Importer tries to get around clove smoke ban

The nation's top distributor of clove cigarettes is offering fans a new way to get their fix after the spice-flavored cigarettes are banned later this year — cigars.

The new filtered cigars — close to the size of a cigarette and flavored with clove, vanilla and cherry — allow Kretek International Inc., which imports Djarum-brand tobacco products from Indonesia, to avoid new federal laws banning flavored cigarettes other than menthol.

The ban on flavored cigarettes, which critics say appeal to teenagers, goes into effect at the end of September. It doesn't include cigars.

The difference? Cigarettes are wrapped in thin paper, cigars in tobacco leaves. While the cigars also are made with a different kind of tobacco, the taste is similar. The cigars come 12 to a pack, rather than 20 for cigarettes, but cost nearly half as much.

The ban is one of the first visible effects of a new law signed by President Barack Obama in June that gives the Food and Drug Administration wide-ranging authority to regulate tobacco, though it can't ban nicotine or tobacco outright.

The new law gives the FDA the power to ban other products like flavored cigars, but that hasn't happened yet.

Whether the cigars are truly different or just an attempt to circumvent the ban by making superficial changes is in the hands of the FDA, said Matthew Myers, president of the Campaign for Tobacco-Free Kids.

"The key is the legislation gives the FDA the authority to respond to these types of frankly totally irresponsible actions," Myers said.

Myers joined executives from the American Cancer Society, American Heart Association, American Lung Association and the Amercian Legacy Foundation late last month urging the FDA to take a closer look at the issue.

Often associated with hippies and other bohemians, clove cigarettes may be the most well-known target of the ban. Some major cigarette makers experimented with mint- or chocolate-flavored blends earlier this decade, but many of those products are no longer made after coming under fire, accused of targeting children.

John Geoghegan, director of brand development for Moorpark, Calif.-based Kretek International, said the private company has been "puzzled about (the ban) since the very beginning" because clove cigarettes constitute less than 1 percent of cigarettes sold in the U.S.

"For people to say, 'Well, clove is a starter cigarette or a trainer cigarette' or something was just preposterous," Geoghegan said, citing company research about when and how consumers begin smoking.

Kretek International holds a 97 percent U.S. market share with its line of Djarum clove cigarettes, a staple of Indonesian smoking culture.

The U.S. market for clove cigarettes is about $140 million annually, with about 1.25 million clove smokers. Cloves have been imported to the U.S. since the 1960s and are mostly smoked by people younger than 30.

While Geoghegan said clove cigarettes make up about 65 percent of Kretek International's business, the ban is "damaging but not fatal" because of the company's other products like lighters and pipe tobacco.

Now, clove smokers are being forced to decide whether to switch to the new cigars, or quit. Many will likely stock up or try to buy product over the Internet.

And how the ban will work remains a point of contention for shop owners who sell clove cigarettes. But the FDA says the message is clear: Flavored cigarettes are banned, and the agency has the authority necessary to enforce the prohibition.

"So, what do we do with the stuff that's on the shelves? Who eats that? Is it legal to sell until it's gone or what?" asked Jim Carlson, owner of two CVille Smoke Shop stores in Charlottesville, Va., about 70 miles northwest of Richmond.

Carlson said he sells about 3,000 packs of the flavored cigarettes a year.

"You don't make a lot of money, but still it's income ... and it brings customers into the store," he said.

Lake Isabella, Calif., resident Terry Day, 42, used to drive 240 miles round trip to buy clove cigarettes when he lived in rural Valentine, Neb. He said he might try the cigars but was dubious about whether he would like them.

"I certainly don't like to be forced into that choice," said the clove smoker of 14 years. "I'm probably going to buy me enough to last until Oct. 1, then I'm just going to have to quit."

Tobacco Maker Names Chairman

British American Tobacco PLC on Wednesday tapped former Bank of Ireland PLC Governor Richard Burrows as its new chairman.

