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News: Swisher Seals Deal to Buy Drew Estate

21 Oct 2014

Yesterday Drew Estate and Swisher International announced that 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.

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 premium cigar lines including Liga Privada, Undercrown, My Uzi Weighs a Ton, Nica Rustica and Herrera Esteli, 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, and since both companies are privately held details including Drew Estate’s valuation in the deal may never be known.

According to various reports, senior management from Drew Estate – including 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.

In the announcement of the deal Jonathan Drew issued the following statement: “We began under the Manhattan Bridge Overpass in Brooklyn, N.Y. 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 with both  Drew Estate 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 that despite the uncertainty of the shakeup, this may be a good thing for Drew Estate and the cigars its fans enjoy.

While Drew Estate didn’t go out of its way to promote the fact, it also didn’t hide the fact that the company 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 was also 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 on flavored cigars. Swisher certainly knows this, which means they are 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 that he brings a unique energy and spirit of innovation to cigars.

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 if you’ve met him you know is his legacy.

That is enough reason to believe that, unless evidence presents itself to show otherwise, this deal is good not only for Drew Estate’s owners but 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

News: Nick Melillo Departs Drew Estate, Will Remain Active in the Cigar Industry

12 May 2014

Nicholas Melillo, popularly known as “Nick R. Agua” on Facebook and Twitter, is leaving his role at Drew Estate, where he served for 11 years with responsibilities ranging from tobacco purchasing and fermentation to quality control and shipment planning.

According to a press release issued midday on Friday by Drew Estate, “Melillo mastered the blending of some of the company’s top-selling brands, including Liga Privada No. 9, T52, Dirty Rat, Flying Pig, UF-13, L40, Undercrown, Nirvana, Kahlua, Java, and Nica Rustica, He also worked alongside Willy Herrera on Herrera Estelí.”

Nick Melillo

When Melillo joined Drew Estate in 2003, the company was nowhere near its current levels of production (about 100,000 cigars per day with 1,500 employees—the largest cigar operation in Nicaragua). The Connecticut native played an integral role in the company’s success, according to Jonathan Drew. “Melillo has been a major asset in bringing our company to our current level of expertise and quality,” reads the press release. “He has been instrumental in creating blends to categorically change the traditional cigar market.”

Melillo, who got his start at a cigar shop near New Haven, Connecticut, was formerly Executive Vice President of International Operations for Drew Estate. In January, he left to become a consultant on tobacco purchasing and cigar blending under his company, Melillo International. The next step in Melillo’s premium cigar career is not yet known—though it is clear he does not plan to leave the industry for good.

Who Will Fill the Void?

As I was visiting Drew Estate in Estelí last month, Jonathan Drew was candid about the fact that he was grappling with the reality that his role is to make business decisions for the company. He is more of a corporate executive than a cigar blender or tobacco man. Nicholas Melillo was filling the roll of blending, monitoring fermentation, and attempting to maintain quality control in the face of increased production.

These roles used to be shared between Melillo and Steve Saka, the CEO of Drew Estate who retired in July 2013. Saka has a non-compete agreement in place until the summer of 2015 (Drew Estate repurchased his interests in the company when he left), whereas Melillo remains a partner in Drew Estate.

On the heels of Melillo and Saka leaving, the obvious question is: Who will step up to the plate for Drew Estate’s growing tobacco purchasing, fermentation, blending, quality control, etc. needs? My colleagues and I will keep you apprised as details emerge.

-Patrick A

photo credit: Stogie Guys

News: Unique ‘Florida Sun Grown’ Project Yields Second Crop of Cigar Tobacco

6 May 2014

An enjoyment of farming, tax laws, and a devotion to the history of cigars are the unique combination that led Jeff Borysiewicz to launch his Florida Sun Grown tobacco endeavor. Up until last year, no long-filler cigar tobacco had been grown in Florida since 1977.

