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Businesses hurt by flavored tobacco ban call for restitution from city

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Shakib Kaileh, owner of Liquor and Deli on Union Square, shows some of his depleting stock of flavored cigarettes on Thursday, Oct. 11, 2018. (Kevin N. Hume/S.F. Examiner)

With enforcement of San Francisco’s flavored tobacco ban set to begin as soon as January, hundreds of corner stores, smoke shops and other businesses with tobacco sales permits are expecting to take a financial hit, and some may even close.

Now business owners say The City should give them something in return — such as a reduction in city fees or even the right to sell cannabis — to make up for the loss.

There are 800 businesses citywide with tobacco sales permits.

Shakib Kaileh, who runs a small corner store in Union Square and is the past president of the Arab American Grocers Association, said smoke shops are going to be hardest hit, but “we’re going to have loss of income in all stores across the board.”

The ban affects all flavored tobacco products, including menthol cigarettes and vaping liquids. Kaileh estimates he made $200 to $300 monthly in direct sales of flavored tobacco, but believes those purchases led to other sales as well.

“It’s going to be hurting lots of places,” Kaileh said. As other costs like rent go up, he said he worried some businesses may have to close.

One business, the Tenderloin hookah lounge Nile Cafe, is closing this month on account of the ban, which covers flavored hookah tobacco.

Owner “Ken” Ahmad said he is preparing to shut down after operating there since 2006.

“San Francisco is having its priorities upside down,” Ahmad said. He lamented the end of the business, along with hookah smoking. “It’s something people enjoy. It’s not like cigarettes. It’s more of a social thing. It’s just sad.”

“They should compensate us for running us out of business,” Ahmad said.

The impacted businesses got some support at City Hall last month when the Small Business Commission voted unanimously to recommend a helping hand.

Miriam Zouzounis, a Small Business Commissioner and board member of the Arab American Grocers Association, told the San Francisco Examiner that she would like to see the Office of Cannabis offer these businesses a permit to sell retail cannabis.

“This would include smoke shops, convenience stores or hookah lounges, but smoke shops are the most likely and easier conversion as they do not hold alcohol licenses and are already 21+ establishment,” Zouzounis said.

The City has so far only allowed long-standing medical dispensaries to sell recreational cannabis since it became legal in January under Prop. 64 and is currently allowing new outlets only if applicants have in some way been impacted by the War on Drugs. Those applications are pending approval. Any change in the type of applicants allowed to seek permits would require the Board of Supervisors to approve legislation.

Under current state regulations, businesses can’t sell alcohol or tobacco alongside cannabis and cannabis outlets can only be entered by those aged 21 and over.

Ahmad said he would be interested in a cannabis permit, but his landlord has already told him he won’t renew his lease for next year due to the ban.

The commission also backed a reassessment of industry fees on convenience stores, including a reduction in The City’s “litter abatement fee” charge of 75 cents per pack of cigarettes sold, as well as a program to buy back tobacco sales permits.

Zouzounis told the Examiner that The City should offer to buy back the permits at a cost that factors in a percentage of the store’s tobacco sales, suggesting a range of between $15,000 and $80,000.

The Department of Public Health and the Office of Economic and Workforce Development have held four public meetings inviting businesses owners to learn about the ban and offer feedback, and visited stores late last month. Health officials said they plan to revisit the stores next month to check for compliance but wouldn’t issue penalties. Enforcement with penalties won’t begin until the department adopts regulations, which is expected to be in January. The ban technically went into effect on July 20.

Violators could have their tobacco sales permit suspended for a year.

Stores are being told not to order any more flavored tobacco products, but can sell the stock remaining on their shelves before enforcement begins.

Meanwhile, city officials continue to discuss how to assist the businesses.

“The majority of retailers affected by the flavored tobacco ban are immigrant-owned small businesses that depend on every penny to make ends meet in San Francisco,” said Gloria Chan, spokesperson for the Office of Economic and Workforce Development. “Our office, in partnership with the Department of Public Health, will be working closely over the next few months to develop a strategy to support impacted small business owners.”

Sixty-eight percent of the voters in June shot down a referendum on a law approved by the Board of Supervisors last year to ban the sale of tobacco flavored products, despite the tobacco industry waging a nearly $12 million campaign.

Health Department spokesperson Linda Acosta said the “importance” of the flavored tobacco ban “is it is designed to prevent new smokers, including youth and minority populations who are disproportionately affected.”

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