The Stogie Guys

Yesterday both Cigar Rights of America (CRA) and the International Premium Cigar and Pipe Retailers Association (IPCPR) issued email alerts announcing that the pending FDA cigar regulations took another step towards final implementation. As we’ve covered previously, such regulations could 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.

According to the reports, the FDA has officially sent the latest version of the deeming rule on cigars to the Office of Management and Budget (OMB) at the White House for economic review. The controversial rules not only would subject cigars and pipes to FDA regulation, but also the growing line up of e-cigarette and vaping products.

OMB has 90 days from receiving the proposed rule to conduct its review before it goes to final implementation. According to CRA, the OMB may have received the rule from FDA up to a month ago, meaning that the 90-day maximum time period could end before 2016.

CRA and IPCPR will both now direct lobbying efforts to OMB, which is charged with examining the economic impact of proposed FDA rules. The groups and their lobbyists will attempt to show the potentially devastating economic impact that 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.

Also, although unlikely, with such a hot-button topic, if the modifications requested by OMB are significant enough, they may not go to final review, but could instead be sent back to the FDA. Experts familiar with the federal rule-making process indicate that if the revisions are large enough, it could even trigger a second round of public commenting before returning to the OMB for another final review, which could delay the process significantly.

–Patrick S

photo credits: Stogie Guys

Yesterday, the House Appropriations Committee took an important first step toward fixing one of the most outrageous aspects of the proposed rules to regulate cigars under the Food and Drug Administration (FDA).

The appropriations bill passed the Committee yesterday for next year’s funding of the FDA, included a funding rider to stop the FDA from retroactively regulating cigars and other tobacco products introduced since February 2007. Under the legislative fix, the new date existing products would be grandfathered in as exempt from the costly and difficult FDA pre-approval process would change from February 15, 2007 to the date (likely later this year) when the proposed regulations are finalized.

While cigars introduced after the FDA’s cigar regulations go into effect would still be subject to FDA approval before being marketed or sold—a process that likely would take months or years and could cost an estimated $400,000 per each new cigar blend and size—the change would be a significant improvement from the current situation. Absent any change, under current law, most or every cigar introduced since February 15, 2007 would be subject to the FDA pre-approval process, with the likely impact of permanently making illegal most cigars introduced in the past eight years.

The key language in the appropriations bill still has a long way to go before becoming law. Having successfully passed the House Committee, including surviving an amendment vote 23-26 to strip the FDA regulation date change out of the bill, the bill now goes to the House floor for passage.

If it passes the House, the next step would be a companion bill from the Senate Appropriations Committee. There, Kansas Senator Moran, a co-sponsor of the Traditional Cigar Manufacturing and Small Business Jobs Preservation Act, is chairman of the subcommittee with oversight over the FDA and could be key to ensuring the language eliminating the February 2007 date is included in the Senate bill.

If such language passes out of the full Senate Appropriations Committee, next step would be the full Senate, after which the bill would go to President Obama’s desk to be signed into law or vetoed.

Analysis

With the Traditional Cigar Manufacturing and Small Business Jobs Preservation Act seemingly stalled for the immediate future, this is a significant and serious attempt to address the devastating impact of the proposed FDA regulations. Still, it faces  major challenges, not the least of which is the fact that the proposed FDA regulations could become finalized any day now—before any appropriations bills are passed.

According to an agenda issued last year, the deadline for the FDA regulations was June 2015, and in Senate testimony in March FDA Commissioner Margaret Hamburg reiterated that now-passed goal. In addition to time constraints, two other issues complicate the process significantly.

First, while cigar industry representatives work to protect cigars from the damaging impact of the regulations, the elephant in the room is e-cigarettes. A large part of the agitation for these regulations by anti-tobacco activists is because the deeming rule would effectively ban e-cigarettes and vaping devices—which they view, almost certainly incorrectly, as having negative public health implications.

While, in theory, new cigars could be approved by the FDA as “substantially equivalent” to grandfathered cigars, the e-cigarette industry was almost nonexistent in February 2007, meaning approval of e-cigarettes and other vaping products would be even more difficult than the already arduous process that new cigars would face. This hardens the anti-tobacco opposition to a change in the cutoff for grandfathered tobacco products, but it also means the growing e-cigarette industry could be a key ally for cigars in pushing for a change.

