HBI's rolling papers fill void as smokers spurn packaged cigarettes Roll-your-own market
By Hollie Shaw
September 27, 2004
HBI Canada loves to see its profits go up in smoke.
The largest distributor and manufacturer of rolling papers in North America, HBI is a Vancouver company that prides itself on offering the most eye-popping and aromatic selection of cigarette papers in the world.
Once regarded as the purview of pot smokers or people who could not afford packaged cigarettes, the roll-your-own (RYO) market has exploded in the past five years, due in no small part to HBI and the tobacco lovers it targets.
Doug Kennedy, the editor of Oregon-based Roll Your Own magazine, said the industry has grown an estimated 30% in the past three years, largely due to smokers who have renounced packaged cigarettes in favour of making their own with pre-rolled tubes and a rolling machine.
"HBI has had such amazing growth mainly because HBI is by far the most innovative company in this whole business," he said. "They really anticipate the market and create markets by being so innovative. If everyone in the industry was as creative, this sector would be much larger already."
The ever-rising costs of packaged cigarettes have played a role in the company's success, said president Demetra Georganas, who runs the business with her sister, Betty. "As tobacco taxes go up, our business increases."
Litigation has also affected Big Tobacco's retail costs: In 1997, HBI saw its U.S. sales double within two months after Philip Morris USA Inc. hiked its prices when it was forced to pay out hundreds of millions of dollars in settlements arising from class-action lawsuits.
HBI says consumers can save up to 75% of the cost of packaged cigarettes if they roll their own.
While the roll-your-own segment is the fastest growing in the industry, as yet it has less than 2% of the multi-billion-dollar market. Ms. Georganas would not divulge her company's annual sales, but revealed it sells $2-million a year in rolling papers in Canada alone, and the segment is about 10 times that size in the United States, where the company also sells tobacco. Rolling papers, the lion's share of which are sold at convenience and specialty stores, retail for between $1 and $2.50 a pack.
"New accessories and toys make it much more simple now to roll your own," Ms. Georganas said.
HBI offers 450 varieties of rolling paper, most commonly made from hemp. Its oldest brand, Pay-Pay, dates back to the 1700s, when sailors on merchant ships traded the papers for cotton. Originally papers were made from pulp but early tobaccos were dry and full of sticks, so hemp became popular for its durability.
Good paper is essential, Ms. Georganas said. While hemp papers do not tear easily and burn well, veteran rollers often turn to rice paper, which is thinner and more delicate but has a much slower, more contained burn. "The experience is all about the taste and the texture and how it burns."
The latest trend is flavoured paper, which HBI began to manufacture four years ago. Under the Juicy Jay line, the company markets such flavours as blueberry, fudge, candy cane and banana. Associated health hazards notwithstanding, HBI's products are as natural as they can be: The paper is unbleached, the inks are soy-based, and the glue does not use any animal products.
"The people who get into using these are not people who have ever thought of themselves as a connoisseur of anything," Mr. Kennedy said. "But [HBI] kind of does what Starbucks did for consumers -- they made them appreciate the flavour. The difference is that you are using extraordinarily better tobacco than in manufactured cigarettes ... you end up with a cigarette that tastes much like cigarettes tasted 40 years ago."
In addition to rolling papers, HBI develops and sells a spate of tobacco accessories: an electric herb chopper, ashtrays, filters, torch lighters and rolling boxes. It developed a quick shooter to fire tobacco into pre-rolled empty papers, or tubes. The company also sells pre-rolled empty cones and blunts -- rolled cigars filled almost halfway with tobacco that are a favoured motif in rap music -- but company officials bristle at the suggestion that some of their products are most likely to be used by marijuana smokers.
"We design them for tobacco, and as far as we're concerned they are only for tobacco," said Harrison Karakatsanis, an HBI salesman who joined Ms. Georganas last week at the Canadian Convenience Store Expo in Toronto.
Josh Black, head of product development at HBI, said about half of HBI's sales in the U.S. market come from tobacco, which it does not sell in Canada, but the majority of profit comes from accessories.
"It is a lot tougher to sell tobacco here because every province has its own legislation with different nuances, but it is a goal to sell cigars here within the next six months." The company hopes to introduce roll-your-own tobacco to the Canadian market in a year, he said.
A fertile expansion market for the company is Europe, where as many as 60% to 70% of smokers roll their own cigarettes, Ms. Georganas said. The company opened a German division in April.