Archive | News RSS feed for this section

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

19 May 2015

3070604531_79c8e14ff1_o

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

Fdaprotect

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

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