Open for Business...
so far

For anyone to survive in the tobacco business in the years ahead the industry must adopt a team-effort mentality: We're all in the same precarious boat.

By Luc Martial

I attended the RTDA show in Las Vegas this past July, as part of a Canadian business delegation to the event. Having been involved with international tobacco issues over the last 13 years, I have had numerous opportunities in the past to attend such related conferences and conventions worldwide. That the RTDA provided a welcoming, accessible, and impressive venue for tobacco merchants goes without saying. If I could offer any value-added insight in support of making the next show even better, I would simply suggest that an issues symposium could be developed and provided to participants next year. This symposium could offer a speakers' or even workshop series, focused on sharing expert knowledge on and experience with emerging industry issues (e.g. monitoring/ managing government regulations, extremist groups, emerging retail challenges and opportunities, building successful coalitions, etc.). In all fairness, this idea came up in various discussions I had with others at the show. In terms of its viability, industry shows worldwide have since begun successfully adding this now necessary business management component to their program. That being said, such a symposium will only come about if you take the time to contact the RTDA organizers and make the request. The ball's in your court.

From my viewpoint, the RTDA show seemed a potentially wonderful opportunity for industry enthusiasts, veterans, and experts to share their experiences, transfer knowledge/skills, and create formidable global networks - in support of not only selling to the markets, but also protecting them.

Worldwide, the tobacco business has become increasingly difficult and dangerous over the last decade. With the onslaught of ill-conceived (yet popular) anti-tobacco regulations, tobacco manufacturers, distributors, and retailers have fallen prey to a growing number of unnecessary industry challenges (e.g. contraband, thefts, violence, loss of revenues/employment, etc.). When I look to what is being done in terms of protecting the rights of both businesses and their clients, I can't help but notice how segmented the industry is. To this day there exists no broad-base stakeholder organization proactively monitoring the issues and responding in any comprehensive or sustained manner. Perhaps the industry's greatest weakness (as a whole) is its apparent inability to see the forest for the trees. Smokers, retailers, distributors, manufacturers, and growers need to realize that their survival in the marketplace is directly linked to the survival of others in the chain. And so we must all work together.

I often think about the future of the industry itself and wonder if there is any hope. Not to say that the industry will disappear any time soon, but if its recent past and emerging present foreshadows things to come, the business of making and selling tobacco will only become more deplorable with the coming years.

My involvement with a wide range of industry stakeholders, specifically over the last three years, further leaves me with little reassurance that the industry can save itself. Initially dismissed, my predictions of emerging regulatory attacks/challenges are now increasingly coming true, in the form of new and more aggressive labeling requirements, promotion regulations, province-wide smoking bans, and an increased focus on the cigar industry, among other developments. And the worst is yet to come for the cigar industry and the duty-free channel for tobacco products. While industry stakeholders are slowly waking up to their pending demise, they still (unfortunately) remain comfortably in bed. No one is truly prepared to (1) meet the challenges ahead; (2) hold extremist groups accountable for their actions; and (3) hold governments accountable to developing reasonable, fair, and workable regulations on tobacco.

In Canada, in keeping with unyielding attacks against tobacco distributors and retailers through onslaughts such as display bans and tax increases, proposed province-wide smoking bans in public/work places are now quite common within government agendas. In our largest province - Ontario - the government announced last January that such a ban would be implemented sometime before 2007. The provinces of Manitoba and Saskatchewan similarly introduced legislation to ban smoking in public places across the province by October 2004 and January 2005, respectively. Similarly proposed smoking bans have also received tremendous public support in other Canadian provinces. And this is just the tip of the iceberg.

Governments Never Letting Up
The Canadian federal government, for its part, is actively monitoring provincial and foreign government forays into uncharted anti-tobacco territory - and particularly observing industry reaction to emerging government regulations. At this time, the government has seen no reason why it should not continue to brow-beat smokers and destroy your businesses in the process. So they continue. In mid-August of this year, the federal government stated its intent to bring new amendments to the labeling regulations under Canada's Tobacco Act. More specifically, Canada believes that its current and very graphic world-precedent-setting warnings and health information on cigarette packaging are in need of a make-over. Suffice to say, Canada is about to raise the bar even higher on what is publicly acceptable industry-bashing behavior.

