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Commentary: A Closer Look at the Impact of the FDA Cigar Pre-Approval Process

10 Aug 2016

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The Food and Drug Administration’s cigar regulations officially took effect on Monday, August 8, a date that will likely live in infamy for the handmade cigar industry. If you follow the industry by reading sites like this one, or if you spend a lot of time in cigar shops, you probably have heard that these regulations will be very bad for premium cigars. That’s true. But the full story is complex.

For starters, the full impact of the rules will take years to see. The various components of the new rules are wide-ranging with differing impacts. Warning labels, ingredient disclosures, sample bans, advertising regulations… Each create burdens for cigar companies, most of which can be passed to consumers. (The only rule change that likely won’t have any real impact is the part of the rule that sets the minimum age for purchasing cigars at 18, since that is the law everywhere already.)

The Biggest Change: FDA Pre-Approval Requirements

By far the biggest change is in what it takes to sell a new cigar in the United States. Before the FDA rules took effect, if you wanted to sell a new cigar, the process for doing so was relatively straightforward.

Basically, if you wanted to bring a new cigar to market and you didn’t own your own cigar factory, you found someone who did and struck a deal. Work out quantities, delivery date, and terms of payment and, depending on how active a role you wanted in blending and quality control, you could have a new cigar for sale in a matter of weeks or months if you were willing to pay for it. (Of course, there are more details and paperwork left out here but, fundamentally, that’s what it took.)

With the FDA rules having gone into effect on Monday, now, before you can sell or market that new cigar in the United States, the FDA must give you its permission. (Within two years, every cigar introduced after February 2007 will have to go through the same process.)

Estimates for the cost of obtaining that permission vary widely from $20,000 to $100,000 or more. Each cigar product (including each size and each packaging option) would need its own approval, though the FDA says the cost per approval should decrease if approval requests are bundled together, presumably as in multiple new sizes of the same blend.

Ultimately, whether the higher or lower estimates prove correct will have a huge impact, with the higher the costs the larger the barrier for new cigars. But just as important, if not more important, is the cost associated with how long the process takes. The FDA told us that the agency has a goal of acting on Substantial Equivalence approval requests (which are the route most cigars are expected to use) within 90 days. That may be the stated goal, but it is one many are skeptical the FDA can achieve, especially when you consider that many of the first cigarette approval requests took years for the agency to act on.

Uncertainty is the Biggest Cost

Talking with those in the cigar industry, I don’t think it would be an understatement to say that uncertainty of how the rules will be applied is almost worse than the impact of the rules themselves. Planning an ongoing business while facing unknown but potentially devastating regulations is all but impossible.

Hypothetically, if by spending $40,000 on the first application and $5,000 on additional sizes of the same blend guaranteed approval in six months, the impact would be bad, especially for smaller companies. But at least it would be known. What is scarier for a company, especially a small business, is spending that money on an application and then potentially having the FDA reject it, or sit on it for years without taking action. This is especially true since you already paid money to have the cigar made for testing and would have to spend more money to secure tobacco to make more when the approval is granted, if it is granted at all.

It’s easy to see how this uncertainty would be paralyzing to a cigar business that already has enough challenges making cigars that appeal to fickle consumers.

Loopholes in the FDA Pre-Approval Regime

I’ve never liked the word loophole when applied to complying with government rules. It implies there is something wrong with complying with the law to the letter, even if it isn’t in the exact way the regulators intended. But whatever you call it, as with any complex law, from the moment the FDA rules were written those affected naturally started to look for ways to lessen the impact.

The most obvious way to avoid or delay the full brunt of the FDA rule was to get cigars on the market prior to August 8. The flood of new cigars this summer suggests many companies took this approach, which buys them 18 months to see what the FDA approval process looks like, and another six months after that to sell their cigars without FDA approval.

Some companies are taking this even further with what are being called “stealth cigars,” which are cigars being delivered to one or a few retailers prior to the deadline without any fanfare with the intention of announcing the “new” cigar publicly at a later date when they are ready for wider distribution and marketing. Although I haven’t seen any examples as of yet, smart companies that were selling cigars in 2007 should have seen the possibility of the grandfather date issue, and made sure that cigars that normally may have been discontinued were kept alive with a small token amount of sales just to keep their options open.

