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News: Two Former Drew Estate Tobacco Gurus Ready for New Phase

4 Jun 2015

Despite the fact the FDA could rule before the end of the year that cigars introduced now cannot be sold or marketed without the FDA’s approval, cigar companies continue to churn out new cigars.

foundation-cigar-coAnd with the annual IPCPR Trade Show less than two months out, more and more new cigars are being announced. (As we have seven out of the past eight years, StogieGuys.com will be covering the IPCPR from the show floor, which this year is in humid New Orleans in late July.)

Melillo Announces Foundation Cigar Co.

In addition to the many new cigars, two former key figures at Drew Estate are expected to announce their next phase in the cigar industry. Nicholas Melillo, who left Drew Estate roughly 13 months ago, was the first to announce his future plans.

On Tuesday Melillo, who had been executive vice president of international operations at Drew Estate before his departure, announced the formation of Foundation Cigar Company. The company, which will be headquartered in Connecticut, is preparing to introduce its first blend at the IPCPR Trade Show.

While exact details of the blend are not yet known, in a press release Melillo, who goes by “Nick R. Agua” online, said he will be making his first cigar at the TABSA (Tobaccos Valle de Jalapa) factory in Nicaragua, using Aganorsa tobacco, which is also extensively used in Drew Estate blends. The first cigars are scheduled to arrive in cigar shops in September, and reportedly will retail for around $10.

Melillo described his new partnership in a distributed statement: “I have known and been purchasing tobacco from Eduardo Fernandez and his team since 2003. It’s great to work with guys who really know their tobacco. They have welcomed me in with open arms and have given me access to their special cuartos anejamiento, or ‘aging rooms.’ I have personally selected some very special vintage tobaccos which possess some amazing flavors and complex characteristics. The variety of Nicaraguan tobaccos they have in the warehouse is incredible and some of the blends I have worked up are, well, let’s just say we are all very excited about them. The tough part in working up a few nice blends is deciding which cigar you like the best.”

Steve Saka Non-Compete Ending Soon; Announcement to Follow?

Melillo’s new cigar is certainly highly anticipated, but maybe not as much as an expected announcement from former Drew Estate president and CEO Steve Saka. During the time when Saka and Melillo were at Drew Estate, the two played a critical role in growing the company from an operation known mostly for its unorthodox infused cigars to a Nicaraguan juggernaut that made some of the most sought-after non-infused cigars, including Liga Privada.

Saka left Drew Estate in July 2013 and reportedly has a two-year non-compete agreement that will expire only a week prior to the IPCPR Trade Show. In a series of recent Facebook posts, Saka has been sharing photos from Nicaragua where he has been spending time sampling tobacco in Nicaragua, which many have interpreted as preparation for his next cigar venture.

If, as many expect, an announcement about his future plans in the cigar industry comes soon, Saka would be one of many who has “retired” from one company only to reemerge in the industry after a contractually obligated hiatus. The cycle of cigar makers gaining expertise, experience, and capital at one company only to strike out on their own later is one of the aspects of the industry that drives innovation and competition to the great benefit of consumers.

Patrick S

photo credits: Foundation Cigar Company

News: FDA Regulations Could Wipe Out Every Cigar Introduced in the Past Eight Years

2 Jun 2015

February 15, 2007 could turn out to be the most important date in the history of the premium cigar industry. Why, you ask? Because every cigar introduced after that date could soon be made illegal by the Food & Drug Administration (FDA).

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While the so-called Family Smoking Prevention and Tobacco Control Act (FSPTC)—the bill giving the FDA the power to regulate cigars—didn’t pass until June 2009, the legislation sets February 15, 2007 as the cutoff date for tobacco products to be grandfathered in as exempt from needing FDA approval before being sold or marketed in the United States.

Tobacco products introduced after that date (which comes from the text of the legislation and probably cannot be altered by the FDA, even if the agency wanted to) must receive the FDA’s approval before they can be marketed for sale. For a period from passage of the FSPTC until March 22, 2011, new tobacco products could be marketed while an application was pending but, as the FDA reiterated recently, any new product that didn’t have an application submitted by that date cannot be marketed until the FDA takes action to approve it. This would apply to cigars when they are subject to FDA regulation, despite the fact the FDA hadn’t even taken the first step towards regulating cigars in March 2011, and so no cigar applications would have been submitted.

