Nine Things: FDA’s Regulation of Premium Cigars Deemed Illegal

Today, Judge Amit P. Mehta of the U.S. District Court for the District of Columbia ruled that the U.S. Food & Drug Administration acted arbitrarily and capriciously when it failed to evaluate evidence when determining how to regulate premium cigars.

It’s a major ruling in a lawsuit that began six years ago this month and which could bring an end to FDA regulation of certain cigars. It will also, at the very least, lead to major delays in some of these regulations being enacted. Mehta ruled that FDA did not evaluate evidence that was submitted to the agency after it asked for it, specifically about whether certain types of cigars, i.e. premium cigars, should be regulated differently than other cigars and products like e-cigarettes. FDA claimed no evidence was submitted, Mehta ruled otherwise.

The full ruling is below.

For more information about the ruling, click here. For a more in-depth look at the most recent of oral arguments that took place in May, click here.

Now it’s time for someone who is not an attorney to answer your legal questions.

1. IN PRACTICAL TERMS, WHAT CHANGED TODAY?

Nothing.

If you look at the FDA regulations as they were announced in 2016, the parts of the rules that would apply to cigars and the companies that import and manufacturer them are as follows:

• Ban on Free Samples — Remains in effect.
• HPHC Testing — This remains on hold indefinitely due to a March 2019 announcement from FDA and the August 2020 ruling from Mehta regarding premarket review. Even without today’s ruling, FDA would need to resolve the premarket review part before it could begin dealing with this.
• Premarket Review (Also known as substantial equivalence, grandfathering and PMTA) — This remains on hold due to an August 2021 ruling by Mehta. This provision is what many believed would be the end of new cigars in 2016.
• User Fees — Remain in effect for cigars. These are fees that are assessed to companies that import cigars or manufacture them domestically. It’s a relatively minor amount of money—less than 10 cents per cigar—that is calculated using a complex system. The amount of money is set by Congress and used to fund FDA’s Center for Tobacco Products.
• Warning Labels — Invalidated by a series of 2020 court rulings.

There are other rules that apply specifically to retailers that are unaffected by today’s ruling.

2. HOW BIG OF A DEAL IS IT?

This is currently a 9/10 and it could be a 10/10.

The difference between a 9/10 and 10/10 is explained in the next two sections, but it would be difficult for this to go that much better for the cigar industry. This case has had many twists and turns since it began in 2016 and the plaintiffs in this case have argued a number of different positions before a number of different courts, but today’s ruling upheld the most fundamental argument the cigar industry has been making in court: FDA teased the cigar industry by asking for evidence about whether premium cigars should be exempt from regulation and then never seriously considered the idea.

In fairness, this isn’t surprising. The FDA’s Center for Tobacco Product’s job is to regulate tobacco products. The idea that it was going to voluntarily decide to not regulate some tobacco products was a bit asinine even if the agency is supposed to follow the science. Furthermore, FDA never wanted this version of Option 2, rather, the exemption language was added by the White House Office of Management and Budget, another executive agency that is required to approve all new regulations like the deeming regulation.

Regardless, this decision—while still a bit indecisive in the final outcome—is very clear about how a federal judge feels about what FDA did or did not do. In fact, I’m willing to bet very few people within the cigar industry could have written something as good as what Mehta did for the cigar industry.

Paragraphs like the following are unbelievably damning not just today, but damning for tomorrow:

Finally, the agency’s statement that “all cigars produce toxic cigar smoke” is exactly the sort of nonresponsive, circular reasoning the court faulted previously. See Cigar II, 436 F. Supp. 3d at 85–86. The relevant question is not whether premium cigars, like standard cigars, produce toxic cigar smoke. The FDA already knew that to be the case. See 79 Fed. Reg. at 23,143 (stating in the proposed rule, “all cigars are harmful and potentially addictive”); id. at 23,150 (same); id. at 23,151 (stating in the proposed rule, “[a]ll cigars, regardless of size, produce higher levels of carcinogenic tobacco-specific nitrosamines per gram in mainstream cigar smoke than cigarettes”); id. at 23,170 (same). Instead, the Proposed Deeming Rule asked whether premium cigar smokers used the product in a materially different way from non-premium cigar smokers and whether those potential differences might warrant a different regulatory approach. Simply reprising that “all cigars produce toxic cigar smoke,” 81 Fed. Reg. at 29,025, does nothing to respond to the commenters or otherwise develop the conversation as required by the APA.

And it’s also important to remember who Amit P. Mehta is.

He’s not a young conservative justice appointed by Trump who is likely to be skeptical of regulations. He’s an Obama appointee that has been willing to side with FDA because of what he believes the law prescribes, even if he disagreed with the agency’s approach.

3. WHAT’S THE BEST CASE SCENARIO FOR THE CIGAR INDUSTRY?

It’s that Judge Mehta vacates the deeming rule for “premium cigars.” And while I think it’s highly unlikely, I suppose the best case scenario could also include a very wide definition of “premium cigars” that would include flavored products.

