In a document accompanying the proposed deeming regulations, the U.S. Food & Drug Administration (FDA) made estimations about the potential impact of proposed regulation and the various variables to that regulation—numbers that for the cigar industry could be startling.
The FDA estimates that between 10 and 50 percent of the cigars on the market today will exit the market after the proposed regulation due to the increased costs.1
It may not be profitable for firms to bear the per-product costs of this proposed rule for the large number of products that currently exist. The market for handmade cigars is characterized by a very large number of relatively low volume products. Some domestic producers may cease to sell their products domestically or discontinue some products. Foreign producers may cease selling their products to the US or reduce the number of distinct products they sell in the US. To account for this, under Option 1, we assume that 50 to 90 percent of handmade cigar products will continue to be marketed in the U.S. The wide range reflects uncertainty in the extent of product consolidation and exit that would occur.
1Economic Impact Analysis of FDA Regulations: Deeming Tobacco Products to be Subject to the Food, Drug, and Cosmetic Act, as Amended by the Family Smoking Prevention and Tobacco Control Act; Regulations Restricting the Sale and Distribution of Tobacco Products and Required Warning Statements for Tobacco Product Packages and Advertisements, 36.
Earlier today we launched halfwheel.com/fda, a micro-site dedicated to the proposed deeming regulations that examines issues like this and more.