Mr. Burrows will take over from Jan du Plessis, who will become chairman of Rio Tinto PLC, on Nov. 1.

Mr. Burrows resigned from the Bank of Ireland in May, following a troubled fiscal year in which the bank's net profit dropped to €69 million ($97.5 million) from €1.7 billion a year earlier and had to seek €3.5 billion in financial assistance from the Irish government. Mr. Burrows apologized to investors at the time for the loss of shareholder value and the cancellation of the company's dividend.

BAT, meanwhile, demonstrated the resilience of the tobacco industry last month when it posted a 16% rise in first-half net profit to £1.45 billion ($2.4 billion).

Sales of cigarettes are continuing to hold up pretty well in the recession because smokers are reluctant to give up tobacco. Also, any dropoff in volume can be offset with price increases. The company's shares have risen 3.4% in the past year.

Analysts weren't concerned by Mr. Burrows's Bank of Ireland record, concentrating instead on his highly successful career in the fast-moving consumer-goods industry.

He was chief executive of Irish Distillers from 1978 until its takeover by Pernod Ricard SA in 1988. He continued to work within the French drinks company and eventually served as co-chief executive of Pernod Ricard from 2000 to 2005.

The BAT chair is a nonexecutive position, but a higher-profile role than at other similarly sized companies. During his five years in the job, Mr. du Plessis took responsibility for commenting on any political issues -- such as antismoking legislation -- leaving Chief Executive Paul Adams to concentrate on operational matters.

Mr. Burrows will be paid an annual salary of £525,000 and will work a two-day week for BAT. The salary is below the £686,000 Mr. du Plessis received to reflect the short working week, the company said.

Tobacco Festival should make big comeback next

The South Carolina Tobacco Festival is returning for its 53rd year in Lake City, although the schedule is leaner this year as a result of the economy. The decision to offer a scaled-down series of events for the 2009 festival, which will run from Sept. 18-20, was a conscious and unanimous one by the Greater Lake City Chamber of Commerce’s board.

In spite of the bleak economic scenery surrounding us, Lake City is fortunate to still have a festival, and an abbreviated schedule is a small sacrifice to make as our local businesses fight to stay alive.

One minor rumor was that the Tobacco Festival wasn’t happening at all this year. While it might not be totally identical to the Tobacco Festival we’re familiar with, several events are still planned, starting with the Street Dance the night of Sept. 18, a Friday. The event will feature the Band of Oz and will run from 8 p.m. to midnight.

The biggest changes to the festival’s schedule are the lack of a parade down Main Street as well as entertainment at the town square stage on Saturday, Sept. 19.

But that doesn’t mean you should just stay home that day; get up early and go support a good cause when the Florence Florence County Disabilities Foundation will hold “Lake City’s Largest Yard Sale” at its thrift shop at 219 N. Church St.

Also on Saturday, the festival beauty pageant will take place at the Blanding Street Auditorium, at 125 S. Blanding St.

Finally, on Sunday, the Lake City Country Club will hold a golf tournament.

The chamber of commerce already is making plans for next year’s festival.

“The hope is that we’ll be able to do it even bigger and better than in the past, and we’re even working on that now,” chamber Director Rita Smith said.

When the economy improves, we hope businesses will be able to resume their sponsorships of the festival. A large number of local businesses have been quite generous to the festival, as shown by the lists of contributors in previous years, so we have a good feeling that things will be looking up.

Smith said most people she’s spoken with have been understanding of the decision to scale back the festival this year. Many vendors have called to show interest in selling their goods at this year’s festival have asked Smith to keep them in mind for next year, she said.

With interest already mounting in the 2010 festival, an economic rebound would bring back a Tobacco Festival like those so many of us have regularly attended with our families.

And, as Smith said, it could be even bigger and better than before.

Festivals are good for the morale in towns and cities. They give residents a chance to have fun and take pride in their community.