The second complication has nothing to do with specific issues of tobacco regulation but is the often dysfunctional federal budget process. While the system is set up for 12 appropriations bills, frequently budget showdowns due to fiscal deadlines lead to continuing budget resolutions and omnibus spending bills that combine various appropriation bills into one large spending bill. To ease passage, appropriations riders, like the one on FDA regulation approved yesterday by the House Appropriations Committee, can get stripped out of the final bill, especially if leadership doesn’t make their inclusion a priority.

Ultimately, while this rider can alleviate some of the damage FDA regulation of cigars will cause, it doesn’t fix the larger issue: The vibrant handmade cigar industry will come to a screeching halt if new cigars are forced to go through an FDA approval process that takes months (or years) and cost hundreds of thousands of dollars. To fix this bigger problem, cigar smokers must work towards passage of the Traditional Cigar Manufacturing and Small Business Jobs Preservation Act to remove the FDA’s authorization to regulate handmade cigars.

–Patrick S

photo credit: Best Price Cigars

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).

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

Reading about the recently approved $1.1 trillion federal spending bill, it was hard not to wonder where cigars were. After all, the bill was larded with special provisions on topics from Army boots to cow manure.

It sure would have been nice if someone could have slipped in the provision barring the Food & Drug Administration’s (FDA) proposed regulation of premium cigars that’s been bouncing around Capitol Hill for several years.

I talked to George Cecala in the office of U.S. Rep. Bill Posey, the Floridian who’s a leader in pushing the bill. Cecala told me they tried before to get it into other legislation, and for those not directly involved in the process of assembling the bill, it wasn’t easy to get anything in.

Not that cigars were ignored altogether. A Cigar Rights of America (CRA) press release Wednesday highlighted what it called a “direct message being conveyed from the U.S. Congress to the FDA that premium cigars should not be regulated.”

It came, CRA reported, in the House Appropriations Committee’s funding report for the FDA: “…the Committee notes that FDA is considering excluding premium cigars from the scope of this proposed rule… The Committee believes this could be a viable solution, given that the Family Smoking Prevention and Tobacco Control Act makes little mention of cigars throughout the legislation, and there is even less evidence that Congress intended to focus on the unique subset of premium cigars.”

Unfortunately, I’m not optimistic about the impact. We know already that the reason the FDA included the exemption option in the first place was because the White House Office of Management and Budget forced it in. As Reuters reported in June: “…OMB turned the FDA’s proposal as it relates to cigars from a two-part rule—one for traditional tobacco products and one for products that have not previously been regulated—into a ‘two-option’ rule, one of which would exempt ‘premium cigars.’”

CRA also noted that while the spending language was “a positive step forward… it does not eliminate the need for an unambiguous Congressional exemption for premium cigars.”

As the FDA continues its review, those like Posey and the CRA say they’re not relenting in their push to remove the threat of FDA oversight. The plan is to reintroduce the legislation in the 114th Congress after it convenes next month.

If you haven’t already done so, there’s no better time to write your representative and senators to let them know you support excluding premium cigars from FDA regulation.

–George E

photo credit: Stogie Guys

Finalized FDA rules for regulating cigars are many months away, but they still hang over the industry like the Sword of Damocles.

It’s safe to say that looming FDA regulation is encouraging industry consolidation. The risk involved in developing new cigar lines is no longer just that consumers won’t buy enough of your cigars at a price where you can turn a profit.

The bigger risk now is the government might render your product illegal, or at least subject it to an incredibly burdensome, lengthy, and expensive approval process. So if you don’t want to bet the house on the FDA rules not being overly burdensome, now is the time to sell.

Surely impending regulation isn’t the only reason the Toraño and Leccia Tobacco lines were acquired by General Cigar, but it had to have been a factor. I’ve heard Toraño has had success with its value-oriented lines Brigade and Loyal. These are the lines most likely to be hit by FDA rules, even if they include a more reasonable price exemption than originally proposed.

