Defiance: CO Cigar-tobacco bar exemptions

Smoker Friendly lighting up stores with new lounges
March 14, 2008
Kathleen Lavine | Business Journal
Although a statewide ban on most indoor smoking has left those who light up out in the cold, a local tobacco retailer is starting to retrofit many of its shops to live up to its name: Smoker Friendly.
Smoker Friendly — a Boulder-based tobacco retailer — recently added a smoking lounge with free wireless Internet access, couches and large flat-screen TVs to one Denver-area location, and plans to repeat that in select stores.
“We felt like people needed to have an opportunity to have a place to sit down and have a smoke,” said Dan Gallagher, vice president of operations for Smoker Friendly.
The changes started shortly after the state extinguished smoking in public establishments last July.
Tobacco retailers such as Smoker Friendly and bars classified as “cigar-tobacco bars” are exempt from the law. Denver International Airport smoking lounges also are exempt.
Casinos were exempt until January when the state extended the ban to them.
Smoker Friendly — managed by Cigarette Store Corp. — sells tobacco accessories, cigarettes, pipe tobacco, cigars, humidifiers and hookahs.
In 2007, the company rang in $127 million in sales, up from $110 million in 2006 and $105 million in 2005.
Although Smoker Friendly sales have steadily increased, the number of smokers in Colorado has declined.
In 2006, roughly 17.9 percent of adults in Colorado smoked, a drop from the 22.3 percent who smoked in 2001, according to the Colorado Department of Health and Human Services. The 17.9 percent was lower than the national average of 20 percent in 2006.
That’s credited to “Colorado’s approval of the tobacco tax increase for the health department to do public information campaigns” about health risks associated with smoking, said Mark Salley, spokesman for the health department.
But Smoker Friendly hopes to attract more customers to its stores with its new smoking lounge model.
Currently, Smoker Friendly has only one store in the Denver area with a smoking lounge — its 2,800-square-foot location in Thornton at 120th Avenue and Colorado Boulevard.
“We expanded our walk-in humidor and added two distinct separate smoking lounges,” Gallagher said. “It has a separate feel from the retail store.”
The company hopes to add more, but still is deciding which stores are best for the remodel.
Last summer, Smoker Friendly acquired 13 tobacco stores from S.R. Flaks, a small tobacco retail company based in Colorado Springs, bringing its company-owned stores to 100 in four states. Several of Smoker Friendly’s recently acquired stores in southern Colorado — Pueblo, Security, Trinidad, Ca?on City and Colorado Springs — are being remodeled with lounges.
S.R. Flaks was owned by brothers Greg and Rick Flaks, who were anxious to get out of the tobacco industry. Their father opened S.R. Flaks in 1950. Originally, the company was a wholesale candy and tobacco distributor.
After years of selling tobacco, the brothers wanted to do something different, because with “the smoking bans, the raise in taxes … [it] had gotten to be a harder business,” Rick Flaks said.
Rick Flaks has gone into the real estate business, and Greg Flaks retired.
“I wanted to do less and have less responsibility,” Greg Flaks said. “The tobacco business isn’t as fun as it used to be. It’s continually overly regulated. Between the anti-smoking legislation and the high taxes, it’s a difficult business right now.”
Yet Smoker Friendly is going strong, partly because it has stores in other states, many of which don’t have smoking bans.
Smoker Friendly licenses its trade name to tobacco stores across the nation through Smoker Friendly International LLC.
“There’s no upfront licensing cost, but tobacco retailers must carry at least $2,000 of Smoker Friendly products, and buy a $500 Smoking Friendly sign,” Gallagher said.
In 2007, there were 550 stores that use the Smoker Friendly name, up from 300 in 2006.
“We’ve really been expanding our offerings at a number of stores, on the premium side of the business both in cigars and in premium cigarettes,” Gallagher said.
The smoking retailer sells its own Smoker Friendly brand cigarettes and cigars. Cigarettes cost around $2.79 a pack and cigars run $1.59 to $2.59 each.
The privately held tobacco chain is owned by the Gallagher family — Terry Gallagher Sr.; his wife, Nancy Gallagher; and their children, Terry Gallagher Jr., Kathleen, Dan, Mary and Mike Gallagher — and partners Dave Bershof and Phil Harbison.
In 1990, the Gallaghers decided to convert several of their Gasamat stations into Smoker Friendly stores. The family turned the majority of its stores into tobacco outlets, but still sells gas at 21 of its Smoker Friendly locations that are called Smoker Friendly/Gasamat.
The Gallaghers are fourth-generation Boulderites, who got into the gasoline business in the 1950s.
Each year, the company holds a Smoker Friendly conference and tobacco festival at the Millennium Harvest House in Boulder, where tobacco retailers from across the nation showcase new tobacco products. The 2007 convention drew about 350 attendees plus 80 tobacco manufacturer booths.
“It’s all open-air so people can sample products,” Gallagher said, adding that though Boulder prides itself on being a healthy city, Smoker Friendly has encountered little opposition.
The company has 400 employees, 250 of whom are based in Colorado. Because the retailer sells tobacco and is exempt from the state’s smoking ban, Smoker Friendly employees can smoke while working.

---

Smoking Ban
May 1, 2007
The Senate Tuesday killed a bill that would have outlawed some cigar bars after opponents said it went too far trying to regulate businesses.
Some lawmakers had introduced the bill because they feared traditional bars were calling themselves cigar bars to take advantage of an exemption in the statewide smoking ban.
Current law exempts casinos, cigar bars and the smoking lounge at Denver International Airport from the smoking ban.
The bill didn’t have enough support to pass.

---

Bar Owners To Appeal Smoking Ban Ruling

Oct 26, 2006

A group representing Colorado bar owners will appeal a decision by a federal judge that upheld a statewide ban on indoor smoking.

The 15-member board of the Coalition for Equal Rights voted Wednesday to appeal to the 10th U.S. Circuit Court of Appeals in Denver.

“Every bar, with the exception of those that are primarily restaurants, has suffered losses that range from 25 to 45 percent, year-to-date,” board member Allen Campbell said.

“Were not giving up on anything,” Campbell said.

The ban took effect July 1. The coalition had filed a lawsuit claiming it unfairly applied to most bars and restaurants while exempting casinos, cigar bars, airport smoking lounges and private workplaces with three employees or less.

U.S. District Court Judge Lewis T. Babcock upheld the ban last week, ruling that lawmakers have the right to determine if smoking constitutes a public health risk, and if exemptions should be granted.

---

Bars still fight smoking ban

Coalition board votes to take state case to federal appeals court

October 26, 2006
By R. SCOTT RAPPOLD THE GAZETTE

Colorado bar owners opposed to the state’s ban on indoor smoking will continue their legal challenge in federal appeals court.

The 15-member board of directors of the Coalition for Equal Rights voted unanimously Wednesday at a meeting in Denver to file an appeal with the U.S. 10th Circuit Court of Appeals.

Last week, U.S. District Court Judge Lewis T. Babcock upheld the ban, which took effect July 1. The coalition of hundreds of bar owners claims that, since the ban, customers are not staying as long and business is suffering.

“Every bar I have personally contacted and also the other board members have all told us the same thing. Every bar, with the exception of those that are primarily restaurants, has suffered losses that range from 25 to 45 percent, year-to-date,” said Allen Campbell, a board member and owner of the Ivywild Inn on South Nevada Avenue.

The coalition challenged the smoking ban on the basis that it violates the Equal Protection Clause of the 14th Amendment to the U.S. Constitution.

That claim was based on the exemption granted casinos, cigar bars, the smoking lounge at Denver International Airport and private workplaces with three employees or fewer.

The judge, though, ruled that lawmakers have the right to determine if smoking constitutes a public health risk, and if exemptions should be granted.

The coalition has 30 days from Oct. 19, the day of the ruling, to file a notice of appeal.

Members interviewed Wednesday declined to discuss the legal grounds for the appeal, as did the coalition’s attorney.

A call to the state attorney general’s office, which will defend the ban in court, was not returned late Wednesday afternoon.

Campbell said he supports an appeal so that opponents can eventually take it to the U.S. Supreme Court, if necessary.

“The primary reason is to let people know we are continuing with the fight,” Campbell said. “We’re not giving up on anything.”

The ban will remain in effect during the appeal.