The people of Lake City and the surrounding areas still have an opportunity to do that as the Tobacco Festival stays alive, and it’s something to be thankful for.

It’s my choice and I choose to smoke

“Quitters never win and I’m no quitter.” “It’s my choice and I choose to continue using nicotine!” The fact is, we lost “choice” the day nicotine took control. But that doesn’t stop the tobacco industry from spending billions on store marketing to build a mighty facade that screams, “smoking is an adult free-choice activity.” Every time we step up to the counter to purchase tobacco the signs and displays hammer our brains with the message that using it is all about flavor, pleasure and aroma. Apparently few tobacco executives “choose” to buy into the lies.

A former Winston Man, David Goerlitz, asked R.J. Reynolds executives, "Don't any of you smoke?" One executive answered, "Are you kidding? We reserve that right for the poor, the young, the black, and the stupid." Once hooked, our only real alternative is the up to 72 hours needed to purge nicotine from our system. Choice? What users have chosen is to avoid withdrawal.

As Joel puts it, it isn’t that we like using nicotine but that we don’t like what happens when we don’t use it. Then there are those of us who claim to smoke knowing full well that it’s killing us. We say we don’t care what happens, that we don't want to get old, that we have to die of something, so why not smoking. Most of us using these “self-destruction” rationalizations do so to hide the fears born of a history of failed attempts, and of a false belief that we’re somehow different than others, and that we’ll never be able to stop using. Try to find anyone who isn't shocked when cancer, emphysema, heart attack or stroke does occur. As Joel writes, "no one ever called me enthusiastically proclaiming, 'It worked, it's killing me!' On the contrary, they were normally upset, scared and depressed."

Choice? Once out from under our dependency’s control then free choice is restored. But just one puff, dip or chew and our freedom and autonomy will again be lost, as our brain is soon begging for more.

Ohio dealt decisive blow in tobacco funds dispute

The Strickland administration will mount an appeal to a Tuesday court ruling that would prevent the state from using $230 million in smoking prevention funding to help pay for home-care services under Ohio’s latest budget.

Franklin County Common Pleas Court Judge David Fais’ decision bars the state from touching $230 million from the dissolved Ohio Tobacco Prevention Foundation. The battle over the money began in April 2008, when Gov. Ted Strickland outlined plans to use tobacco foundation money to partly finance a $1.57 billion jobs stimulus plan in the state.

With the money frozen while the legal fight played out, the state shifted the intended use of the cash to optional Medicaid services, a children’s Medicaid expansion and cancer screenings, said Strickland spokeswoman Amanda Wurst.

In the ruling, Fais wrote that two pieces of legislation backing a liquidation of the foundation and transfer of the money are unenforceable because they “clearly violate” tenets of the state Constitution. Assets in the foundation’s endowment fund are now in the state Treasury’s custody, but they’re to be used solely for tobacco prevention programs mounted by public or private agencies.

Wurst said Strickland was disappointed by the ruling and the time it took to reach a decision. The governor has asked state Attorney General Richard Cordray to speed an appeal of Fais’ ruling “to ensure these vital services continue for Ohioans.”

“Today’s ruling will delay or jeopardize the ability of these health-care services to continue to serve the people of Ohio,” Wurst said.

Fais reiterated a position he held when issuing an injunction on use of the money last February: The state had a reasonable alternative to raiding the tobacco fund for the jobs stimulus plan by issuing bonds instead.

Tough Summer for Tobacco Crop

It's a sight you'll find up and down the Connecticut River Valley, field after field abandoned or already harrowed.

"It's like a ghost town," said Allan Zuchowski. "It's like a spaceship came and took all the farmers away."

It's not the farmers that are gone, but instead their tobacco crops, a result of a very cold and wet summer.

Zuchowski, a farmer in Hadley, has lost seven acres worth.

"It pays the bills. It replaces the equipment. It keeps up the buildings," he said.

