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Commentary: Why the FDA’s $10 Exemption Proposal is More Dangerous than You Realize

1 May 2014

When the Food & Drug Administration (FDA) announced a willingness to exempt premium cigars from forthcoming regulations, it seemed the multi-year campaign to educate regulators about the differences between handmade cigars and most other tobacco products had paid off. Then it became evident that attached to the potential exemption was a devastating definition of premium cigars, including a $10 minimum retail price.

FDA-cigars-large

As explained previously, an exemption that includes a $10 minimum price would exclude 85% or more of handmade cigars. The 85% figure comes from numbers put together by Gary Griffith of Emilio Cigars using a sample of 26 stores, but I strongly suspect the real percentage is even higher. For example, $1-2 bundle cigars and factory seconds, which are made with the same techniques as higher cost cigars, are sold in higher numbers through the internet and catalogs. These aren’t fully represented in the 85% figure.

Without the exemption, new cigars (and those introduced since February 15, 2007) would need approval from an FDA that has shown no willingness or ability to do so. The agency has only approved 17 of 4,000 applications in the previous few years (2 were cigarettes, the other 15 applications were for things like wrapping papers). Effectively, there would be no new cigars introduced under an FDA-defined price floor for premium cigars.

The simplest way to look at the $10 figure is as follows: Whoever proposed it is completely ignorant of the handmade cigar market. Not only is there no scientific basis for such a cutoff (nobody can logically claim that a cigar that sells for $10 has public health implications different from one that sells for $9.99 or even $3), but it doesn’t reflect the reality of the handmade cigar market either.

The idea that the very agency authorized to regulate cigars proposed such an unsupported, arbitrary, and even ignorant rule is a scary thought. But as scary as it is, the alternative might be even worse. After all, you can at least educate the ignorant.

While I fully expect that FDA regulators don’t “get it” when it comes to why we enjoy cigars (the experience, the ritual, the camaraderie… the flavor being important and not the nicotine), I doubt they are so ignorant as to genuinely think that $10 is a reasonable line between “premium” and non-premium cigars given the current state of the cigar market.

This is politics—that’s why you hire lobbyists, not scientists, when you’re facing a rule-making process—and the FDA’s proposal is a classic political position: the ultimate threat paired with an offer to “negotiate” for something less devastating.

I’ve heard throughout the FDA process representatives of the cigar industry have been pressured to adopt a definition that included a minimum price. They’ve correctly resisted, because there is no scientific or public health reason to create an arbitrary price. Supposedly the FDA is still interested in truth and health.

Ned's_execution

Fans of the Game of Thrones HBO series will instantly recognize the image above. (If you haven’t read the first book or seen the show, I’m about to spoil the ending of the first season.) It’s the moment just before hero Eddard Stark is beheaded, after confessing to a crime he didn’t commit in order to protect his daughters and have his life spared.

If the FDA’s proposal is as calculated as I’m afraid it might be, then the handmade cigar industry shares many similarities to Stark’s dilemma. In its deeming document, the FDA pointedly left open “Option 1,” which would regulate all cigars, effectively killing the development of all new cigars.

“Option 2” is an exemption for some “premium” cigars, but the FDA is signaling that that it might be merciful, especially if the industry agrees to embrace an arbitrary, artificial, and unscientific price floor. In other words: If your false confession doesn’t sufficiently please us, we’ll just cut off your head. It didn’t work out well for Stark.

The cigar blog Halfwheel made the point yesterday that the $10 rule seems unlikely to survive, and it’s certainly true that a definition that uses “retail price (after any discounts or coupons)” is impractical. But that’s not necessarily a reason to rejoice.

In fact, it’s likely part of the set-up. A common negotiating tactic is a wildly low-ball opening offer, so the person you’re negotiating with feels they’ve won something when they agree to the real price you had in mind all along.

That may be what’s really going on here. If I told you a week ago that the final exemption would only apply to cigars with a wholesale price above $3 (roughly $6 at retail), you might have responded: That’s crazy! There are tons of handmade cigars that cost less than that and no public health reason to treat them differently than a cigar that costs more. Now, with the sword hovering over all cigars, some might think $3 a reasonable compromise to embrace.

The fact is, without an artificial price in the rule, there’s still a natural limit to how inexpensive a handmade cigar can be and still meet the rest of the requirements in “Option 2” of the proposed rule (some of which have their own problems that can be addressed in a future article). A completely handmade cigar, made primarily with long-filler tobacco, will have to cost a certain amount or it won’t be economically viable, and those looking just for nicotine will still find that pre-2007 cigarettes or other non-handmade cigars do a more efficient, cheaper job of delivering that. Further, even if unforeseeable developments prove this to be wrong, then the FDA can always do more rule-making to deal with any remaining issues.

