The Road to Exemption: Premium cigars Vs. the FDA

After ignorantly smoking cigars on and off for 20 years, I became a devoted and passionate student of cigars. In my inaugural blog, I hailed this particular vocation an odyssey. And I meant it. However, no odyssey worth embarking is devoid of obstacles. Maybe I was too busy loving the cigar life that I didn’t bother to look at the issues. I mean yeah, ok, I’ve been obliquely following the cigar industry’s and FDA’s saber rattling in a years-long don’t blink contest but I didn’t appreciate just how truly stupefying this situation has become. Like the NFL’s bumbling of the Ezekiel Elliott case, I simply kept it in the back of my brain and believed (or at least hoped) that surely some bright people of conscience would step up and work it out. Done. Hugs all around and then we’ll go to Disneyland. This isn’t rocket science after all. I soon learn It’s not even about science.

So, I decided I needed to get my head around this matter, I mean, really get my head around it. I wanted to understand what was going on, who wanted what, what the potential outcomes and consequences were and just how bad things might get. What I’ve learned over the past few days is that this situation isn’t going away and that bureaucrats, again, are out to over reach and over regulate something I, we all hold dear. And for what? The “greater good”? I say overt control and just for the sake of…well…regulating. As one cigar insider put it “…a classic case of a solution in search of a problem.”

DID YOU KNOW? THE ONLY TWO US STATES EXEMPT FROM LARGE CIGAR TAX ARE FLORIDA AND PENNSYLVANIA.

For those living under a rock, like me, the crux of the issue at hand is that the FDA desires to regulate the premium cigar market like any other cigarette, smokeless tobacco and e-cigarette. The FDA wishes to wield the Tobacco Act using language that would effectively:

  • Ban cigar sampling except for business-to-business (B2B) exchanges or in cases of a sales transaction (e.g. buy a box, get a sampler)
  • Require regular and costly pre-market administrative requirements resulting in very limited new product releases
  • Require costly testing of harmful and potentially harmful constituents (HPHC) resulting in the closing of all but the largest companies (e.g. General Cigar and Altadis)
  • Impose new ‘user fees’, a tax on cigars, to finance FDA regulators, namely the Center for Tobacco Products (CTP)
  • Require oversized, unsightly warning labels that would ruin ornate and decorative cigar boxes
  • Ban cigar events where free cigars (samples) are available to legal-age adults

Now, to you, me and Eric Stratton what this means is, among other things, higher cigar prices, fewer new products hitting our humidors and our favorite boutiques shuttering its windows. Don’t know about you but some of my favorite cigars come from these small, family owned boutiques. Nah, uh. This. Can’t. Happen.

That’s the bad news. Ok this really sucks. But fear not my fellow cigarnauts, there is good news – tell you what, let’s call it promising news – lighting our way. Before we get into the silver lining of this potential train wreck and what you as individual cigar mavens can do to affect a more desirable outcome, let’s get into the weeds of this issue and get a better understanding of who’s doing what and why. You’ll be glad you did. Otherwise, Greggie, Dougie and Dean Wormer will have the final word.

What you need to know is that this issue has been percolating for the better part of 10 years. Almost 50 years to the day, on July 30, 2008, House bill H.R. 1108 (Sponsor Henry Waxman, D-CA), the Family Smoking Prevention and Tobacco Control Act,  giving the FDA the jurisdiction to regulate tobacco, was passed 38-12 by the House Energy and Commerce Committee and obtained the required 2/3 vote by the House. This essentially amends Chapter IX of the original Federal Food, Drug and Cosmetic Act, signed into law by President Franklin Roosevelt in June of 1938. Reading between the lines, the primary push here is to drive regulation and prohibition of tobacco companies marketing and selling tobacco products to young adults and minors, thus mitigating spawning a new generation of tobacco users and unhealthy Americans.

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It’s not worrisome at this point, but many are taking notice. In 2009, President Obama not only increased the FDA’s budget by almost 20%, but signed into law the Family Smoking Prevention and Tobacco Control Act (Tobacco Act). Cigars are not targeted here, but the first salvo against cigarette and snuff makers has been fired. Regulations of manufacturing and marketing are the main points with “user fees” (a tax) on purchases of cigarettes, snuff and “roll your own” tobacco products a key proviso. Later in September of 2009, the FDA bans flavored cigarettes to include all except “menthol.” Several manufacturers are accused of sidestepping the ban by making flavored “little cigars”, which becomes a hot button topic for many in DC.