Wally Czajkowski, another farmer in town, has lost 30 acres.

"It's just a big hole in the middle of our season," he said.

It's leaving a big hole in Czajkowski's wallet. His tobacco crop makes up a third of his income.

Both farmers say it's a combination of factors that have led to the devastating loss. Four diseases attacked the crops early in the season, and the cold and wet weather made it too difficult for the plants to fight them off.

One virus many tobacco farmers are dealing with leaves spots all over each leaf. When cured, the spots become holes, and the leaf becomes useless.

"Tobacco is a job that requires many hands and many hours and those hands are idle now," said Zuchowski.

"There's going to be a lot of unemployed farm workers this fall," said Czajkowski.

Both Zuchowski and Czajkowski are now paying close attention to their other crops. They must now rely on those to make up for the loss of income.

But both say they're not giving up on tobacco.

"We'll just try again next year," said Czajkowski.

Farm Labor Supply Surprising Tobacco Growers

About the time the economy went in the dumper in 2001 folks started saying that the recession would improve the farm labor supply. But a fellow at an agricultural outlook seminar in Gainesville, Fla., said the supply of field laborers was just fine.

"We have a great system," he said. "It's called Greyhound. It crosses the border, picks up workers and when the job's done, it takes them back home."

No self-respecting American who could get a check in the mailbox would go sweat in a field, the speaker said. At the time, he was accurate.

Either times have changed and some of those folks who could get a check prefer to earn an honest's days wages - as my parents and grandparents taught - or, well, I don't think there is an or. You see, those checks still are available to just about everyone who asks for one and Congress keeps extending unemployment eligibility.

But farmers are reporting Americans coming to see about working in their fields. Laborer jobs. Earlier today Ray Tucker couldn't help grinning when he said an American was among the fellows harvesting the tobacco on his Kentucky farm. And Jay sounded a little proud when he said the American was keeping up with the Mexicans who came here through the H2A program.

Reynolds American 2Q Profit Up 3.6%; View Raised

Reynolds American Inc.'s (RAI) second-quarter profit unexpectedly rose 3.6% as the tobacco company reported higher margins, which helped offset a decline in volume at its R.J. Reynolds Tobacco division.

Based on the company's first-half results, and more clarity in shipping patterns and the effects of a federal excise tax increase, the company raised its full-year per-share earnings view to a range of $4.40 to $4.60 a share from $4.15 to $4.45.

Last month, the Food and Drug Administration was given power to regulate tobacco products, giving the government authority to monitor smoking products. Reynolds and Lorillard Inc. (LO) claimed the legislation would give larger rival Altria Group Inc. (MO) advantages, but Fitch Ratings expects well-established brands will maintain their market shares and benefit from potentially greater advertising restrictions.

Fitch, though, warned launching new reduced-risk products could be difficult under the new restrictions. Reynolds, for instance, has been developing new smokeless products to boost sales, but its efforts could be snuffed out by the FDA.

The second-largest U.S. tobacco company behind Altria reported earnings of $377 million, or $1.29 a share, up from $364 million, or $1.23 a share, a year earlier. Revenue declined 3.8% to $2.25 billion.

Analysts polled by Thomson Reuters expected per-share earnings of $1.16 on revenue of $2.27 billion.

Gross margin rose to 46.6% from 44.2%.

The R.J. Reynolds Tobacco division's volume dropped 6%, but earnings rose 3.4%, as higher pricing and lower expenses were more than offset by lower cigarette volume and higher pension costs. Market share for growth brands grew 2.6 percentage points to 12.7%, while Camel's market share was flat at 7.5%.

Total R.J. Reynolds U.S. market share was up 0.4%, to 28.7%.

At the Conwood unit, which makes smokeless-tobacco brands Kodiak and Grizzly, earnings decreased 4.1% but volume rose 6.7% while market share for moist snuff shipments improved 2 percentage point to 29.4%.

