Cigars Under Siege Tobacconists and smokers throughout California are fighting a desperate battle against antitobacco forces.
California is a tough place for cigar lovers. From Eureka to San Diego, tobacconists and smokers are under attack. Recently passed tobacco taxes have become crippling, and strictly enforced antismoking laws have severely limited the places where one can enjoy a good robusto. This harsh reality feels especially cruel in a city as rakish, money-driven and class-conscious as Los Angeles, where past moguls like Louis B. Mayer would have looked naked without Churchills clamped between their teeth. And who can forget all the great images of modern-day icons like Jack Nicholson and Arnold Schwarzenegger puffing awat away? Nobody would have ever dreamed of suggesting that they extinguish their cigars--not, at least, until recently.
Today, you can close a billion-dollar deal in the $20 million building you own in the heart of Beverly Hills and, legally speaking, your secretary can bully you into refraining from lighting up a celebratory smoke. California law states that cigar smoking is verboten in almost any public area--not just in office buildings and shopping malls, but also in taverns, nightclubs, restaurants, even cigar bars. (Tobacconists and private clubs are the few exceptions.) You want to be out in public in California? Fine. Just don't expect to enjoy a cigar.
As rough as the law is for cigar smokers, it is even tougher on tobacconists. Thanks to Proposition 10, a referendum that was spearheaded by actor-director Rob Reiner, state taxes on cigars have risen from 26 percent to 66.5 percent. Even worse, retailers must pay a "floor tax" on the cigars they have in stock rather than on cigars sold, forcing them to pay tax on income that is not yet realized. Considering that many cigar shops are overstocked on the good smokes they had back-ordered during the boom, it makes for tricky finances. "A lot of us retailers have merchandise that we don't need," says the owner of a Los Angeles-area cigar shop. "There's a lot of product in the pipeline, taxes have caused prices to increase dramatically in California, and nothing is moving."
Arguably, the floor tax is what's immediately most damaging to retailers. "The floor-tax [is unusual]," acknowledges Bill Fader, executive director of the Retail Tobacco Dealers of America and owner of Fader's tobacconist, a Baltimore institution. "If you knew about the tax in advance, you may not have even bought the product." Viewing the situation on a national level, Fader is concerned that other states will take a cue from California. "In Louisiana they tried to triple the OTP [Other (than cigarette) Tobacco Products] tax. Happily it was defeated. But I do see continued increases in OTP taxes. There is not a thing to do about it. It's state by state, and they look at tobacco tax as a ready revenue."
Combine that high cost of doing business with the hostility toward puffing in public and you can imagine the chilling effect that West Coast retailers are enduring. "Guys come into my store and tell me that they remember paying $5 for cigars that we now have to charge $8 for," says Laith Haddad, owner of Cuban Seed Cigar, a cozy, handsome, well-stocked shop located on Sunset Strip. "The older guys who've been buying cigars for 25, 30 years--they are really pissed off. Those guys have seen prices rise through the cigar boom that began back in 1995." Now, of course, with taxes invariably being passed on to consumers, they pay more than ever.
Or at least they would be paying more than ever if they were buying cigars in any kind of quantity. "Box sales have ceased," reports Charles Janigian, managing director at JMG International, a San Jose-based cigar distributor. The head of the California Association of Retail Tobacconiss, Inc., Janigian has seen the devastation from a broad perspective. "I just visited a bunch of stores and distributors in Southern California. And everybody is all over the place, scrambling for business. People have had to let personnel go. There've been divorces and family crises. You have people with $100,000 of inventory having to pay $35,000 [in floor tax]. What business could survive that? This is extortion."
Established tobacconists are faring better than the newcomers are. Deeply entrenched in the cigar world, Haddad and his family, for example, have been selling tobacco since 1941. They got their start by importing bulk tobacco from Cuba and Honduras, supplying cigarmakers in the western United States. Over time they built a successful company, and by the time Laith entered the fold in the 1990s, the Haddads had launched a wholesaling business. Laith Haddad runs the wholesale arm of the company as well as the retail shop, both of which had been doing extraordinarily well--until Proposition 10.
