Stores in court over ‘roll-your-own’ cigarettes – Tuesday, Jul. 20, 2010

CONCORD – The state is suing two more businesses that let customers roll their own cigarettes, avoiding paying a two-cent per cigarette fee.

The retailers, East-West Distributors d/b/a Smoke N Discounts of Epsom and Tobacco Depot of Seabrook, recently installed cigarette-making machines capable of making a carton of cigarettes in about eight minutes, according to Attorney General Michael A. Delaney.

Richard Rigazio, owner of Tobacco Depot, declined comment. UnionLeader.com was unable to reach anyone from Smoke N Discounts.

The stores sell pipe tobacco and materials needed to make the cigarettes, and then provide customers with access to the machines which, the state claims, makes the stores cigarette manufacturers that must comply with the Non-Participating Manufacturers Act and the Directory Act.

At issue is the $50 million a year the state gets from a 1998 settlement with tobacco companies over Medicaid costs incurred by patients suffering from tobacco-related illnesses. The fear is if the state does not enforce the Master Settlement Agreement (MSA) of 1998, that the tobacco companies will stop paying the annual $50 million.

David A. Rienzo, assistant attorney general in the Consumer Protection and Antitrust Bureau, last year filed suit against North of the Border Tobacco, which operated Tobacco Haven in Brookline. Tobacco Haven sold tobacco to customers who rolled cigarettes on two machines at the store. Customers paid $26 a carton, about $30 less than the going price of a pre-packaged carton.

At the time that lawsuit was filed, Rienzo explained that manufacturers in the MSA increased their prices to cover the annual $7 billion payment to all 50 states.

Under state law, cigarette manufacturers have to join the MSA but those who do not must pay into an escrow account which is maintained in the event the states decide to sue them as well. The amount paid is based on the number of cigarettes made – about two-cents per cigarette or about $4 a carton, according to Rienzo.

The lawsuit does not address the issue of state taxes, which is $1.78 per pack.

A Merrimack County Superior Court judge found in the state’s favor in the suit against North of the Border Tobacco, ruling the Brookline company was engaging in the commercial manufacture of cigarettes using pipe tobacco.

Rienzo said while the lawsuit was pending, Rigazio started another company – RYO (for roll your own) – and moved the cigarette making machines to the new store, next door to Tobacco Haven in the same building that he owns. Rigazio maintained the court order no longer applied, according to Rienzo.

The state went back to court and amended its original lawsuit to include the new enterprise. The court notified the state today, Rienzo said, that its prior order applies to the new limited liability corporation as well.

Rienzo said he does not know how many cigarettes have been manufactured but believes it will be easy to determine since the computerized cigarette machines keep a running tally. The manufacturer of the computerized machines which cost $30,000 each, Rienzo said, are paid in advanced for a specific number of cigarette batches.

The machines, which are connected through a telephone line, will not work if the manufacturer has not been paid, he explained.

Stores in court over ‘roll-your-own’ cigarettes – Tuesday, Jul. 20, 2010