Another possible loophole would be selling limited editions and other cigars overseas where retailers there could then sell them into the United States absent FDA regulations. Since the FDA regulations only apply to cigars made in the U.S., or imported or distributed into the U.S., direct-to-consumer sales from overseas could potentially legally bypass the FDA. Currently, many shops overseas are willing to ship Cuban cigars into the United States, and although the recipient may be violating the U.S. embargo on Cuban products, there isn’t any prohibition on buying cigars for personal use that aren’t of Cuban origin.

Judging the Impact

The full impact of the FDA regime will take at least two years to judge. Because of the flood of new cigars in advance of the rule’s effective date, we are entering a long period of transition. Further, until cigar makers have an idea of how much the approval process will cost and how long it will take, it will be too soon to know how they will react.

Any prediction made now is purely speculative, and absent enactment of the Traditional Cigar Manufacturing Preservation Act, the best we can do now is hope for the best and prepare for the worst.

Patrick S

photo credits: Stogie Guys

Commentary: Coping with a Post-FDA Cigar Industry

15 Jun 2016

[Below is a follow-up to a previous commentary on the grim FDA situation facing the cigar industry.]

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The U.S. Food and Drug Administration’s cigar regulations will undoubtedly transform the industry, leading to the potential elimination of most sticks introduced after Feb. 15, 2007.

Obviously, that includes a lot great cigars. It also strikes at the heart of what many consumers enjoy about the pastime: discovering new and different cigars.

What it doesn’t have to mean, though, is an end to cigar smoking pleasure. In the words of Buddhist teacher Tara Brach, “A truly happy person is one who can enjoy the scenery on a detour.”

And that’s what we face—a major detour. It’ll require a lot of shifts in the way we think about and approach cigars.

For many, cigar smoking has become subject to the common consumer quest for something new. Indeed, “What’s new?” has got to be the most common question asked by customers at a tobacconist.

Scientists know that humans respond to novelty, and that novelty wears off over time. As professor Aimee Huff, who’s studied the issue, wrote: “the perception of newness is an important part of the consumption experience because it creates short-term value.”

Achieving that experience won’t be nearly as easy if all the FDA restrictions take effect as scheduled. That means we’ll have to adjust our approach.

For starters, instead of asking the clerk, “What’s new?” I suggest asking yourself, “What’s new for me?” There are likely to be hundreds of pre-2007 cigars you or I haven’t tried. Sure, maybe we don’t want to try half of them, but that still leaves a lot to check out.

Another approach is to thoroughly examine what it is about certain cigars that you enjoy most and look for others that match or come close. Some of them could be pre-2007 cigars, some may be among those that make it through the vetting process.

Thinking carefully about what you enjoy may also make it easier to find satisfaction with a smaller number of lines.

A return to the days when most cigar smokers stopped by their local shop periodically for the same box of, say, Romeo y Julieta or Montecristo, seems highly improbable, regardless of what happens. But continuing to sample a new release every week or so seems an equally remote possibility.

I, for one, intend to go on smoking and enjoying cigars, regardless of the obstacles. If I have to make an attitude adjustment in order to do it, I’ll make the effort.

George E

photo credit: Stogie Guys

Commentary: One Man’s Grim Opinion of the FDA Situation

1 Jun 2016

If the cigar industry needed any more bad news, it could be found recently in a couple of unrelated developments that involve sugar rather than tobacco.

U.S. District Judge Edward Chen turned down a request by the powerful American Beverage Association for a temporary injunction against San Francisco’s requirement that some soft drink advertising include warnings about the dangers of consuming drinks with added sugar.

An abridgment of freedom of speech? No. A potentially fatal and unfair blow to the industry? No. Regulation in the public interest? Yes.

Then the U.S. Food and Drug Administration announced its new nutrition facts food label with an additional category: added sugars.

Now, to be clear, there is a world of difference between these actions involving sugar and the FDA’s tobacco restrictions. And there is sure to be more court action on the soft drink front, as there will be against the FDA’s tobacco rules.

But I believe the moves on sugar are indicative of the legal trajectory.

Here’s why I think the cigar fight against the FDA is, sadly, doomed. (Remember, this is just my view. No one else’s from this site.)

First, despite the outcry that government regulations are taking away our rights, there’s little doubt that there is no “right” to smoke tobacco, and certainly not one that can’t be curtailed. Legal challenges to smoking prohibitions based on a recognized constitutional right (be it privacy, property, or equal protection) have generally failed.

Additionally, the legality of a product doesn’t shield it from restrictions or a ban. Just ask those who live in one of the United States’ remaining dry counties. Up until 1914, cocaine was legal. Caffeinated alcohol drinks were legally sold a few years ago until the government decided they shouldn’t be.