Maybe I’m just jaded and the $10 requirement was born out of ignorance, and a thorough effort to educate the FDA will make the final rule reality-based. We should be so lucky, but I’m not sure I’d bet on it.

More likely I’m afraid we’re being set up to accept, perhaps even advocate for, drawing a line that doesn’t exist. And then feeling like we’ve won something when we get an arbitrary line that isn’t as bad as it could have been.

The FDA’s regulation of tobacco is supposed to be a fact-based process. By acknowledging the fact that premium cigars are different, the agency has implied that a reality-based line should be drawn, and I expect the handmade cigar industry will respond with comments showing why an arbitrary price definition is not based in science.

If the FDA ignores those comments and demonstrates that it is just playing politics, the result will be terrible. Not only would it destroy a thriving industry that caters exclusively to adults and provides thousands of American jobs, but it would betray the mandate that Congress gave the FDA to create reasonable regulations based in science and logic.

Patrick S

photo credits: Stogie Guys / Game of Thrones

Drew Estate

20 Responses to “Commentary: Why the FDA’s $10 Exemption Proposal is More Dangerous than You Realize”

  1. Raymond Thursday, May 1, 2014 at 7:42 am #

    GoT reference that works in article about cigars and the FDA… Epic!!

  2. cigarcraig Thursday, May 1, 2014 at 7:43 am #

    Brilliantly written, Patrick. Remember that they played this game with SCHIP too, propose a $10 per stick tax, then made us feel like $.42 each was a bargain. We all agree that price has no place in this exemption fight, it's an indication of how out of touch with reality the government really is (as if there were doubt).

    • Mike Thursday, May 1, 2014 at 9:02 am #

      The SCHIP of 2009 fight may well be where the proposed $10 figure comes from. There is a precedent for drawing a line based on a cigar's MSRP, among other factors: The handful of cities that have instituted their own flavored cigar bans or bans on single sales of cheap cigars have usually exempted those retailing above $2 a stick. FDA may eventually agree to a similar number — as I am sure industry lobbyists are aware.

      • Patrick Semmens Thursday, May 1, 2014 at 11:22 am #

        So as best we can tell, a tax cap amount rejected by Congress four years ago is the basis for the FDA's arbitrary $10 line? I think this only supports the point of the article.

  3. Anders Thursday, May 1, 2014 at 8:15 am #

    If there were a 24-hour news channel on cable dedicated to cigars, you guys would be the lead anchors. Your coverage of this has been thorough, and the analysis has been thought-provoking. Well done!

  4. Mike H in Kingsville Thursday, May 1, 2014 at 11:55 am #

    And this is why you go to regulations.gov and voice the opinion.

  5. Mike H in Kingsville Thursday, May 1, 2014 at 12:03 pm #

    As of this post, there are 1265 registered comments. Voice your opinion at this link:
    http://www.regulations.gov/#!documentDetail;D=FDA

    This not only affects the cigar industry, but small business – which this government is no friend of.

    mike

  6. PatrickLeonardoPerez Thursday, May 1, 2014 at 5:06 pm #

    Its is exactly a low-ball offer, with the intent to arrive a moderate tax hike, which should be straight line, as is the alleged public health concern. I agree with the analysis.
    Though most, even machined, cigars don't have the more dangerous additives as the cheap singles and cigarettes, there is still a health risk, but no clinically proven greater risk with a $6 cigar than a $20 cigar. Good point the author makes, where is the science/data? So just increase the tax rate to pay for rising health costs (which the government doesn't want to deal with) overall and let the free market deal with the aftermath.
    The focus on cheap nicotine delivering singles and co-opted marijuana delivering singles is a bit short-sighted. The decriminalization of THC will be nationwide relatively shortly, so just evaluate the health risk as it is now, a smoked and minimally inhaled tobacco.

  7. David 'Doc' Diaz Thursday, May 1, 2014 at 7:01 pm #

    While the proposed $10 is certainly arbitrary, it is not a number that was pulled out of thin air by the FDA. The $10 price point is used in research studies to demarcate cigar price variables and has been used by cigar-industry organizations who have long argued that youth are not in danger of abuse of premium cigars because, "How many youths can afford to regularly purchase a $10 cigar?" This sentiment has been made in formal as well as informal dialogue over the past few years. Of course, as mentioned by others, it was also used during the SCHIP discussions.