It’s time for someone to put his foot down, and that foot is ME. The clench factor hit an ‘8’ on the sphinct-o-meter in 2010 when the cigar industry got a wake-up call. The big news of course was that the FDA publicly announced its intent to add cigars to tobacco regulation. And breathe. An added bonus was an oft overlooked page-three story about the US blocking Indonesia’s $500 million import clove cigarette business due to the FDA’s ban on flavored cigarettes. The island nation was staring down the barrel of utter ruin and filed a request for consultation with the World Trade Organization over the US ban. They argued that US-made menthol cigarettes were like products and gives the US an unfair trade advantage and points to creating technical regulations and consumer health public policy while also creating trade barriers. In October 2014, the US would settle with Indonesia outside of WTO arbitration for undisclosed awards, with the ban still in place. Why is this important? Well, the US-Indonesian spat drew unwanted attention to the cigar industry.

Another unintended haymaker came from Senator Henry Waxman, D-CA. In April, 2011 he submits a letter to then FDA chief, Margaret Hamburg, requesting the FDA extend its ban to flavored cigars after considering the Kretek investigation. You can read the letter here. Kretek international, the leading US maker of clove cigarettes, attempted to circumvent the new ban by making clove “cigars.” There’s some regulatory and manufacturing granularity I’m not going to get into, but It’s important to understand that clove cigarettes were specifically targeted because they were considered “starter” or “trainer” tobacco products that attracted many, particularly minors. Waxman’s aim in encouraging the FDA to include flavored cigars is primarily to prevent 1) Kretek from skirting the law and 2) the protection of our youth’s health, not cigars in general. Unfortunately, this issue too brought more regulatory eyes to the cigar industry.

While no real threat has yet to be levied by the FDA, the cigar industry isn’t holding its breath waiting for the other FDA shoe to drop. In April of 2011, The Cigar Rights of America (CRA) proactively announced that it is working with the International Premium Cigar & Pipe Retailers Association (IPCPR) and lawmakers to help introduce a first-of-its-kind bipartisan bill, HR 1639 sponsored by Bill Posey, R-FL. Called the Traditional Cigar Manufacturing and Small Business Jobs Preservation Act of 2011, the bill aims to amend the Federal Food, Drug, and Cosmetic Act to exempt traditional large and premium cigars from regulation by the Food and Drug Administration (FDA) and from user fees assessed on tobacco products by the FDA. In August that same year, Senators Bill Nelson, D-FL and Marco Rubio, R-FL, spearhead a similar senate bill (S.1461) with similar language.

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Senator Marco Rubio ©floridapolitics.com

 

In April of 2012 with the FDA still mum on any details of impending regulation, the CRA and IPCPR file a petition to the Whitehouse via the “We the People” Internet petition website. They solicit 25,000 signatures with a deadline by May 11, 2012 for President Obama to review. In August, the cigar industry got another boost as Dr. Scott Gottlieb, an American Enterprise Institute resident fellow, conservative and physician wrote a pro-cigar/anti-regulation opinion page for the New York Post. Ironically, he will later be nominated by President Trump as FDA chief. You can view the article here. That same month, a DC appellate court defeats a FDA mandate that forces cigarette companies to affix graphic warning labels to their products. While another circuit court found in favor of the FDA, this is a good precedent for cigars but the case could end up in SCOTUS’ hands since two circuit courts are split.

What many, including myself, do not realize nor appreciate, is the ripple effect the FDA regulations can have on foreign cigar manufacturers. They may be headquartered in Miami or Pennsylvania, and just because they’re manufactured outside the US doesn’t mean they’re immune to US policy. Many family owned and operated boutique makers of premium handmades reside outside the US. So, just to cover all bases, in February of 2013, the CRA takes the fight to Latin America. Three ambassadors, one each from Honduras, the Dominican Republic and Nicaragua announce in a letter to the FDA, State Department and the Whitehouse that potential harmful regulation will cause irreparable damage to their economies along with the erosion of the culture, art and history of cigars to their nations.

