EagleTribune.com, North Andover, MA

Business

Area cigar shops thrive despite states’ regulations, taxes

Bill Kirk
Published: August 20, 2007

MIDDLETON — Danny Hernandez sits hunched over a table, a puff of cigar smoke occasionally erupting around him, his fingers moving quickly as he deftly wields a small blade known as a chaveta to cut wrinkled, brown tobacco leaves on a round, worn, cherry-wood tablet.

Watching Hernandez roll perfectly shaped cigars from a mass of unruly leaves is akin to watching a skilled artisan, like a glass blower creating a delicate ornament in front of his furnace or a potter turning a glob of clay into an elegant vase.

Since he started working at the Old Cuban Cigar Factory on Route 114 several months ago, Hernandez, a Lawrence resident originally from the Dominican Republic, has won quite a strong following among North Shore and Merrimack Valley cigar aficionados.

Indeed, during one recent afternoon, a half-dozen or so mostly men admired his fluid movements — he rolls 150 to 160 cigars in an eight-hour shift — and enjoyed the product of his efforts.

Customer John McAuley of Middleton praised Hernandez’s creations as “phenomenal, fresh and unique.” A regular, McAuley comes in just about every day, he said, and has Hernandez custom-roll a cigar for him using a stronger blend of tobaccos than for other customers.

“Danny rolls my own cigar,” he said, as he puffed away on his custom-blend “stick,” as they are sometimes called.

Hernandez, who usually needs a translator to communicate with customers, smiles and points to McAuley. “He’s No. 1,” he says.

The Old Cuban Cigar Factory, owned by Gloucester resident Paul Giacalone and managed by his brother, Jay, is just one of a number of cigar shops in the area that seems to be bucking the national trend of rigid anti-smoking policies and high tobacco taxes. Rather than shrivel up and go away, some cigar stores in the area are thriving.

“We’re growing constantly,” said Kurt Kendall, owner of the Twins Smoke Shop on Route 28 in Londonderry, N.H. “Even though there are peaks and valleys. It seems like every year, we’re fighting something — tax hikes, smoking bans, whatever. It’s a battle.”

Kendall, who next month will celebrate his 10th year in business at his store just a few hundred yards off Interstate 93, noted, “We feel we have the right recipe for success.”

In fact, sometime soon Kendall hopes to introduce a new line of cigars that is taken from a brand rolled for many years at a factory in Manchester, N.H. — 7-20-4, owned by R.G. Sullivan.

He’s not alone in his optimism.

In Salem, N.H., Two Guys Smoke Shop owner David Garofalo last week finalized a deal to start building a new shop in Nashua, N.H. Plus, a franchised Two Guys Smoke Shop opened in Seabrook in 2005.

Not since the mid-1990s, when cigars were all the rage and the likes of actress Demi Moore could be seen on the cover of Cigar Aficionado puffing on a big, fat stogie, have cigars had such a large following.

Roughly 12 million to 14 million Americans regularly smoke premium, hand-rolled cigars, says Chris McCalla of the Retail Tobacco Dealers of America, the trade association for cigar shop owners. The number of smokers has been steadily rising at a rate of 2 percent or 3 percent a year since 2002, after the crash following the boom years of the 1990s.

But life’s not easy for cigar shop owners and their followers, as a host of forces seems bent on curbing the business:

r A New Hampshire law takes effect Sept. 17 that outlaws smoking in restaurants and bars, which could slow the sale of cigars at local shops.

r Congress may pass a law next month that would tack as much as a $3 tax on every cigar sold in the country — up from the current tax of just 5 cents. The tax would be imposed on importers, but would eventually be passed on to customers.

r Massachusetts smoke shops have had their own set of troubles for years — a 30 percent tobacco tax, the usual 5 percent sales tax, and an anti-smoking law with strict limits on who can smoke what and where that varies from city to city and town to town.

Nonetheless, shop owners are bullish on the future of their industry.

Regulations toughened up

Giacalone opened his new store four months ago across from Richardson’s Ice Cream, but the business isn’t new to him.

He’s been buying and selling cigars at the wholesale level for more than 20 years, but a year or so ago decided to go into retail. He created a partnership with a friend who also happens to be an internationally known cigar industry giant — Philip Wynne, owner of the Felipe Gregorio Cigars brand — and together they opened the Middleton store and will be opening another in Miami Sept. 1.

Eventually, he hopes to open even more, but is waiting to see if the climate for cigar shops improves.

In any case, the hallmark of his stores will be a real-live person rolling fresh cigars that can then be smoked on the premises.

While Giacalone sells hundreds of different brands from all over the world, “Seventy-five percent of our business is what we roll on our premises,” he said.

Giacalone’s store is pretty simple: It’s a long building with a counter and walk-in humidor at one end, Hernandez and his rolling table in the middle and at the other end a lounge area for smokers to sit and enjoy a smoke while catching up with friends or watching the news or a ball game on TV.

Because of Massachusetts state law, he can’t sell food or liquor. But because more than 51 percent of his profits come from the sale of tobacco or tobacco products, people are allowed to smoke in his store.

That’s not true everywhere. In Danvers, for example, patrons of Cigars-R-Us on Maple Street aren’t allowed to smoke on the premises. Since Danvers passed its own, stricter ordinance, customers have to sit on chairs or benches outside to enjoy a smoke.

Bronson Frick, associate director of Americans for Nonsmoking Rights, a nonprofit organization devoted to the passage of strict nonsmoking laws nationwide, explained that the Massachusetts law “sets the floor, and municipalities can set their laws on top of that.”

