Keith Bedford for the Wall Street Journal

    By Mike Esterl

    Anyone trying to figure out how much clout Big Tobacco can carry into the nascent market for electronic cigarettes might want to check out Colorado.

    Lorillard Inc., the No. 3 U.S. tobacco player and maker of Newport cigarettes, acquired the blu e cigarette brand last year and has spent heavily to boost blu s distribution and marketing. Blu is now the clear national leader, ahead of other major e cigarette brands such as NJOY, Logic, Fin and Mistic that aren t owned by a major manufacturer of traditional cigarettes.

    Now comes news from Colorado, where Reynolds American Inc., the No. 2 U.S. tobacco player and maker of Camel cigarettes, launched its Vuse e cigarette in stores in July.

    The early returns? Vuse has built a 55.6% retail market share in the state over the last 16 weeks, leaving blu (25.5%) and NJOY (7.3%) in the dust, Reynolds said at an investor conference Monday, citing tobacco industry tracker Management Science Associates.

    Dedicated e cigarette companies have argued they ll come out on top because they pounced earlier and aren t distracted by the much bigger business of selling regular cigarettes. E cigarettes battery powered instruments that turn nicotine laced liquid into vapor represent only about 1% of the $100 billion U.S. tobacco market.

    But the Big Three tobacco companies have at least three big advantages extensive distribution networks, existing customer relationships numbering in the millions, and deep pockets.

    After just four months, Vuse s distribution already spans 1,800 retail outlets in Colorado, according to Reynolds. The company also has a national database of 12 million tobacco customers to whom it can market directly a major leg up because most people who try e cigarettes already smoke. And with no current restrictions on e cigarette advertising, it can spend heavily on television, print and radio ads.

    Not surprisingly, Reynolds doesn t plan to stop in Colorado. It confirmed Monday that it plans to create a national footprint for Vuse in the first half of 2014.

    Altria Group Inc., the No. 1 U.S. tobacco player and maker of Marlboro cigarettes, has been even slower to enter the e cigarette market. In August it began testing its MarkTen e cigarette in some Indiana stores and plans to expand MarkTen into Arizona next month.

    But the early results at Lorillard and Reynolds indicate Altria could close the gap in a hurry.

    See also
    Big Tobacco is About to Dive Into E Cigarettes Corporate Intelligence
    Within the Decade Driverless Cars, Cigaretteless Cigarettes Corporate Intelligence

    Onondagas say they will stop selling national-brand cigarettes

    Seminole e-cig

    The Onondaga Nation will likely stop selling national brand cigarettes next month and rely solely on Indian made brands at its smoke shop south of Syracuse, a nation attorney said Thursday.

    “Unless something changes, as of Sept. 1 we won’t be able to sell major brands that are untaxed,” said lawyer Joe Heath. “It doesn’t make that much sense to sell them at the same price as people can get them at the convenience store across the street.”

    The Onondagas sold 1.2 million cartons of cigarettes last year tax free. On Wednesday, the state will require wholesalers who supply Indian reservation stores to pay the $4.35 per pack tax upfront and then collect it from the tribes.

    Tribes say they won’t pay any New York taxes and will sell their own brands instead. The Oneida Indian Nation announced Wednesday it will move its cigarette manufacturing plant from Erie County to Oneida. The move will avoid the long arm of the state tax department, Oneida nation officials said.

    Heath said the Onondaga will continue to sell brands made by Indian tribes and might launch its own cigarette making operation in a building erected two years ago near the smoke shop on Route 11.

    State tax officials would not speculate how they will handle trucks operated by sovereign Indian tribes transporting cigarettes on state roads from one reservation to another. Two weeks ago, tax agents stopped a truck carrying cigarettes from one Seneca reservation, where they were made, to another, then gave back the truck and cargo without pressing any charges.

    On Thursday, Gov. David Paterson said the state won’t interfere with cigarettes made and sold on Indian reservations.

    “They can make their own cigarettes and they can sell the cigarettes on the reservation as they are entitled to by federal law,” Paterson said on WOR AM, in response to a question about the movement of the Oneida nation factory. “Once they come off, or anyone else comes off, of their sacred land with cigarettes that are not being taxed by New York state, we are going to address that issue.”

    Paterson did not elaborate, and his spokesman did not respond to an e mail seeking clarification.

    Tribes have refused to collect the tax, citing their sovereignty and treaties dating to 1794. The last time the state tried to collect the tax, in 1997, protests erupted and tires were burned on the Thruway, shutting down a 30 mile stretch.

    Paterson said he has been warned there might be violence again, but vowed the state will proceed.

    “There will be quite an uprising and protest to this, but I am going to maintain this policy,” Paterson said. “The state police tell us over and over again that there could be violence and death as a result of some of the measures we’re taking.”

    Seneca Indian President Barry Snyder has said that “violence is not on our agenda,” but the nation’s leadership acknowledges that some of the tribe’s more than 7,000 members might disagree.

    The tax enforcement action might be postponed if a judge rules today in favor of the Seneca Nation of Indians, one of two tribes that have challenged the law in federal court. The Seneca and the St. Regis Mohawk Tribe argue that the law infringes on their sovereign rights and turns them into tax collecting agencies for the state of New York.

    The price break Indian retailers can offer has grown dramatically since 2008 as the state Legislature nearly tripled the cigarette tax, from $1.50 to $4.35 a pack. Name brand cigarettes at non Indian stores now sell for $8 to $10 a pack, while the tribes sell their own brands for about $4 per pack.

    Indians are allowed to buy tax free cigarettes from Indian retailers, but non Indians must pay tax. The Seneca and Mohawk lawsuits focus on the state’s formula that would allot a certain amount of tax free cigarettes to tribal members. The formula would allow the tribes to sell about 84 tax free packs per tribal member per year.

    The Onondaga Nation, with a population of 2,866, would get 242,400 packs a year. The tribe sold about 12 million packs last year.

    Tribes can get more tax free packs for their members under an alternative coupon system. The lawsuits say this is a time consuming, expensive process that would force the tribes to do the state tax department’s work.

    Tribes can also sign an agreement with the state and avoid having to charge their customers taxes at all. Heath said the Onondaga Nation is talking with the state, but declined to reveal details.

    Other states have signed what are called “tax parity” agreements with tribes, which require the tribe to charge its own tax comparable to the state tax. While the state gets none of that money, advocates say it levels the playing field for non Indian merchants by taking away the price advantage tribes enjoy with untaxed cigarettes.

    Contact Glenn Coin at gcoin or 470 3251. The Associated Press contributed to this report.