Last year, I said it was hard to believe it was the fourth iteration of this annual column. It’s even harder to believe this is year five, but it’s December again. The premise is simple: 10 questions I have for the cigar industry for the following year. Last year we added a Graded column in which Patrick Lagreid looked at the previous column and provided an analysis of how the questions played out. Patrick and I also tried to avoid having questions repeat in consecutive years, something that definitely made this column more interesting.
1. HOW WILL THE FDA DECIDE TO REGULATE PREMIUM CIGARS?
While it’s important to point out that nearly everyone who claimed to be “in the know” seemed pretty far off about what the FDA initially announced as part of the Deeming Regulations, our best sources continue to tell us they expect the first announcement regarding finalized plans to be announced during the summer of 2015 at the earliest.
There’s a lot at stake in the deeming regulations, arguably this site. The outlook from the premium cigar industry has been a mixed bag of full-on freaking out to something that resembles the definition of ignorance[ref]The state of ignoring.[/ref]—but the reality is simple, every one of the next nine questions, as well as anything related to premium cigars, rests on the outcome of what FDA decides.
2. WILL THIS BE THE YEAR THE IPCPR TRADE SHOW GETS DRAMATIC CHANGES?
It’s everyone’s favorite thing to complain about, and it’s probably not getting better for 2015.
Complaints regarding the annual IPCPR Convention & Trade Show have been rampant for years, but of late the choir moaning about sluggish attendance has added a new verse: the growing cost. Absent some miracle, I have a hard time seeing how hosting the trade show in New Orleans will help the attendance issue and the cost of the show is unlikely to be substantially different.
While the IPCPR took its time to find a new ceo, the move to hire Mark Pursell—someone who oversaw a trade show with over 75,000 attendees—was a very good one. It will be interesting to see what changes, if any, Pursell plans for the New Orleans trade show or if he will wait until the 2016 show in Las Vegas to try to calm the complaints of manufacturers. Given the problems that were apparent the last time the trade show was in New Orleans and the complaints from this past year in Las Vegas, it hopefully will be time to rethink the show.
3. WHAT HAPPENS TO STG?
In August, it became known that Scandinavian Tobacco Group (STG), the company that owns and operates General Cigar Co.,[ref]General is the largest cigar company in the U.S. with brands like Macanudo, Cohiba, CAO, Partagas and La Gloria Cubana. In addition, STG owns Cigars International and the associated Cigar.com store.[/ref] was preparing for major corporate changes. Swedish Match, which owns 49 percent of STG, was planning on divesting its stake and STG would be holding a public offering, likely in early 2015.
Shortly after those plans for the offering were made public, General acquired the Toraño brands and added Sam Leccia to its staff. Within a month, Anders Colding Friis, STG’s ceo, announced he would be leaving in March 2015, which at the time seemed likely to delay the public offering. Then came a report that numerous private equity firms were looking at acquiring STG with first round bids due on Dec. 18 and a valuation believed to be around $2 billion.
There were big plans for General in the U.S. in 2015. Sources told halfwheel that Cigars International was eying opening a retail store in Texas and there has been rampant speculation that General was close to purchasing E.P. Carrillo. Multiple sources have told halfwheel everything is now on hold, likely due to the interest from private equity firms. Texas retailers are taking a bit of a breath and E.P. Carrillo is moving on, expected to announce a new national sales manager in the coming weeks.
4. WILL CRAFT BEER & COCKTAILS HELP INFUSED CIGARS?
Flavored cigars have always stumped me. Cigar smokers seem to like cocktails, many love beer brewed with all sorts of added ingredients and I don’t see many pictures of unseasoned chicken on Instagram, but when it comes to cigars, most of our readership seems adamantly opposed to any additional flavoring. There are people that smoke “regular” cigars and people that smoke flavored cigars and not a whole lot that do both.
Part of that might be the marketing of flavored premium cigars, but it seems like that’s changing. Asylum introduced a cigar that was infused by aging in barrels used to make a stout beer and a new sweet-tipped cigar. Drew Estate recently announced a private label that is made for pairing with certain styles of beer, as well as a cigar in partnership with the famed bourbon brand Pappy Van Winkle.
While none of these moves were radical, there does seem to be some momentum—even extending back to 2013 with fire-cured tobacco—in terms of trying to get consumers of traditional cigars to try something different.
5. WILL THE CHANGES IN CUBA SLOW DOWN?
While there was one big announcement regarding Cuba, in reality, little has immediately changed for cigar smokers. Getting into the country legally requires some hoops to jump through, but is still doable for most. Bringing back cigars is now legal but only up to $100 worth and only from Cuba[ref]That means roughly 10 cigars depending on the brand[/ref] and bringing Cuban cigars back from any other country remains just as easy and just as illegal, as does buying them online.
Politically, it’s hard to believe that the embargo will be lifted within the next two years and until that happens, buying and selling Cuban cigars at U.S. retailers will remain illegal. Even suspending the enforcement of embargo would likely have little effect given that importers would need to pay federal SCHIP taxes on a product that is illegal.