Examples are endless.

Then there is the frequent complaint of a “war on tobacco.” There isn’t a war. There was a war. Tobacco lost. We’re now in the aftermath.

Petitions underway in the cigar community seem, to me, unlikely to accomplish anything. One, urging the White House to act, may garner enough signatures, though I doubt it. But even if successful, it will induce only reconsideration, not action. A reversal or exemption would require a monumental change. The chances of that are slim and none, and, as they say, Slim already left town.

(By the way, are you looking to the future? It’s hard to distinguish which presidential candidate, Hillary Clinton or Donald Trump, dislikes tobacco more.)

Demanding congressional action also appears dubious. Congress didn’t approve an exemption in the past when it would have been much easier. Why expect it to do so now?

Cutting off funding for enforcement, as has been proposed, seems to me little more than a replay of the earlier Congressional move to include an exemption in its funding bill: a bargaining chip to be traded for something else. And even if a funding halt were to be approved, the FDA could likely go right back to work with new funding in the future.

I think the most likely outcome to the FDA regulations is legal action that slows, but doesn’t stop, the process.

Perhaps my years in Washington made me too cynical. Maybe I am just too negative in general.

I hope so. I can’t think of anything that would bring me more joy than writing another piece with the headline: I Was Wrong.

George E

photo credit: N/A

Book Review: The Cigar: Moments of Pleasure

9 May 2016

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Spectacular.

That is the only word I can think of to adequately describe this large-format, colorful book that explores every imaginable facet of cigars.

The Cigar: Moments of Pleasure is a book that could come only from someone who loves cigars, or, in this case, two people who love cigars. Morten Ehrhorn (writer) and Justin Hummerston (photographer) spent five years traveling the world to explore cigars, tobacco, and those who love them. Interestingly, the pair is based in Denmark, known in the tobacco world far more for its relationship to pipes than to cigars.

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But you’d have a difficult time finding a book with more or better cigar information. Far too many coffee-table books of all kinds are heavy on photographs and light on written material; far too many cigar books offer little more than a rehash of accepted wisdom and twice-told tales. Not so with The Cigar.

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The book is truly an exhaustive and extensive presentation. Sure, we’re all familiar with photos of fields in Pinar del Río, say, but how about a look at tobacco curing houses in Indonesia? In another spot, you’ll find six pages devoted to soil. Then there’s a meticulous exploration of the effects of nicotine on the brain, not to mention all the interesting tidbits throughout. Did you know, for example, that Cuban cigars are packaged in the box with the darker wrappers on the left side?

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In fact, I can’t think of any aspect of cigars that Enrhorn and Hummerston missed. The book is, literally, 312 pages of fascination.

For a cigar lover, simply opening the book is to be captivated, drawn in, and captured.

The Cigar: Moments of Pleasure is published by the award-winning Copenhagen firm Forlaget Enrhorn Hummerston and can be purchased on Amazon, as well as at online retailer Cigars International.

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You’ll also have a chance to win the review copy we received from the publisher in the coming weeks. Be sure to subscribe to our free email newsletter for details on that and other giveaways.

George E

photo credit: Stogie Guys

Commentary: Could Cuban Cigars Save the Non-Cuban Cigar Industry from the FDA?

30 Mar 2016

Obama Castro press conference, Havana

In April 2014, the Food and Drug Administration (FDA) took the first major step towards invoking its authority to regulate premium cigars. At the time, it seemed likely that by the end of 2014—if not certainly in 2015—the FDA would finalize its rule subjecting cigars to FDA regulation, including a pre-approval process for cigars introduced after 2007 that would cost cigar makers up to a projected $400,000 per new cigar brought to market.

The comment period for the proposed regulation closed in August 2008 after nearly 55,000 submitted comments, with over half of them from cigar smokers concerned about the impact of the new regulations. Since then, the rule-making process has slowed considerably.

It took over a year after the close of the comment period for the FDA to submit a proposed rule to the Office of Management and Budget (OMB), which finally took place last fall. Normally, the OMB review process is completed in 90 days, but nearly six months later there has been no further action. Now, rumors suggest the process is frozen. So why the delay?

The most likely answer may be Cuba.

After seemingly ignoring Cuban-American relations for most of his presidency, President Obama has taken significant steps toward normalizing relations with Cuba in the final years of his final term, culminating with the historic visit to Cuba earlier this month. With Cuban cigars being one of Cuba’s most notable and economically important exports, one can reasonably infer that thawing diplomatic relations may be throwing a wrench into FDA efforts to regulate cigars.

