NY Post: Weak tax laws give NYC potheads a high

From the New York Post

Take an unlit cigar, point it top down and roll it between your thumb and forefinger until tobacco starts falling out. There’s now space in the wrapper for your favorite illicit substance.

I’m not suggesting you smoke anything illegal. But you should know about one of the hottest trends in New York City — so hot that it is sparking a boom in the cheap cigar business.

Why should taxpayers care? Because the trend is also costing Albany a small fortune in lost tax revenue.

Today’s pot smokers, it seems, are too lazy to roll their own joints. And they are too smart to pay full price for their indulgence.

Convenience isn’t the only reason cigars are being used as the “delivery system” for marijuana and other drugs.

Potheads are also lighting up cigar sales because their cigar “joints” don’t give off that pungent, sickly sweet smell that makes the people around them snicker, roll their eyes and maybe call the cops.

And flavored cigar wrappers — called “blunts” — are also showing a sales spike because they make the smell of your illicit smoke even harder to detect.

Apple Brown Betty-flavored blunts work well disguising the pot smell, I’m told, as do Chocolate Chip Cookie Dough and Cherry Vanilla wrappers.

It’s like Betty Crocker met Bob Marley.

If I were writing a “How To” piece for the magazine High Times I could stop here.

But since this is the financial section, the point of this column is this: NYC’s mainstream cigar sellers — tobacconists — and the state are being hurt by the booming sales of what one expert calls “inner-city cigars.”

Mark Goldman, who once owned cigar wholesaler House of Oxford, tells me “sales of inner-city cigars are way up.”

“The state government is getting hurt because they are not collecting the tobacco tax,” he said.

“And if they are not collecting the tobacco tax they are certainly not paying the sales tax,” he adds.

There are no statistics on statewide cigar sales.

But five sources with knowledge of the tobacco and cigar industry and another in law enforcement filled me in on what’s been going on.

New York State doesn’t require a tax stamp on cigars like it does on cigarettes, so sellers are left on their own to collect the 75 percent excise tax in addition to the regular 8.875 percent sales tax.

New York State’s stiff tax — which was raised from 46 percent to 75 percent in 2010 by then Gov. Paterson — has enticed owners of candy stores and bodegas to get their merchandise from other states, sources said.

My sources estimate that the state could be losing $1 billion a year in tax revenue.

Pennsylvania is said to be getting the bulk of the business from the New York stores because it doesn’t tax cigars. The economics of those deals are irrefutable.

Not only can these Pennsylvania-bought cigars be sold for the usual profit margin, but once the smokes are in New York the prices are jacked up to near what they would be if bought through legitimate in-state wholesalers.

Altruistic store owners, of course, could pass the entire savings on to customers but they don’t — for good reason.

If their cigars were priced too low it would be a dead giveaway that the smokes are from out of state.

So store owners simply price the out-of-state cigars at a level that would indicate that the 75 percent tax is included and they pocket the extra money rather than send it to Albany.

“Sales have plummeted in these [legitimate] stores” since the cigar tax was jacked up, says David Schwartz, a spokesman for the New York Association of Grocery Stores.

Between when the tax increase was implemented in 2010 and the beginning of 2011, sales at tobacconists have fallen by 25 percent. At the same time, the number of retailers selling high-end cigars dropped to just 40 from 48.

So even as there is a boom in cheap, pothead cigars imported illegally from other states, the fancy tobacconist shops are disappearing.

The Federal Reserve’s Open Market Committee is meeting next Tuesday and Wednesday so you can expect the usual array of rumors.

Since former Treasury Secretary and former Fed Vice Chair Tim Geithner is no longer around you shouldn’t expect anyone to leak information to Wall Street friends ahead of this meeting.

People will be watching for more opposition to Chairman Ben Bernanke’s economic policies.

The Catch-22 is this: If the economy is doing as well as some experts think — and, incidentally, I don’t agree with this view — the Fed should start to tighten monetary policy soon.

In order to keep interest rates as low as they are the Fed (and everyone else) would have to admit that the economy is still weak, something that politicians won’t want to do going into talks about the federal budget and debt limits.

It’s a damn tough predicament.

Read more from the New York Post

Leave a Comment

{ 1 trackback }

Previous post:

Next post: