Court Filings Indicate Premium Cigar Companies Have Paid More than $100 Million in User Fees

In a filing sent to an appeals court on Wednesday, an attorney for the Department of Justice (DOJ) suggested that premium cigar companies have paid more than $100 million to the FDA in user fees.

The filing was sent to clear up points raised at the end of a hearing last Friday before the U.S. Court of Appeals for the District of Columbia as part of the Cigar Association of America et al. v. United States Food and Drug Administration et al. lawsuit. This is the eight-year-old lawsuit filed by three cigar trade groups that resulted in major victories during the summers of 2022 and 2023. After an August 2023 ruling that vacated the FDA’s 2016 deeming regulations for “premium cigars,” the DOJ appealed, which led to last week’s court hearing.

During that hearing, questions were raised about user fees, which are fees paid by cigar companies and others to fund the FDA’s Center for Tobacco Products (CTP). The basic idea is that the general public shouldn’t have to pay for regulations, instead, those costs should be paid by tobacco companies and their customers.

The user fee system is somewhat complicated, mainly because it is set by Congress and not by FDA itself. The total amount of user fees is set each year—for FY2024, it is $712 million—which is divided up between various tobacco segments. The exact amounts are based on the percentage of each product class—cigarettes, cigars, etc.—paid in excise taxes during the previous year and then divided amongst the various companies making said products. The exact amount a company owes is based on how many products that company imported in the previous year. The user fees themselves are paid quarterly.

Cigarettes—still the dominant tobacco product category—account for more than 83 percent of user fees in FY2024, around $148.7 million per quarter. The cigar category—which includes both premium and mass market cigars—is projected to pay $25.5 million per quarter.

For the most part, companies say these fees amount to roughly 5-10 cents per cigar.

The judges were curious how their ruling might impact user fees, specifically whether or not any companies had requested to have previously paid user fees refunded. The thinking in favor of a refund is that if FDA shouldn’t have been regulating these products to begin with, these companies shouldn’t have had to pay this money and therefore it should be refunded.

It’s unclear how this process would work, as it apparently would mean that CTP would need to refund more than $100 million paid from 2016-2023. There’s a question of whether FDA would then go after companies in the other product categories to make up the difference or if the money would come from somewhere else. Michael Edney—the attorney representing the plaintiffs in the lawsuit—told the court that he believed that matter was for a different court to decide. Lindsey Powell of the DOJ said she was unaware of any companies asking for refunds.

Last September, shortly after FDA lost the court, it informed premium cigar companies that it would no longer collect user fees beginning in Q4 FY2023.

While relatively minor on a per cigar basis, the user fees have been a particular annoyance for many premium cigar companies. Some of that is because other, more stringent regulations have been on hold.

The user fee system is also a source of frustration for FDA and other tobacco product categories. Because the user fees are set by Congress, FDA is unable to adjust the details of how it collects them. Since 2016, the agency has been unable to assess user fees to e-cigarettes and vaping companies despite the fact that these are likely the largest drain on CTP manpower. Furthermore, the amount of yearly user fees has been frozen for the last few years. Earlier this month, FDA asked members of Congress to rewrite the user fee schedule to both increase the total amount CTP collects and also to allow the agency to collect user fees from e-cigarette and vaping companies.

Charlie Minato

I am an editor and co-founder of halfwheel.com/Rueda Media, LLC. I previously co-founded and published TheCigarFeed, one of the two predecessors of halfwheel. I have written about the cigar industry for more than a decade, covering everything from product launches to regulation to M&A. In addition, I handle a lot of the behind-the-scenes stuff here at halfwheel. I enjoy playing tennis, watching boxing, falling asleep to the Le Mans 24, wearing sweatshirts year-round and eating gyros. echte liebe.