From a health perspective, he said, that’s the best way for a state to operate, because it establishes a framework for cities and town to create more stringent anti-smoking laws.

That’s an intentional tactic by smoking foes, he said, because it takes power away from national tobacco companies like R.J. Reynolds, who are able to influence state and federal legislation through campaign contributions and lobbying. “At the local level, they’re not as strong,” Frick said.

In New Hampshire, the law is a lot different, and is known as a “pre-emptive law” in anti-smoking circles because it takes away local power.

“The New Hampshire law only covers bars and restaurants. It does not cover workplaces like factories, warehouses or assembly plants,” he said. “It’s still pre-emptive —.cities and towns are not able to address that issue themselves. Cities or towns can’t close the loophole for private workplaces. The new law is the extent of the law. To close the loopholes, it would require the Legislature to take it up again.”

Nonetheless, cigar shop owners in New Hampshire aren’t happy about the new law because they say it will hurt their sales.

Live free or ... ban smoking?

David Garofalo left Boston in 1996, just before the state implemented the 30 percent tobacco tax.

And he never looked back.

“It’s ridiculous. We had to move because of it,” he said of the tax, which is even higher when added with the statewide 5 percent sales tax. “Here, there’s no sales or tobacco tax.”

Now, he said, he has “the largest cigar store in the world” — an 8,000 square foot, two-story building on South Broadway in Salem, N.H., complete with a private club on the second floor where members can play pool, dominoes, video poker, real poker, or just hang out and chat.

The first floor houses an enormous walk-in humidor that holds hundreds of brands from the high-end Davidoffs that sell for $300 to $500 for a box of 20 to 25 cigars, to the lower end, that go for $25 for a box of 50.

The first floor also contains the showroom and checkout counter, where customers can view a variety of products like the Culebra —.three cigars intertwined into one for special occasions — or flavored cigars, with choices including vanilla or chocolate. Also on the first floor is a small seating area where members of the public can sit and enjoy a cigar or a pipe.

A couple of years ago, he sold a franchise of the Two Guys brand to Roy Kirby, who opened a 3,000-square-foot store in Seabrook, N.H. in October 2005, which Garofalo said was doing “very well.”

For smokers, the cigar shops and their well ventilated smoking areas have become sanctuaries where they can puff away in peace without anyone complaining.

One day last week, Donald Powers of Salem, N.H. puffed on his pipe while reading a book in the public area of Garofalo’s Salem store. Powers said there’s only two places he can smoke — at the Two Guys Smoke Shop and when he’s taking the dog out for a walk.

The proposed new state law banning smoking in bars and restaurants won’t affect him, he said, because he doesn’t smoke when he goes out to eat and because he doesn’t drink.

“But,” he said, “the new law offends me.”

John Brown of Reading, sitting upstairs in the members-only area playing dominoes with a friend and smoking a cigar, said the state is “taking away the people’s right to choose. The legislators in Concord are saying, ‘We’re going to decide everything for you.’”

Garofalo said the new law will have an impact on his sales, even though it targets bars and restaurants.

“The new law won’t change anything for us, but it will hurt consumption,” he said. “With less places to smoke, fewer people will buy cigars” because they won’t have as many places to smoke them.

“My business is all about people who leave here carrying shopping bags filled with boxes of cigars,” he said. “Time will tell. Once the cold weather starts, and people can’t smoke outside, it’s going to be bad.”

Nonetheless, he is moving forward with a new store, taking over the old Hooters on Spit Brook Road in Nashua, N.H., and turning it into a company-owned smoke shop and store.

“The timing might not be great for my new store,” he admitted.

‘Rolled the dice’

Making matters worse for cigar shop owners is legislation kicking around Congress right now that could tax all tobacco products at a higher rate. Because of the way it’s written, the new law would significantly increase the tax on cigars.

Kendall, of the Twins Smoke Shop in Londonderry, said the new law as proposed would have a ripple effect throughout the industry.

“If it goes through, the potential impact is huge,” he said, while standing in the walk-in humidor in his shop, located just a few hundred feet from Exit 5 off I-93. “Manufacturers won’t keep going if they have to pay that.”

And if manufacturers stop, he can’t get cigars to sell to his customers.

Kendall hopes that doesn’t happen. He started his shop 10 years ago next month, in a 650-square-foot portion of the building he has taken over. He now has an 1,800-square-foot store, complete with a retail area, humidor and comfortable sitting area. Off the back, he’s got a deck covered with Adirondack chairs overlooking a stand of trees.

He started the business after watching the success of his twin brother, who runs a gourmet delicatessen in Connecticut and for a while sold cigars as part of his business.

Kendall got tired of running his excavation business, and “rolled the dice,” opening his shop with just 50 boxes of cigars.

Now, he’s got a solid business, catering mostly to Massachusetts residents driving by on their way to what he called “-ing” activities — like camping, hiking, fishing, golfing or, in some cases, weddings.

He said while New Hampshire legislators have tried but failed in the past to impose a tax on tobacco products, the latest effort to ban smoking in bars and restaurants finally did get through.

He said that law will have a big impact on him, because he has a number of vendors that are bars and restaurants.

“I’m beside myself the state changed that,” Kendall said. “It should have been left up to the establishment.”

Now, he said, “I can’t sell to them. Places like that are drying up. You can’t belly up to a bar, have a beer and a shot and a smoke. Where else can you go?”

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