Sam Leccia was critical in developing innovative cigars like Nub and Cain for Oliva, before splitting with the company in a legal spat that went ugly. His new cigars included Leccia Black, which was one of the first cigars to sport fire-cured tobacco. The problem is, under an FDA approval regime, innovation is a risk that would make potential approvals more difficult. (Whether the use of fire-cured tobacco would count as a characterizing flavor under proposed FDA rules is an open question.) And the less money you have for scientists, lawyers, and lobbyists to push a new product through the approval process, the bigger the risk it is.

Which brings us back to General Cigar and other large companies (Altadis USA, Davidoff) who might be buyers. While they all oppose FDA regulation and would likely feel its bottom-line effects, large companies are nearly always better able to adapt to government regulation than their smaller competitors. (Sadly, this is why cigarette giant Phillip Morris broke from the rest of the industry to back FDA tobacco regulations to begin with.)

With the rumor mill churning about other possible consolidations, it’s fair to ask if this is positive or negative for the industry. While initial reactions to a smaller company being bought by a larger one are usually negative, I’d argue on a whole the results have been good.

Perhaps counter-intuitively, cigar industry consolidation has often led to more competition. Large companies have every reason to continue and maintain popular brands they shell out big bucks for. While frequently the seller would use the proceeds to launch a new, smaller, and more niche company (think Ernesto Perez-Carrillo or Christian Eiroa) as their non-compete agreement runs out.

What’s worrisome to me is not that more small companies may be bought by larger ones. Rather, the concern is the talent being bought out may not choose to reinvest in the cigar industry because of FDA rules that favor big companies.

–Patrick S

photo credit: Wikipedia

The deadline for submitting comments on the FDA’s proposed cigar regulations is Friday, August 8 (tomorrow). If you haven’t yet registered your opinion to help protect handmade cigars, please do so. (See our tip for what to tell the FDA here.)

As you might expect, here at StogieGuys.com we’re registering our comment, and we wanted to share with you what we told the FDA:

We strongly oppose the FDA extending its jurisdiction as proposed in the Deeming Document, and specifically oppose any attempt by the FDA to regulate handmade cigars. However, if the FDA moves forward with the regulations proposed in the deeming document, it should employ the exemption proposed under Option 2, with the following changes: (1) any reference to cigar pricing ($10 or otherwise) should be eliminated from the definition of cigars exempt under Option 2, and (2) the requirement that cigars not have characterizing flavors should be eliminated.

In support of this position, we submit the following points:

Cigars are fundamentally different from cigarettes and most other types of tobacco.

As the Publisher and Editor-in-Chief, respectively, of StogieGuys.com we have been writing about handmade cigars since 2006 and have published thousands of articles and over 750 reviews of handmade cigars. The very nature of our site shows why FDA regulation of handmade, or “premium,” cigars is unwarranted.

A similar site about cigarettes would never exist and could not generate the readership that our site has because cigarettes are a nicotine delivery device, while cigars are a handmade product which exists completely independent of its ability—or more realistically, relative lack of ability—to deliver nicotine. What makes certain cigars good or bad has nothing to do with the nicotine content, and everything to do with the skill that went into making and blending them.

For a person seeking to fulfill their addiction or desire for nicotine, handmade cigars will always be an unappealing and irrational way to attempt to fulfill that desire.  This is particularly true for minors (for whom purchasing tobacco products are already illegal) because they will always have more access to other tobacco products, and will always find that there are easier ways to obtain nicotine through products that are already approved under existing tobacco regulations.

The FDA should not extend authority at all, and certainly not to handmade cigars, because it lacks the ability to do so.

The FDA, like all government agencies, has a limited budget (our national debt is currently increasing at over $2 billion every day), which is why the real question the FDA should be evaluating is not “Should the FDA should regulate cigars?” but “Should the FDA divert resources from its other activities, including existing tobacco regulations, to regulate cigars?” The answer clearly is no.

The FDA has not shown it has the capacity to carry out its existing tobacco regulations. Of the thousands of new products waiting for approval, only a few dozen have been ruled on so far. This demonstrates the FDA does not have the capacity to extend its regulations to handmade cigars. The FDA is specifically not authorized by Congress to ban cigars or other types of tobacco, and given the inability to handle existing pending approvals, expanding jurisdiction to handmade cigars would result in a de facto ban on new cigars because the agency has not demonstrated the ability to approve additional tobacco products at all, let alone in a timely fashion.