CONTACT THE WRITER: 476-1605 or scott.rappold@gazette.com

---

Colorado smoking ban upheld

Oct. 21, 2006

A Colorado judge rejected arguments the state smoking ban violates tavern-owner rights by offering exceptions to casinos, cigar bars and airport lounges.

Striking down the law “would amount to nothing more than substituting one personal view of the public good for that of the duly elected state Legislature,” and “would breed disrespect for the rule of law and exacerbate cynicism toward the proper role of the judiciary,” Chief U.S. District Judge Lewis Babcock wrote, the Denver Post reported.

A coalition of tavern and bowling-alley owners and others fought the Colorado Clean Indoor Air Act, which went into effect July 1, arguing the exemptions for casinos and others violated equal-protection rights. Bingo halls, for example, are not exempt.

A lawyer representing the bar owners did not have an immediate comment.

---

Judge upholds statewide smoking ban

October 20, 2006

A federal judge in Denver on Friday upheld Colorado’s statewide smoking ban, rejecting arguments that it violates the constitutional rights of bar owners. The bar owners had sued to overturn the ban, arguing it unfairly applied to them while exempting casinos and airport smoking lounges.

U.S. District Judge Lewis T. Babcock ruled they had not shown the exemptions were irrational or unfair. He rejected the plaintiffs’ arguments that the ban unfairly made bar owners criminally liable for their patrons’ actions, that its penalties were vague and that it infringed on their property rights.

The smoking ban, approved by the Legislature

and governor last spring, took effect July 1. It exempts casinos, cigar bars, airport smoking lounges and private workplaces with three employees or less.

The suit was filed in June by the Coalition for Equal Rights Inc. and Shari Warren, a tavern owner in Black Forest.

---

State takes narrow view of smoking ban loopholes

August 01, 2006
CARY LEIDER VOGRIN
A memorandum issued this week by the state’s legislative legal office could strike a blow to bars — some in El Paso County — that have claimed to be exempt from the state’s new smoking ban.

In order to meet the definition of a “cigar-tobacco bar” and be exempt from the Colorado Clean Indoor Act, a bar must have income from the rental of on-site humidors, according to an analysis of the law written by the Office of Legislative Legal Services, which counsels the General Assembly.

Rep. Mark Larson, R-Cortez, requested that the legislative legal office render an opinion after problems arose at a tavern in Durango that allowed patrons.

to light up after the smoking ban went into effect July 1. That bar, Orio’s Roadhouse, stowed away the ashtrays July 20 after receiving a warning from the District Attorney’s Office.

Orio’s is planning legal action, Durango attorney Eric Sanford said Tuesday. Sanford said he could not offer specifics.

Other bars in Colorado have continued to allow smoking, contending they qualify for the exemption based on their interpretation of the law.

The law states that a “cigar-tobacco bar” must generate “at least 5 percent or more of its total annual gross income or $50,000 in annual sales from the on-site sale of tobacco products and the rental of on-site humidors.”

Bars that don’t sell cigars and don’t have humidors have claimed the exemption based on cigarette sales alone.

Larson said Tuesday he was happy with the four-page legal memorandum, which mirrors what he said was the intent of the law.

“I’m happy it’s in writing,” Larson said.

Larson said the exemption was meant for a half-dozen or so establishments statewide that had made significant investments in the cigar business, such as for walk-in humidors.

“I asked for that document from our legal services because I was involved in the drafting of that bill, and I know exactly what we were talking about,” he said.

He also said that phrase “cigar-tobacco” refers only to a certain type of tobacco — that being cigars.

“If we wanted to include cigarettes and spit tobacco, we would have put cigarette-hyphen-tobacco and spit tobacco- hyphen-tobacco.”

Larson specifically asked the 25-attorney legal office whether a bar that generated no income from the rental of on-site humidors could ever qualify for the exemption.

The answer? “No,” according to the legal memorandum dated Monday. The memo states the law “sets forth a threshold requirement for income derived from tobacco sales and humidor rentals. Reading the ‘and’ as an ‘or,’ or disregarding the humidor element entirely, would violate long-standing rules of statutory construction and create a loophole contrary to the clearly stated purposes of the Act.”

A spokesperson for the office added, however, that the memo is an opinion and that the job of interpreting it and applying it passes to the courts should a test case arise.

