Expert: Bill Finck Jr. - 4/13/2007

Question
QUESTION: Bill, I'm thinking about buying an existing cigar store. What's your opinion on the current and future state of the cigar retail industry? Where can I find demographics on cigar smokers?
ANSWER: John,
I've been in this business my whole life, and I've watched this industry struggle and boom. Currently, we seem to be in a solid growth mode. The quality of cigars has never been better and that seems to be driving solid gains. So from the current state of the industry side, the future looks great. The scary part is what our government might do. There is always a plethora of legislation floating around regarding tobacco, but we're looking at some of the most harmful Bills we've ever faced. I live in Texas. Our Legislature is currently considering a Bill that prohibits smoking in any public place - bars, restaurants, golf courses, even in retail cigar stores and in my own cigar factory! There is federal legislation looming that will nearly triple the excise tax on cigars, there is legislation prohibiting flavorings in cigars (not just stuff like Swisher Sweets, this would affect Kahlua, Makers Mark, Tatiana, Cojimar...). Not only are the Federal issues to deal with, but every state has its own excise taxes and regulations. Some states have made in nearly impossible to do make a living in the tobacco business with incredibly high taxes and restrictions on products. All that being said, I'd take a close look at your states excise tax rate and pending legislation. If that doesn't scare you off and you're not risk-adverse, you might find yourself in one of the most enjoyable industries in the world. Not many shops are big money-makers, but you can make a living and you'll get to know a lot of great people.

On your question of demographics, I don't have a good answer for you. Try the Retail Tobacco Dealers Association (RTDA). Their site is www.rtda.org. If they can't help you they might be able to point you in the right direction.

Thanks,

---------- FOLLOW-UP ----------

QUESTION: Thanks, Bill. Given the legislation and tax issues that might affect existing shops, what are your thoughts on the online cigar business? I mean, even if people can't smoke in public, they'll still want to smoke somewhere, probably at home, so wouldn't a solid online side of a cigar retailing company be an important part of an overall business?

Answer
John,
I addition to our manufacturing and retail store businesses, we have a good size mail-order business as well. In all honesty, the most precarious part of the cigar business of all is mail order. There are a number of issues facing us. Some states require mail order companies to register with them and collect or help them collect excise taxes. Some states have banned mail order tobacco in to their states altogether. There are regulations requiring proof of age when delivering tobacco and regulations that require a face to face transaction. There are some freight carriers that will not deliver tobacco and credit card processors that won't accept transactions involving tobacco.  Sorry to paint a bleak picture, but I'd be hesitant to invest much in mail order tobacco unless your business plan makes sense in the short term. Even if you're willing to work through the legal issues, you'd be competing against huge companies with volume that keeps their cost low and lets them sell cheap.
John, these are obviously just my opinions. We've felt like we could lose our mail-order business for years to governmental regulations, but we've continued to pump money into it and its been a great part of our business. Our lobbyists fight these unfair proposed regulations and so far we've been pretty successful in most states. Mail-order tobacco may be around for years - you just need to weight the risks when making your decision.
Good luck,
Bill Finck Jr.