To hear Haddad discuss his wholesale business--which has dropped by 30 to 40 percent--is to get a strong overview of the state of cigars in Southern California. "Proposition 10 adversely affected our wholesale business," he says, as he puffs a cigar on a sofa at the front of his shop. "The retailers are very nervous. [They] tell us that their shelves are full and they don't want any more cigars. A lot of stores have closed down. I have a friend named Roy who had three stores in Southern California. Two of the stores he sold and one he shut. He moved to Las Vegas [where cigars are not so heavily taxed] and he is doing well there. People who thought they could make a million bucks in this business have found out that it's not so easy." Like other tobacconists, Haddad grouses about the slim margin of victory for Proposition 10--it won by only 71,000 votes in a state with 14,000,000 registered voters--and the way in which it was sold to the voters. It was presented as a tax on cigarettes--not all tobacco products--for the benefit of California public schools.
"People were misled," says Haddad. "I'd ask people if they voted for Proposition 10 and they would say, 'Sure I did. It's an extra 50 cents per pack for the kids. I don't smoke cigarettes, so it won't affect me.' I had to tell them that it would put an increased tax on cigars and pipe tobacco. But nobody knew that. The whole campaign was against cigarettes. It was never about cigars." This was underscored by California smokers who seemed to be supporting the bill--without completely understanding its repercussions. Celebrity heat helped to glamorize the cause--Charles Janigian maintains that a number of Hollywood's top stars contributed money to help promote Proposition 10.
As for the referendum's biggest booster, Reiner spokesman Chad Griffin says the bill's supporters never concealed the issue. "From the beginning it was a tax for all tobacco products. It was always talked about as a tobacco tax. The ballot made it clear that it was a tobacco tax and not a cigarette tax." Reiner's active support for Prop 10 has made him a lightning rod for the referendum's opponents, but Griffin says, "It's not Rob. He's not picking on cigar smokers. This initiative was sponsored by 140 children's health groups. Cigarettes, cigars and smokeless tobacco have had a detrimental effect on families. This is about the dangers of secondhand smoke on children and the dangers of smoking prenatally, and [it's intended to provide] programs that promote and support the healthy development of young children. The initiative mandates that Prop 10 dollars be used for antismoking [causes]."
Rumors to the contrary, Reiner has claimed that he has never smoked cigars. "He will tell you that he is not a cigar smoker," confirms Janigian. "But we have documented photographs of Mr. Reiner smoking cigars in his movies. We also understand that he had quite a collection of Cuban cigars in his humidor at home. But in conversations that I have had with him directly, he stated that he did not smoke cigars. It is bizarre."
Griffin responds: "He's never smoked cigars. He doesn't have a humidor. I've never seen a cigar in Rob's hand in a movie and I have seen virtually all of Rob's films." Even more bizarre is a tale that has been making the rounds in Hollywood cigar circles. "From a good source," says Haddad, "I hear that Rob Reiner was telling people, '[Proposition 10] won't affect me. I smoke Cubans.'" For that comment and pushing Proposition 10, "he's been kicked out of the Grand Havana," says Haddad. "From what I understand, he lost whatever he had in his lockers at the Grand Havana. They took away the cigars and reimbursed him for their cost."
Stanley Schuster, owner of the Grand Havana Room, denies that Reiner has ever been a member. Reiner's spokesman adds, "He has never been a member of the Grand Havana club. He has never even heard of a club called that."
The final whammy for California cigar merchants is the growing competition that comes from the Internet, where sales tax is supposed to be paid on the honor system. Compliance is infrequent at best. By ordering online, Californians can get the same cigars carried by bricks-and-mortar retailers, for a fraction of the cost. And many customers are doing it. While Haddad tries to draw business by discounting his cigars and offering a level of customer service that does not exist online, he realizes that he can do only so much.
To hear Janigian tell it, the tax-free Internet does something far more insidious to California's bricks-and-mortar retailers: it turns them into patsies. "People tell retailers, right to their faces, that they are ordering from the Internet and catalogues," Janigian says. "They come into the store to sample a stick or two. Meanwhile, the retailer educates consumers so they can [make their larger, box purchases] from [nationwide cigar retailer] JR and catalogue companies out of state." Maybe that's why Haddad is rooting for another government initiative, this one aimed at the dot-com merchants. "One silver lining is a bill in [the U.S.] Congress called the face-to-face act," he says. "Aimed at stopping kids from buying tobacco, and controlling the taxes, it will put an end to people purchasing tobacco products over the Internet. It would help us, but [mail-order cigar merchants] like Mike's and JR and Thompson, their businesses will be gone if that happened."
Even Haddad's "silver lining," though, is tarnished around the edges. Though the abolishment of Internet retailers would certainly help level the playing field and encourage California smokers to patronize tobacco shops, it would be one more government regulation against tobacco.