A bartender at Curly’s Place in Calhan said she isn’t giving up hope that the courts will interpret the exemption differently. Curly’s allowed smoking until mid-July, when a law-enforcement officer paid a visit.

“We’re still not smoking and we’re just kind of waiting and seeing what happens with the Orio’s Roadhouse case in Durango because their situation is virtually the same as ours,” said bartender Laura DiFiore. Curly’s sells cigarettes but not cigars. It does not have a humidor.

At the Rendezvous Lounge on North Tejon, owner Rasa Krasauskiene said she’s “sitting tight” but that nothing’s changed there. Patrons are still smoking because Krasauskiene said she’s convinced she qualifies for an exemption.

Krasauskiene sells several types of cigars and hosts a cigar club. Some members, she said, pay up to $200 a year to rent space in the clear-case humidor that sits behind the bar.

Last week, Colorado Springs police commander Kurt Pillard said bars in the city will get a chance to claim an exemption, but those that do will have to prove they’re entitled to it by undergoing a financial audit conducted by the city’s sales tax division and the city clerk’s office.

---

Some strip clubs still smoking
Cigar bar status boosts business; others lose money

By Ivan Moreno, Rocky Mountain News
July 29, 2006

There was no shortage of ashtrays, matches and clouds of smoke at PT’s Showclub this week as topless women danced on stages inside the club.

Turns out, at least three large metro-area strip clubs still allow smoking nearly one month after the statewide smoking ban began.

The billboard above the entrance to PT’s advertises, “Still Smoking After All These Years . . .”

“We are considered a cigar bar as well,” said Daniel Fairbanks, director of PT’s at 1601 W. Evans Ave.

Cigar bars are exempt from the smoking ban. To qualify as one, a business needs to prove at least 5 percent or $50,000 of its revenue came from the sale of tobacco products during the year ending Dec. 31, 2005, according to the “Colorado Clean Indoor Air Act” passed by state lawmakers earlier this year.

But a state representative who voted against the smoking ban said he’d “be real surprised if any strip club did” sell enough tobacco products last year to qualify as a cigar bar.

“They’re probably trying to create a loophole that doesn’t exist,” said Rep. Paul Weissmann, D-Louisville.

He encouraged law enforcement agencies to investigate.

At the downtown Diamond Cabaret, there were ashtrays and matches galore on tables. Same with Glendale’s Shotgun Willie’s, 490 S. Colorado Blvd., where patrons also were lighting up Friday. Business there has increased in the last month, according to manager Karl Brewick.

“People walk in and are actually pretty elated they can smoke,” he said. “They’re shocked, but they’re happy.”

Brewick’s message for smokers: “If they want to smoke and see beautiful women, come here.”

Both bars are claiming cigar bar status.

Meanwhile, on the other end of the spectrum, other metro-area bar owners met Friday morning at Billy’s Inn, 4403 Lowell Blvd., where they outlined how badly the smoking ban has hurt their businesses.

The bar’s owner, Jim VonFeldt, cried foul that some places claim to have found loop-holes in the law.

“Last week I read in a newspaper about how well the smoking ban is going and how everyone is complying with the law, and everything is just honky-dory, they’re saying,” VonFeldt said.

“That’s not, true. That is not true.

“My personal income is down right now 35.14 percent,” he said. “There’s absolutely no way I can survive making that kind of money.”

And for others, it’s worse.

VonFeldt said he’s heard of bar owners whose income has gone down 60 percent.

Myron Melnick, owner of the Zephyr Lounge in Aurora, said his business has seen a 15 percent decline in revenue since the July 1 ban and has had to hire a security guard to patrol the outside of his bar.

In the last month, there’s been complaints of loitering, a woman had her purse stolen and there’s been a knife fight, Melnick said.

He blames all of it because his customers have to smoke outside.

“We’ve become police officers,” VonFeldt said.

The law bans smoking at bars, restaurants and most other workplaces. The exemptions are casinos, airport smoking concessions and cigar bars.

“As far as I know, we haven’t issued a citation yet,” said Detective John White, a Denver police spokesman.

But that doesn’t mean people have not been warned by police for breaking the new law. White said it’s up to the officer’s discretion whether to issue a ticket or just inform people that smoking in most places is now illegal.