Theoretically, new cigars should get approved as “substantially equivalent” to products that were already on the market in 2007 since the basic components of handmade cigars haven’t changed in at least a century. But the process is surprisingly complicated, likely very expensive, and includes an “Environmental Assessment” and a “Health Information Summary” along with a requirement for scientific studies about how the product would be used in comparison to the product it is being claimed as substantially equivalent to. In other words, you’d probably need deep pockets, lawyers, and scientists to have a chance.

Plus, so far the FDA hasn’t shown any ability to handle existing applications. As we observed when the Deeming Rule was first proposed, only a few dozen of the 4,000 pending applications were ruled on as of April last year, with just 17 being approved over the period of multiple years. As of now, the FDA site says it has approved only 132 products as “Substantially Equivalent” since 2011, while an untold amount remain waiting for a ruling.

The FDA did propose in its rules one option for an exemption for premium cigars with a retail price of $10 or more, but even if the agency adopts that option it would leave the vast majority of cigars (85%, according to one analysis) to be banished from the market and forced to wait for an approval that may be nearly impossible to get.

February 15, 2007 is a long time ago, so allow me to set the stage: On that date we published a Quick Smoke of the Gispert Lonsdale (remember that cigar?), and you couldn’t yet buy an Apple iPhone because the first one didn’t go on sale until later that summer.

As far as cigars go, here are just a few introduced in 2007, but after the February cutoff date: Oliva Serie V, San Cristobal, Padrón Serie 1926 80 Years, CAO America, Te-Amo World Selection Series, Santa Rosa (an Altadis cigar I forgot ever existed), Rocky Patel Sumatra Edge, Cabaiguan Guapo, La Aurora Corojo Oscuro Barrel Aged, and the Cuban Cohiba Maduro (which, if the embargo ever ends, would also be subject to the regulations).

To say the industry has changed since then would be a gross understatement, as evidenced by the fact that multiple cigars listed above are no longer being made. For most cigar smokers I talk with, the vast majority of cigars they smoke were introduced well after 2007.

Cigar rights groups are now looking to push legislation that would amend the date for new cigars to be grandfathered in. This seems extremely reasonable. After all, how can cigars have complied with a regulation two years before passage of the bill authorizing the FDA to regulate cigars, and five years before the agency took any steps towards exercising its power to regulate cigars?

The problem is that reasonable doesn’t buy you much when it comes to passing federal laws. And considering the difficulty in getting support for the Traditional Cigar Manufacturing and Small Business Jobs Preservation Act in Congress, there isn’t much indication that there are majorities in Congress that want to treat cigars reasonably, nor that President Obama would sign such legislation if it somehow made it to his desk.

Patrick S

photo credits: Stogie Guys

Cigar News: Proposed Pennsylvania Cigar Tax Hike Could Have Nationwide Impact

19 May 2015

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Pennsylvania holds unique influence in the premium cigar industry. Not because cigar tobacco is grown in the state; a small amount is, but not nearly as much as Connecticut. Nor is it because some cigar makers are there; there are many more based in Florida.

What makes Pennsylvania such an important state in the American cigar industry is taxes. Or, more specifically, the lack of cigar taxes.

Along with Florida, Pennsylvania is the only state with no state excise tax on cigars (PDF). But in the budget submitted by Democratic Governor Tom Wolf for fiscal year 2015-2016, cigars would be taxed at a rate of 40% of wholesale value.

This would be a huge hit to the Pennsylvania cigar industry that has grown because of the lack of cigar-specific taxes. (The companies, its employees, and owners, of course, pay plenty of other taxes to the state because of the jobs cigar retailers provide.) Many of the largest online and catalog retailers, including Cigars International (including Cigar.com and Cigarbid.com), Famous Smoke Shop (including its Cigar Auctioneer site), Holt’s, and Atlantic Cigar, have grown in the state for that reason.