While the groundwork for serious change is being laid, Habanos S.A. itself is going through some pretty big changes that will likely have much more of an immediate effect. This year marked the release of a 58 ring gauge Cohiba, the thickest production release for Cuba cigars, and the launch of the Añejados series seems to show that Cuba understands at least some of the problems with its cigars. Whether you like big ring gauges or not, Habanos S.A. modernizing with the American market is a welcome change, but what’s next?
6. WILL RAÍCES CUBANAS (FINALLY) GET ITS ACT TOGETHER?
If this sounds familiar, it’s because it is.
Less than three years ago, the Honduran factory seemed to be the factory. Yet months later, I included “Paging Raíces Cubanas” in my Ten Questions editorial and two years later, I think things have gotten worse.
There’s no question that around 18 months ago the cigars coming out of Raíces Cubanas stopped having as many issues as they were in 2012, but with Illusione moving its Corojo and Maduro production to TABSA and Viaje flirting with other factories, you have to wonder how much longer brand owners will put up with whatever is going on at Raíces.
In my mind, some of the greatest cigars of the last five years have come from the factory, unfortunately, none in the last couple years.
7. WHERE DO NICHOLAS MELILLO & STEVE SAKA END UP?
Before anyone has any ideas, it almost certainly won’t be together.
The two former Drew Estate executive team members have their own followings and their owns plans to remain the cigar business, something that will almost certainly become known next year. Saka’s non-compete will expire over the summer and it’s pretty clear that he will probably be more than a consumer sooner rather than later. What remains to be seen is whether he will go out on his own or decide to do another stay in a company’s c-suite.
Melillo is another interesting story given his background is almost exclusively in production. He’s been working as a consultant for the last few months, but it’s likely that he will move onto something a bit more permanent in 2015. Like Saka, the largest question is whether he will go out on his own or join another company.
8. WHAT HAPPENS TO NEBRASKA NOW?
Soon, there will be two states where smoking in cigar retailers will be illegal. While Washington’s laws have been on the books for some time, the decision made by the Nebraska Supreme Court isn’t yet in effect. Furthermore, Nebraska has outlawed smoking in any place of business, while in Washington you have to be on a tribal reservation to light up.
No court in another state will likely be able look at what Nebraska did and try to implement it. Furthermore, it was not that the court ruled that smoking was unconstitutional per se, rather, that the Nebraska constitution forbids exemptions that favor one business over another, so exempting tobacco retailers from the state’s smoking ban was not okay. But don’t think a few anti-smoking politicians won’t take note and use this as another example of where outlawing smoking in all businesses “worked.”
Neither Nebraska, nor Washington are particularly large markets for cigars and while Washington’s cigar retailers have survived, adapted and are working at changing the law, it’s hard to imagine just how a store—particularly in the winter—could survive in Nebraska without offering their patrons a place to smoke.
9. WILL XIKAR GET SOME SERIOUS COMPETITION?
JetLine is doing an admirable job making value-priced lighters and S.T. Dupont still makes some incredible products at the opposite end of the price spectrum, but when it comes to mid-level lighters and cutters, XIKAR seems to have less and less competition. While Colibri made some decent products this year, its most notable was a $1,250 humidor produced in collaboration with Daniel Marshall, and its signature new lighter and cutter release for the year looked all too familiar to certain XIKAR products.
Palió, who once had a loyal following, has pretty much fallen off the face of the earth as far as most of 2014 is concerned. It go so bad, Toraño stopped distributing Palió because it simply couldn’t get product.
XIKAR makes some great products, and no, they aren’t all perfect, but the company does a phenomenal job with its service and warranty. It also appears to have less competition than anyone in the cigar industry outside of Boveda. There are plenty of other companies: Lotus, Vector, even Prometheus—but none seem remotely interested in trying to compete in brick and mortars and none had years that would lead you to believe they could be threatening XIKAR.
It would be great for everyone, including XIKAR, to see some legitimate competition, but another year like 2014 could put that even further out of reach.
10. WHERE IS CUBANACAN THIS TIME NEXT YEAR?
If there’s one company that invokes uneasiness from retailers I talk to, it’s Cubanacan.
Hiring Spence Drake was a smart move and he quickly made some hires that many applauded. But “quickly” is probably an understatement with Cubanacan; it’s clearly swinging for the fences. The company formerly known as Mederos possesses a portfolio with existing lines many had not heard of prior to this year’s trade show and one big piece of eye candy in the form of the HR Habano.
It’s still early into the Hirochi Robaina tour and even retailers that have not bought in at a level that will bring the grandson of the legendary Cuban grower to the store have told me the product moved pretty well in the opening weeks for a relatively unheard of $20 cigar, but it’s still early, very early.
Cubanacan is the most interesting company to me at the moment, not necessarily because of what they have done or are doing, but that they could go in any direction from here and it wouldn’t be all that surprising. Cubanacan wants to be big, or at least BIGGER, and the swinging for the fences strategy seems to have worked okay as of now, but it’s hard to imagine that it will be as effective for another 12 months.