Indian tribe manufacturing smokes, cash

OLYMPIA – As a machine rumbled in the background, Michael Bell reached into a bin and grabbed a fistful of what looked like finely shredded cardboard.

“That’s Turkish tobacco,” he said, fishing out one of the bits. “The real dark stuff is burley, out of Kentucky. And there’s bright-leaf tobacco, out of North Carolina.”

The Squaxin Island Indian Reservation, with its mossy cedars, finger-long green slugs and muddy inlets, is a far cry from the sweltering tobacco fields of the South. But the Squaxin Tribe, using tobacco imported from seven countries, is running what is believed to be the West Coast’s only cigarette factory and one of only three west of the Rockies. tribe can sell its Complete brand of cigarettes to non-Indians free of the state cigarette tax, which is $2.02 per pack. At the tribe’s nearby convenience store, a carton of Completes sells for $18.99 compared with about $34 for a carton of Marlboros.

“We didn’t have any problem with it,” said Mike Gowrylow, a spokesman for the state Department of Revenue. Under treaty and case law, he said, “it was clear to us that if they were to manufacture their own cigarettes, they would not be subject to tax.

“I don’t think it was viewed as a loophole,” he said. “It was viewed as something they had the right to do.”

The German-made machines in the tribe’s 25,000-square-foot factory can churn out 200,000 cartons a month. Fourteen stores – all on reservations, for now – are selling the cigarettes. More sellers, and more brands, are in the works.

“This will kill you. It is not good for your health,” concedes Bryan Johnson, a tribal member, nonsmoker and general manager of the tribe’s Skookum Creek Tobacco Co. “But if you’re going to smoke, smoke our brand.”

A food-grade floor

It’s no simple thing to set up a cigarette factory. It took the tribe four years to win approval from the federal government to become a manufacturer. The tribe’s cigarette advertising is tightly regulated. And Skookum Creek Tobacco pays into a national escrow fund for tobacco companies that weren’t part of the multibillion-dollar tobacco settlement with the states in the late 1990s.

The FDA-approved floor gleams as workers sweep up spilled bits of tobacco, which are sold to low-end cigarette makers.

“We buy tobacco by the pound,” Johnson says, raising his voice against noise of the machines. “We report it to ATF (the Bureau of Alcohol, Tobacco and Firearms) by the gram.”

The machines – 40-year-old castoffs from much-bigger companies – spit out cigarettes with Gatling-gun speed. In a fraction of a second, the machine combs the tobacco, wraps it in paper, glues it, slaps on a filter and sucks air through the cigarette to ensure that it draws well. The blade slicing the cigarettes moves so quickly that it’s invisible to the naked eye. The machines are tended by British technicians.

For decades, tribal smoke shops across the state sold cigarettes to non-Indians without charging the state tax. The state, which couldn’t enforce its tax laws on reservations, resorted to raids on trucks trying to bring untaxed cigarettes illegally into the state, and to catching non-Indian buyers when they took their purchases off-reservation.

In recent years, however, an increasing number of tribes – including the Squaxins – have been signing agreements with the state. Most of the compacts stipulate that the tribe charge a tribal tax equal to the state tax on cigarettes it sells to non-Indians. The tribe keeps the tax money; the state erases a magnet for tax evasion.

Such compacts, however, don’t apply to value-added products manufactured and sold on a reservation – like Complete cigarettes. They’re taxed at the stores on other reservations but not at the Squaxin tribal store. At about $19 a carton, roughly $10 of that is profit, according to Johnson. Cigarette sales – of all brands – are now the tribe’s second-largest source of revenue, after its sprawling Little Creek Casino that opened in 1995. The tribe broke ground on the factory building six years ago, and Johnson said it would cost at least $6 million to build a similar plant now.

The 760-member tribe now owns an oyster company, a large hotel and the new cigarette factory.

“We just want to make sure we really diversify, so we don’t have to totally rely on gaming,” said Jennifer Whitener, the marketing representative for Skookum Creek Tobacco.

Chocolate or menthol

To build its cigarettes, the tribe turned to Bell, who still speaks with the rounded vowels of his native North Carolina, despite years setting up cigarette plants in places like Vietnam, China, Indonesia and Singapore. He’s smoked since he was 14 years old.

There are more than 200 flavoring chemicals and ingredients that can be added to a cigarette blend, he said. Complete has a little peppermint in it, for example. Chocolate is a common ingredient in heavier, top-tier cigarettes, he said.

The Complete blend was designed to compete with GPC and Doral-type brands, lower-cost brands, he said.

The made-to-order blend arrives in 200-pound boxes from a wholesaler in North Carolina. The entire production floor is humidity-controlled, like a giant humidor, so that the tobacco doesn’t dry out or mildew.

“The name Complete was chosen because it means nothing,” Bell said. “It’s not Native, it’s not non-Native. It’s not feminine, it’s not masculine. We’re looking for that middle-of-the-road smoker that wants a better product for less money.”

Feedback from customers led to some tweaking of the recipe. The original blend was too bland, they said, the menthol version too light.

There wasn’t much debate within the tribe, Johnson said, about manufacturing a product that can kill.

“We’re not pro-smoking,” said Bell. “We’re here to fill a need. We’re not out to create new smokers, by any means.”

The factory brings jobs and quality-control skills to the rural reservation, he said. About 20 people work at the plant, many of them tribal members. Salaries range from $10 to $30 an hour.

“We always just felt that it was a natural extension of our existing (cigarette) business,” said Whitener. “It’s a unique niche that the tribe found.”