This would mean that the five bullet points I mentioned in #1 would no longer apply. Quite simply, for premium cigars—however those two words are defined—it would be like Aug. 7, 2016 all over again: no more regulations for the manufacturers.

This is not like a criminal case so things like double jeopardy are not at play. This would not mean that FDA couldn’t regulate premium cigars ever again, as Congress has given them that authority. However, if FDA wanted to do this, it would have to start over from scratch, which is pretty unfathomable. I do think at some point there will be cigar regulation, but I have to imagine it would be a while and only after many other tobacco products were more or less outlawed.

4. WHAT’S THE WORST CASE SCENARIO FOR THE CIGAR INDUSTRY?

The absolute worst case scenario is that Mehta gets completely overruled by an appeals court.

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Here’s the next worst case scenario. It starts with Mehta instructing FDA to revisit the Option 2 discussion and thoroughly evaluate the evidence.

Until that review is complete—and for reasons explained below, I do not think FDA would be any rush to do this—it seems likely that the status quo would be extended. The plaintiffs would likely ask for the rest of the rules to also be placed on hold—meaning things like user fees, etc.—and that’s why this scenario gets difficult to imagine. Mehta’s ruling today seemed to indicate that not only does he believe FDA did not evaluate the evidence, but he also seems skeptical that the agency has the evidence to justify regulating premium cigars.

Here’s some emphasis I added to parts of Mehta’s decision:

The agency now tries to flip the Corey study’s findings in its favor, asserting that even if only 3.3% of premium cigar users smoke every day, that translates into approximately 120,000 adults. Defs.’ Mem. at 16. But even if it is accurate to say that there are tens of thousands of daily adult smokers of premium cigars, the FDA never explained why that number still merited deeming. Importantly, the agency never confronted Monograph 9’s finding that even daily cigar users do not exhibit a higher “all-cause” mortality rate than nonsmokers. It is a blackletter rule that “an agency cannot ignore evidence contradicting its position.” Genuine Parts Co. v. EPA, 890 F.3d 304, 312 (D.C. Cir. 2018). Yet that is precisely what occurred here.
It is not as if the court is faulting the FDA for failing to connect the dots between disparate data points; the connection was already drawn for them.

I did not go to law school, but this seems like Mehta tipping his hand a bit about his current thoughts.

In order for the worst case scenario to take place, FDA would then need to prove to Mehta that it actually has the evidence to deem and Mehta would need to rule in FDA’s favor. That would seem like a dramatic reversal of the 19-page decision that came out today and it’s a scenario that’s challenging to see happening given the next two topics.

5. HOW MOTIVATED WILL FDA BE TO KEEP FIGHTING THIS?

FDA doesn’t pay the Department of Justice to defend itself and it’s the government—it cannot run out of money. It won’t be surprising to see the Department of Justice appeal the ruling because that’s just what you do here. But the Department of Justice filing an appeal is very different than what would be required in order for the next worst case scenario to happen.

Update: FDA and DOJ collaborate on their legal efforts, it would be wrong to say that FDA could “make” DOJ appeal.

In order for that to happen, FDA would need to do a lot of work and that would be asking it do a lot of work at the same time it is focused on much bigger tobacco targets with much more impactful action:

• It is still dealing with trying to fully enact its regulations for e-cigarettes and vaping products. For example, it will need to see Juul in court.
• It is in the process of trying to ban menthol cigarettes.
• It is in the in the process of trying to ban flavored cigars.
• It is in the early stages of trying to impose nicotine limits for cigarettes.

These are larger issues, more complex issues and issues that people care about a lot more than whether or not a company named Padrón needs to test its products with the government. Not only do the anti-tobacco folks care a lot more about these issues, the pro-tobacco people are going to invest a lot more resources into fighting those things than the premium cigar industry.

While a lot has changed since January 2020 when FDA stated this, the agency has also said that the types of cigars being discussed in this case are its lowest priority:

FDA’s lowest priority among these products will include relatively expensive, large hand-rolled cigars that do not have flavors (e.g., fruit, candy, or mint), given what FDA understands to be their comparatively lower youth usage rates.

6A. HOW MOTIVATED WILL MEHTA BE TO KEEP THIS GOING?

I did not go to law school, but I’ve been told that federal judges do not typically enjoy having six-year-old cases on their docket.

From pretty early on, it was apparent that Judge Mehta—who regularly appears in news stories about cases he hears regarding the Jan. 6 invasion of the Capitol—is very smart and understands the cigar issues quite well. Even acknowledging the aforementioned time he ruled for FDA while writing that what the agency did “smacks of basic unfairness,” I do not think he’s going to be particularly motivated to keep letting FDA come in front of his court.

I think this would be a lot easier to justify if Mehta thought FDA had evidence that could justify regulating premium cigars, but it seems clear that he is at best skeptical about said evidence. Finally, I think this would be different if Mehta believed this was a top priority for FDA, but like I said, he’s very smart and knows the issues quite well—he knows that FDA is more than likely to drag its feet continuing to evaluate this issue. In fact, in May, the Department of Justice was unable to provide Mehta with an update to how FDA’s August 2020-mandated review of streamlined premium cigars was going, he inevitably knows this will be more of the same.

