The Stogie Guys

We’ll be at the IPCPR Trade Show again this year (which opens Saturday), and you can expect us to get the latest and greatest from all the cigar makers you know. But there will also be cigar companies there that you’ve probably never heard of.

Today we look at two such companies that will be making their first appearance at the annual convention. Every year there are new companies. Some don’t last while others become the next buzz-worthy up-and-coming venture. These two companies, for reasons explained below, seem to have a good chance of being around for a while:

Royal Gold Cigars

Whether you’ve heard of Royal Gold or not, you’ve almost certainly heard of their parent company, Swisher, whose machine-made cigars are behind the cash register at almost every gas station and drug store in the country. While Swisher has tried their hand at the premium handmade cigar market before, this time the plan is different. Instead of investing in their own factories (as they did until about a decade ago) they are contracting some of the biggest names to produce cigars for them.

And they’ve lined up some impressive cigar makers for their introductory releases, which they are marketing as “affordable by all” and all reportedly under $8.50. Casino Gold HRS (High Roller Selection) is made by the Placencias in Honduras. Kismet is made by Augusto Reyes Sr. and Jr. in the Dominican Republic. Nirvana is being produced at Drew Estate in Nicaragua. Gold Strike is an inexpensive mixed filler cigar rolled in Nicaragua and blended by Omar Ortez (of Altadis) and Carol Jean Llaneza (daughter of legendary cigar man Frank Llaneza).

With Swisher’s backing, Royal Gold is perhaps the most interesting development in cigars in the last year. Deep pockets mean the company can afford to be patient (even lose money in the short-term) if it means long-term growth and profits. And by all reports, by bringing in Alex Goldman, Swisher has chosen a respected industry veteran to head the operation.

Sindicato Cigars

Officially launched in January, but formalized at last year’s convention, Sindicato is a new company founded by a group of veteran retailers. The group starts with a customer base that’s the envy of any new cigar company, with “a group of 45 retailers” participating according to Abe Dababneh, Chairman of Sindicato.

Heading up those retailers, as evidenced by SEC filings from last October, is Dababneh (of Smoke Inn based in West Palm Beach), Dan Jenuwine (of Quality Fresh Cigars in Michigan), Gary Pesh (of Old Virginia Tobacco in Virginia), Robert Roth (of Nice Ash Cigars in New York and Pennsylvania) and Jeff Borysiewicz (Corona Cigar Company in Orlando). Their stores alone would be top targets for any new cigar line looking for quality retailers.

According to its press releases, Sindicato was founded when “a group of passionate, cigar-loving tobacconists decided to extend their cigar knowledge and experience into making cigar brands. Their goal is to create a cigar company whose mission is to put the tobacco retailer and its customers first.” They followed up the formation announcement by selecting Jim Colucci, formerly Executive VP of Sales & Marketing for Altadis USA, as President and CEO. Sindicato will have a booth at the IPCPR Trade Show and, according to Dababneh, “debut smokes” will be available.

–Patrick S

photo credit: Royal Gold/Sindicato

Every year, cigar companies create many new lines. (You could argue there are too many new cigars and not enough attention to older lines.) The plethora of new cigars means cigar makers register a lot of trademarks in order to protect their brand names once they are released.

Those same trademark registrations give us a hint of what new blends companies may be releasing, especially with the IPCPR Trade Show taking place next month. Of course, many will never turn into anything, but others will become flagship brands. Take a look at this 2010 article about trademark registrations and you’ll see Drew Estate’s Undercrown and Alec Bradley’s American Classic long before the cigars ever were released.

Some trademarks are pretty obvious as to who the owner is. For example, “Flor de Antillas Sun Grown” or “Prohibition by Rocky Patel.” Others are seemingly random.

So to have a little fun, here’s a quick eight-question quiz to see if you can guess who registered which trademark. You’ll find the answers on the last page.

In the comments, let us know which trademark names you are most excited about possibly becoming a new cigar.

–Patrick S

photo credit: Stogie Guys

As you’ve no doubt seen if you’ve been following StogieGuys.com on Facebook, Twitter, or Instagram over the past week, I was fortunate enough to participate in Drew Estate’s Cigar Safari in Estelí for the second straight year.

Like last year, I want to thank all the fine folks at Drew Estate and Joya de Nicaragua for showing us an amazing time on the incredible trip, especially Jonathan Drew, Steve Saka, Willy Herrera, Juan Martínez, José Blanco, Mario Perez, Pedro Gomez, and Johnny Brooke.

I’ll share my specific thoughts on some exciting new developments from Drew Estate and Joya in the coming days but, first, I wanted to share some photos from my trip.

Drew Estate recently finished a new mural that greets visitors on Cigar Safari. You can see the old mural here.

We visited La Finca de Joya, a tobacco farm owned by Oliva Tobacco that supplies tobacco to Drew Estate and others. This field, with tobacco as far as the eye can see, is actually on the small size. One acre produces anywhere from 1,800 to 2,400 pounds of filler tobacco.