While a federal face-to-face bill may offer some help to California tobacconists, a state face-to-face bill is a looming threat. California State Senator Martha Escutia has introduced SB1510, which, in part, would require all tobacco sales to be face-to-face transactions. In effect, it would ban California tobacconists from selling via mail order or the Internet, without protecting them from out-of-state cigar retailers.
"It is still in committee, it is still alive," says a spokesperson at the Washington, D.C.-based Cigar Association of America. "Nothing's dead until the session's over, and the session is far from being over. Right now it is stalled. [Sen. Escutia] could move to get the bill moving again in the fall. She is the chairwoman of the [California Senate] Health and Human Services Committee. It is her bill in her committee."
According to Larry Wagner, proprietor of Cigar Warehouse in suburban Sherman Oaks, a face-to-face law would take a lot of the pleasure out of cigar retailing. If such a law is passed, Wagner's humidor will become a thing of the past. "It will mean that I can no longer sell from a walk-in humidor," he says. "Because it would only allow for face-to-face sales, the law would say I can't let people go into the humidor. I'd have to sell from behind the counter, and it becomes like the Soup Nazi on 'Seinfeld.' The customer won't be able to go inside the humidor and touch what he wants to buy. In the long term, it hurts us. It makes people less inclined to smoke cigars."
Wagner is the kind of guy who loves dealing with the public, loves turning customers on to new cigars, and gets satisfaction out of running a successful business. Puffing away on a Bahia Gold ("My favorite cigar of the moment," he opines), he leads a tour around his pride and joy: an enormous walk-in humidor in which customers such as David Letterman, George Clooney and Paul Reiser have been known to check out the merchandise. Wagner believes that he offers customers something they can't get when they order cigars via the Internet. "Cigars are different from CDs or books," he says. "Maybe you want something that's a little more oily or a darker shade or you want something that doesn't seem so tightly rolled. At my store you can pick out the exact box that you want. You schmooze a little. You might run into a guy you know. A good retail store is a place where you want to go."
Wagner leads the way to a comfortable little sitting area where sofas and chairs surround a couple coffee tables. It's a great spot for lighting up and checking out the street scene through Cigar Warehouse's big plate-glass window. "We made this a comfortable place to relax, and I give a box discount. Plus on certain major brands I am taking off 25 percent of the cost. I absorb the loss, but it keeps my customers coming in."
Despite Wagner's obvious allegiance to retailing the old fashioned way, it's hard to imagine that he does not sometimes think that it would be easier to shut down his store, move to a lower-tax state, and perhaps launch some kind of online operation. But he doesn't.
"I've never considered that," Wagner says with pride. "During the boom there was no point in going online. Back then we couldn't get enough product for people walking through the door. Now there are more than 500 people selling cigars on the Internet"--so the competition there is already formidable. "Plus, cigar shoppers online are cherry pickers. They want [Arturo Fuente] Hemingways, Padrón Anniversary, [Fuente Fuente] OpusX. They are not looking to buy a merchant's inventory. They only want very specific cigars."
To combat the situation, Wagner is finding good cigars that sell for reasonable prices. "I've brought in more kinds of cigars that fit the $5 category," he says, making it clear that he is aiming these toward serious smokers who care more about flavor than the name banded around the cigar. "Cigarmakers are coming out with new cigars that average around $6. For example, Consolidated--famous for H. Uppman, Don Diego and Montecruz--brought out new versions of old brands. There's a new Uppman, a new Por Larrañaga, a new Cubana and a new wrinkle on the Henry Clay cigar. The cigars have been blended for today's market. They're stronger and more Havana-like. They hit it right on the head with these brands. They're our hottest sellers from what had been one of the deadest companies around. People have gotten so used to the high prices that when you show them a great cigar for $5, $6, $7, that seems like a bargain."
The strategy seems to be working. Through the course of a lazy weekday afternoon, business dribbles into Wagner's store. He seems to be doing just fine, which is better than many of his fellow merchants in and around Los Angeles. Still, he views Proposition 10 with righteous indignation. "It's egregious," Wagner fumes. "Prop 10 is crazy to those of us who believe that the state is putting a tax on a specific product used by a small number of people to fund a project that is basically for the benefit of everyone. People thought they were doing something altruistic when they voted for Proposition 10. All they did was harm retail business in California."
Indeed, CART, the retailers advocate group, estimates that at least 30 California-based tobacconists have already gone out of business, a situation that the organization is responding to. By early September, Janigian plans to be in court, suing the state to overturn Proposition 10. "Proposition 10 violated the California state constitution," maintains Janigian. "It created a commission outside the control and management of the state government. It created a double tax on pipe tobacco, cigars and smokeless tobacco. And it violates the single-subject law in California. The funding source must be related to programs that the subject is related to." In other words, taxes on cigars can be used to raise money for, say, advertisements that deter people under 18 from taking up smoking. But Janigian argues that it should not be used to fund something totally unrelated to cigars--like prenatal child care.
