Today, the U.S. Food and Drug Administration (FDA) released its “deeming document,” a roadmap of how it plans to regulate tobacco products it currently does not, largely focusing on e-cigarettes and cigars. If approved, the FDA will essentially require these products to meet similar standards as cigarettes and chewing tobacco, including the disclosure of ingredients, registration and approval of products, warning labels, restrictions of free samples and others.
However, the premium cigar industry might receive a large break in the form of exemption. There are two plans laid out by the FDA, “option one” includes premium cigars under its authority; the other—option two—would exclude premium cigars, potentially allowing for the industry to operate how it does today.
A 75-day comment period will begin tomorrow. Members of the public are asked to submit their thoughts on how the FDA should proceed. This includes solving the question of whether premium cigars should be exempted, and secondly deciding what a “premium cigar” actually is.
The deeming document preliminarily defines a premium cigar as meeting eight requirements, each of which the FDA is asking for comment on regarding whether its definitions would be effective and appropriate.
The proposed requirements are:
- Is wrapped in whole tobacco leaf;
- Contains a 100 percent leaf tobacco binder;
- Contains primarily long filler tobacco;
- Is made by combining manually the wrapper, filler, and binder;
- Has no filter, tip, or non-tobacco mouthpiece and is capped by hand;
- Has a retail price (after any discounts or coupons) of no less than $10 per cigar (adjusted, as necessary, every 2 years, effective July 1st, to account for any increases in the price of tobacco products since the last price adjustment);
- Does not have a characterizing flavor other than tobacco; and
- Weighs more than 6 pounds per 1000 units.
Any product that does not meet all eight requirements would be subject to FDA regulation even if it is decided the organizations will exempt premium cigars under the current proposed language.
Three of these requirements are likely to be contested by the premium cigar industry.
First, the $10 retail price point would be one that will be focused on the most as it would not cover the majority of cigars sold at retail in today’s market. It would also create an issue where some cigars sold at retail would be subject to regulation, while others would not solely because of price. It remains unclear how the FDA could expect a $10 churchill to not be a public health concern, while a $9 toro in the same line would be.
In the deeming document, the FDA asks for the public to submit comment on the issues, specifically:
Is it appropriate to include the $10 price point in differentiating “premium” cigars from other cigars? Please provide any data or information that supports the selection of a $10 price point or, if you believe a different price point is more appropriate, that supports the selection of that price point.
The second issue regards point number seven, a flavor component. The FDA made it clear that the deeming document does not present any language that would ban flavored tobacco products outright, however, the exemption as worded now would mean that flavored cigars would be subject to FDA authority regardless of price, substantially increasing the price of the cigars as manufacturers would have to go through a costly FDA approval process, which is detailed below.
Finally, the weight requirement could affect some smaller cigars like petit coronas, even if the rest of the vitolas in a particular line are deemed outside of its authority.
The 75-day public comment period will go until July 9, public testimony can be submitted here.
Organizations like the International Premium Cigar and Pipe Retailers Association (IPCPR), Cigar Rights of America (CRA) and Cigar Association of America are expected to issue talking points to its members in the coming days.
It could also be the case that additional requirements be proposed; the deeming document discusses a potential restriction regarding how many units are made per day. It admits that this would be challenging to enforce as most premium cigars are not made in the U.S.
For the cigar industry, option two—particularly one with changes to price, weight and a flavor requirement—is already a step in the right direction. Premium cigars were specifically mentioned in the deeming document as an area where the threat to public health is minimal and as such, the FDA’s regulation of the category might not be necessary.
The other option is a much different story.
Under option one premium cigars would be subject to a host of new regulations, the most damaging of which would be compliance-related.
The industry would have two years until after the regulations go into effect in order to submit approval for all products introduced to the market after Feb. 15, 2007, the grandfather date established in the document. Manufacturers would have to prove that any product introduced to the market after Feb. 15, 2007 is not a further threat to public health; or that it is not different to products grandfathered in, and as such not a new public health concern.