Consider the impact of the proposed regulations on Cuban cigars. The FDA has taken the position that, because of the text of the law that authorizes the agency to regulate cigars, it cannot exempt cigars introduced to the U.S. market after February 15, 2007. (We covered this in significant detail last year.)

For non-Cuban cigars, the impact would be huge. For Cuban cigars, none of which can be legally sold or marketed in the U.S. as long as the embargo remains law, the impact would be total.

As you should know by now, the FDA had two options in its proposal for regulating cigars. Option one would treat all cigars the same. Option two would create an exemption for premium cigars that meet certain criteria, including being composed mostly with long-filler tobacco, not being flavored, and having a suggested retail price of at least $10. (One estimate projected that 85% of cigars fall under the arbitrary $10 point.)

One open question about the FDA rules under either option is how cigars introduced after the 2007 cutoff, but already on the market when the rule goes into effect, would be treated—especially those introduced before the FDA took any action towards regulating cigars, or even before the bill authorizing the regulation was signed into law in 2009. Immediately pulling those cigars off the market would be extremely disruptive, not to mention impractical and grossly unfair. Therefore, a grace period where the cigars could remain on the market pending an application for FDA approval seems likely. Of course, non-Cuban cigars, like Cuban cigars, that are not currently on the market wouldn’t be helped by such an accommodation, and options for specifically exempting one country’s imports but not another would not be justified by the legislation (and also could violate international trade commitments, not to mention basic fairness).

For Cuban cigars, the majority of which would probably meet the premium definition, especially with likely price hikes due to increased demand should they become legal in the U.S., option two would allow Cuba’s most famous product to be sold almost immediately if and when the embargo ends. Option one, on the other hand, would keep Cuban cigars off the world’s largest cigar market until they undergo the pre-approval process. Considering that the FDA has taken years to rule on a small percentage of the pending tobacco products already waiting for FDA approval, that wait could be almost indefinite when they go to the back of the line after thousands of non-Cuban cigars.

Unfortunately, indications are the FDA has resisted option two (a purported leaked copy of the rule the FDA transmitted to OMB didn’t include a premium cigar exemption). Further rumors suggest the White House and OMB favored an exemption for premium cigars while FDA opposed one, which has contributed to the likely delay at OMB.

All of which brings about more questions than answers. But  now there’s certainly a compelling case that changing relations between Washington and Havana, and the potential impact on Cuban cigars, could be a significant reason for the delay in implementing a final rule regulating cigars.

If true, then possibly only the president’s unilateral desire to re-establish trade with Cuba is stopping the U.S. government from devastating American cigar retailers, non-Cuban cigar companies, and the tens of thousands of people in the Dominican Republic, Honduras, Nicaragua, and elsewhere that depend on making cigars for the American market. What does it say that the only thing that might save non-Cuban cigars is the desire to not harm the Cuban government-owned cigar industry?

In many ways, the question is as troubling as the answer. But given the destructive impact of FDA regulation on cigars, any reason for delay or possible reprieve would be most welcome.

Patrick S

photo credits: IIP Photo Archive

Commentary: FDA Still a Major Threat to the Premium Cigar Industry

15 Feb 2016

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One of my 2016 resolutions is to ensure we update our Question of the Month (found in our right-hand sidebar) monthly. Last year, far too often our reader poll got neglected. So I recently took down January’s question and, as I updated it, noted the results of the voting, which I present to you below:

What do you think is the most likely impact of forthcoming FDA regulations on premium cigars?

A. Large manufacturers will adapt, but boutiques will close down.
B. Blends introduced after 2007 will be recalled.
C. The floor price for a premium cigar will rise to $10.
D. All of the above.
E. The industry will see few impacts.

“All of the above” led the voting with close to 40% followed by—and this was shocking to me—“the industry will see few impacts,” which got a whopping 22% of the vote. I was so struck by the realization that so many of our readers don’t see the FDA as a major threat to premium cigars that I felt compelled to address the topic today.

