘Guantanamera’ is geographic descriptive of cigars that are not from Cuba, and thereby sustaining the opposition of Corporacion Habanos, S.A. (a joint venture between Altadis, S.A. and the Republic of Cuba) against GCC’s application for registering the trademark.

A statement released by GCC explains that “A little known exception in trademark law allows Cuban entities to register trademarks in the United States and to file oppositions against trademark applications filed and owned by United States citizens and entities.” GCC has vowed to “defend its long-standing common law rights to the trademark as well as its right to statutory registration.”

GCC is appealing to federal courts, and says it will “demonstrate that the primary meaning of the term ‘Guantanamera’ is that of the title of a song and not an indication of origin of products from Guantanamo.” GCC believes that the long-standing embargo against Cuban goods supports their position, showing that no American consumer would believe that their products originate from Cuba.

Guantanamera Cigar Co. has been producing the brand in Miami for over 10 years.


Philip Morris USA Ends Marlboro Ultra Smooth Test Market

Richmond, VA - Philip Morris USA has dropped plans for a Marlboro brand cigarette with a high-technology filter after the product failed to catch on with consumers, the Wall Street Journal has reported. The nation’s largest cigarette maker sold Marlboro Ultra Smooth in test markets in Atlanta, Salt Lake City, and Tampa for more than three years. The cigarettes were equipped with an activated carbon filter that delivers nicotine but reduces carcinogens. The move is the latest setback to Philip Morris’ efforts to develop products designed to reduce health risks for consumers. The company also tried a product called the Accord which used a battery-powered holder to heat the tobacco instead of burning it.

Renegade Tobacco Group Acquires House of Windsor Cigar Operations

Mocksville, NC - Renegade Holdings, Inc., parent company of Alternative Brands, Inc. and Renegade Tobacco Company, Inc., announced it has acquired assets of the complete cigar lines of the House of Windsor of Yoe, Pennsylvania. The transaction includes the House of Windsor, Wolf Bros., Rum River, and Caribbean large cigar lines. Renegade will relocate the cigar manufacturing plant equipment into an Alternative Brands’ facility in Mocks­ville, N.C.

“The House of Windsor is a long-standing respected name in the premium machine-made cigar business,” said Calvin Phelps, chairman and c.e.o. of Renegade Holdings, Inc. “We are excited to add the large cigar line to our existing business of small cigars and cigarettes. This move will enhance our long-term growth momentum as we participate in this rapidly-growing sector.”

House of Windsor was founded in 1918. For over 90 years, its proprietary blending and flavorings have attracted a loyal following.

Production will begin in the Mocksville, N.C. facility in the third quarter of 2008, reaching full output by the end of the year. The operation will employ 10-15 initially growing to 20-25 at full production.


Tobacco One to Acquire Undisclosed Tobacco Products Manufacturer for $9.5 Million

Scottsdale, AZ - Tobacco One, Inc. announced that have entered into an agreement to purchase a leading U.S. tobacco product manufacturer. Under the terms of the agreement the name of the manufacturer is not be disclosed at this time.

This manufacturer currently produces several types of tobacco products including cigarettes, cigars and roll-your-own tobaccos under various brand names within the United States.

The business has gross annual sales of nearly $22 million on earnings of $2.5 million. Its annual growth rate has exceeded 30% per year over the past four years. The acquisition includes the purchase of all assets, equipment, machinery, trademarks, patents, production contracts, and customer base. Current key management will stay on board for up to three years to oversee the continued expansion and to ensure a smooth transition for Tobacco One, Inc.

"This first acquisition will serve as the platform for Tobacco One's planned expansion into the Domestic and International marketplace," stated Shawn Ulizio, Tobacco One's president and c.e.o. "This purchase will enable Tobacco One, Inc. to have immediate representation in the domestic marketplace including such retailers as Sam's Club, Costco, 7-Eleven, etc."

Ulizio also noted that the acquisition of this manufacturer will further facilitate Tobacco One's current business role in Latin America, where several contracts are currently being negotiated and are expected to close this quarter. Tobacco One plans to make additional acquisitions in the future.


Altadis U.S.A. to Send Cigars to Troops

In a major effort entitled “Operation Cigars for Troops,” Altadis U.S.A. is planning to send upwards of 50,000 free cigars to United States military personnel in Iraq and Afghanistan. Consumers who participate receive free cigars as well.

Retail tobacconists nationwide are participating. Featured cigar brands include Montecristo White (Rothchilde), Romeo y Julieta Reserva Real (Belicoso) and H. Upmann Vintage Cameroon (Toro).

“Our troops endure unimaginable conditions and lay their lives on the line every day to protect our freedom and safety,” said an Altadis U.S.A. spokesperson. “Through this promotion, cigar lovers can share with us the good feeling of giving something back and providing these brave men and women with a few moments of pleasure.”

The effort works as follows: consumers purchase one or more of the “Operation Cigars for Troops” four-packs specially designed for the event. They pay for three cigars and receive the fourth free. For each four-pack sold, Altadis U.S.A. sends a free cigar to the troops overseas.

“It’s a great deal on our finest cigars for retailers, consumers, and especially for the troops,” said the spokesperson. Consumers who participate can send a virtual greeting to the troops by visiting www.cigarsfortroops.com.



SMOKESHOP - June, 2008