Milaca stores that offer tobacco products were a flurry with customers leading up to July 1 when Minnesota’s imposed $1.60 tax increase on a pack of cigarettes went into affect. How that increase will affect business in the near and long-term future is still uncertain.
“So many people stocked up before the first, so it’s too early to tell,” said Corner Mart co-owner Brad Shanks. “I heard many of them say they want to quit.”
This week, the sign above Corner Mart’s small dining area reads “Marlboro cartons: $77.” On June 29, it read $60. Shanks said many of the tobacco producers have decreased their wholesale prices in Minnesota in preparation for the sizeable cost hike, but sooner or later, he said, they’ll adjust that back up once customers are accustomed to the new sticker price.
“You’re going to see more promotions from the cigarette companies, that’s for sure,” Shanks said.
Some say that will come in the form of “smoker poaching” — meaning border states with lower tobacco taxes may advertise that nicotine fix for half the price to attract new customers.
“I had one guy come in and say a carton of cigarettes in North Dakota is in the $40s, so that’s a big difference,” Shanks said.
The latest tobacco tax increase brings Minnesota’s total tax burden on a pack of cigarettes to $2.83, making it more than Wisconsin’s $2.52 per pack, which was previously the highest tax in the upper Midwest. South Dakota’s tax is $1.53, whereas North Dakota taxes just 44 cents per pack of cigarettes.
Unlike most recent tobacco tax increases, the new revenues won’t be used to shore up general fund shortfalls in the state’s budget, but to fill the gaping hole left by the less-than-projected electronic pulltab and bingo games that were intended to fund the NFL Viking’s multimillion-dollar stadium. Legislators say the tobacco tax increase will generate $24.5 million the first year to be put toward the state’s share of the $977 million arena.
While tobacco sellers are waiting for the verdict on how many state residents will continue smoking, some area businesses are banking on the uptick in sales and threatening to take a bite out of that quarter-billion-dollar projection.
Milaca’s E-cig Store, owned by 2012 graduate Nathan Rahm and his mother, Jan Faust, opened three weeks ago and just in time for the tax increase.
“Last week was the busiest for sure,” Rahm said.
The influx of customers started Tuesday and continued right through the holiday weekend.
“Tuesday I probably had 10 people in here and almost everyone bought kits and juice,” he said.
Electronic, or e-cigarettes, were introduced to American markets in 2007 and have since exploded in popularity and availability. At an average of an $80 investment in a starter kit and about $20 to $30 a month for supplies, e-cigarettes are quickly becoming a cheaper nicotine alternative to tobacco.
For Rahm, the promise of a cheaper fix has increased traffic in his store next to the laundry mat in Milaca.
“Saturday I had people waiting at the door when I came here,” Rahm said. “So, we’re in the process of restocking a lot of our inventory.”
That’s a problem he’s happy to have. Being that the shop is still very new, Rahm doesn’t have many success stories from his clients just yet. But from his own personal experience, and that of a half dozen of his friends, the e-cigarettes have broken their tobacco habits.
“I’ve got a lot of friends who have come in and bought one and quit instantly,” he said.
Rahm discovered e-cigarettes while in Germany last year. When he returned to the states, he found a market eager for the new nicotine delivery systems and a mother willing to put up the cash to start his own business.
“Then we found out the tobacco tax was going to happen,” Rahm said. “I said, ‘Let’s get on this.’ My mom was behind me and helped me invest.”
Faust said while the looming tax hike had other proprietors nervous, business owners like herself were excited about the potential opportunity.
“Not all of us were terribly sad to see it increase,” Faust said with a broad smile.