Tobacco Pressed by Local Laws

David Bennett 
June 22, 2017 
CSDecisions

C-stores are finding the burden of tobacco control regulations is often heaviest within the communities where they operate.

By David Bennett, Senior Editor

In 2016, tobacco was the c-store industry’s biggest growth driver, generating $53 billion in sales, according to new Nielsen Homescan data. In fact, the tobacco category accounted for 38% of total c-store sales last year.

As important as tobacco is to the convenience store channel, the movement to snuff out tobacco use in the U.S. is equally as pressing for advocates who champion restrictions on tobacco products—not just cigarettes, but various tobacco and vaping merchandise. The controls are also just as varied: minimum age requirements, excise taxes, advertising restrictions, flavor bans, zoning ordinances and other legislative rules.

As new regulations are introduced, retailers, tobacco manufacturers and tobacco proponents often band together to meet the challenge. It’s an age-old conflict that garners public headlines, elevated lobbyists’ fees and, until the last few years, was mostly fought at the state and federal levels.

Years ago, the thought of a local government body slowing Big Tobacco business through a tobacco control proposal was akin to Bugs Bunny’s Marvin the Martian blowing up Earth with his ‘illudium Q-36 explosive space modulator.’ It was a small noise to be eradicated swiftly.

The real artillery used for lobbing anti-smoking legislation resided with the states and federal agencies such as the U.S. Food and Drug Administration (FDA).

However, in the last few years the battle lines have changed incalculably, shifting from state houses and federal committee rooms to town halls and city council chambers. And, make no mistake, Marvin the Martian appears to be winning. It might sound odd to say that giant convenience store retailers find themselves outgunned, but the speed and tenacity that local tobacco ordinances are being rolled out across the country is impressive.

“If tobacco control wants to pursue more effective strategies, we’re seeing where that focus is going, and it’s going to where there’s less resistance and greater likelihood for success,” said David Bishop, managing partner at Balvor LLC, a sales and marketing practice based in Barrington, Ill. “The way tobacco control (groups) look at it, this is a long process and they’re going to have many battles in this war, which they are going to take one at time. Where the industry is the weakest, unfortunately, is at the local level. And that’s because we have a disproportionate amount of local, small operators who aren’t as actively engaged.”

More and more, tobacco control advocates are lobbying local officials to enact tobacco regulations, pushing agendas such as flavor bans on other tobacco products (OTP) including cigars, e-cigarettes and vapor offerings. Also, the time between a recommendation and a full-blown tobacco ordinance showing up on the books seems truncated. The result can be a mashup of various tobacco laws that are becoming common in states such as California and Massachusetts.

“California and Massachusetts are generally highlighted as the bookends to the most progressive-leaning states relative to tobacco-control practices,” Bishop said. “When you look at Massachusetts, you can see the absolute fragmentation of regulations and restrictions throughout that state, where some municipalities prohibit the sale of certain flavored tobacco products and other municipalities in the same state permit it. If you are a retailer like a Cumberland Farms operating across the entire state, the complexity of managing your business is amplified many fold.”

IN MASS
Last June, Cumberland Farms, which operates more than 200 stores in Massachusetts—sent a letter to state house representatives—signed by more than 2,300 store managers and other company team members—to support a legislative proposal introducing a uniform tobacco control policy in the state. The c-store stated it would alleviate the headaches of “hundreds of different and constantly-changing local requirements related to pricing, packaging, signage, product bans, licensing, display methods, age verification procedures, employee training and more.”

Despite the fact that the New England chain was very active last year in trying to help state officials come to an equitable resolution, Massachusetts’ tobacco laws are still a subject of intense debate.

Anna Bettencourt is the category specialist for VERC Enterprises, which operates 24 convenience stores in Massachusetts and two stores in southern New Hampshire. She sometimes questions whether local legislators understand the repercussions of the tobacco control legislation that’s being unleashed on Massachusetts retailers.

For example, in some Massachusetts towns and cities, you can sell tobacco to somebody who is 18 or older, some communities state 19, and in others, you have to be 21. The burden is on the retailer to keep up with the patchwork of rules while maintaining a profitable business in that community. Oftentimes, local officials cite health reasons for tobacco control measures.

