This morning, I was working on a new Foundations piece when the discussion took a detour into California’s Unflavored Tobacco List legislation. I’d wanted to write a commentary on it since before it went into effect, but every attempt came out way too angry. This morning, though, I was in a good mood. Sunday was Fun Day, so I decided to poke fun at the issue with a little political satire.
The other day at the West Coast Cigars lounge in San Jose, CA, I spoke with the owners, Kyle and Father Bob, about Privada/LCA. I’d noticed they had stopped carrying the monthly LCA drops because of California’s bullshit Unflavored Tobacco List legislation. Between the registration fees and sample requirements, those limited monthly releases just didn’t make financial sense.
Like I said, bullshit.
After we got our individual rants about the UTL out of the way, we circled back to discussing Privada. We all had a chuckle about Brian Desind and the company. He’s certainly a polarizing figure in the industry, but there was no denying that his business model is working.
Brian may have some competition, though. Sacramento has developed a cigar subscription program of its own that it calls the Unflavored Tobacco List.
I started imagining the meeting where someone came up with this thing.
A legislator sits at the head of a conference table. He enjoys cigars, but keeping his humidor stocked has gotten expensive. Fortunately, he works in government, where an expensive personal interest can sometimes inspire a remarkably ambitious public initiative.
“Ladies and gentlemen,” he says, “we need to make sure unflavored tobacco is unflavored.”
An aide looks up.
“Doesn’t the manufacturer already know?”
The legislator removes his glasses.
“Of course they know. But we need to assure our constituents that we’re protecting public health and preventing minors from being attracted to cigars. Plus, it’s a great way to expand our budget. Now let’s get to work on some legislation!”
And the Sacramento Cigar Club is born.
A couple of months later, he calls another meeting. With a smile on his face, he announces the plan.
“We all know how cigar clubs work. Members pay to join, and the club sends them a curated selection of cigars. Our club will work a little differently. The manufacturers will be our members, and we’ll record their membership on what we’re calling the Unflavored Tobacco List. Every cigar they want to sell in California will have to be on this list. They’ll pay us a fee for each SKU, then send us samples for our review.”
Those seated around the table nod their approval, and the legislator continues. “Here’s the great thing about the club: there are no customer acquisition costs. Plus, membership will be encouraged through the prospect of losing access to an entire state. And it’s all in the public interest, of course.”
An aide raises a practical concern.
“What about the companies that release a different cigar every month?”
Our legislator leans back in his chair.
“Every month?”
“Yes, sir. Small batches. Limited production. Sometimes a collaboration with a different factory.”
He considers this for a moment.
“Hmm… Those may not work for the club, but that still leaves hundreds of others that we can choose from, so if we lose those, I think that’s okay.”
“But what about the tobacco tax revenue that we’d lose?”
“Think about the good of the club. Would you rather have 100% of one, or 10% of a million?”
The aide sits back and smiles.
The beauty of calling it the Unflavored Tobacco List is that it sounds so simple. A list. How much trouble could a list possibly cause?
For a manufacturer releasing a few thousand cigars, the application, fees, and samples become another expense to recover from an already small production run. At some point, it makes more sense to skip California altogether, and some manufacturers like RoMa Craft have done just that.
Eventually, someone like Kyle looks at an empty spot where the monthly LCA drops used to sit.
The paperwork has succeeded. The cigar has disappeared.
Back in Sacramento, however, the program is flourishing. A new shipment has arrived, and the committee has convened to examine it.
One official sniffs the wrapper.
“I’m getting cedar.”
Another nods.
“Some earthiness, too.”
The chairman looks troubled.
“Are those flavors?”
A long silence follows.
Finally, the senior member reaches for another cigar.
“We should probably review a second sample.”
I’m beginning to think I’ve approached this whole thing incorrectly. I’ve spent years buying cigars, taking notes, researching tobacco, and writing reviews. Apparently, I should have established a regulatory agency.
I could have charged admission to my humidor.
Joking aside, the shortsightedness of politicians never ceases to amaze me. Making cigars harder to find in California gives smokers another reason to order from out-of-state retailers. Someone looking for a particular cigar can search for it online in seconds. Sacramento shouldn’t assume that removing it from a California shelf means the customer will happily buy something else.
There’s already a financial incentive to shop elsewhere when an out-of-state seller doesn’t collect California tobacco tax at checkout. California says the buyer still owes that tax, but establishing a tax obligation and actually collecting the money are two different things. Adding another reason to move those purchases out of state hardly helps.
The UTL creates another expense for manufacturers deciding whether California is worth serving. When they decline to participate, the demand for their cigars doesn’t conveniently disappear along with their registration application. The state still has to contend with people seeking those products elsewhere, including sellers willing to ship them despite the restrictions.
I was in Southern California a couple of weeks ago and went to a lounge. While I was there, I saw a guy pull out an Acid from his travel case. Even though flavored tobacco has been banned for sale in the state, it hasn’t prevented people from getting flavored cigars. How effective was the ban? Apparently, not very.
That’s the economic consequence that Sacramento has to account for. Registration fees are easy to count. Any business pushed toward sellers who don’t collect California taxes is considerably harder to track. How much of that trade can the state afford to lose while congratulating itself on the fees coming in?
The Sacramento Cigar Club apparently has an excellent membership department. I’m less impressed with its grasp of customer behavior.
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