As you probably know, StogieGuys.com has written about the FDA extensively since at least 2007. Currently, we’re right on the cusp of learning how this will impact the industry. To bring you up to speed:

  • FDA regulations would be devastating to the thriving handmade premium cigar industry, even though there is no indication that such regulations would have any impact on youth smoking or public health.
  • Currently, the FDA has officially sent the latest version of its deeming rule on cigars to the Office of Management and Budget (OMB) at the White House for economic review. Now, the OMB is conducting its review of the FDA rule, and will then hand down the final regulations for implementation. This could happen any day, and it’s almost guaranteed to occur before the end of the Obama Administration.
  • Cigar Rights of America (CRA) and the International Premium Cigar & Pipe Retailers Association (IPCPR) have directed their lobbying efforts to OMB, which is charged with examining the economic impact of proposed FDA rules. The groups will attempt to show the potentially devastating economic impact the proposed regulations would have on cigars, including costing jobs both in the U.S. and abroad.
  • In its initial proposed rule, the FDA offered two options for regulating cigars: option 1 (which covers all cigars) and option 2 (which exempts handmade cigars over $10). Although the proposed rules transmitted to the OMB presumably include the agency’s decision on that important issue, it is unlikely the OMB will make public the agency’s intentions on the issue of a possible exemption.
  • While the OMB review may seem like a formality, those familiar with the creation of the initial proposed rule say the OMB was critical in advancing the option of an exemption for some cigars. If the OMB feels the FDA’s final version insufficiently addressed its previous concerns, it could request further revisions.

Now, I’ll be the first to admit the whole process is convoluted, drawn-out, and rife with complexities and other undesirables that render this story a difficult (and sad) one to follow. But I’m quite surprised 22% of our readers—folks who, by and large, regularly smoke cigars and love tobacco enough to read industry blogs and online reviews—could think the forthcoming FDA regulations will have few impacts.

Have they forgotten the FDA might wipe out every cigar introduced after February 15, 2007? Or that cigar innovation would likely come to a screeching halt? Or that cigar prices might rise considerably, as cigar options become exponentially more limited?

As far as cigars are concerned, the FDA is the defining issue of our era. Let’s try to keep in mind how important this is. And let’s not lose sight of what’s at stake: a thriving industry that caters exclusively to consenting adults and provides thousands of American jobs.

Patrick A

photo credit: Stogie Guys

Commentary: A Cigar State of the Union

13 Jan 2016

SOTU

Last night President Obama delivered his final State of the Union address. In that spirit, I offer my thoughts on the state of the cigar industry as we enter 2016.

In many ways, the state of cigars is as strong as it has ever been. This is our tenth year publishing StogieGuys.com, and the cigars being released today are of highest quality they have ever been.

Consumers are better educated, and they demand more of their cigars. Cigar companies have largely delivered better quality and more interesting flavors. One of the best trends is that new competition continues to challenge the status quo, which drives up quality.

Take a look at various top cigar lists and you’ll see lots of newer companies represented. Fortunately, their success isn’t a result of more established companies slacking off. Rather, the bar is continually rising. I honestly believe the tenth-rated cigar on most “Best of 2015” lists would have beat the number one cigar five or ten years ago.

Another sign of the health of the state of cigars is the fact that even those who have achieved the financial success to walk away rarely do. Statistically, when someone announces they are stepping down or retiring from a job in cigars, it most likely just means they are planning their return, armed with the lessons of their experience.

At the cigar shops you can see how all this benefits cigar smokers. The days where the vast majority of cigars for sale in most shops are made by a handful of the largest companies are increasingly in the past. Cigars have to earn shelf space more than ever, and companies large and small are upping their game to compete for that valuable space.

In short, cigar smokers have more and better choices than ever before. That’s the good news. But there are dark clouds on the horizon.

Impending FDA regulation continues to hover over the cigar industry with the potential to devastate the thriving competition that we’re enjoying. The fact that we enter 2016 without those regulations is a good sign, but literally any day regulations could be finalized. One cigar company executive told me not long ago that he expected many smaller cigar companies couldn’t survive FDA regulations, and I’m afraid that’s probably true.

The delay in the finalized FDA rules shows there is division within the executive branch over the extent of the need for regulation over cigars. While that’s a testament to the work of organizations that lobby for cigar rights, it doesn’t change the fact that the only way to fully stop FDA regulation would take an act of Congress. Going forward, cigar rights groups would benefit from more long-term strategy, instead of pinning their hopes to last-minute Hail Mary attempts to slip riders into massive appropriations bills.

Elsewhere, cigar rights are on defense, too. Smoking bans are not being repealed anywhere, while proposals for expanded bans and increased tobacco taxes continue to flourish.

We have work to do. There may never have been a better time to be a cigar smoker. Keeping it that way, though, won’t be easy. The old saying is eternal vigilance is the price of freedom; when it comes to the freedom to enjoy cigars, that has never been more true.

Patrick S

photo credit: Wikipedia