Courts Weigh in Favorably for RYO

Connecticut, Wisconsin cases show retailers not manufacturers, company says

GIRARD, Ohio -- On February 24, 2012, two state courts ruled in favor of roll-your-own (RYO) tobacco retailers on cases brought to them by retailers offering rental of RYO cigarette machines. In the two cases filed in Connecticut and Wisconsin, the retailers challenged their respective states' legal basis for classifying them as "manufacturers of tobacco products." Such classification potentially carries with it regulatory and tax requirements that would put the shops out of business, said a statement release by RYO Machine LLC.

"We are pleased that these two courts recognized the potential harm that these administrative actions would have had on jobs, small businesses and consumer choice," said Phil Accordino, CEO of Girard, Ohio-based RYO Machine, the maker of the machines offered by retailers. "We look forward to the courts further deliberation on this matter."

In Connecticut, the Superior Court denied the state's request for an injunction prohibiting a RYO retailer from offering self-service cigarette rolling machines. The state claimed that by simply offering these machine rentals to consumers, RYO Filling Station retailers were "manufacturers" and that the state was being "harmed" primarily through the lower tax revenue it was receiving.

Key findings:

  • The state was unlikely to succeed in its claim that retailers were "manufacturers" as defined by state law.
  • The state had not demonstrated any "harm" or lost revenue from consumer use of the machines because the state's alleged losses were no different than when consumers produce their own cigarettes at home.

"I'm thrilled that I can stay in business and continue to provide a service to my customers who are in this niche market for roll your own cigarettes," said Tracey Scalzi, owner of Tracey's Smokeshop in Connecticut.

In Wisconsin, the Dane County, Circuit Court entered a preliminary injunction prohibiting the State Department of Revenue from regulating RYO Filling Station retailers as "manufacturers" under state law.

Key findings:

  • Retailers would be irreparably harmed by such regulation because they lose revenue that could not recover from the state.
  • Retailers were likely to succeed on the merits of their claim that they are not "manufacturers" under state law, and
  • The Department of Revenue violated the State Administrative Procedures Act in attempting to regulate these retailers as manufacturers.

Prior to these rulings, RYO won an injunction in federal district court after the Tobacco Tax & Trade Bureau (TTB) ruled in September 2010 that RYO retailers were manufacturers. TTB has been prohibited from enforcing the TTB ruling until the case is resolved. The hearing is expected to start in April 2012. The findings in the federal case generally aligned with the state courts.

Key findings:

  • Retailers were likely to succeed on the merits their claim that the TTB violated the federal Administrative Procedure Act when it issued the Ruling.
  • Retailers were likely to be irreparably harmed by the Ruling.
  • The government had not demonstrated "harm" arising from consumer use of the machines.

While federal and state courts continue to examine the question of whether RYO retailers are "manufacturers" as defined by law, the major tobacco companies are pushing legislation and pressuring state lawmakers in many states to preempt the courts' decisions.

"We think it is reasonable for state legislatures to take a cautious approach to this issue while it winds its way through the courts,' said Accordino. "This issue is complex and the jobs and businesses that are put at risk are significant."