Shutting down small business – again

Jeffrey Armstrong is a soft-spoken guy. He was schooled in Boston, though a slight lilt still betrays his Caribbean origin - Barbados, actually. The kind of guy who remembers his customers' names, he's the owner and sole proprietor of "The Smoke Zone," a rented storefront next to the Quiznos at 901 S. Rancho Drive just north of Charleston Boulevard - though it's one of several similar RYO (roll your own) Filling Stations in Southern Nevada.

The basic pitch? Cheap cigarettes.

The brunette pays about $26 per carton at the Paiute tribal smoke shop, on the reservation north of town, for Smokin' Joes, which are relatively loosely packed and thus fast-burning. Quality control? A little spotty.

Armstrong advertises cartons at $21 plus sales tax, packed by a machine in his shop that's adjustable for degree of firmness, allowing you to create a cigarette that will burn longer than a Smokin' Joe, "so you actually smoke less, which saves you even more money."

I called the Wal-Mart Supercenter on West Charleston. A carton of Marlboro "100s" now costs $49.70, there.

I don't smoke. Armstrong said the regulations governing tobacco distribution are such that he was reluctant to hand the brunette a free sample, but a customer who was in the process of "rolling her own" carton cheerfully handed one over. The brunette found it a bit harder to draw than her usual brand, leading to the discussion of the ability to adjust the air pressure with which the machine packs the tobacco, as well as the higher relative humidity of the pipe tobacco being used.

Ah, yes, the machine. It dominates the waiting area of the small shop, a red steel box a bit smaller than an upright piano.

Armstrong insists he neither manufactures nor sells cigarettes - a legal fine point the importance of which will soon become obvious.

"I sell you the tobacco," he says, holding up a big Ziploc plastic bag that holds 8 to 9 ounces of the brown shag. "And I sell you the empty tubes," he says, taking down from the shelf and displaying a carton of filter cigarettes that turn out to be, well, empty.

The buyer then dumps the tobacco in the chute at the top of the machine, positions the box full of empty paper tubes in a slot in the side, punches the video control screen a few times, and - voici - the machine goes to work chopping the pipe tobacco, spitting it into the little paper tubes one at a time via compressed air, and dropping them into a tray down below, where the purchaser gathers up the finished cigarettes and packs them neatly back into the cardboard carton. Processing a carton's worth appears to take about 10 minutes.

"I never touch the tobacco or the cigarettes," Armstrong says, smiling. For a small fee to use his machine - included in the per-carton price - you've just rolled your own.

Why are they so much cheaper? The rough-cut pipe tobacco is taxed at a lower rate. But the federal government does impose a hefty tax on cigarette manufacturers, which is not paid by those who roll their own. The entrepreneurs responsible for the RYO Filling Stations discovered a niche in the law and introduced their perfectly legal, cost-saving service.

Needless to say, Big Tobacco was not pleased.

"Now lawmakers, backed by Big Tobacco and convenience-store chains, want to declare such shops to be manufacturers," reported Mike Esterl in The Wall Street Journal on March 16. "That would subject them to the same taxes and regulations as the broader cigarette industry, likely snuffing them out. ... Hundreds of such shops - mostly or entirely focused on the roll-your-own machines - have opened since 2009, when Congress increased" tobacco taxes.

Big Tobacco doesn't employ all those lobbyists so they can just sit back and let something like the RYO revolt transpire. Under a Senate bill passed a few days before Esterl's piece ran in the Journal, "Any retailers making roll-your-own machines available to customers would be treated like mainstream cigarette manufacturers."

Rep. Diane Black, R-Tenn., introduced a separate bill, House Resolution 4134, amending the definition of a tobacco manufacturer to include "any person who for commercial purposes makes available for consumer use a machine capable of producing tobacco products."

Would that include the little palm-sized gadgets I used to watch kids employ to roll their own cigarettes, of various kinds, back in my college days?

If I rent out construction gear, am I suddenly a construction contractor?

RYO Machines LLC of Ohio, the largest maker of the machines, has hired its own lobbyists and lawyers. "The company and affected tobacco shops say they have no way of complying with the regulatory requirements of being a cigarette manufacturer," The Journal reports.

"I'm David fighting Goliath,'' said Phil Accordino, part-owner of Girard, Ohio-based RYO Machines, which began manufacturing the nearly 5-foot-high contraptions in 2008. The company has sold about 1,900 machines to tobacco shops in more than 40 states, including roughly 1,000 last year. Stores pay a bit more than $30,000 for each machine, which takes two to three seconds to roll a cigarette - roughly a thousand times slower than machines at big cigarette manufacturing plants.

The Alcohol and Tobacco Tax and Trade Bureau declared in 2010 that retailers with roll-your-own machines are manufacturers, but RYO secured a preliminary injunction in a federal court in Ohio. RYO also has won injunctions in a handful of states, including Connecticut and Wisconsin.

The likelihood they'll win in the end? Come on.

Big Business and Big Government working hand in hand to stymie the creative destruction of true capitalism, ain't capitalism. Instead, it's a corrupt, protectionist economic system that the dictionaries recognize as fascism or state socialism.

Our politicians say they're desperately searching for ways to create jobs. The RYO entrepreneurs came up with $30,000 apiece to buy these rolling machines, then probably invested twice that much again in rent, advertising, business licenses, sign permits, everything else our hostile modern regulatory state now requires of a start-up business - all on the presumption they could rely on the law remaining the same.

Yet the minute Mr. Tobacco Lobbyist rang Your Favorite Congresscritter, it was "Change the law to destroy a specific legal business, shut down a thousand-odd small businessmen and women, crush their dreams and throw them back on the street? Yes sir, yes sir, three bags full!"

Vin Suprynowicz is assistant editorial page editor of the daily Las Vegas Review-Journal and author of the novel "The Black Arrow" and "Send in the Waco Killers." See www.vinsuprynowicz.com.