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October,
2004

TOBACCO INDUSTRY NEWS

RJR, B&W Combine Operations, Creating Reynolds American Inc. With 33% Share

Winston-Salem, NC - Cigarette makers R.J. Reynolds Tobacco Holdings Inc. and Brown & Williamson Tobacco Corp., the U.S. unit of British American Tobacco Plc, finalized the merger between the two companies' U.S. tobacco businesses on July 30 to create Reynolds American Inc.

The combined company controls about a third of the U.S. cigarette market, second only to Philip Morris USA Inc.

Reynolds American has estimated annual sales of $8.4 billion on volume of about 172 billion units, with 8,100 employees. The company's shares began trading on the New York Stock Exchange under the stock ticker symbol RAI on Aug. 2.

Reynolds American president and chief executive officer Susan Ivey said the marketing and sales teams were consolidated within 30 days of the transaction.

Andrew Schindler, executive chairman of Reynolds American and the former head of Reynolds Tobacco, said the company remains on target to meet a goal of trimming spending by $1 billion by the end of 2005, including the elimination of 2,600 jobs, or 40 percent of its work force.


Tobacco Executives, RTDA Urge Congress to Reject $15 Billion Tax Hike for FDA, Quota Buyout

Winston-Salem, NC - A joint letter from the top executives of 34 domestic tobacco manufacturers has warned Congress about the staggering effects of a Senate amendment that includes the largest federal tax increase since 1992, and is the most anti-competitive bill passed by Congress in decades

"Never before has so wide an array of tobacco companies joined together to send a single, unified message to Congress," said Brennan Dawson, senior vice president, government relations for R.J. Reynolds Tobacco.

The letter details reasons to reject the Senate amendment which requires smokers to pay an additional $15 billion in federal taxes to fund a tobacco grower buyout and provides the Food and Drug Administration (FDA) unlimited regulation of the tobacco industry.

Dawson notes that the companies signing the letter range from small to large, manufacturing a variety of tobacco products including cigars, pipe tobacco, and cigarettes.

Meanwhile, the Retail Tobacco Dealers of America (RTDA), a national trade association representing more than 2,500 retail tobacconists and over 350 cigar manufacturers, is also urging Congress to vote against the bill.

"The proposed FDA authority to subject tobacco retailers to the same regulatory standards as manufacturers is unfair and impractical," said RTDA executive director, Joe Rowe. "It will change the nature of the retail tobacco business to the point where retailers will be forced to close their stores because of excessive administrative and compliance costs."

According to the RTDA, the proposed legislation would grant the FDA authority to institute performance standards for the manufacture of cigarettes and other tobacco products. It would allow the FDA to pursue bans on flavored tobacco. The legislation would place unreasonable labeling demands on retail tobacconists based on their repackaging of tobacco products. The program would be funded by fees assessed to manufacturers and importers of tobacco products.

The FDA regulation would significantly damage the small businesses of the retail tobacco industry, says the RTDA. "Small manufactures will not withstand the excessive costs associated with implementing the same production standards as the largest cigarette manufacturers. Bans on flavored tobacco will stunt sales in growing market segments, such as flavored cigars. The cost of the program, if borne by retailers and manufactures as proposed, will also drive consumers away from traditional retail tobacco outlets and into other markets."


MHS Enterprises, Western Humidor Announce Merger

Lewis Center, OH - Western Humidor Corp. of Las Vegas has announced its merger with MHS Enterprises, Inc., the parent company of Bargain Humidors, Inc., a leading manufacturer of humidors, cigar accessories, and other goods.

The day-to-day operations for the combined companies will be shifted to the Lewis Center, Ohio facilities of Bargain Humidors. Fred Gawryk, current president of Western Humidor Corp., will take on a strategic planning and partnership role within the company. Western Humidor will continue forward as a division of MHS Enterprises.

"The products from Western Humidor have always held a strategic position within our company and we are pleased to be able to expand that strategic positioning by bringing added operational capacity and product choice to the customers of Western Humidor," said Mike Hotek, vice president of MHS Enterprises, Inc.

The combined company will be a "one-stop shop" for tobacco retailers, supply all classes of tobacco related accessories as well as pipe racks, wine racks, crystal goods, and fine gifts.

"Western Humidor has been looking to expand our cutting-edge product line, and the synergies between Western Humidor and HS Enterprises allow us to deliver an expanded product line that remains true to our core principals of delivering the highest quality products and design innovations that our customers require," said Gawryck.

Western Humidor may now be reached at 8157 Green Meadows Dr., Suite F, Lewis Center, OH 43035, Tel: (740) 548-5880, Fax: (740) 548-5860.


Republic Tobacco Affiliate Opens Austrian Tube Factory

Furstenfeld, Austria - A grand opening celebration on June 26, 2004, marked the official opening of Altesse's new state-of-the-art filter tube factory. The 50,000 square foot facility is projected to increase Altesse's production capacity from 2.5 billion tubes in 2002 to 10 billion tubes in 2004, increasing to 19 billion tubes in 2006.

"With our new factory, we can now keep up with the international demand for filter tubes and better service our customers," said Donald Levin, president of Altesse's parent company, the Republic Group.

Altesse managing director Eike Haug said, "We can now meet the growing market demand as well as reinforce our role as a leading producer of filter tubes and a key force in the Republic Group's RYO/MYO product synergy."

Altesse was founded in 1918, and evolved into one of the world's leading manufacturers of filter tubes and tips. Altesse became part of Austria Tabak in 1972, and was purchased by Republic Group affiliate D.T. Technologies in July, 2002.

Republic, a leading company in the global RYO/MYO tobacco and accessories business, increased Altesse's production capacity by purchasing new machinery and introducing three-shift production at the original factory. The design of the premises limited expansion, however, and Republic broke ground for a new factory site in Furstenfeld in August 2003.


Macanudo Appoints "Cigar Ambassadors"

New York - Since July, General Cigar has been sending two specially-trained "Macanudo Ambassadors" out into retail stores to help educate smokers about the Macanudo brand at special in-store events.

General Cigar's Cigarmaster Daniel Nuņez has turned Macanudo Cigar Ambassadors Luis Cortez and Charisma Baltazar into veritable cigarmasters themselves. The pair has undergone extensive training in the Dominican Republic and is knowledgeable in Macanudo's processes of planting, priming, harvesting, curing, aging, and hand-rolling.

Cortez and Baltazar are meeting and greeting consumers at select tobacco retail stores across the country where they are hosting "Macanudo Ambassador" events.

Each event lasts two days, during which time, the ambassadors interact one-on-one with consumers, share their vast knowledge about Macanudo cigars, offer a show-and-tell featuring hands of tobacco, tobacco seeds, and a factory scrapbook, and distribute complimentary Macanudo cigars. Consumers receive a virtual guided tour into the making of Macanudo cigars.

Aside from benefiting from the ambassadors' first-hand cigar knowledge, consumers who attend the event will receive a free Macanudo cigar and a chance to win gift certificates in denominations of $25, $50, or $100 to use at the tobacco retail stores that host the events. During the events, consumers can purchase special Macanudo ten-count boxes at 25% off the suggested retail price, in addition to Macanudo sampler packs that contain three Macanudo cigars for the price of two.

"Since our Cigarmaster Daniel Nuņez is committed to overseeing our tobacco growing and manufacturing, we cultivated two cigar experts who are practically mirror images of Daniel," said Macanudo's director of marketing, Bill Chilian. "They'll educate consumers in the art of cultivating and handcrafting cigars," through the Macanudo brand.



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