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Now that credit card companies won't handle online tobacco sales, many merchants are calling it quits(2)

Posted on 14th Nov 2011 @ 7:09 PM

''They're throwing the baby out with the bathwater,'' said Joel Sherman, the company's chief executive. ''We have over 70 licenses to sell directly to customers around the country -- every state, and many municipalities. And we have a whole series of proofs in place for age verification.''

Mr. Sherman said that credit card companies ''have not gotten around to shutting us off yet,'' so his site still accepts plastic. But he said that since his customers can find Nat Sherman products at retailers throughout the country -- at lower prices, since customers do not pay for shipping -- his business will not be as deeply affected by a credit card embargo as others.

In theory, at least, law-abiding online tobacco sellers could avoid the credit card embargo. Joshua Peirez, a senior vice president at MasterCard, said that banks that issue his company's brand of credit cards may provide MasterCard with documentation if they believe one of their merchant customers is selling tobacco online legally.

''But if there's any doubt, banks have the obligation not to contract,'' said Mr. Peirez, who estimated that his company has so far cut off about 100 of the biggest online tobacco sellers.

Some online cigarette sellers, who spoke on condition of anonymity, said they were exploring ways to create their own credit cards, perhaps in association with other online tobacco sellers. They would then battle government regulators in court to determine the legality of their practices.

Still other online sellers are engaged in more creative practices.

Richard Johnson Jr., who until late last year sold foreign, duty-free cigarettes through, said he was in the process of reviving that site so he could sell domestic cigarettes to United States consumers. Mr. Johnson said he planned to establish credit card accounts with foreign banks, which he said were not bound by United States laws.

Because some Internet cigarette sellers continue to accept credit cards, this practice is possibly already being adopted. Mr. Peirez, of MasterCard, said the company's policy applied to any bank whose merchants sell to United States customers. ''So no, we wouldn't allow them to process those transactions,'' he said.

Meanwhile, Ms. Jimerson of Ron's Smoke Shop said she hoped to use her company's former warehouse for a new party supplies and candle business,, which she began developing months ago.

''I could retire,'' she said. ''But I don't like to be forced into anything.''

Photo: Maxine Jimerson and Gregg Prockton of Ron's Smoke Shop in Allegany, N.Y., oversee their final shipment of cigarettes bought online.