Given that Congress mandated that the FDA regulate cigarettes, but left it up to the agency’s discretion whether or not to regulate cigars, the FDA should respect the priorities of Congress and not add cigars to its already overwhelmed regulatory jurisdiction. This is compounded by the number of new cigar products that are introduced every year. While there is no reason to believe that new cigars are at all different in their impact on public health (new products are almost entirely made by changing the blend and ratio of tobaccos used in existing products) every year hundreds or even thousands (if new sizes are each considered a new product) of new cigars are introduced. This would overwhelm existing FDA product approvals and make it more difficult for the agency to fulfill its core mission of regulating cigarettes.

If the FDA erroneously chooses to regulate cigars, it should adopt a premium handmade cigar exemption that doesn’t rely on an arbitrary price, or flavor distinctions.

In the Deeming Document the FDA proposes Option 2, which includes an exemption for premium cigars. This is an important realization of the fact that premium handmade cigars do not pose the same public health concerns that cigarettes do. However, the arbitrary and unscientific $10 price floor should be abandoned.

Simply put, there is no scientific or public health reason for the exemption to rely on a $10 retail price, and the FDA has never demonstrated that one exists. Furthermore, the arbitrary price point doesn’t reflect any reality of the handmade cigar industry. If the FDA insists on a price-based definition of handmade or premium cigars, it should look to Congress to draw the line. To the extent Congress has drawn such a line, it did so in the SCHIP tax rates, which decided to limit taxes to the first 40.26 cents of the wholesale price per cigar. More importantly, any definition that includes production techniques will make it impossible to produce a cigar below a certain price, which sets an organic, as opposed to an arbitrary, price definition.

“Flavored” or infused cigars also represent an arbitrary and unscientific differentiation that should be rejected. No evidence that we know of, or has been presented by the FDA, demonstrates that these cigars pose any additional public health risks.

For these reasons, if the FDA intends to base its regulations on scientific evidence and not on arbitrary standards, it should reject any definition of premium or handmade cigars that includes flavor or a price, while it adopts an exemption for premium handmade cigars.

FDA regulations on premium cigars will cost jobs, both domestically and abroad.

It should also not go unnoticed that aside from the dubious public health justifications for regulating handmade cigars, there are significant human costs to such regulations. Thousands of jobs within the United States would be put at risk if the FDA regulates handmade cigars as proposed, and tens of thousands of individuals in developing countries (particularly the Dominican Republic, Nicaragua, and Honduras) would lose one of their best opportunities for a good job.

The burdens that proposed FDA regulations pose to small businesses—whether cigar shops in this country or cigar factories abroad—would have a huge costs and eliminate countless jobs, especially in places where good jobs are very hard to find. So while regulating cigars would accomplish little if anything in regards to public health here in the United States, it would effectively doom tens of thousands of people to worse lives. Any calculus for public health should not ignore this serious impact.

The FDA should focus on existing regulations, not expanding new regulations to handmade cigars.

Given the existing backload of tobacco products waiting for a ruling from the FDA, it is clear that the agency lacks the resources to regulate cigars. Because diverting limited resources to regulating cigars means less resources for other FDA activities—specifically other tobacco regulations—regulating handmade cigars is not only unnecessary but actually detrimental to the FDA’s public health goals. To the extent there is any doubt on this issue, the FDA should defer any decision on regulating cigars to a later date after it proves capable of fulfilling its existing mandate to regulate cigarettes and other types of tobacco that can have a substantial impact on public health.

As handmade cigar smokers and experts writing about the industry daily since 2006, it is abundantly clear to us that handmade cigars are inherently different from other tobacco products. In proposing an exemption for premium cigars it did just that, but it did so in a clumsy and arbitrary way. If the FDA is serious about fulfilling its Congressionally-authorized mandate, it should not expand its regulations to include handmade cigars. However, if the FDA insists on expanding oversight it should adopt a broad exemption for handmade premium cigars that does not include a characterizing flavor or arbitrary price definition.

Failure to take these suggestions into consideration will make clear to cigar smokers and the premium tobacco industry that the FDA is less interested in public health and more concerned with stifling cigar innovation, eliminating cigar-related jobs, increasing the costs of cigars, and limiting the ability of consenting adults to enjoy premium cigars.

–The Stogie Guys

photo credit: Stogie Guys

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