FDA Informs Premium Cigar Companies of Updated User Fee Process Following Lawsuit

Last month, the premium cigar industry won a seven-year-old lawsuit against the U.S. Food & Drug Administration (FDA) and the agency’s deeming regulations. The outcome of Cigar Association of America et al. v. United States Food and Drug Administration et al. means that the deeming regulations do not apply to cigars that meet a definition of “premium cigar,” largely any cigar sold in a retail humidor with the exception of flavored cigars.

As part of this decision, that means the agency’s user fees will no longer be applied to premium cigars. User fees are payments made by cigar companies and importers that are paid to FDA to fund the Center for Tobacco Products, i.e. the regulated products pay for the regulation.

The total amount of user fees—in FY23, it’s $712 million—is set by Congress. Companies that import or manufacture one of six product categories—cigarettes, roll-your-own, snuff, chewing tobacco, cigars and pipe tobacco—are assessed the user fees and the individual shares are calculated based on the excise taxes paid on each product compared to the total amount of excise taxes paid by all products.

FDA has informed cigar companies and distributors that it does not intend—barring further relief—to assess user fees for “premium cigars” for FY23 Q4. However, some complications make this a less than straightforward process. This is mostly because FDA has no idea whether a cigar company is selling premium cigars, non-premium cigars or a mixture of both. For example, FDA does not know how many cigars Drew Estate sold that meet the definition of “premium” compared to the number of infused cigars, products that would not meet the definition.

As such, FDA is asking companies to submit a dispute letter within 45 days of the assessment of user fees. It is allowing companies to either pay the full amount of assessed user fees, with the intent of getting a refund for any user fees assessed to premium cigars, or to pay what a company believes it will owe for the non-premium cigars.

The agency says it will introduce a better process for determining premium vs. non-premium cigars for user fee estimates going forward, but has not announced that mechanism.

Technically, the Department of Justice has up to 60 days to file an appeal to the Aug. 9 ruling.

Notably, the letter makes no mention of whether the agency plans on refunding user fees paid for premium cigars between August 2016-FY23 Q2.