“From a legislative perspective, it’s very difficult to manage because there’s no consistency throughout the state,” said Bettencourt. “We have a town ( in Andover, Mass.) that we have two stores in, and will be going to a flavor ban and pricing restrictions on cigars June 1.”
Bettencourt said she regularly attends public hearings and engages both officials and residents. Sometimes the issue seems a foregone conclusion even when the tobacco control argument seems irrational.

“How do you ban perfectly legal product?” Bettencourt asked. “They have flavored vodka (in local stores). What’s the difference between that and a grape cigar as along you’re selling it to an adult whether the age is 18 or 21?

Adding in its high excise tax on cigarettes, Massachusetts’ inconsistent tobacco rules are making it harder for VERC to consistently serve its customers.

PAPER CHASE
Thomas Briant, executive director of the National Association of Tobacco Outlets (NATO), agreed that local officials have added to the growing volume of tobacco control initiatives that retailers have to live with currently.

“Since 2012, NATO has been monitoring and responding to tobacco ordinances proposed by boards of health, city councils and county boards,” said Briant. “Each year, the total number of ordinances has increased significantly with more than 700 ordinances introduced for consideration in 2016. For 2017, upwards of 1,000 local ordinances could be proposed in localities nationwide.”

One of the main reasons local tobacco ordinances such as bans on the sale of flavored tobacco products are being proposed is because the FDA didn’t prohibit the sale of flavored tobacco products as a part of the agency’s tobacco deeming regulations, which took effect on Aug. 8, 2016. Although the deeming regulations extended the FDA’s regulatory  authority to cigars, pipe tobacco, e-cigarettes, vapor products, hookah tobacco, nicotine gels and dissolvable products, these products could continue to be sold, Briant explained.

“In the deeming regulation document, the FDA stated that it would propose a regulation to ban the sale of flavored cigars and cigarillos in the future, but no specific date was mentioned when such a new regulation would be issued,” Briant said.

Essentially, the FDA left the window open on flavored tobacco—one that state legislators seemingly are moving too slowly to close.

“Another reason for this plethora of local tobacco ordinances is that state legislatures have for the most part not enacted such restrictions as flavor bans,” said Briant. “So, advocates have focused their resources on lobbying local officials to enact local tobacco regulations.”

PHILADELPHIA FREEZE
In some communities it’s flavors, and in others, colors are the topic of the day. For instance, the Philadelphia Health Department this past May chose to limit the amount of permits it allows for retailers to sell tobacco products in areas called “red zones.”

In December 2016, city officials issued a Regulation Relating to Tobacco Retailing. The regulation claims that Philadelphia has significantly more tobacco retailers per capita than other comparable cities, and low-income neighborhoods in the city contain significantly more tobacco retailers than high-income neighborhoods. The regulation also states that high tobacco retailer density and ubiquitous tobacco marketing are associated with increased smoking rates among youth and adults.

The city can also terminate cigarette sales permits to stores in a red zone once a store changes ownership. In Philadelphia and many municipalities across the U.S., certain types of businesses are required to purchase government-issued retail licenses that grant license-holding businesses permission to sell certain products under certain conditions. Generally, tobacco retail licensing requires that the city or county issue businesses, new and existing, a license before they are allowed to sell tobacco products.

Among the rules in the City of Brotherly Love are:
•Prohibiting new tobacco retailer permits within 500 feet, or approximately two blocks, of any K-12 school;
• Increasing the tobacco retailer permit fee to $300 to cover costs of enhanced enforcement on sales to children;
• Instituting a 12-month tobacco sales suspension for retailers that tally three youth sales violations within a two-year period; and
• Establishing a maximum of one tobacco retailer permit per 1,000 people in each planning district. That so-called density cap went into effect Feb. 15, 2017.

Red zones also include the banning of cigarettes sales within 500 feet of any school. It turns out more than half of Philadelphia’s 60 7-Eleven stores are located in these so-called red zones, which is going to curb the future expansion of the c-store giant, according to Manzoor Chughtai, president of the Delaware Valley 7-Eleven Franchise Owners Association. Chughtai told Convenience Store Decisions after a recent public hearing with city officials that an additional 35 7-Eleven stores planned within the city of Philadelphia have been suspended.