Cleverly disguised in their consultation paper to stakeholders is the government's long-standing wish-list item of eventually introducing "lifestyle-oriented" messages. But that's not for now. What should be of immediate concern to industry stakeholders world-wide is the government's current focus and long-awaited attack on the cigar, smokeless tobacco, and pipe tobacco industries. Canada is likely to set new world standards for "managing" these products. With regard to manufactured cigarettes, let's not forget that Canada's aggressive attacks against the industry has since led to other countries following suit. Most notably, Australia, Brazil, and countries within the European Union - under a 2001 directive - have all taken a page from Canada's anti-industry playbook. But these events are nothing new. Anyone paying any attention to extremist groups and governments will have seen the writing on the wall years ago. Canada's interest in developing new, more graphic warnings - as well as its current focus on cigars and other specialty tobacco products - were two years in the making. Documents retrieved under Access to Information (the Canadian equivalent of the Freedom of Information Act in the U.S.) in 2002 clearly identified and outlined the government's closed-door agenda on these issues. Throughout 2003 and 2004, various government (public) statements and initiatives in reference to the World Health Organization's Framework Convention on Tobacco Control (WHO FCTC) provided yet more red flags as to the trouble brewing for the industry. Granted, the FCTC is yet to be ratified - but in the end, even the FCTC's failure would likely prove a more impressive leverage for government action in most industrialized nations.

While Canada remains an effective testing ground for anti-tobacco regulations worldwide, the U.S. has also since proven itself quite able to lead the pack. New York's lower ignition-propensity initiative (regulated as of June 2004) is now actively touted as a key example for action in Canada. Effectively, Canada has moved ahead with this new fire-safe standard for manufactured cigarettes - and eventually for other products. Cigarettes are likely to be regulated by Fall 2005. Quite recently, Canada's second largest jurisdiction - the French-speaking and heavy smoking province of Québec - also leveraged U.S. precedents (New York, California, Maine, and Massachusetts) as a reason to eventually move ahead with banning smoking in pubs, bars, and restaurants throughout the province, likely by 2006.

Adding insult to injury, many Canadian governments continue to advocate and implement significant tobacco tax increases every year - despite their acknowledgment that their tax policies on tobacco are responsible for (1) dramatic increases in related retail thefts and violence and (2) an emerging and uncontrollable contraband market which impacts all levels of our society. These issues, it would appear, have since been considered by governments as simply the "cost of doing business." They in no way affect their bottom line, as they rake in hundreds of millions of dollars more in revenues with each yearly tax hike. And so the madness continues.

While Canada may seem removed from your immediate concerns, I would caution the cigar and specialty tobacco industries from making the same mistake cigarette manufacturers have since acknowledged. The anti-tobacco movement is well-organized, well-funded, influential, and global in their approach. Don't underestimate them. As for governments, they are usually understaffed, overwhelmed, and easily blindsided by extremist groups. Don't overestimate them.

As things stand, the odds are stacked against you and your business. And that's not about to change anytime soon. Moreover, after years of neglect, the industry itself is in undeniable disrepair. Years of quick-fixes and stop-gap measures have done little more than to desensitize the industry to the real problem - and solution. In all honesty, I'm not sure the industry will ever recover.

Saving Tobacco
With such a bleak future for the industry, why go on?

Some may feel that tobacco is all they know or can do. For others, it's simply a matter of principle. Others still thoroughly enjoy the business itself. As for me, I've come to realize that the tobacco industry is filled with quality people who make and sell quality products - that are in demand. And that in itself, I believe, is something worthwhile and worth fighting for.

As importantly, while at the RTDA event this summer, I had the pleasure of meeting several companies and individuals who both inspired and motivated me. Experienced industry veterans like Jeff Wagner of Royal Blunts and Franco Gabriele of Alfa Brands Corp. showcased both an indelible passion for, and expertise in, what they do. Men of such apparent professional caliber and vision are what the industry desperately needs at this time in its history. Brendan McGuinness and Shawn Ulizio of USA Tobacco Distributing were equally quite imposing in their exuberance and creativity - while Royal Blunts' Stephen Woodson displayed stirring entrepreneurial spirit. Finally, my visits to Nat Sherman, the Santa Fe Natural Tobacco Company, and Lignum-2 would in the end remind me that sophistication, quality, and choice remain the cornerstones of this respectable business.

In the presence of these remarkable individuals and companies - I found renewed hope for the industry.

SMOKESHOP - October, 2004