Since the law is new, authorities are still trying to figure out how to enforce it, said Gene Hook, an environmental scientist with the Denver Department of Environmental Health.

Police are the primary enforcers, but Hook’s department will investigate more complicated cases. For example, his department would investigate whether businesses have met the requirements to be considered a cigar bar, Hook said.

For now, VonFeldt is asking other bar owners to send a letter to the governor like he did, asking for “a hardship exemption.”

“I’ll give you the fax number, and you start sending your information right directly to the governor,” he said. “If we can’t can get action anywhere else, let’s do it through the governor.

“Inundate his e-mail; inundate his fax machine. Just bury him in paperwork.”

But that might not make a difference, a spokesman for Gov. Bill Owens said.

“There is no provision in the law that gives the governor the power to grant an exemption,” said Dan Hopkins, Owens’ spokesman. “That’s simply not possible under the law.”

Unlike some bars, restaurants like the Cherry Cricket have transitioned smoothly to a non-smoking environment, and their customers like it.

“A lot of people when they come here say, ‘Wow, it doesn’t smell like smoke anymore,'” said Antonio Gorjoux, kitchen manager at the Cherry Cricket.

---

Keepers of the flame

July 23, 2006
By CARY LEIDER VOGRIN – THE GAZETTE

A sign outside the Rendezvous Lounge on North Tejon Street pitches Pravda Vodka and promises something more: “Sophisticated Smokers Welcome.”

Around the corner at V Bar on East Kiowa Street, white adhesive letters on the door read “SMOKING ALLOWED.” Other clubs have put away the ashtrays and matches to comply with a statewide smoking ban that went into effect for bars and restaurants July 1, but patrons at V Bar and Rendezvous Lounge are freely lighting up. Owners of the clubs say they meet the definition of a “cigar-tobacco bar” — establishments granted exemptions under the new law. Such bars must generate “at least 5 percent or more of its total annual gross income or $50,000 in annual sales from the on-site sale of tobacco products and the rental of on-site humidors,” according to the law.

“I’m interpreting it verbatim,” V Bar owner Charles Lawson said of language used in the exemption. His bar, however, does not even sell cigars.

Three weeks into the smoking ban, it’s too soon to say what effect the law will have on business, but finger-pointing has begun. Some competitors accuse places such as V Bar of trying to slip through a loophole that clearly doesn’t apply to them.

“Nothing’s going to get my goat like a competitive disadvantage,” said Luke Travins, the managing partner of Concept Restaurants, which includes Jose Muldoon’s, Mac-Kenzie’s Chop House, the Ritz Grill and a partnership in Southside Johnny’s.

“I have definitely taken on the figurehead of this investigation on why they’re allowing smoking, but plenty of other nightclubs downtown are behind me and us trying to find out why this is going on and why there’s been no enforcement,” Travins said.

Colorado Springs Mayor Lionel Rivera said the issue is being discussed among officials, including the city attorney, police and 4th Judicial District Attorney’s Office.

Rivera said that for now, no fines will be issued.

“There’s been an agreement between the Police Department and the district attorney. They’re going to allow a 60-day window as a time period to get used to the new law where they’re not going to be writing citations — just warnings,” Rivera said.

A first-time fine runs $200, with penalties rising for subsequent violations.

Rivera said to his knowledge, no bar in Colorado Springs meets the cigar-tobacco exemption.

“Until they prove they are exempt, they are subject to the law, and as of yet, no one has approached the (city) clerk’s office, the DA’s office, and said, ‘Here’s my proof. I’m exempt,’” Rivera said.

Travins said that when the law was passed, there was talk that 15C, a popular martini and cigar bar on East Bijou Street, might meet the exemption.

Alan Pak, co-owner of 15C, said he has no doubt he meets the exemption but said no one has confirmed that.

“Am I truly exempt until someone gives me a certificate? I don’t know. Give me a smoking license or something.”

15C boasts an extensive cigar menu, has a large humidor built into the wall and for a $300 annual fee, rents out humidor boxes for people to store their cigars.

“Those are always taken — sometimes there’s a waiting list,” Pak said of the two dozen or so boxes.

Pak said he feels fortunate, yet bad for other bar owners.

“Is it going to help my business? Of course it will. It’s terrible for these people,” he said of his downtown competitors.

