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August,
2005

TRENDS AND TRENDSETTERS IN SPECIALTY TOBACCO RETAILING
DHL is First Major Package Carrier to End Cigarette Deliveries to Individual Consumers

Albany, NY - One of the largest package delivery companies has voluntarily agreed to stop delivering cigarettes to individual consumers nationwide under an agreement with New York State Attorney General Eliot Spitzer.

DHL is the first major shipping company to agree to the ban, and Spitzer said negotiations are continuing with other carriers including the U.S. Postal Service. The new agreement follows a March deal in which major credit card companies agreed not to participate in the Internet sale of cigarettes nationwide. The March agreement involving Spitzer and the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives was purportedly aimed at ending a "common method" for youths to obtain cigarettes.

Under the new Spitzer agreement, DHL cuts off another route for the Internet cigarette sales, a growing business that is illegal in many states, Spitzer said.

Audrey Silk of New York City Citizens Lobbying Against Smoker Harassment said the actions are simply boosting an illegal market for cigarettes in which no one asks a consumers' age. The measures deny consumer choice, because some brands are only sold out of state.

"When the product is legal, who are you to say I can't order it?" said Silk, who's also a candidate for New York City mayor. "He's attacking one consumer class trying to buy a legal product and strong-arming the common carries into going along with his campaign to keep cigarettes out of adult hands."

DHL General Counsel Jon Olin said the agreement is in the best interest of customers and the public. The company will still be able to deliver tobacco products to licensed retailers and other authorized recipients.

"By taking a proactive approach, DHL is pleased to be the leader in the prevention of illegal cigarette sales in the United States," Olin said. State and federal law enforcement agencies site the lack of age verification for buyers and the loss of billions of dollars in sales tax as the prime reasons for crackdowns on illegal cigarette sales.


Tennessee Governor Vetoes Tobacco Tax Hike
Concern that MSA Payments Could be Jeopardized by NPM Assessment

Nashville, TN - Tennessee governor Phil Bredesen vetoed legislation in June that would have increased state taxes on alcohol and tobacco.

Bredesen said that enacting SB2002 could endanger payments the state receives under the Master Settlement Agreement - $150 million last year and more than $1 billion total since its inception.

The bill would have raised the state's cigarette excise tax rate from $0.20 to $0.47 per pack, imposed an equity assessment of $.50 per pack on cigarettes from non-participating manufacturers (NPMs). But state Attorney General Paul Summers argued that targeted taxation of the small NPMs without increased levies on larger companies could be interpreted as a violation of the MSA. Major manufacturers might litigate to withhold their payments, Summers advised.

"I believe it would be a mistake to allow a bill that jeopardizes such a significant funding source for the state to become law, particularly in light of the comparatively limited revenue the bill was expected to generate," said Bredesen. Total annual revenues generated under the proposed bill were estimated at $12 million.


SMOKING BAN
In Ohio, a Scramble for Smoke-Friendly Patios

Columbus, OH - With a slew of indoor smoking bans arising across Central Ohio communities, smoking sections in restaurants are quickly becoming relics. But this spring, when warming temperatures returned, so did a scramble by many restaurants to legally accommodate smokers - outdoors.

Patios, terraces, verandas are also becoming known as something else: the smoking section, as restaurateurs prep old patios or unveil new ones partly in an attempt to please banished smokers.

"It is a logical move," said Robert Welcher, president of Restaurant Consultants, Inc. in Columbus. "It is a way to keep smoking customers happy." Business owners seem to agree, although there are downsides.

"It was a tough decision to allow smoking on the patio," said Jimmy Velio, owner of Jimmy V's in Columbus, "but I need to cater to all of my customers."

"The smoking ban hurt a lot of bars and restaurants," said Velio. "I wanted to throw a patio in the back so I could give my customers a choice."

Columbus voters upheld the city's indoor-smoking ban in November and voted against an exemption for bars from the ban in a May 3 ballot. Meanwhile, Members of Citizens for Smoke Free Columbus said plans are being made to present a statewide smoking ban to voters, possibly as early as November 2006.

The Columbus Health Department hasn't received complaints about smoking on patios yet, but officials acknowledged they won't be surprised if they get a few.

"I'm certain we'll get some calls about patios. We get calls about everything," said Liane Egle, a Health Department spokeswoman. "We doubt it becomes an issue. The ordinance is designed to get people outside. We have a willingness to accommodate smokers and nonsmokers alike."


DIRECT SALES
Court Strikes Parts of Maine's Tobacco Delivery Law

Portland, ME - A federal judge has struck down portions of a Maine law intended to prevent youths from smoking. U.S. District Judge D. Brock Hornby said that while Maine's statute is laudable and well-intentioned, it runs afoul of federal interstate commerce laws by impeding delivery services.

Maine's 2003 law requires procedures to verify that those who purchase tobacco by mail are old enough to do so. It was designed in part to prevent youths from ordering cigarettes online and also to assist the state in collecting taxes that would otherwise be unpaid.

Under the law, the person to whom the tobacco products are addressed must be at least 18 years old and must sign for the package. If the buyer is under 27, a government-issued identification must be shown at the time of delivery.

After the law was enacted, United Parcel Service announced it would no longer make consumer tobacco deliveries in Maine because it would have to modify its procedures for one product. Several cargo carrier associations sued.

In his May 27 ruling, Hornby agreed that Maine's law forces UPS to vary from procedures it uses in its international delivery system, which can affect the prices of its service and interfere with the orderly flow of packages. He agreed that states may regulate the delivery of contraband, but only if it does not "significantly affect a carrier's prices, routes, or services."

Hornby noted that he had denied a preliminary request to block enforcement of the state law, but "now I conclude that two of the three challenged state provisions cannot survive the broad pre-emptive language of the federal legislation" and two recent decisions by the 1st U.S. Circuit Court of Appeals. The ruling traces federal pre-emption of interstate commerce to an 1887 law.


RETAIL PROMOTIONS
General's Benji Menendez Embarks on National Retailer Tour for Partagas

New York, NY - Renowned cigar expert Benji Menendez is touring the country to give knowledge-seeking consumers a rarefied glimpse into how a cigar's taste is achieved and how to best enjoy the flavor of a premium cigar.

Dubbed the "Partagas Quality Tour," the cross-country trek takes the veteran cigar master to 50 leading cigar retailers for the remainder of 2005.

At the beginning of each event, consumers receive three handcrafted Piloto Cubano fumas - small cigars made of only one grade of Piloto Cubano filler tobacco. Menendez uses the cigars to illustrate the difference in strength and taste between filler tobaccos, giving consumers an intimate, guided tutorial on properly smoking a cigar.

Consumers receive a ligero fuma (full-flavored leaf from the top of the tobacco plant); a seco fuma (medium-strength leaf center of the plant) and a volado fuma (lighter-bodied leaf from bottom of the plant). By test smoking each fuma and understanding the affect that each one has on the palette, consumers learn how the blending of the filler, binder, and wrapper in proper proportions results in a distinctive flavor and a balanced taste.

Bill Chilian, director of marketing for Partagas cigars notes, "During his 52-year tenure in the cigar business, Benji has learned a thing or two about the importance of blending tobacco to achieve a cigar with a balanced taste. This retail tour allows Benji to do what he does best: to share his knowledge and teach consumers how to maximize their enjoyment of premium, handcrafted cigars."

At the retail events, consumers receive a free Partagas cigar and can also take advantage of special ten-count boxes of Partagas (base brand), Partagas Black Label, and Partagas Spanish Rosado, all at a discount of 25% off.


SMOKESHOP - August, 2005