While it would allow for companies to continue selling these products into 2016, cigar companies would have to go through the lengthy and expensive procedure of gaining approval. Products would be allowed to be sold until the FDA decided on each individual cigar, but the costs and burden would be substantial.
In addition to increased prices for cigars already on the market as manufacturer’s recoup compliance costs, new products would become not only substantially more expensive to introduced, but they would be subject to pre-approval.
This would likely mean an end to the rampant uptick in new products and limited editions, and would be particularly damaging to smaller companies. It is expected that if these regulations go through, some smaller manufacturers will shut down simply because of the costs association with approval, a good indication of just how substantial the cost of approval will be.
In addition, free samples would be banned. This would not only impact cigar events at the retail level, but would dramatically change trade shows like the annual IPCPR convention where manufacturers allow retailers to sample new product.
Also changing would be some cigar packaging. It would require one of five statements to be listed on cigar packaging, potentially as large as 30 percent of two areas of the box. These statements would be FDA messages about cancers, cigars not being a safe alternative to cigarettes and the alleged addictiveness of the products.
Retailers would likely be required to place a sign near the point of sale with a similar message.
Some cigar boxes already contain these messages, notably products from Altadis U.S.A. and General Cigar Co. due to an earlier agreement with the government. In addition, cigar companies often put smaller warning labels on boxes with a warning from the state of California, these would remain regardless of the FDA’s decision regarding exemption.
Warning labels would also be required on advertising of cigars with similar messages.
If the exemptions are granted via option two—all cigars that meet the accepted definition of “premium cigar” would not be subject to these new burdens and would continue to be sold as they are today.
In a world where the price requirement does not include all cigars found in a modern humidor, it’s unclear how manufacturers would cope with additional burdens on its lower cost items and no changes to higher cost items. Some products not meeting the definition would likely be discontinued, while others that fall within the definition of premium might see price increases as manufacturers try to more evenly distribute added costs.
Three potential concerns of the cigar industry were avoided. First, flavored cigars were not outright banned. Even without an exemption for flavored products, they will still be sold as long as the meet FDA approval.
Second, the document makes it clear the FDA is not banning internet cigar sales. The word “internet” only appears three times in the 241-page document—once to describe e-cigarette’s growth, once to describe advertising and once to blatantly state the new rules will have no effect on internet sales.
Finally, advertising for premium cigars will still be allowed, including online, although warning messages will be required if premium cigars are not exempt.
Overall, the deeming document will likely be seen as more positive than negative for the cigar industry.
The document echoes the FDA’s public statements over the last 12 months that the burgeoning e-cigarette market is its large focus, as well as smaller cigars and other non-premium products. It repeatedly indicated that these smaller and more inexpensive cigars are what it believes minors are more likely to use, a message the premium cigar industry has stressed in its meetings with regulators and Congress.
To put it bluntly, the 75-day public comment period will likely be the most trying time for the premium cigar industry. If an exemption is granted, particularly with modifications to price, weight and flavor requirements—retail humidors might not be affected at all.
Furthermore, the exemption would put to rest longstanding fears and uncertainty the industry had since 2009, when Congress gave the FDA the authority to regulate premium cigars.
There is no threshold of how many pieces of testimony the FDA wants before its willing to give an exemption. Initial responses from the IPCPR, CRA and CAA have made it clear that each group will call on its members to drum up as much support as possible, particularly with end consumers. Almost 70,000 individuals have signed a petition asking Congress for an exemption, the hope has to be that a similar number, if not more, will contact the FDA in support of the cigar business continuing to operate without regulation.
The new rules will go into effect 30 days after submission into the federal record.
Statements from industry trade group’s can be found here:
- International Premium Cigar and Pipe Retailers Association
- Cigar Rights of America (not yet available)
- Cigar Association of America