Friday about 8 p.m., V Bar was nearly empty. The patio in front of Old Chicago’s on Tejon Street, open to smokers, was half-filled, and only one person was puffing. The indoor bar area was smoke-free and packed with patrons.

And while the Rendezvous smelled heavily of smoke, not one of the five or six customers appeared to be lighting up.

Other Colorado communities also are grappling with differing interpretations of the exemption.

In Durango, the district attorney had warned Orio’s Roadhouse it would face fines if it continued to permit smoking. The bar owner, who had said Orio’s was exempt because it met the 5 percent tobacco sales threshold, put away the ashtrays on Thursday.

And the city of Glendale, which is surrounded by Denver, is considering an ordinance that sets up a registration process for cigar-tobacco bars; a list of any qualifying bars would be given to police.

A lawmaker who worked to pass the smoking ban said the “cigar-tobacco bar” exemption was intended for a half-dozen or so establishments statewide that had made significant investments in the cigar business, such as for walk-in humidors, which maintain cigar quality.

“The law’s not ambiguous. It’s very clear as far as the legislative intent,” said Rep. Mark Larson of Cortez. “A cigar-tobacco bar . . . must have 5 percent of their sales and the rental of humidors,” he said, stressing the word “and.”

“‘And’ is conjunctive. If you don’t have both, you don’t qualify,” he said.

“The problem we’re seeing now are these people who are trying to circumvent the laws, they do not have humidors, and that’s the crux of the issue. They are trying to find a loophole.”

Lawson, the owner of V Bar, declined to say whether his establishment has a humidor. Although the bar does not sell cigars, it does sell cigarettes for $6 a pack.“This is a hot topic right now, and I don’t want to put too much on the table,” he said in a phone interview.

The Rendezvous sells about a dozen different cigars ranging from Macanudo Robust from the Dominican Republic to Acid Blondies from Nicaragua. The cigars and several brands of cigarettes are in a clear humidor case on a shelf behind the bar.

Lawson and Rendezvous Lounge owner Rasa Krasauskiene said they’ve tried several times to contact government officials about the “cigar-tobacco” exemption.

Krasauskiene said 13 percent of her gross annual sales were from tobacco sales last year and that she contacted the health department and police to ask how she would claim the exemption and if she would get a special license.

Stubbing out a cigarette in an ashtray at the end of the bar last week, Krasauskiene said tobacco sales are “a serious business for us.”

“You see for example I have three customers right now — one of them is smoking a cigar,” she said, motioning to a man in a lounge chair who came in just after she opened at 4 p.m. Rendezvous is also home to a cigar club that gathers weekly, she said.

Lawson also said he, too, made several calls to government agencies — including the Department of Revenue and state Health Department — to get direction on how to prove he met the criteria.

“Some calls were redirected to other departments or services, but none were able give a definitive answer,” Lawson wrote in a subsequent e-mail to The Gazette.

COLORADO CLEAN INDOOR AIR ACT

WHERE YOU CAN’T SMOKE

– Restaurants, bars, bingo and billiard halls, bowling alleys, public buildings, grocery stores or any food service establishment.

– Theaters, museums, libraries, schools, educational institutions, and common areas of retirement facilities, publicly owned housing facilities and nursing homes.

– Indoor sports arenas, gymnasiums and auditoriums

– Workplaces, health care facilities and day care centers

– Common areas in hotels and motels, and no less than 75 percent of hotel or motel sleeping quarters rented to guests

– Within 15 feet of an establishment or business main entryway unless defined differently by a local law.

WHERE YOU CAN

– Private homes, unless used for child care

– Limousines under private hire

– Retail tobacco businesses

– An establishment that met the definition of a “cigar-tobacco bar” as of Dec. 31, 2005

– The outdoor area of any business as long as it is beyond the 15-foot radius around the main entryway

– The retail floor of casinos

– The airport smoking lounges at Denver International Airport

– Employers with three or fewer employees/volunteers who do not allow access to the public

THE EXCEPTION

To qualify as a “cigar-tobacco bar,” an establishment must generate at least 5 percent of its annual gross income or $50,000 in annual sales from the on-site sale of tobacco products and the rental of on-site humidors, not including sales from vending machines. Failing to meet these criteria in any one year will disqualify the bar in the future.
Read