FSG-field

Borysiewicz is owner of the Orlando-area Corona Cigar stores and a partner in the Sindicato cigar company. He also is one of the most dedicated advocates for cigar freedom through his roles as co-founder and board chairman of Cigar Rights of America and the founder of the Puro PAC, a political action committee that supports cigar rights and pro-cigar candidates. Now he can add tobacco farmer to the list.

“I’ve always had a passion for farming,” he told me when we discussed his new project, noting that he was even a state tractor driving champion in his youth. More recently, Borysiewicz purchased land in Clermont (45 miles from Orlando).

Soon after, his tax attorney informed him that unless he grew something on the land, he’d have to pay residential tax rates on the land. So the idea for combining his enjoyment of farming and tobacco came into focus. In 2013, a test crop of 10,000 plants was cultivated, half Corojo seed and half Criollo.

The test proved successful enough that this year 45,000 seedlings were being planted, all of the Corojo variety, and new curing barns were built. The goal is eventually to produce sun-grown leaf that can be used as wrapper that will take on its own unique flavor profile.

While it’s a unique project, growing cigar tobacco in Florida isn’t unprecedented. A considerable amount of cigar tobacco used to be grown in Florida, second only to Connecticut within the U.S., especially in the panhandle region around Quincy.

After the Cuban embargo, such legendary tobacco men as Angel Oliva grew there, at the same time as they planted their first crops in Central America. Eventually, the cost of labor in Florida, and a move towards homogenized wrappers for the Tampa-based factories that had been their main customers, caused production of Florida tobacco to cease in the late 1970s.

FSG-DE2

I got to examine the tobacco while visiting Drew Estate in Nicaragua last month. While that tobacco isn’t quite ready to be made into cigars, Jonathan Drew and Nick Mellilo of Drew Estate say the results look promising. I can personally attest to its strong, unique aroma.

That first crop yielded roughly 45,000 filer leaves, which, as of last month, was still fermenting in Drew Estate’s DE2 pre-industry facility. The leaf is on the small size, but it could be used as a filler component in a blend (either for 45,000 cigars using one leaf each, or 90,000 cigars with a half leaf in each).

FSG-JD-NM

That crop was allowed to grow mostly wild (without priming), which produced only filler. But the hope is that wrapper-quality leaf will soon follow. Borysiewiz has been friends with Jonathan Drew since they both were getting into the cigar industry in the 1990s, so it was a natural pairing, especially now that Drew Estate has the capacity with its new facility.

What project exactly the “Florida Sun Grown” (a name Jeff Borysiewicz has trademarked) will be part of is yet to be seen. But even with the larger crop this year it will always be a limited, unique product.

In the meantime, the project gives Borysiewicz another talking point when telling politicians about the need to protect cigars from federal bureaucrats. Florida Sun Grown tobacco is another example of American jobs being created by the premium cigar industry. If the FDA makes projects like this not financially viable, however, those jobs will no longer exist.

-Patrick S

photo credit: Stogie Guys

Primer: What the FDA ‘Deeming Document’ Means for Cigars

29 Apr 2014

On Thursday, the Food & Drug Administration (FDA) took the long-expected action of invoking its authority to regulate cigars and other types of tobacco. We’ll be exploring why the action would be disastrous for handmade cigars in he coming days and weeks, but first it’s important to get an understanding of what exactly has been proposed.

FDA-cigars-large

Legislative Background

In 2009, Congress passed, and President Obama signed, the Tobacco Control Act, which directed the FDA to regulate cigarettes, as well as cigarette tobacco, roll-your-own tobacco, and smokeless tobacco. Under current regulations, all new cigarettes require FDA approval before they can be sold, and flavored cigarettes (with the exception of menthol) are banned for sale in the U.S.

The bill also authorized the FDA to regulate other types of tobacco (including cigars), but leaves it up to the agency through its rule-making mechanisms to decide if it will regulate tobacco other than cigarettes and, if so, what form that regulation will take. In order to assert its authority to regulate cigars, the FDA must go through a federal rule-making process.

