Months ago, the awful news was broken that the FDA had chosen to regulate premium cigars as they do cigarettes and that the new regulations would go into effect on August 8th, about two weeks from today. Despite the FDA releasing a 499-page document, there is still plenty of confusion regarding these new regulations even now. I’m going to do my best to answer some questions I’ve been getting as we approach the August 8th deadline.
So what happens August 8th/What is the August 8th deadline? – For retailers and consumers, not a lot changes on August 8th. All retailers will be obligated to hang a sheet of paper with warnings on it near their point of sale and retailers will have to card anyone who looks under the age of 27. Retailers will also no longer be allowed to give consumers free cigars without a qualifying purchase. For manufacturers, the August 8th deadline is a big deal. New cigars need to be on shelves before August 8th for a manufacturer to continue selling that cigar during the FDA approval process. Any cigars released on or after August 8th would be subject to FDA approval BEFORE they are actually released for sale.
What is the approval process and how does it work? – There are three ways a cigar can get approved under the regulations. One of them is Grandfathering. Grandfathering is the easiest path to approval and requires a cigar to be marketed before February 15th, 2007 and manufacturers would simply have to submit dated material to the FDA proving the cigar was to market before the aforementioned date.
Every other cigar would be subject to the Substantial Equivalence route to being approved. Substantial Equivalence seeks to prove that a cigar is no more harmful or different than a cigar that has been grandfathered. The FDA will have 180 days to review and approve these applications and any cigar released between February 16th, 2007 and August 7th, 2016 would be able to remain on the market during the approval process. Cigars released on or after August 8th, 2016 would have to wait for approval before the cigar could be sold.
The other route to approval is Substantial Equivalence Exemption but this is only expected to apply to blend changes and packaging changes.
Unfortunately, no one seems to know what the testing will involve. Common sense says the FDA will test for added chemicals and nicotine content but reports from the cigarette industry suggest that bizarre things like method of lighting the product may be asked.
How much will this process cost? – Unfortunately, this is unclear too. Estimates range from $20,000 to $300,000 and higher. We’ll likely know more as manufacturers submit their products for approval.
Will the cost of cigars go up? – Prices go up just about every year so it is hard to say if they’ll go up significantly. There’s a chance we’ve already seen some manufacturers preparing for this situation by raising prices earlier this year but it’s also likely that we won’t see a big price increase until there is an idea of what the cost of approval will be.
What happens if/when a cigar is not approved? – As silly as this sounds, the cigar would be considered illegal. The manufacturer would have to stop selling it to retailers and retailers would have to stop selling it to consumers or face penalties.
What happens if an “illegal” cigar is on your shelves? – We’d have to remove it or face penalties. It really isn’t clear what is supposed to happen to it after that, I’ve not found any mention of destroying or the FDA seizing cigars.
What happens if I have an “illegal” cigar in my personal humidor? – Nothing as far as I can tell. These regulations only apply to manufacturers and retailers.
Are a lot of cigars going to disappear? – It is looking very likely. I’m not fully convinced the FDA intends to approve anything and I’m fairly certain many smaller manufacturers lack the financial resources to submit their portfolios for approval. However, some manufacturers have told me it is merely a pay to play situation and they’ll pay any fees required to stay on the market. It is also worth nothing that some people have estimated that 25% of the cigars on the market will disappear while others estimate the number is somewhere between 50% and 75%.
Will your store and other stores go out of business? – No. I’m sure some stores that specialize in new or small batch cigars will need to adjust but there are enough pre-February 2007 cigars out there that humidors will remain full, albeit with cigars you might not have seen in a few year.
What’s the industry doing about these regulations? – 1502 Cigars has filed a lawsuit and the CAA, CRA, and IPCPR filed a joint lawsuit. There were petitions out there but they appear to have died. While the lawsuits attack the entire set of regulations, there are rumors afloat that the trade organizations are looking to get an injunction against the August 8th date sometime soon. I believe the most worthwhile goal would be to move the February 2007 grandfather date moved up to the August 2016 predicate date.
What are manufacturers doing and saying? – At the time that this is being written, the IPCPR trade show is going on and I’m seeing an astounding number of new and limited releases, there is a massive push to get new products on the market before August 8th, almost so much that I can’t keep up with our vendors let alone the countless others out there. The manufacturers and representatives I’ve talked to since the regulations were announced seem to be split in their opinions, some are acting like the world is ending, others are going about business as usual. The truth is that these regulations fall somewhere in between these viewpoints. While this is an end of the world situation for some manufacturers, it is not much more than an inconvenience for others. The reality is that at the end of the day everyone in this industry is a businessman and I can’t imagine there is a single person jumping for joy over products that have been on the market successfully for the last 9 or so years being removed due to poorly thought out regulations.
So there will never be any new cigars released after this two week period? – This is a tricky question because there are a number of manufacturers who have release dates set for after August 8th and some are into 2017. I’m assuming this means these cigars are on a store shelf somewhere and invoiced but I can’t say for sure. If the regulations stand as they are, it is more likely you won’t see new releases sometime after 2018 or 2019.
How does the FDA plan to enforce these regulations? – The FDA said they’d use their own personnel and contract workers to enforce these regulations in retail settings but as for the approval process for manufacturers they seem woefully under prepared or they simply underestimated how many premium cigars are currently on the market. The framework for the regulations at hand is based off the regulations placed on cigarettes a while ago and there are relatively few types of cigarettes compared to premium cigars, not to mention there are still come cigarettes on the market that should be “illegal”.