    Regardless, I think the main issue that may have not been clear from this article is that the public has the opportunity, and should exercise its right, to comment on the $10 price as well as other aspects of the proposal. In fact, the FDA itself has questioned its own proposal by asking the public to comment on, among other things, "Is it appropriate to include the $10 price point in differentiating 'premium' cigars from other cigars?" This is one of several important questions that the FDA has asked the public to comment on between now and July 9, 2014. This should not only be left up to the cigar industry, but any and every consumer has their opportunity to weigh in on this issue.

    The public should be aware that you can make your own thoughts heard by responding to the FDA request for public comments at the following URL. http://www.regulations.gov/#!submitComment;D=FDA-

    • Patrick Semmens Thursday, May 1, 2014 at 9:22 pm #

      Doc-
      I completely agree that everyone should comment. The more people weigh in the harder it will be for the FDA to ignore us. It would be very easy for the FDA to adopt the current rule if opposition in the comments is minimal. I'll have more to say about this issue in the coming weeks between now and when the comment period closes and I already covered the basics of the rule here: http://www.stogieguys.com/2014/04/04292014-primer

      As for the $10 price point, my point is it is arbitrary and not science-based. Of course a $10 cigar is harder for a youth to purchase than a $8 cigar than a $6 cigar – that's true for me too – but there is no study I've ever heard of suggesting that minors are buying handmade cigars of any kind, let alone a $9.99 one that would not be exempt under Option 2.

      The point of a rulemaking is to make a proposal that you think best fulfills the mandate given from Congress, then take public comments and adjust as necessary. My argument in this article is that the FDA isn't doing that. But instead they made the first proposal extra-punitive, so that a small adjustment later will seem more palatable. Maybe those tactics are appropriate at a used car lot, but it's not the way the process is supposed to work here.

    • Patrick Semmens Thursday, May 1, 2014 at 9:29 pm #

      Also, as for $10 coming from SCHIP: I noted it in another comment but it's worth reiterating that Congress specifically rejected that number. Not only that but it was the very same Congress that gave the FDA authority over cigars that also decided 40 cents was an appropriate line.

      So if the FDA wants to point to a number from SCHIP the only appropriate one would be 40 cents.

    • Aaron Loomis Friday, May 2, 2014 at 1:55 pm #

      In agreement with Doc, people need to make their voice heard. I wrote up a "how to" article on submitting your comments as the FDA doesn't make the process very user friendly. I wanted to try to help anyone that got frustrated trying to figure out the process and make it as easy as possible for them.
      http://www.blindmanspuff.com/cigar-news-submit-co

  8. Dan Colley Sunday, May 4, 2014 at 8:56 pm #

    The $10 figure comes from several consent decrees that were entered into by, among others, Swisher in their "disagreement" with the Federal Communications Commission. The FDA has pirated the language found in that consent decree. In fact, the entire of "Option 2" can be found in that consent decree — VER BATIM.

    When one attempts to regulate health issues using price points, it becomes obvious that there is NOTHING that pertains to the public health at issue. With a foundation in public health, this proposal does NOTHING. If the real purpose of this regulation is to keep young people (younger than 18 years of age), then vigorously enforce the laws that are already on the books and don't sell these products to adolescents. There is no real need for yet another tier of control.

    • Patrick Semmens Tuesday, May 13, 2014 at 2:52 pm #

      Dan-
      I haven't found the $10 amount (or any other prices) in the FCC consent order: http://www.ftc.gov/sites/default/files/documents/http://www.ftc.gov/news-events/press-releases/200

      Is there another one you are aware of?

      • Dan Colley Thursday, November 6, 2014 at 7:15 pm #

        Patrick, there are more than one of them and they are all referred to in the body of the proposed "deeming" regulation that is the subject of r comments. That document is terribly long and I don't remember where within it I read about those decrees, but they are definitely there. If I could remember where they were, I'd be glad to share with you but you know what they say happens when you get old !!! I never dreamed that anyone would have any interest in reading them. If I can locate them again, I'll repost here and provide a link. Fair enough?

  9. Craig Thursday, November 6, 2014 at 10:50 am #

    No regulation is neecssary. Control it at the b&w and at the Internet site. No reason to over think it

  10. Craigrose Thursday, November 6, 2014 at 10:52 am #

    No additional taxes. Leave it alove

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