Deeming Document

Last Thursday, the FDA took a big step towards regulating Other Tobacco Products (OTP) including cigars, by proposing to assert the FDA’s authority to regulate OTP by deeming them under the Tobacco Control Act. According to the document, “once a tobacco product is deemed, FDA may put in place ‘restrictions on the sale and distribution of a tobacco product,’ including age-related access restrictions and advertising and promotion restrictions, if FDA determines the restrictions are appropriate for the protection of the public health.”

Specifically, this means the following six regulations (that currently apply to cigarettes) would also apply to the additional products subject to the FDA’s deeming, including cigars:

(1) Enforcement action against products determined to be adulterated and misbranded; (2) required submission of ingredient listing and reporting of harmful and potentially harmful constituents (HPHCs) for all tobacco products; (3) required registration and product listing for all tobacco products; (4) prohibition against the use of modified risk descriptors (e.g., “light,” “low,” and “mild” descriptors) and claims unless FDA issues an order permitting their use; (5) prohibition on the distribution of free samples (same as for cigarettes); and (6) pre-market review requirements.

Some of these would cause significant disruption in the way new cigars are brought to market with costs of compliance ultimately passed on to consumers. While each of the six actions would cause some upheaval, experts seem to agree the requirement for FDA approval of new products would completely change the way the handmade cigar world works.

The FDA Approval Process

When finalized, the law would require every new tobacco product, including cigars, introduced after February 15, 2007, to be approved by the FDA. Products currently on the market but introduced after that date could be sold while the FDA rules on approval.

The FDA approval process has two methods to approve new products (which includes changes to existing products). Completely new products would require extreme amounts of scientific data and research, which would effectively stop new products from coming to market. The other route to approval is by proving that a new product is substantially equivalent to a product either introduced prior to February 15, 2007, or approved by the FDA since.

“Substantial equivalence” sounds like a process that should be relatively easy for approving new cigars—after all new cigars are generally just new blends of same types of tobacco that are already used in existing cigars—but the FDA approval process for cigarettes has demonstrated that it is anything but easy or quick. In fact, it’s effectively impossible. To date, the agency has only ruled on 34 products (approving 17 and rejecting 17) of the roughly 4,000 pending applications.

With hundreds of new cigars coming out every year (many thousands if each size is considered a new product) there is little reason to think the FDA approval process would do anything but effectively halt the introduction of new cigars.  The 150 or so FDA employees tasked with approvals have only managed to respond to fewer than 1 in 100 applications since 2009, and there is no extra budget for dealing with the increased applications that would come from this rule.

Option for Limited ‘Premium Cigar’ Exemption

In response to lobbying from premium cigar advocacy organizations and others (including cigar allies in Congress) the FDA proposed two options for regulating cigars. The first—opposed by cigar associations—would subject all cigars to the burdensome regulations described above, while “Option 2″ would create an exemption for cigars defined by the FDA as “Premium Cigars.”

While Cigar Rights of America and others have long promoted legislation to exempt traditional and premium cigars from FDA regulation, the definition proposed by the FDA under “Option 2″ is far more restrictive than the one contained in the “Traditional Cigar Manufacturing and Small Business Jobs Preservation Act.” The FDA deeming document proposed eight criteria (all of which must be met) in order for a cigar to meet the “Premium Cigar” exemption under this option:

(1) Is wrapped in whole tobacco leaf; (2) contains a 100 percent leaf tobacco binder; (3) contains primarily long-filler tobacco; (4) is made by combining manually the wrapper, filler, and binder; (5) has no filter, tip, or non-tobacco mouthpiece and is capped by hand; (6) has a retail price (after any discounts or coupons) of no less than $10 per cigar (adjusted, as necessary, every 2 years, effective July 1st, to account for any increases in the price of tobacco products since the last price adjustment); (7) does not have a characterizing flavor other than tobacco; and (8) weighs more than 6 pounds per 1,000 units.