As angry as Wagner, Haddad and Janigian may be, Southern California cigar legend Ed Kolpin takes a more fatalistic view. Step into his Tinderbox, a little dollhouse of a store in Santa Monica that launched the national chain of Tinderbox shops, and you step back in time to old Hollywood. Adorning the walls are photos of past customers, including Clark Gable and Robert Mitchum. In the basement of his store, 90-year-old Kolpin sits behind a battered desk. He wears a string tie and smokes a pipe. A cigar lover who has become wealthy by selling smokes, Kolpin seems to have given up the fight. He's already had to lay off two employees, and he acknowledges, "People who buy cigars from me are stupid. They ought to buy them on the Internet. When people complain to me about the price of cigars, I tell them to take up pipe smoking or go to another state to buy cigars. Yuppies and successful businessmen will buy cigars from me because they don't care if they spend $30 for a cigar."
Kolpin acts as if he doesn't care--he can afford to put on that front and he likes to seem a little eccentric. Yet he is disgusted with the situation. Such a high tax rate is something that he never expected to see in his lifetime. This sentiment becomes apparent when he talks about the latest wrinkle in the siege under which tobacconists find themselves. "The Indian reservations have begun selling cigars and they can do it without charging taxes; this is a crazy world. All I ask for is a level playing field. It's not fair that people can sell cigars over the Internet or on a reservation and charge no tax while we are forced to charge more than 50 percent."
After griping that his walk-in humidor used to be sardined with cigar-smoking doctors from a medical center across the street, Kolpin launches into a long story about actress Jayne Mansfield and her husband Mickey Haggerty. "We used to have a nice, celebrity clientele," Kolpin says wistfully. "Now they go to Beverly Hills to buy their cigars. Then they take them home and smoke in private."
One place where one would expect celebs to be buying their cigars is Thomas Hinds, a posh, sprawling shop in Beverly Hills, owned by the Canadian tobacconist and obviously built with little regard to expense. Ceiling fans spin lazily above a clubby sitting area; mood lighting illuminates the room in an appealingly subtle way. Considering that Hinds is located within walking distance from powerhouse entertainment agencies ICM, United Talent and William Morris, this place ought to do gangbuster business. However, judging from the walk-in humidor with its sparsely stocked shelves (which still boast top-flight cigar brands), things can be a lot better.
Back in the mid-1990s, big shots used to come in to celebrate after they closed massive deals, recalls Rigo Fernandez, the store's manager. "It used to be 10 hours a day with people smoking, talking, doing business," he says. "Now the cigars are too expensive and I can't sell them. We are left with customers coming in to buy a single cigar to smoke after dinner." Hinds used to be a meeting place prior to lavish meals in the neighborhood restaurants. People were so hungry to get cigars that Fernandez maintained a waiting list of customers, and he fended off those who offered to pay up front before the merchandise was even in stock. "The difference after Proposition 10 was immediately noticed," says Fernandez, a Havana native who is banking on a lifting of the U.S. embargo on Cuba to ignite a new cigar boom some day in the future. "We lost all of our box sales. The prices went up, the cigars became readily available again, people realized they could get any cigars they want at any time. They stopped needing the boxes."
California voters had the opportunity in a March vote to reverse the onerous taxation of Proposition 10 with a referendum called Proposition 28. Prior to the vote, pro-tobacco forces were outspent by Reiner's coalition $20 million to $1 million, and the referendum was voted down by a wide margin.
When Fernandez considers the current state of the market, he sees too many retailers and not enough smokers, and he is willing to articulate what many other merchants are probably thinking. "The only hope I can see is that people will start going out of business and there will be more room for the ones who stay in business," he says. "What works in our favor is that sometimes mail-ordered cigars arrive late and the quality is not always good. That is when [customers] start coming back here." A businessman walks into the store, browses the humidor, and exits without making a purchase. Watching his fading form, Fernandez speaks a common sentiment. "There has to be a light in the future," he says. "But right now it still seems far away." v [Editor's note: As this issue went to press, the Thomas Hinds shop closed its doors, according to the owners for reasons unrelated to Proposition 10.]
Michael Kaplan is a New York-based freelance writer and a frequent contributor to Cigar Aficionado.
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