WHY DID MAC BAREN SELL
I have read a million comments since the sale and there is so much misinformation out there I probably should have posted this a long time ago, however here is the answer:
Previous to Henrik Halberg’s sudden and untimely death in January of 2021, himself and his two siblings owned Halberg Group, whom in turn owned 100% of Mac Baren Tobacco. At that time Halberg group owned a few other businesses, mainly hotels and property. While there were three siblings, Henrik owned the controlling interest in Halberg and therefore controlled the company. Henrik and his wife Britta did not have any children. Henrik being the philanthropist that he was, he cared deeply for Svendborg where he grew up and his family had lived and prospered for years, put his ownership in a trust to take the profits and give all back to the community: the arts, people in need, buildings for the community, keep Mac Baren and the jobs, etc. after his death the ownership, all the way down to Sutliff was as follows: Sutliff is owned by Mac Baren USA, whom is Owned by Mac Baren DK, whom is Owned by Halberg Group, who had three owners: 1. Henrik’s sister (minority owner) 2. Henrik’s brother (minority owner) neither of which had anything to do with the tobacco business 3. A trust who has a board of directors (BoD) whom has the controlling interest. I don’t know the exact makeup of this board, however I am rather sure none of them were in tobacco, but bankers, etc.
Now this BoD in conjunction with the BoD of Halberg Group started investing more after Henrik’s death and bought a Danish food company, Logismose. The BoD then made a strategic decision that tobacco is “bad” and wanted to divest it and keep investing in other industries. None of them were tobacco people and just saw risk and an unpopular industry among health conscious, etc type people. They just saw a bucket of cash that they could invest in “more palatable” industries. The companies were generating plenty of cash however the BoD just didn’t like where the money was coming from and wanted to be invested elsewhere. Then came STG!
Side note story, can’t verify its accuracy 100%, however I was told by the former CEO whom retired prior to Henrik’s death one day while walking through the Sutliff Factory that STG had approached him about buying Sutliff, however Henrik’s answer was a resounding NO!
With Henrik gone, and the company going up for sale, STG saw a great opportunity and took it. If it wasn’t STG it would have been someone else and there is no telling if we would suffer the same fate or not and that will always be an unknown.
I was not nor have I been privy to the exact details around their ultimate decisions on what to close, when to close it, what products to keep etc. nor do I know the exact decision makers, however I would assume it is STG’s executives. In the next paragraph, I am not saying that I agree or disagree with the decisions as I can honestly argue for one side or the other, specifically talking about Sutliff. Things most people don’t know or aren’t talking about besides the blends:
1. 25% of Sutliff’s product volume sold in the USA (mostly Mac Baren) are not in an FDA Grandfathered status. They are filed under a Substantial Equivalent (SE), and the FDA has not approved any, in fact they have denied a few of ours. They keep asking for more lab testing, etc which is very expensive. I am 90% certain and had in my business plan that it would cost $1.5mn in lab and lawyer fees to try and get our SE products approved (25%) of our portfolio, with no guarantee. With the recent request from the FDA on SE’s of others in the industry, I am about 5% confident any of them would get approved and you would see them all disappear in time anyways because if the government. For example everything in the Mac Baren HH line was not grandfathered and under SE and at risk of being denied any day.
2. The FDA has published “Good Manufacturing Practices” GMP, which every tobacco producer has to comply with by certain dates based on size, etc. some of these standards are vague and over time will need to be clarified. What we were planning for, prior to acquisition, was at least $1mn to comply. This depended on if Track and Trace was part or not. If you compare Sutliff’s production facility to either in Denmark, theirs probably already comply, I’ve been to them all.
3. All of the “fun” projects Sutliff was doing as Special Releases, etc. may or may not have complied with the FDA regulations, however as a family owned business you can take those calculated risk. As a publicly traded company there is no taking regulatory risk. You are either complying or not. This isn’t a dig at STG, it is 100% the absolute legal way to do business.
4. While Sutliff has a good computer system for manufacturing or ERP system, STG is implementing the same system worldwide which is different. If you know anything about putting in a new system and it being SAP and tying together globally you know how expensive and time consuming this is. It is needed to run all the businesses correctly, just very expensive.
5. Sutliff was producing over 900 sku’s over 400ish unique blends. This is not an efficient way to run any manufacturing business. Sutliff was able to do it with our niche industry, loyal customer and employees, old equipment and no GMP from the FDA. Times were slowly changing and would continue as we were discontinuing blends annually. We had a niche of providing all these blends and it was our only way to compete. We have never been able to compete with Captain Black, 1Q, BCA, Escudo, Dunhill/Peterson, Stokkebye blends, therefore we had to be different. These were you, the consumers, choices. It is what you smoked, if you would have smoked nothing but Sutliff Z92 and 515 RC-1 then we would have been market leader and produced a lot fewer blends. That wasn’t and isn’t reality. Without running the numbers as I type this, probably half of the sku’s produced were 200lbs and even more 100lbs or less a year. No other business would keep them around and we struggled with the decision every year as we reviewed the portfolio and were quite honestly scared to cut them even though it was probably the correct decision. Mac Baren kept pushing us in that direction and we were getting closer to it, just fyi.
All the things above don’t take the other side of the argument into account, which is all about the community we all love, the hobby, the history, etc. however they are key parts to any decision being made at any company, with any ownership structure in any industry.
You can tell me I’m a corporate shill for writing this, etc. (I can take it), however those that know me know me. Don’t forget, my last day with STG is April 30th, so technically I’m only a corporate shill until then.
With much love for everyone, go light your pipe, enjoy life, remove hate from your heart about anyone or anything and count whatever blessings you have.
Jeremy McKenna