While the Republican-controlled state legislature makes adoption of the proposed budget in its entirety unlikely, there is still a chance the tax, or perhaps a lower “compromise” tax, on cigars and other tobacco products could be included in the budget. That threat is significant enough that the IPCPR issued an Action Alert on the issue late last week.

Cigar smokers in the state can contact their state legislators using the IPCPR form.

Analysis

Pennsylvania’s zero tax rate on handmade cigars has made it a magnet for cigar retailers. This has in turn impacted the way cigars are sold and taxed in other states in ways that benefit both retailers and consumers.

The low prices often charged by Pennsylvania (and Florida) retailers who don’t have to pay taxes benefit consumers everywhere by creating pressure on all retailers to keep their prices as competitive as possible. Of course, buying a cigar online means losing out on the personal touch and sense of community that only a brick-and-mortar store can provide. Even so, the competition can make cigars bought in shops more affordable (they don’t want to lose your business to an online operation) even if the prices don’t line up exactly with the sometimes lower price a high-volume online operation can charge.

While local retailers may sometimes resent the competition from online discounters, the truth is they too benefit greatly from lower tax rates elsewhere. Far too often legislators turn to tobacco as an easy target for raising revenue. The simple economics of higher taxes driving purchases to untaxed retailers in other states, however, can undermine the revenue-raising potential of higher taxes on cigars.

In other words, even if you only purchase your cigars from your local cigar shops, increased tax rates in Pennsylvania will, over time, make your cigars more expensive. For that reason, all American cigar smokers should be worried about efforts to raise cigar tax rates in the Keystone State.

Patrick S

photo credit: Flickr

News: Traditional Cigar Preservation Bill Introduced in Congress with 34 Co-Sponsors

5 Feb 2015

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On Monday, Florida Congressman Bill Posey introduced the Traditional Cigar Manufacturing and Small Business Jobs Preservation Act of 2015 (H.R. 662). The legislation, which Posey also introduced in 2011 and 2013, would prevent the Food and Drug Administration from regulating handmade cigars.

The FDA is close to finalizing a rule that would subject cigars to FDA oversight, including a pre-approval requirement that would likely halt the introduction of new cigars. (One FDA proposal would apply all cigars to the pre-approval process, while another would exempt non-flavored cigars over $10.)

The 2011-12 version of the bill gained support from a majority of the House of Representatives, while the 2013-14 version had 145  co-sponsors. Posey’s 2015 legislation was introduced with 34 original co-sponsors, which groups like the IPCPR and CRA will seek to build on over the next two years.

Even if the bill isn’t passed and signed into law, significant Congressional support would send a strong message to the FDA that many elected officials in Congress, which has oversight and funding authority over the legislation, don’t want the FDA to to extend its authority over handmade cigars.

The following bi-partisan group of Representatives are the 34 original co-sponsors of the Traditional Cigar Manufacturing and Small Business Jobs Preservation Act of 2015:

Rep Bilirakis, Gus M. [FL-12]
Rep Blackburn, Marsha [TN-7]
Rep Brady, Robert A. [PA-1]
Rep Buchanan, Vern [FL-16]
Rep Calvert, Ken [CA-42]
Rep Cardenas, Tony [CA-29]
Rep Castor, Kathy [FL-14]
Rep Clay, Wm. Lacy [MO-1]
Rep Cole, Tom [OK-4]
Rep Collins, Chris [NY-27]
Rep Costa, Jim [CA-16]
Rep Diaz-Balart, Mario [FL-25]
Rep Foxx, Virginia [NC-5]
Rep Graves, Sam [MO-6]
Rep Grayson, Alan [FL-9]
Rep Griffith, H. Morgan [VA-9]
Rep Harris, Andy [MD-1]
Rep Hastings, Alcee L. [FL-20]
Rep Hunter, Duncan D. [CA-50]
Rep Jolly, David W. [FL-13]
Rep Kelly, Mike [PA-3]
Rep Kinzinger, Adam [IL-16]
Rep Murphy, Patrick [FL-18]
Rep Murphy, Tim [PA-18]
Rep Pascrell, Bill, Jr. [NJ-9]
Rep Pompeo, Mike [KS-4]
Rep Rogers, Harold [KY-5]
Rep Roskam, Peter J. [IL-6]
Rep Ross, Dennis A. [FL-15]
Rep Royce, Edward R. [CA-39]
Rep Sessions, Pete [TX-32]
Rep Westmoreland, Lynn A. [GA-3]
Rep Wilson, Frederica S. [FL-24]
Rep Yoder, Kevin [KS-3]

