Cigar smokers, your attention now turns to OMB.
Late Tuesday night, the House of Representatives unveiled the Consolidated Appropriations Act, 2016 (PDF), better known as the appropriations or omnibus bill. Included was over $1.1 trillion of funding, not included was any language that would help the premium cigar industry avoid regulation by the U.S. Food & Drug Administration (FDA).
Last week, it became known that language had been included in a working version of the bill that would have prevented FDA from regulating premium cigars. At the time it was understood that the exemption was being considered in a working version of the bill, but the closed door nature of how the massive omnibus appropriations bill was being debated meant there was no way of knowing whether the language would make the final version.
It did not.
This particular exemption for premium cigars would have been a massive win for the industry because unlike other potential exemptions and grandfather clauses, the definition for “premium cigar” was much broader than what is being considered by FDA.
In short, cigars would have been exempted regardless of flavoring, price and/or whether they were entirely long filler. It also would have likely been friendly towards the few U.S.-based cigar rolling operations still around, something not included in other proposed exemptions.
Also not found in the bill was language that would have moved the date FDA will use to exempt tobacco products from its control.
Under FDA regulation, products introduced after Feb. 15, 2007 would be subject to approval. While this would be costly and time-consuming, new products would have to receive approval before entering the market, potentially shutting out limited edition products as well as smaller cigar companies.
In July, the U.S. House Appropriations Committee passed language that would have pushed that 2007 date to the future date in which FDA rules are enacted. This would have grandfathered in thousands of cigars, as well as dozens of newer companies.
That language would have applied to all deemed tobacco products, notably the e-cigarette and vapor industries where it would have had much greater impact than the cigar industry. The two changes were some of the more than 150 policy riders–add-ons to bills–that were removed during negations of the ultimately 2,009-page spending bill.
A disagreement exists amongst cigar industry officials involved in the legislative process about which rider had a better chance of passing and when each rider was removed.
According to Joe Augustus, svp of global affairs, government relations for Swisher International, an agreement had been reached between large tobacco corporations like Altria, R.J. Reynolds and Swisher International (which owns Drew Estate) in support of the predicate date change.
Augustus says those larger companies warned organizations like the International Premium Cigar & Pipe Retailers Association (IPCPR) that pushing for the exemption put the date change rider in jeopardy.
He described the exemption as having no chance of surviving and said that the pleas for phone calls–a strategy implemented by the IPCPR and Cigar Rights of America (CRA)–actually caused the rider to be removed.
Augustus says that Speaker Paul Ryan, R-Wis., made a decision on Monday to remove both riders after returning home and learning from his staff about the hundreds of phone calls that had been made in support. In short, Augustus says Ryan didn’t want to have to make concessions to Democrats for the FDA-related riders.
Kip Talley, senior director of legislative affairs for IPCPR, confirmed to halfwheel that his group was informed of the objections from Swisher and others, but ultimately believed that the exemption would have a better chance of passing due to it being less controversial to Democrats than the date change, which also would have affected e-cigarettes.
According to Augustus, the exemption was never being seriously considered.
“I can tell you from within my sources within the three leadership offices (Rep. Ryan, House Majority Leader Kevin McCarthy and Senate Majority Leader Mitch McConnell) that it was never a discussion that they had, nor was it adiscussion with McConnell,” Augustus told halfwheel.
In a statement, Mark Pursell, ceo of IPCPR, blamed “heavy lobbying by anti-tobacco health groups, a group of Senate Democrats” for the failed efforts.
This notion is disputed by Talley—who said his sources told him it was being considered until “the 11th hour,” i.e. Tuesday evening—something confirmed as well by Glynn Loope, executive director of CRA.
“If we are going to have honest, candid discussions about why this did not happen, it’s because of the opposition within Congress of e-cigarettes and (support for) regulations,” said Loope.
Loope said like the IPCPR, his organization was aware of the objections from large tobacco companies, but that his advisors told CRA that now was the right time for a consumer-oriented campaign that would show broader support for the exemption amongst regular consumers.
Paul DiNino, a consultant for CRA, provided his own insights.
“I received a voice mail from a senior Senate leadership (Democrat) staffer commending the premium cigar industry for being one of the final items on the table as Omnibus discussions were concluded,” said DiNino. “He noted that our tiny industry had much greater staying power than the deep-pocketed opposing interests.”
According to DiNino, another staffer told him that it was challenging for the premium cigar exemption to be viewed independently of the e-cigarette issue.
While the disagreement between large tobacco companies and those only involved within premium cigars mirrors some of those reminiscent of the negations over SCHIP, there are a few differences.
Both sides were in support of the predicate date change; their differences were over which strategy would have produced the best results. Few companies have as much at stake in the fight as Swisher, which purchased Drew Estate just last year.
Still, Augustus described the situation as throwing a Hail Mary instead of going for a field goal.
Now, the attention turns to the White House Office of Management and Budget (OMB), where the proposed FDA regulations are being reviewed before they are published, one of the final steps before the rules go into effect.
In 2009, Congress passed the Family Smoking Prevention and Tobacco Control Act which gave FDA authority to regulate any product derived from tobacco. Last April, 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.
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 documented 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 be 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 marketed 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, FDA 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.
Last month, following an alleged leak of the proposed document, 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.
The OMB review oftentimes takes longer than the 90 days allotted, but a finalized version of the deeming regulations is expected early next year, or even late this year.
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.
The hope now is that OMB can do something Congress could not: see its cigar exemption materialize.
For more information about the potential regulation of premium cigars by FDA, please visit halfwheel.com/fda.