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DISPATCH FROM KEYSVILLE, VA.

A family's risky plunge pays off

Despite tobacco's bad name, father and son start a cigarette firm and find success. But it hasn't all been smooth.

July 06, 2008|Ricardo Alonso-Zaldivar | Times Staff Writer

KEYSVILLE, VA. — Like generations of family before him, Steven Bailey grew up with tobacco. The leafy plants thrive in Virginia's rich clay soil, and one of his earliest memories is of watching his mother work the fields, surrounded by plants as high as her shoulders.

So imbued with the tobacco culture was Bailey that in the 1990s -- recently married and expecting his first child -- he took a gamble: Despite all the evidence of health risks and the increasing government efforts to curb smoking and regulate manufacturers, he joined his father in taking the giant step of beginning to make their own cigarettes.

The idea could have bankrupted the family. Instead, it has paid off handsomely. Bailey's "Freedom of Choice" cigarettes are sold from Florida to Delaware. The company, based in this sleepy farm town of 800, is thriving and has expanded into new products, including a smokeless brand.

The Baileys' successful plunge reflects the enduring hold cigarettes have on smokers as well as the lobbying power of the tobacco industry and Congress' sympathy for small business, almost regardless of the product.

The push for stricter tobacco regulation has caused the family some anxious moments -- most recently over the current congressional effort to allow the Food and Drug Administration to subject cigarettes to federal standards intended to reduce the ill effects of smoking.

But now, after some adroit lobbying, the bill has been modified to cushion and delay the impact on small producers. As it stands, the Baileys believe, even FDA supervision would be manageable.

If there's a cloud on the horizon, it's not government regulation. With the passage of time, said Steven Bailey, 37, he has begun to worry about the consequences of his own smoking. "Ten years ago, I was invincible," he said. But as Bailey's hair has begun to gray, he has been pondering his own mortality -- and the example he sets for his children.

He has begun to think about quitting.

It was in 1994 -- as Bailey and his father, Mac, were returning from a lucrative buying trip to the Pennsylvania's Amish Country -- that they decided to roll the dice. In addition to growing their own crop, the Baileys made money buying and reselling tobacco to the big manufacturers. But Mac had often dreamed of making his own brand of cigarettes.

Steven worked out the tobacco blend for the company, known as S&M Brands Inc. (for Steven and Mac), hand-rolling sample cigarettes and testing them on friends. The early marketing plan consisted of Steven's wife and sister-in-law peddling cartons to local convenience stores and gas stations.

"I think a lot of people tried them because they felt sorry for us," Mac said.

From the beginning, the Baileys targeted middle- and lower-income smokers -- offering a less-expensive alternative to the major brands. While the start-up may have been slow, the company eventually did well enough that the Baileys built a modern manufacturing plant, which they have expanded several times to meet rising demand.

The tide of congressional support for FDA regulation as first proposed in 1997 had the family "in a flat panic," recalled corporate counsel Everett Gee, Mac's stepson.

Gee said that the cost of complying with the product-testing requirements alone likely would have wiped out any profits. And the "good manufacturing practices" that the FDA would spell out later meant even greater regulatory costs.

Moreover, restrictions on tobacco advertising would make it almost impossible to expand the company's market share.

The Baileys saw the hand of Philip Morris behind the legislation. The corporate giant -- which makes Marlboros and controls about half the U.S. cigarette market -- broke with the rest of the industry and announced its support for the bill early on. Many analysts believed the legislation would enshrine Philip Morris' dominance because advertising restrictions hobble competitors.

The family debated whether to join the opposition -- led by R.J. Reynolds Tobacco Co., which makes Camels -- or try to seek an accommodation. They chose the route of compromise, and Gee was their point man.

They joined with other small companies -- such as Dosal Tobacco Corp. of Opa-Locka, Fla., whose owners trace their roots to pre-Castro Havana -- to line up the support of home-state lawmakers.

When Gee appealed to the staffs of Sen. Edward M. Kennedy (D-Mass.) and Rep. Henry A. Waxman (D-Beverly Hills), the leading sponsors of the bill, to ease advertising restrictions, he got no sympathy. Kennedy and Waxman, however, proved willing to phase in the testing requirements for small companies and give them additional time to comply with manufacturing standards.

Some public health advocates point to the Baileys' success as an example of how the legislation has been watered down. But Mac and Steven are far from jubilant.

"I don't think we're sitting here high-fiving," Steven said, but "we've got the accommodations to hopefully survive."

That leaves Steven Bailey with just one big issue: His creeping ambivalence toward cigarettes.

On the one hand, he said, "I looked up to people in tobacco. Never have I thought that, no, I don't need to get involved in tobacco." And when the older of his two sons reported being taunted at school by a student who said, "Your dad is a murderer," Steven said he carefully explained why the charge was unfair: The family sells cigarettes to adults who are well aware of the risks and have chosen to smoke.

"My uncle died -- he drank himself to death," he said. "Should the alcohol industry be the villain?"

Still, Steven acknowledged, "One could argue, 'What kind of example am I setting? Why am I smoking?' I need to consider that."

If he catches either of his sons smoking before they're 18, he said, "I'll jerk a knot in them."

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