If your Congressman is already a co-sponsor, contact them and thank them. If not, contact them and demand they become a co-sponsor. (Unsure who your representative is? Find out here.) Read an example of a letter to Congress in support of the Traditional Cigar Manufacturing and Small Business Jobs Preservation Act here.

Patrick S

photo credit: Best Price Cigars

News: Swisher Seals Deal to Buy Drew Estate

21 Oct 2014

Yesterday, Drew Estate and Swisher International announced an agreement had been finalized for Swisher to purchase Drew Estate. The announcement comes after over a month of intense rumors of the deal, including denials of a finalized deal by Jonathan Drew.

swisher-drew-estateSwisher is the largest cigar company in the world by volume and has a massive distribution network beyond traditional cigar shops. Drew Estate runs the largest cigar factory in Nicaragua—producing around 10,000 cigars a day—and owns heralded premium cigar lines including Liga Privada, Undercrown, My Uzi Weighs a Ton, Nica Rustica and Herrera Estelí, along with premium infused cigar lines including the best-selling Acid.

The deal, which will be completed before the end of the year, includes the Nicaraguan facilities and Drew Estate’s cigar lines. Monetary terms of the deal were not disclosed. Since both companies are privately held, details (including Drew Estate’s valuation) may never be known.

According to various reports, senior management from Drew Estate—co-founders Jonathan Drew and Marvin Samel, President Michael Cellucci, and master blender Willy Herrera—will all stay on, at least in the near term.

Jonathan Drew issued the following statement: “We began under the Manhattan Bridge Overpass in Brooklyn with a laser focus on ‘The Rebirth of Cigars.’ Friends, retailers, and consumers connected with our passion and authenticity, supporting us at each stage of our growth. We are eternally grateful to all of those who have helped build Drew Estate, and look forward to advancing the Drew Estate legacy with a great partner.” Other executives praised the agreement in a press release published on Drew Estate’s website.

Analysis

When a business is bought by larger company it’s natural for fans to be worried. Still, there are plenty of reasons for Drew Estate fans to think, despite the uncertainty of the shakeup, this may be a good thing for Drew Estate and the cigars its fans enjoy.

Drew Estate hasn’t hidden the fact that it had taken on significant debt to expand to its current size, including from other cigar companies. At least one such loan was tied to $5 million seized by the ATF as part of a settlement over back taxes reportedly owed by House of Oxford, a cigar distributor run by Alex Goldman, who was put in charge of Swisher’s premium cigar division. (Nothing illegitimate was alleged to have been done by Drew Estate and the case has now settled.) Goldman was also instrumental in having Drew Estate make Nirvana for Swisher’s Royal Gold premium cigar venture, a line that will presumably be merged into Drew Estate’s operations.

The agreement for Swisher to buy Drew Estate will presumably end any outstanding debts and allow Drew Estate to continue expansion with Swisher’s significant resources. Drew Estate can now refocus on making its cigars and innovating, something it has done remarkably well over the past few years.

It’s also worth noting that while FDA regulations are a looming threat to the entire handmade cigar industry, they are especially a threat to Drew Estate, whose infused/flavored lines will likely be hit hardest by FDA regulations. Swisher certainly knows this, which means it is likely to invest the funds necessary to promote Drew Estate’s brands no matter the impact of FDA regulations.

Finally, you can’t talk Drew Estate without Jonathan Drew. Anyone who has spent time with Jonathan knows he has a deep passion for cigars and his customers. While sometimes he may seem to be burdened by the business of cigars, there is no doubt he brings a unique energy and the spirit of innovation.

