On The Fringe

Alternative Businesses Embrace Regulation and Scrutiny to Gain Legitimacy

By Heather Stewart | Photography by Jac Scott

June 6, 2013

Smoke shops have had a much more fraught relationship with local communities. In addition to concerns about shops selling tobacco to minors, the past few years brought a heated controversy over the sale of Spice, a synthetic cannabis.

In 2011, the Utah State Legislature outlawed the sale and possession of a list of chemical compounds commonly used to make Spice. But some shops continued to surreptitiously sell the product, or they just turned to a new product with new ingredients.

That’s according to Chris Killillay, owner of Aztec Highway, a smoke shop in South Salt Lake. Killillay says the legislature further tightened the law in 2012, banning any substance that acted like cannabis.

Killillay freely admits his shop sold Spice when it was legal, but says he was glad to see it go. “My employees and I, we wished like hell that we didn’t have to sell that product.” Even though it was legal, “it made us feel like we were doing something dirty, like we were doing something wrong.” Spice was so incredibly profitable that it caused a tremendous boom in the number of smoke shops. Killillay says he had to sell Spice to remain competitive.

In fact, when he moved his shop from Sugar House to 3300 South in 2008, he says he had no competition within a several-mile radius. But by 2010, there were 14 smoke shops within two miles of Aztec Highway—and Killillay attributes that directly to Spice.

Now, strip malls throughout Salt Lake County are littered with bland, anonymous smoke shops. Pay attention and you’ll find them just about everywhere you look, even though only 9 percent of Utahns smoke, according to the Centers for Disease Control. The bad publicity surrounding Spice—and news reports about shops that continued to sell it after it was banned—has left a black eye on the industry, says Killillay. And the proliferation of smoke shops in the wake of Spice has had another effect: greater state and local efforts to control the number and concentration of smoke shops.

In 2012, the legislature passed new regulations for “retail tobacco specialty” businesses, defined as businesses that derive at least 35 percent of their revenue from tobacco or tobacco accessories. These regulations state that smoke shops cannot operate within 1,000 feet of schools, churches, parks or libraries, or within 600 feet of residential areas or another smoke shop.

This zoning will, over time, have a dramatic effect on the number of smoke shops, says Killillay. As current shops close down, new ones will not be able to open in those same locations. His own shop, Aztec Highway, wouldn’t be able to open in its current location. (The law made an exception for shops that were currently in operation.)

“But now it’s hard to either expand or grow,” says Killillay. He plans to open a new Aztec Highway in Roy, and he says it took months to find a location that fit within the framework of the law. In fact, it was the only location in Roy that met the requirements.

“It was the last spot, anywhere, available in Roy,” he says. “I am not going to have any competition there.”

For a while, it looked like the loss of Spice was going to close shops down, due to the significant loss of revenue. “Our sales did go down, absolutely,” says Killillay. “But we had other legs to stand on.” He has worked to diversify his store, which offers apparel, jewelry and watches, and adult items along with the tobacco products. He describes Aztec Highways as a “lifestyle” shop, rather than a traditional smoke shop.

While the loss of Spice dealt a huge financial blow to smoke shops, another lucrative product recently emerged: e-cigarettes. Just within the past few months, the e-cigarette has re-emerged with a new design and functionality that makes it more cost-effective and convenient for users, says Killillay.

And sales have boomed. Killillay says April was his second-most profitable month ever—directly due to e-cigarettes. He’s actually had to hire four new employees to meet the demand.

Some stores, like Electronic Stix, exclusively offer e-cigarettes, e-liquids and other accessories.

“It’s exactly like what happened when Spice came out,” says Killillay. “The market is going to get saturated.”

The industry is truly in flux, as local and state governments crack down on the proliferation of smoke shops while, at the same time, a brand-new clientele is drawn to the shops for e-cigarettes.

Killillay has some advice for entrepreneurs who want to succeed in this difficult, embattled industry. First, they need to adhere to the letter of the law—and be willing to open their books and their back rooms to prove it. Second, maintain good relationships with local law enforcement and health department officials. And third, train workers. Train them and keep them happy so that they will stay with you a long time. This way, there are fewer slip-ups when the health department sends minors in to attempt to buy tobacco.        

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