Without a tobacco permit, a store would stand to lose 25-50% of its gross revenue, as well as sales on additional  in-store merchandise purchased with tobacco products. Chughtai owns two Philadelphia stores—each located near a daycare center, which are also included in red zone restrictions.

“It’s crazy,” Chughtai said. “I don’t know what direction we’ll go.”

It’s a situation where many convenience retailers are being squeezed, said Alex Baloga, vice president of external relations for the Pennsylvania Food Merchants Association, a statewide trade association with more than 1,100 supermarkets and convenience stores.

“It’s a significant concern because (tobacco) could be 25% of the business and if you are trying to sell your store, then combine that with the taxes that are already in effect in Philadelphia like the beverage tax and the $2-per-pack tobacco tax and this is the triple whammy or the trifecta of really bad policies impacting retailers in the city,” Baloga said.

Philadelphia isn’t the only major metropolitan city to take a progressive position in terms of stiffer tobacco mandates. This past April, New York City Mayor Bill de Blasio and the city council proposed raising the minimum price of pack of cigarettes to $13, reducing the number of tobacco retailers and banning the sale of tobacco products at more than 550 pharmacies.

COUNTER CULTURE
Increasingly, powerful tobacco control organizations are taking on the tobacco industry at all levels, but locally advocacy groups are gaining major ground.

Launched in August 2011, CounterTobacco.Org touts itself as “the first comprehensive resource for local, state and federal organizations working to counteract tobacco product sales and marketing at the point of sale (POS).” The group provides local governing bodies guidance on tactics on how to address the sale of tobacco including:
• Ways to cap the number of tobacco retailers.
• Ways to cap the number of retailers relative to population size.
• How to prohibit retailers from locating near schools and other youth-sensitive areas.
• Strategies to target pharmacies that sell tobacco.

Another effective tobacco control effort is the Age 21 Movement. According to the Campaign for Tobacco-Free Kids, which launched the project, at least 200 cities and counties in 14 states, California and Hawaii have enacted statewide laws raising the tobacco age to 21. Major cities that have done so include New York City, Chicago, Boston, Cleveland and both Kansas cities.

The argument behind the movement is that increasing the tobacco age to 21 will help prevent young people from ever starting to smoke and reduce the deaths, disease and health care costs associated with tobacco use.

American Legacy Foundation is by far the largest anti-tobacco advertiser in the country. The national organization, which includes secondary groups, is the brains behind the effective TRUTH campaign.

CALIFORNIA CODE
If Massachusetts is a fragmented cloak of tobacco mandates, the state of California is incrementally moving to become a steady stream of stringent regulation.

There are at least 116 municipalities that enacted local laws that do not contain the same restrictions as California law and qualify as 100% smoke-free for non-hospitality workplaces, according to www.protectlocalcontrol.org. Likewise, numerous California municipalities have adopted laws that expand smoke-free protections to outdoor public places, including patio dining areas, parks, and beaches and shopping districts.

That’s not to mention the tidal wave of tobacco taxes that regularly washes over smokers, including the last election. Smokers can thank California voters, who on last Nov. 8, voted yes on Proposition 56—the biggest tax on cigarettes since the state began taxing tobacco in 1959. Now California consumers will pony up an extra $2 for a pack of cigarettes, bringing some brands closer to $10 a pack.

Most retailers agree that tobacco and other age-restricted products should not be accessible to those under the legal age of consumption. That’s the position that Robinson Oil Corp. dba Rotten Robbie holds. The 35-store chain is active in local tobacco legislation initiatives, said Reilly Robinson Musser, vice president of marketing & merchandising.

The county of Santa Clara recently banned flavored tobacco in Los Gatos, Calif. The ban will go into effect Jan. 1, 2018 and includes laws on how close new retailers can be to a school or park. Musser acknowledged that the company moved too late to provide its input on the ban.

“We need to do a better job of this—and recognized it after the Los Gatos town council meeting,” said Musser. “The tobacco ordinances seem to pop up quickly with little notice and we need to try and speak with officials ahead of time to get our message across prior to any public hearings.”