CIGARETTE HIKES FIRE UP BLACK MARKET

SAN FRANCISCO -- Teresa Flores knew it was only a matter of time before
thieves broke into the Cigarette Store in Fresno after tax hikes on Jan. 1
nearly doubled the price of cigarettes.

It took only nine days.

A burglar made off with 100 cartons of Marlboros -- $3,100 worth of
cigarettes. And retailers say it's happening throughout California, where
stolen and illegally imported cigarettes are feeding a burgeoning black
market.

"If you put that much tax on anything, you can pretty much guarantee a
black market," said Russell Graham, manager of the Tobacco Loft in Pleasanton.

Proposition 10, backed by filmmaker Rob Reiner and passed by California
voters in November, put an additional 50-cent tax on each pack of
cigarettes and an equivalent charge to tobacco products to pay for early
childhood programs. Tobacco companies tacked on another 45 cents per pack.

Big Increase

"Can you imagine ... somebody who is used to paying $2 a pack all of a
sudden being confronted with $4.50 a pack? That's significant," said
Charles Janigian, president of the California Association of Retail
Tobacconists, which has asked the state Supreme Court overturn the
initiative. "That's a big price increase for those low-income folks."

Supporters of Proposition 10 say the black market argument is one that came
up with the passage of Proposition 99, California's last tobacco tax hike
in 1988.

"This has been an argument of the tobacco industry and passed onto
retailers since Prop. 99," said Ann Wright, a spokeswoman for the American
Cancer Society. "We don't have any evidence there's a crime ring."

But retailers say otherwise. Thieves successfully broke into the Cigarette
Store in Fresno on Jan. 9. One week later, would-be burglars struck again
until the alarms went off.

In Alameda, two Cigarette Cheaper stores have been raided 10 times since
December, one bandit making off with 30 cartons.

"It's an ongoing thing. People come in and gather up bundles of cartons,"
Sgt. Randy Keenan said Thursday. "It becomes an easier thing to sell when
the value goes up."

3 Packs A Day

For a smoker with a two-pack-a-day habit, the tax hikes means shelling out
some $2,800 a year to feed the addiction. Buying stolen cigarettes starts
to sound pretty good -- especially for those who claim they can't quit.

"Forty years and I'm not about to quit. Three packs a day -- I work to
smoke," joked Margie Hogue of Fresno.

Janigian went up and down the state last week to warn retailers to protect
themselves from theft. He suggested surveillance cameras and alarms.

He also warned retailers not to advertise their store names on their trucks.

"We're seeing whole trucks hijacked or held up along the delivery routes,"
he said. "They need to be very careful when they're out buying the product."

But some say a good number of the thefts are inside jobs.

"We did predict there would be more cigarettes stolen in the state when
Proposition 10 went into effect," said Ned Roscoe, vice president of the
Cigarettes Cheaper chain.

"When the prices go up, there's a bigger incentive for people, merchants,
to want to purchase cigarettes that are stolen."

Smuggling, by boat and truck, is likely, and more customers are going to be
turning to the Internet to order their tobacco products, Janigian said.
That's sure to cut into the $700 million Reiner's commission hopes to
collect with the new tobacco tax, he said.

Far from getting smokers to quit, the tax hike is simply forcing them to
get creative, retailers say. Graham said his store has sold out of rolling
machines.

"We've had new customers from other places looking for cheaper cigarettes,"
said Flores. "They're looking for the 'roll your own.' They're trying to
find a cheaper way to do it."