The day has come.
Later today, the U.S. Food & Drug Administration (FDA) is expected to announced its finalized rule regarding deemed tobacco products, i.e., how the organization wishes to regulate cigars, e-cigarettes, pipe tobacco and other tobacco products.
Yesterday, multiple sources directly involved with lobbying efforts informed halfwheel they believed the organization would make an announcement regarding the rules today. A reporter for Bloomberg has now indicated that announcement will be made at 10:30 a.m. EDT by Sylvia Burwell, the secretary of health and human services.
FDA has finalized final tobacco rule allowing it to regulate e-cigarettes; HHS Secretary Burwell expected to announce at 10:30 a.m.
— Cheryl Bolen (@cherylbolen) May 5, 2016
In 2009, Congress passed the Family Smoking Prevention and Tobacco Control Act which gave FDA authority to regulate any product derived from tobacco. In Aril 2014, FDA unveiled its preliminary plans for regulation of cigars, pipe tobacco, e-cigarettes and vapor products, hookah and shisha and tobacco gels. In it, FDA proposed two different paths of regulation for cigars.
Under Option 1, cigars of all shapes and sizes would be regulated like any of the other products mentioned in the deeming regulation. This would mean that products being marketed prior to Feb. 15, 2007 would be grandfathered in—subject to almost no regulation—while products marketed after the 2007 date would need FDA approval to remain on the market.
In this scenario, most cigar makers would likely apply under a substantial equivalence doctrine. In short, cigar makers would argue that their products did not pose any greater health risk than already approved products, including grandfathered products. For example, Arturo Fuente could potentially argue that its post-2007 Casa Cuba poses no greater than risk than the Hemingway line, which would be grandfathered in under the regulations.
To date, FDA has neither announced the cost of the application, nor how it planned on responding to the flood of new applications in a timely manner.
FDA’s own estimates indicate that as much as 50 percent of the cigars on shelves today would need to be removed because the added regulation and costs under Option 1.
The April 2014 document carved out another path, Option 2.
This would establish a new definition of “premium cigar” which included a minimum $10 price, no additive flavors and a requirement they primarily contain long filler tobacco, amongst others. Those cigars which could meet all eight requirements would be exempted from FDA regulation. This exemption was not related to any market date and would work in tandem with the grandfather clause.
In other words, Padrón’s 3000 Series would be grandfathered in because it was being marketed prior to Feb. 15, 2007, while the company’s Family Reserve Series would be exempted because it would meet all eight requirements.
When it unveiled the proposed deeming regulations, held a comment period which allowed people to voice their opinions about how it should regulation premium cigars amongst a myriad of other issues. It has spent much of the last year reviewing those comments and applying the feedback garnered from those comments to the finalized version of those regulations.
In November, following an alleged leak, FDA issued a statement announcing that it had submitted the proposed deeming document to the OMB on Oct. 19. This started a 90-day period for OMB to review the FDA document and make changes based on costs and potential economic impact.
Those 90 days have now come and gone without any real update.
Fortunately for the cigar industry, OMB has been one place where the premium cigar industry has found a sympathetic ear.
OMB actually changed the original FDA proposed prior to its April 2014 publishing to include Option 2 as a full exemption. While the alleged leaked document showed an index that would indicate FDA choose the harsher Option 1, that was widely expected by many insiders who then hoped OMB would overrule FDA.
More recently, language to both exempt premium cigars from FDA regulation, as well as as change the grandfather date to when the rules were enacted, was passed by the House Appropriations Committee as part of the FY2017 Agriculture Appropriations Bill. Sources have told halfwheel they do not expected the bill to be voted on until later this year.
A harsh ruling by FDA would certainly galvanize efforts in congress to pass one or both changes included in the appropriations bill, but it’s unclear how successful either piece of language will be surviving a complicated legislative process that likely means a combined omnibus bill.
For more information on the potential regulation of premium cigars by FDA, visit halfwheel.com/fda.