US: Cigarette Maker Tries Stock Giveaway to Boost Sales

Source from:  Buffalo (NY) News 01/19/2015

Henry Sicignano III knows he-s facing a mountainous challenge.

His company, 22nd Century Group, is trying to gain a toe-hold in the cigarette market for the Red Sun cigarettes that the Clarence company is gearing up to start selling.

But that won-t be easy. Tiny 22nd Century is up against the likes of Reynolds American and Altria - tobacco giants with more than $20 billion in annual sales and well-established brands such as Marlboro and Camel - in the battle for both consumers and space on store shelves.

22nd Century is the ant. Big Tobacco is the man who could squash the life out of the ant with one step and not even notice what had happened.

To go up against the Big Tobacco giants, Sicignano realizes that little 22nd Century needs to do something to stand out.

His idea: Give the Mom-and-Pop store owners he hopes to convince to sell Red Sun cigarettes the chance to own a piece of 22nd Century. Offer a similar deal to distributors. The more cigarettes 22nd Century sells, the bigger the piece of the company its retailers and distributors can accumulate.

Sicignano, 22nd Century-s president, calls it the Trade Partners Program. But really, it works more like a stock rebate program.

Here-s how it works: Under the program, 22nd Century will give $1 worth of its stock to distributors for every carton of Red Sun cigarettes they sell. Participating retailers will get $3 worth of 22nd Century stock as a rebate for every carton of Red Sun cigarettes they sell during 2015.

Sell 100 cartons, get $300 in 22nd Century stock. Sell 1,000 cartons, get $3,000 in stock. If the company succeeds - and the stock goes up - the shares could be worth even more down the road.

"This program is a mechanism for retailers to own stock in the brand they-re helping to build," Sicignano said.

And 22nd Century needs their help. It's starting from scratch. Its Red Sun cigarettes are just beginning to show up in a smattering of stores in selected markets, from New York City and San Francisco, to Boulder, Colo., and Portland, Ore.

Smokers have never heard of Red Sun. Store owners don-t have any pressing reason to carry a brand of cigarettes no one has heard of, made by an equally unknown company from the Buffalo suburbs. They all need a nudge to give Red Sun a try.

Sicignano hopes the stock rebates can provide that nudge.

22nd Century is marketing Red Sun as a super-premium cigarette - one that costs more, but one that also stands out from the mass-market cigarettes, much like craft beers are touted as an alternative to Budweiser and Miller.

It's targeting small retailers, mostly mom-and-pop store owners, trying to convince them to carry Red Sun because it gives them a cigarette brand that you won-t find in 7-Eleven or your neighborhood supermarket. And as a super-premium brand, it also will be more profitable for them to sell.

"Our retailers are really more than our customers. They're our sales force," Sicignano said. "And a retailer would prefer a customer coming to his store to buy a product he can-t find elsewhere."

In Sicignano-s ideal world, the company-s distributors talk up Red Sun to the small retailers they serve and convince them to give the new brand a try. And when a customer walks into one of those mom-and-pop stores, the owner points out that they-re now carrying Red Sun and suggests that the consumer give them a whirl because he knows that his store is the only one in the neighborhood that carries that brand.

Sicignano even is planning to frame the stock certificates that will go out to the store owners and distributors. Maybe they'll hang the certificates on the wall behind the cash register, right next to the dollar bill from their first sale.

"It-s marketing," Sicignano said. "They like to have collectibles and framed memorabilia on their walls."

Sicignano said 22nd Century has been thinking about the program for the past two years. Years ago, Sicignano helped develop the Natural American Spirit cigarette brand for Santa Fe Natural Tobacco Co., which has since been snapped up by Big Tobacco's Reynolds American. In those days, Sicignano said retailers asked him "countless times" how they could invest in the brand they were helping to build, but since Santa Fe was a private company, there wasn-t.

With 22nd Century's stock rebate program, there is. The company has set aside up to 300,000 shares of its stock, worth about $429,000 at today's prices, that it will give to distributors and stores as a rebate at the end of every quarter, based on how many cartons of its Red Sun cigarettes they sell. 22nd Century capped the value of the stock that it can issue under the promotional program at $3 million.

"We are offering retailers and distributors an extraordinary opportunity to become 22nd Century Group shareholders, and a strong incentive to grow Red Sun sales," Sicignano said.

When you're taking on Big Tobacco, you need every edge you can get. Enditem