On Wednesday, rival Altria reported its second-quarter profit grew a larger-than-expected 8.6% on its purchase of smokeless tobacco company UST as cigarette volumes continued to fall.

In premarket trading, Reynolds American's shares recently were up 0.8% to $41.50. The stock is up by about a third from its 52-week low in March.

Shanghai World Expo Says "No" to Tobacco Sponsor

rganizers of the Shanghai World Expo in 2010 have canceled a sponsorship deal for the China pavilion by Chinese cigarette maker Shanghai Tobacco in response to outcry by China’s growing anti-smoking lobby. Organizers of the Shanghai fair turned down a $29.3 million deal previously signed in May, the Shanghai Daily reported. That’s a huge amount considering how the U.S. is still struggling to raise $61 million from U.S. companies [though no tobacco companies]to build its USA National Pavilion. U.S. backers so far include 3M, Pepsi, GE, Yum Brands [KFC], Walmart, Intel and NYSE Euronext.

What’s surprising is that organizers of the Shanghai Expo ever consented to the tobacco deal in the first place. The world’s fair is themed “Better City, Better Life” with a strong focus on green technologies aimed at building a cleaner environment. But then again, the state-owned tobacco industry is hugely profitable and powerful. You can bet it will be lobbying hard against a proposed anti-smoking law to be discussed by the Shanghai Peoples Congress next month. Like the smoke-free Beijing Olympics, the Shanghai Expo has billed the Expo, which is open from May to October next year, as smoke-free. Smoking inside offices, restaurants and most public spaces is still legal in China.

China is one of the biggest growth markets for international tobacco companies such as Philip Morris International, maker of Marlboro cigarettes. For more on what it’s doing in China have a look at the cover story Nanette Byrnes and I wrote for BusinessWeek earlier this year. China has about about 350 million smokers, accounting for one third of the world’s puffers.

Councilwoman Head pushing for tobacco change

Councilwoman Stacy Head is set to introduce an ordinance this week that would create new restrictions on tobacco sales in the city.

It's a fight to steer New Orleans kids away from tobacco use.

"This is an initiative that has been brought together by a large coalition of people, some faith based organizations, some organizations dedicated to trying to reduce the use of tobacco products," Head said.

The measure would ban new businesses from selling tobacco products within a certain distance from city schools, playgrounds, libraries and churches.

Existing businesses would be excluded from the ban.

Up for debate is just how far the boundary lines would extend.

Head said it could be anywhere from 300 to 1,000 feet.

Those details will be worked out during a Housing and Human Needs Committee meeting Monday.

"We don't allow liquor sales often very close to churches and close to schools and close to parks,” Head said. “We should have the same rules for tobacco. It's gonna help, again, set an environment around a school that's going to be more wholesome."

Pastor Patrick Keen with Bethlehem Lutheran Church in Central City said the measure would be an important cog in the city’s rebuilding effort.

"It's a land use ordinance that we're addressing,” he said. “How do we use the land in New Orleans as we develop post-Katrina?”

Keen believes the proposal would help offset what he describes as an ongoing tobacco advertising blitz.

"Our children are being targeted by the tobacco industry,” he said. “There's about $251 million that's used by marketing specialists in the tobacco industry in Louisiana alone."

But some retailers feel a restriction would be unnecessary, pointing out there are already laws on the books addressing underage tobacco sales.

"If they're worried about minors, especially like from schools, they don't have to be worried about it because the state has a law and we do have strict laws regarding our store over here,” said Deya Ottallah, who manages a convenience store not far from Cohen High School. “There is no selling tobacco for minors."

Head said children do get around the laws, however. And she disagrees with the notion that her proposal could signify too much government.

"I'm a firm believer in the market taking care of many, many, many things, but I think government has an obligation to control the market when it's something as harmful as tobacco and kids," Head said.

The proposal is expected to be ready for a full council vote on Thursday