Item 8 (“6 pounds per thousand”) is identical to a provision in the industry-supported legislation (and would effectively mean that a cigar four inches with a 38 ring gauge would definitely meet that criteria). Criteria 1-5 differ slightly from the legislation, which is designed to protect American jobs in the cigar industry (which allows for U.S.-made cigars to use homogenized binders as long as the wrapper is applied by hand).

Number 7, the prohibition on “characterizing flavor other than tobacco” raises significant issues. Not only would an infused cigar presumably not meet the exemption even if there is no scientific reason for excluding them, but the FDA has thus far refused to say what the definition of “characterizing flavor” is, and wouldn’t even say if aging tobacco in cedar qualifies. Given traditional techniques like barrel-aging tobacco, using betunes with wine, and newer developments like using maple or hickory in the curing process, this would surely stifle innovation in the industry.

By far the most threatening to the handmade cigar industry is item 6, which says for a cigar to meet the “Premium Cigar” exemption it must retail for $10 or more. The cigar industry has long taken the position that handmade traditional or premium cigars are about the production process, not about any arbitrary cost threshold, and there is no reason to believe that the health implications of a handmade $4 cigar are any different from a $10 one.

Estimates vary about how much of the handmade cigar market would fail to meet the $10 retail price, but a survey produced by Gary Griffith of Emilio Cigars of 26 stores in four states with varying demographics and tobacco tax rates found that only around 15% of cigars sold were above that price, while 60% of cigars sold in the $6-9.99 range and the remainder sold for less than $6.

fda-retailchart

What Now?

As of now, these are the rules the FDA has proposed; they are not yet finalized. Currently, the FDA is accepting public comments on the proposals for 75 days ending July 9, after which it will consider the public comments and likely then issue a final rule.

It will be critical that cigar smokers use the public comment period to make their voices heard, especially to advocate for an exemption for premium cigars that does not arbitrarily eliminate a significant percentage of cigars currently being sold based on a price. Otherwise, the innovation and creativity that makes the handmade cigar industry so great will come to a grinding halt.

In the coming days and weeks, we’ll have more to say about this critically important issue, including suggested points to make when you file a public comment. So please check back often and consider signing up for our free email newsletter for critical updates and reminders.

-Patrick S

photo credits: Stogie Guys /Gary Griffith

Postcards from Cigar Safari in Nicaragua (2014)

23 Apr 2014

Since returning from my latest visit to Nicaragua, I’ve shared a number of photos with you, including this article focused on Drew Estate’s expansion and quality control, and this article about “DE2.” Today I provide some of my favorite photos from the trip that weren’t included in either of those two pieces.

Drew Estate Grounds

The grounds of Drew Estate’s Estelí facility are handsomely decorated and well-appointed. Included with the vegetation and sweeping views is a Liga Privada swimming pool, a shaded canopy for dining, and a clubhouse equipped with a poker table and comfortable furniture.

DE Factory Mural

Since the last time I visited, Jesse Flores and his team in Subculture Studios have updated the massive mural that adorns the back wall of the factory. The work is characterized by hot air balloons that highlight various Drew Estate brands.

Tobacco Field

Walking the tobacco fields is a surreal experience. The whole notion of “seed to smoke” cannot be fully appreciated without visiting the sunny fields where the seeds are planted, grown, and cultivated.

Curing Barn

This was my first visit to a curing barn, the place where cultivated tobacco is hung to dry. Tobacco growers don’t ship their leaves green, and these barns are integral to that process.

Joya de Nicaragua

I hadn’t been to the Joya de Nicaragua factory since 2012. Much had changed since my last visit. For starters, the facility had undergone a renovation—both inside and out. In addition, José Blanco, instead of recently joining the company, had already left to launch a new cigar brand out of the Dominican Republic.

Nica Sueno

Drew Estate is enormous. Joya de Nicaragua is big (and steeped in tradition). Nica Sueño, the factory of Skip Martin’s RoMa Craft Tobac, is much, much smaller than either. It was interesting to visit this tiny yet formidable operation after touring larger factories.

More of my photos from this trip can be viewed here.

-Patrick A

photo credit: Stogie Guys