Steve Saka discusses the process of curing tobacco inside a curing barn. The process removes moisture from the leaves as the color changes from green to brown by controlling temperature and humidity. While the technique may vary, it usually takes around six weeks. Even the relatively small curing barn we visited can hold $150,000 worth of tobacco when full. (more…)

As early as today the Senate is set to pass a bill to impose state and local sales tax on all internet purchases, including cigars. Named the “Marketplace Fairness Act” by its supporters, the bill would require internet and mail-order retailers to collect sales tax on all transactions.

Currently, such purchases include state sales tax if the retailer has a physical presence in the state where the customer resides, but a Supreme Court ruling prohibits a state or locality from requiring businesses in other jurisdictions to collect such taxes. Technically, consumers may be required to self-report such taxable items, but the reality is only a fraction of those taxes are actually collected.

The bill easily passed a procedural hurdle yesterday, and President Obama has issued a statement of support. The bill has moved through the usually slow-moving Senate at breakneck speed, as it was only introduced one week ago while the nation’s attention was focused on the tragic attack in Boston. It’s expected to pass the Senate as soon as today, although it’s not clear if it has the support of a majority of legislators in the House or, critically, Republican House leadership.

Critics suggest the bill is “a tax grab and a bureaucratic nightmare…an infringement on states’ rights and a federal encroachment on the almost-sacred ground of Internet commerce.” While that all may be true, the bill poses a special threat to cigars due to the fact that 48 out of 50 states tax cigars with an additional excise tax.

Bill Could Trigger State Cigar Tax Increases, Online and Off

Currently only Florida and Pennsylvania don’t have an additional excise tax on cigars (and New Hampshire doesn’t tax “premium cigars”), with over a dozen states taxing cigars at 50% or more of the wholesale or manufacturer price (pdf), which amount to a few dollars per cigar. Given the vast differences in excise taxes, it is no surprise that most of the largest online and catalog retailers are based in Pennsylvania or Florida, including Cigars International, Famous Smoke Shop, and Thompson Cigar.

One cigar industry expert I spoke with estimated that as much as 60% of all cigars are now sold either online or through mail order, and that states would quickly move to force online retailers to collect cigar excise taxes in addition to regular sales taxes. The issue has largely gone under the radar since cigars (as part of the “Other Tobacco Products” or OTP designation) are one of only a handful of products that are subject to state excise tax and are sold online. (Tires, through online retailers such as TireRack.com, and wine, depending on state shipping rules, are two other examples of goods subject to state excise taxes that are often sold online.)

While it’s not clear that online retailers would immediately be subject to excise tax in the same way that they would be for sales tax in the jurisdiction of the customer under the internet sales tax legislation, the bill does appear to clear the legal hurdle to doing so. Under one scenario, states could start demanding that out-of-state retailers begin collecting state tobacco taxes almost immediately, claiming that they are now authorized to do so. Under another scenario, if states faced resistance, it would not be difficult for legislatures to re-brand their excise taxes as a special sales tax.

That result would have implications beyond just online and catalog cigar purchases. Currently, one of the best reasons for not raising state OTP excise taxes is that a high tax rate is likely to drive sales online, eliminating tax revenues and pushing purchases away from local businesses. Without states worried about driving sales to untaxed, out-of-state businesses under the so-called “Marketplace Fairness Act,” OTP tobacco tax increases may soon multiply across the country as fiscally strained states look for more revenue.

Further, unlike across-the-board sales tax increases which anger wide swaths of voters, targeted tax increases on cigar smokers only affect a small percentage of voters, making them an especially easy target.

–Patrick S

photo credit: Stogie Guys

President Obama’s budget may be two months late, but cigar smokers may be wishing it was even later. The president’s budget, announced Wednesday, proposes nearly doubling taxes on all types of tobacco products.

The budget includes a 94-cent-per-pack increase in the cigarette tax and would index the tax rate to inflation so it automatically increases over time. A pack of cigarettes is already taxed $1.01. Rates for “other tobacco products”—a federal designation that includes cigars—would increase by the same proportion.

In 2009, as one of his first moves in office, Obama signed into law the State Children’s Health Insurance Program (SCHIP) tobacco tax increase, which raised cigarette taxes from 39 cents to $1.04 and raised the cap on cigars from 5 cents to 40 cents. SCHIP was the largest single tobacco tax increase in history, but the new Obama budget would top it.

The result would be that most cigars would increase 37 cents in cost. For a box of 25 cigars, that’s an increase of over $9.  Some less expensive cigars would increase less, but the percentage tax increase could actually be larger.

Fortunately for cigar smokers, most political observers consider the proposed budget dead on arrival in Congress. Still, the budget is a starting point for negotiations, and more importantly stands as a value statement for the president, who says the tobacco tax revenues would go towards early education spending.

Critics noted that the taxes would hurt small businesses and eliminate jobs. “For specialty tobacco stores that sell primarily tobacco and tobacco-related products, a sales decline greater than what occurred in 2009 to 2010 would be destructive to their businesses and result in store closures and employees losing their jobs,” observed Tom Briant, executive director of the National Association of Tobacco Outlets.

