What has been considered a nightmare scenario for the cigar industry has come to fruition, the FDA has chosen Option 1 and will regulate premium cigars like cigarettes. Barring any injunctions by the courts or Congress, the new regulations will go into effect August 9th of this year. Before I discuss the ramifications of these near prohibition regulations, I’d like to give you all a little background on what got us to this point.
In 2009, Congress passed the Family Smoking Prevention and Tobacco Control Act, giving the FDA power to regulate any product derived from tobacco. As a result, premium cigars and pipe tobacco got lumped into the same category as e-cig, vape, and hookah shisha.
In April 2014, the FDA put forth two different plans on how they may regulate premium cigars. Option 1, our reality now, sought to treat cigars like cigarettes, requiring extra warning labels and a lengthy and costly approval process. Option 2 sought to define and exempt what a premium cigar is by establishing construction, pricing, and weight guidelines. Option 2 was by no means perfect but it agreed upon by most to be the far better option.
Yesterday, the guillotine finally fell and the decision to go with Option 1 was announced. This was a shock not only to me, but to many around the industry. I think it would be safe to say that most of us were expecting Option 2. What you really want to know is what kind of impact this is going to have on the industry and on you as a consumer and I’m going to do my best to explain what’s likely going to happen.
The most damaging part of these new regulations is the approval process and little is known about it at this point. What we do know is:
1.) Any cigar released before February 15, 2007 will be grandfathered in and will not have to undergo any blend approval process.
2.) Any cigar on the market between February 16th, 2007 and August 8th, 2016 will have roughly two years to stay on the market while applying for and undergoing the approval process.
3.) Any cigar released on or after August 9th, 2016 will be subject to an approval process before it is allowed to market.
What does all of this mean? Well here’s where it gets kind of cloudy because we don’t know what this approval process entails, how much it will cost manufacturers, or how long it will take. There’s also the more controversial side of this and that is how is a cigar released on February 14th, 2007 any different than a cigar released on February 16th, 2007?
As for some more solid info, likely 50%-75% of every retail selection in America will not be grandfathered in, meaning that if the companies don’t apply for the approval process and pass it in the two year grace period, many cigars you love that have been released in the last nine years will cease to exist. It’s also estimated that the regulations put some 35,000 American jobs at risk and put roughly 300,000 jobs across the Caribbean and Central America at risk. These regulations will not only effect local economies here in the States but may also devastate the economies of the Dominican Republic, Honduras, and Nicaragua.
The only thing we can do right now is speculate and I will share with you what I’ve been hearing about this approval process. Like I said above, it’s hard to say what will happen without knowing a cost of the approval process and what it will entail. Rocky Patel himself has said that by the research that has been done that the approval process could cost between $300,000 and $400,000 per blend, so introducing three new blends could cost $1.2 million. And the approval process is not guaranteed. Even after spending all the money to get into the approval process a blend could be denied. We just don’t know at this point. If the approval process costs as much as Rocky says, then it will be safe to say that after August 8th, new cigar releases will be few and far between. Conversely, the craft beer industry is thriving despite having to have nearly every label approved by a government office. So we’ll see what happens as we find out more about this process.
It’s a scary proposition though. If everything plays out as a “worst case scenario” the cigar industry we know today will cease to exist on August 9th. We’d likely see the death of many smaller companies we’ve grown to love and an end to seasonal and limited releases.
Another damaging part of these regulations is the banning of free samples. As I understand it manufacturers will no loner be able to provide free samples to consumers and retailers will be banned from giving samples to customers. This could signal the end of events and cigar festivals as we know them. It is unclear at this time if manufacturers are barred from giving samples to retailers to try. If this is banned too, any new products released will have to be blindly bought by retailers.
Probably the least damaging part of these regulations are the packaging changes. Manufacturers will now be required cover 30% of cigar boxes in warning labels. Not really that big of a deal.
So we just covered a lot of doom and gloom, but there are rays of hope that something can change in the next 90 or so days.
There’s no doubt that just about every manufacturer is filing a law suit or has filed a law suit against the FDA by now. There’s no way to tell what kind of success this will have especially since Congress passed the act that allowed this kind of overreach. Even if the courts do not throw anything out, any injunction needs to be in place on or before August 8th, before the regulations go into effect.
The other route here is actually through Congress. Currently in the Appropriations Bill for FY2017 is language to exempt premium cigars and to change the grandfather date. To have either or be included and passed in the final Appropriations Bill would be huge. Unfortunately, Speaker Ryan has said he doesn’t have the votes to pass the bill as is and, again, the bill would have to be passed on or before that August 8th date.
Obviously, defining a premium cigar and exempting them from FDA regulation would be ideal, nothing would really change and business as usual would continue, but this might be wishful thinking and this language could be used as a bargaining chip. The language to change the predicate or grandfather date likely has a better chance of being included in the final bill. While this isn’t the best option, it at least wouldn’t drive many small companies out of business and would just make it harder for new cigars to be introduced to market.
So let’s do a quick recap of these regulations:
- All cigars introduced before February 15th, 2007 will be grandfathered in and not subject to FDA approval.
- Cigars introduced between February 16th, 2007 and August 8th, 2016 will be allowed to stay on the market for two years. During this time manufacturers must apply for the approval process and pass it to continue selling any cigar not grandfathered in or remove their cigar from the market after the grace period.
- Any cigar to be released after August 9th, 2016 will need to be approved by the FDA before it goes to market.
- It is unclear what the approval process is or how much it will cost.
- There will be a ban on manufacturer to consumer and retailer to consumer free samples.
There are a few things I haven’t touched on, namely flavored cigars, Cuban cigars, and what these regulations do no effect.
As for flavored cigars, they will continued to be sold. I’m not sure what will be grandfathered in and what won’t but, for now, you will be able to buy Acid, CAO Flavors, and others. However, the FDA is seeking to introduce regulations that would prevent any new flavored cigars from being released. So right now it is unclear if anything released after that February 15th, 2007 date will even be approved.
Cuban cigars are screwed for lack of a better word. They will be subject to the full approval process if the embargo is ever lifted since they haven’t been on the US market in quite some time and will be considered new blends.
There are a few things that are not effected by the regulations though. Internet sales will continue, walk-in humidors are still allowed, and you can still smoke in cigar lounges barring any state or local laws.
You may be feeling rather helpless by now and you’re not alone, most of the industry is but you can still take action. If you haven’t already, please take the time to join the Cigar Rights of America or at least use their resources to contact your Congressman and Senators and urge them to make sure the exemption language and predicate date language are included in the latest Appropriations Bill. The fight is far from over and you can still do your part.