6B. IS THERE ANY CHANCE MEHTA DOESN’T DECIDE THIS?

Patrick Lagreid asked me this and there are plenty of ways that Mehta could end up not being the one to decide this.

The most likely case would be that he decides the case one way and an appeals court overrules him. There’s also a scenario where he could leave the bench for any number of reasons, but he’s not even 55-years-old, so it seems rather unlikely.

7. West Virgina et al. v. Environmental Protection Agency et al.

Last week the Supreme Court ruled 6-3 against the EPA in a case that most legal analysts believe will have major effects on the ability for executive agencies like FDA to create and enforce rules. In short, the Supreme Court ruled that executive agencies need explicit directions from Congress to create new rules. This will no doubt have an effect on FDA and the future of tobacco regulation.

Obviously, it will be curious to see how this decision gets interpreted going forward, but if explicit congressional intent is required going forward, justifying premium cigar regulation is going to be an uphill battle.

In my mind: if you are Judge Mehta, keeping this case ongoing by not vacating the rule for premium cigars means you could keep this alive, only for the cigar industry to go to a higher court and have all of your work thrown out. Obviously, that’s what you sign up to be a judge on a bench other than the Supreme Court, but the timing of the EPA decision has to be in the back of people’s heads.

8. THE DEFINITION OF “PREMIUM CIGARS”

While I still think the most important question is whether Mehta strikes the whole rule or sends it back to FDA, there’s another major question for the cigar industry: what gets to be a premium cigar?

In August 2020, Mehta signed off on an FDA-proposed definition of “premium cigar,” one that was different from the 2014 deeming regulations. The way that definition came to be is convoluted and it would have been curious to see if Mehta would have allowed more discussion on the matter if it had not been a last-minute decision. Here’s what FDA proposed and Mehta enacted in regards to whether a cigar must go through the premarket approval as of August 2020.

A premium cigar must meet the following characteristics:

1. is wrapped in whole tobacco leaf;
2. contains a 100 percent leaf tobacco binder;
3. contains at least 50 percent (of the filler by weight) long filler tobacco (i.e., whole tobacco leaves that run the length of the cigar);
4. is handmade or hand rolled (i.e., no machinery was used apart from simple tools, such as scissors to cut the tobacco prior to rolling);
5. has no filter, nontobacco tip, or nontobacco mouthpiece;
6. does not have a characterizing flavor other than tobacco;
7. contains only tobacco, water, and vegetable gum with no other ingredients or additives;
8. and weighs more than 6 pounds per 1,000 units.

This definition more or less covers everything sold in a retail humidor with the notable exception of flavored cigars and to a lesser degree, there are probably some cigarillos sold in tins that will not qualify.

As part of that ruling, Mehta required FDA to study the issue of “premium cigar” regulation further, which it is still in the process of doing. As part of that process, FDA requested the National Academy of Sciences, Engineering, and Medicine (NASEM) to study “premium cigars.” That report, which was published in May, further looked at how to define a “premium cigar,” though it didn’t resolve the issue.

Now, Mehta opens the door back up to a question of what a “premium cigar” is and the cigar industry is going to have different thoughts about the matter, specifically about the flavored piece.

For most cigar retailers and certainly for cigar companies like Drew Estate, Miami Cigar & Co.,—and to a lesser degree Rocky Patel, Davidoff, General Cigar Co. and others—getting flavored cigars included in the definition would be a massive win. However, for many companies, getting flavored cigars included creates an even larger target for FDA to go back and regulate the issue all over again.

Furthermore, this is not a new decisive issue for the cigar industry.

Sources close to Cigar Rights of America have been adamant that the most recent piece litigation bill from Michael Edney, the lead attorney for the litigation, was funded entirely by Cigar Rights of America and its member companies. For the Cigar Association of America, it’s likely that its members were unwilling to substantially fund a lawsuit that would not allow for the protection of flavored cigars, which admittedly makes sense. It particularly makes sense in a world where CRA was willing to fund it all on its own.

In fact, you can trace the division that led to Altadis U.S.A., Davidoff of Geneva USA, Drew Estate and General Cigar Co. all not exhibiting at this week’s PCA Convention & Trade Show all the way back to a 2018 FDA ANPRM about how to regulate premium cigars and what constitutes a “premium cigar.”

As I write this from a casino, if I was making a bet, I don’t think flavored cigars will end up being part of this definition but I’ve certainly been wrong before.

9. HOW LONG WILL THIS TAKE TO DECIDE?

Like I said, I have been wrong before.

Sources told me they expected today’s decision to come down at the end of the year and not this early. The two sides need to brief Mehta by July 26, 2022 though that date could get pushed back.

Update (July 21, 2022) — On July 20, Michael Edney, the lead attorney for the cigar industry requested and was granted an extension for the briefs. They are now due before Aug. 2, 2022.

If I’m going to keep reading too much into today’s decision, the best inference is that Mehta wants this resolved quickly.

Update (July 19, 2022) — Clarified that CAA chose not to pay Michael Edney, the lead attorney in the litigation, not that the CAA didn’t fund any part of the litigation.