Drew and his partners built Drew Estate from a cigar kiosk in the World Trade Center to one of the largest cigar companies in the world, which is a remarkable feat. And Jonathan feels this deal is good for Drew Estate, which is his legacy.

Unless evidence presents itself to show otherwise, this deal is good not only for Drew Estate’s owners, but also for its customers.

Patrick S

photo credit: Drew Estate

News: Saving Cigar City from the FDA & British Smoking Prohibition

3 Jul 2014

Tomorrow is Independence Day, which means we won’t be posting our regular Friday Sampler. Instead, we’re posting a two notable news items today that normally would be featured in the Friday Sampler.

Will FDA Regulations Close Tampa’s Last Cigar Factory?

Tampa’s last operating cigar factory—J.C. Newman’s El Reloj in Ybor City—now sports a banner urging passersby on I-4 to “Save This Factory” by registering their support for the industry with the FDA. Newman also set up a website (www.savecigarcity.com) that details the history of the family and the factory, as well as looks at the proposed regulations and their potential impact. This news report includes an interview with Aleida Sanchez, a longtime worker in the Tampa cigar industry, who would be one of the many victims if the FDA regulations force the factory to close.

British Doctors Lobby Says Ban Smoking for Those Born in 21st Century

The powerful British Medical Association voted at their annual conference to support a prohibition on smoking for those born after the year 2000. While currently everyone born after 2000 is a minor, and thus it is already illegal for them to smoke, the policy would eventually lead to 30- and 40-year-old adults being carded to determine if they, despite being adults, are too young to be allowed to smoke.

The speaker who proposed the resolution called it a move to “denormalise” smoking, and a step towards “the tobacco end game,” while another advocate of the radical policy suggested “it made no sense to allow smoking and ban drugs such as heroin.” While the resolution passed, not everyone agreed. According to the BBC, one doctor who is an ear, nose, and throat specialist spoke against the motion, calling it “a headline-grabbing initiative that would bring ridicule to the profession.”

The Stogie Guys

photo credit: N/A

News: New Releases ‘Area 9′ and ‘Sinister Sam’ from CAO

15 May 2014

You can pretty much bank on CAO introducing a new line at the upcoming IPCPR Trade Show, but don’t expect any details on that cigar for a while. Still, right now there are some limited release blends coming out from the CAO team at General Cigar.

I was able to catch up with brand frontman and chief blender Rick Rodriguez at an event yesterday to get the scoop on the new CAO offerings, as well as clear up some misinformation that has been circulating.

CAO-Area-9

Area 9

Out now is CAO Area 9, a selection of cigars from CAO’s vast archives. The cigars consist of old blends that have been aging at CAO’s Estelí factory.

Included are cigars (some released a long time ago, others have never been released) that were made in the factory before it came under the General Cigar umbrella, along with possibly some post-General Cigar test blends. Some may be original release CAO cigars like Brazilia, America, Vision, or others that were made prior to 2007. Others include special blends that never made it to market, including, I’m told, one for a project CAO briefly had with Kid Rock that never came to fruition.

The cigars come in a bundle of six tied up in a burlap sack (though there are more than six Area 9 cigars). They have plain white bands with cryptic names like Picasso, Chief, Liga M35, Ciprus, Parabola, and Rica, with no details on their origins. In early June a special section of the CAO website will let consumers look up more details on the cigars in their Area 9 bundle. For now, the Area 9 cigars are event-only cigars that are included as a promotion for those who purchase a box. But there are hopes that it may eventually be available for sale.

Sinister Sam

Another new cigar coming before the late July Trade Show is Sinister Sam, a one-off blend along the lines of Hurricane and Angry Santa. Though, in a way, it is most similar to the Brazilia Carnivale.

While the Carnivale was Rick Rodriguez’s twist on the original Brazilia blend he inherited, Sinister Sam is his own take on the CAO America blend, which forms the base for the one-size blend.

“Sam” is a reference to Uncle Sam (hence a twist on CAO America). And contrary to rumors, there was never any plan to release it under the name ‘Son of Uncle Sam,’ a name that at most was briefly kicked around in a brainstorm session before being quickly rejected. Look for it to come out in June.

Patrick S

photo credits: Stogie Guys