In addition, analysts note that not only will the tax increase be passed on to smokers, but over time retailers and manufacturers may end up marking up the increase along with the rest of the wholesale price, resulting in even higher price increases for consumers. Under that scenario, the price of a box of premium cigars could increase by almost $20.

–Patrick S

photo credit: Stogie Guys

On the heels of a state judge blocking Michael Bloomberg’s ban on large sugary drinks, the New York City mayor is re-focusing his consternation on tobacco. He announced this week plans to prevent stores from displaying tobacco products.

“The proposed law would ‘prohibit display of tobacco products’ in most retail shops, Bloomberg said. ‘Such displays suggest smoking is a normal activity and invite young people to experiment with tobacco.’ He said it would be the first of its kind in the nation,” according to NBC News.

Cigar Rights of America followed Bloomberg’s announcement with an email alert, providing additional details: “Under the new legislation, sellers would be required to keep tobacco products out of sight, except during a purchase by an adult consumer or during restocking. Tobacco products would be required to be kept in cabinets, drawers, under the counter, behind a curtain, or in any other concealed location.”

In a second bill, Bloomberg is proposing to stiffen the penalties for tobacco tax evasion, outlaw tobacco coupons or discounts, and impose a price floor and packaging restrictions on cigarettes and little cigars.

StogieGuys.com Analysis

On the surface, these moves by Bloomberg don’t seem to pose grave threats for premium handmade cigars, which are sold mainly through tobacco shops and online (both would be exempt from the display restrictions). But Bloomberg’s actions should nonetheless be closely watched by cigar enthusiasts for two important reasons.

First and foremost, it’s easy to see how display restrictions on tobacco could be a slippery slope that would eventually dismantle cigar shops. At the federal level, there is already some danger of this via the impending regulations that are expected from the FDA, which has newfound authority over tobacco. Don’t underestimate the zealotry of the anti-tobacco movement; despite the fact that tobacco is legal and already heavily taxed and regulated, the movement’s ultimate goal is the outright criminalization of tobacco.

Second, Bloomberg sees New York City as a pioneer of health policies that can be exported to other cities and states, and he believes he has a far-reaching mandate to protect consenting adults from themselves. Remember, in addition to New York’s indoor smoking bans, it is also illegal to smoke outdoors in city parks or sell flavored tobacco. Bloomberg would like to see these policies in your neck of the woods, too. Sort of like New York being a shining beacon of nanny statism for the rest of the country.

–Patrick A

photo credit: Flickr

Jacob Grier (writer, cocktail expert, cigar smoker, and a friend of this site) has a must-read article at The Atlantic‘s website about the FDA’s approval process, or lack thereof, for new tobacco products. Essentially, the FDA is supposed to be “regulating” cigarettes but instead is blocking all new products from reaching the market.

The article describes the impossible delays and bureaucratic hurdles (over 1,000 new products are pending review but none have been approved) thrown up by the FDA under it’s authority under the Tobacco Control Act of 2009, particularly the story of Hestia Tobacco, which tried for over a year to get FDA approval for a new organic cigarette. And while the focus of the article is on cigarettes, a careful reading of Grier’s piece contains some grave warnings for cigars.

Repeatedly during the story Hestia Tobacco founder David Sley describes attempt after attempt at getting a straightforward answer from the FDA, only to be stymied repeatedly. One passage in particular, regarding aging tobacco in cedar, has important implications for cigars:

Also in October 2011, Sley asked whether his plan to age tobacco in cedar, a common practice in the cigar industry, would violate the Tobacco Control Act’s ban on characterizing flavors. David Ashley, director of the Office of Science at the FDA’s Center for Tobacco Products, replied by merely quoting the statute without clarification. Despite multiple follow-ups, Sley still has not received an answer. In an interview in February, Ashley said that he had not thought about the question. A spokesperson for the FDA has declined any further comment on the issue.

It wouldn’t be a stretch to estimate that the vast majority of handmade cigars are “aged” in cedar in one way or another (think cedar-lined aging rooms, cedar cigar boxes, and cedar sleeves) because cedar’s qualities (especially Spanish cedar) make it ideal for storing cigars. That means that a ruling by the FDA that aging tobacco in cedar violates statutory language against “characterizing flavors” could be one step away from a near total ban on cigars.

And every indication is that other step is only weeks away. As the article notes, the FDA plans to introduce its first rules on cigars by April. Many have speculated that this could include an extension to cigars of the flavor ban that makes flavored cigarettes (other than menthol) illegal. A group of Senators even tried to mandate such a flavored cigar ban last year by attaching it to an appropriations bill.

With the FDA unwilling (after being asked multiple times over the course of 17 months) to foreclose cedar aging being a violation of the flavor ban that is central to the FDA’s tobacco regulatory regime, the coming FDA rules on cigars could leave the FDA dangerously close to banning very common practices fundamental to the creation of the premium handmade cigars you smoke.

–Patrick S

photo credit: EPC