Was it over when the Germans bombed Pearl Harbor? Bluto may have confused the Axis powers, but his fight was in the right place. And after 2 years of lobbying Washington DC and the FDA, the FDA put the pin back in the grenade, albeit temporarily. In April 2014, the FDA reiterates that while they still intend to expand restrictions within the tobacco industry they are considering exemptions for “premium” cigars. They extend an opportunity for public debate, comments and feedback for a term of 75 days. One major flaw exists –  the FDA’s definition of a “premium” cigar is a cigar with a minimum MSRP of $10. Later in June, The FDA announces it is extending its term for comments for considering premium cigar exemptions to August 8, 2014. The same day the FDA closes comments on the exemption, 8 senators draft a letter to the FDA chief making further arguments for defining premium cigars and those cigars made on antique machines. Another sticking point, is that cigars made on antique rolling machines, are not considered under the premium exemption, which means venerable cigar industry icons like Tampa-based JC Newman may end up having to shutter their operations.

In a second attempt to get a bill before congress, on February 2, 2015 Bill Posey, R-FL, sponsors House bill HR 662 called the Traditional Cigar Manufacturing and Small Business Jobs Preservation Act of 2015. This bill amends the Federal Food, Drug, and Cosmetic Act to “exempt traditional large and premium cigars from regulation (known as “option2”) by the Food and Drug Administration (FDA) and from user fees assessed on tobacco products by the FDA.” A week later, Bill Nelson, D-FL, introduces Senate bill S.441 under the same title and language. Thus far, the proactive efforts put forth by the cigar industry, lobbyists, politicians and the public inspires a great deal of hope but are these messages compelling?

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In April 2016, dark clouds are rolling in as anticipation mounts for the FDA’s ruling. Have we done enough? Only time will tell. In a final effort to thwart unnecessary regulation, the US House Committee on Appropriations in consideration of the FDA’s budget passed its bill that included language to change the predicate date of Feb 15, 2007 to the FDA cigar deeming effective date.  This nullifies the requirement for manufacturers to file pricey applications and clunky approval processes for products that were not on the market prior to February 15, 2007. The committee also tossed an amendment proposed by Rep. Rosa DeLauro, D-CT, to remove cigar-friendly language passed the previous week by the U.S. House Appropriations Subcommittee that protects premium cigars from FDA regulation.

Yep, Dean Wormer dropped the other shoe. On May 5, 2016, the FDA announces it’s final ruling in favor of Option 1 with an effective date of August 8, 2016. The regulation includes banning free samples, increasing warning labels on packaging and requiring new blends to undergo a costly, time-consuming approval process, just to name a few. The ruling, which can be found here, is heavily bent towards consumer safety, i.e. protecting the health of Americans and reasons that there is no distinction that “premium” cigars offer any less health risks than other tobacco products. The discussion has suddenly and inexplicably changed.

The regulation only applies to cigars after the predicate date of Feb 15, 2007 and new products can be introduced within a 3-year grace period allowing manufacturers to adjust to the new policy’s stipulations. The testing aspect is focused on harmful and potentially harmful constituents (HPHC). It’s important to point out that The Tobacco Control Act differentiates each brand by blend not by brand or trade name as different tobacco blends are likely to have different levels of constituents, as are different sizes of cigars within each brand. The FDA proposes three ways to have products approved: Substantial Equivalence, Exemption from Substantial Equivalence (SE) and a pre-market Tobacco Application (PMTA). In addition, the requirements include larger health warning labels on boxes (and even cellophane wrappers) and more austere placement of warnings. Manufacturers will also be required to submit a “warning plan” to the FDA to ensure random distribution of the new warnings. So much for the ornate cigar box. Cigars introduced to market after Feb 15, 2007 will not be grandfathered but can still be marketed for at least a year during the FDA’s prescribed “initial compliance period.” In response to the announcement, the CRA created a petition to send to President Obama with a requirement for 100,000 signatures.

This is a major blow to the cigar industry. As many recoil and digest what has happened, the fight is not over. Two months after the announcement in July, the CRA along with the IPCPR and Cigar Association of America (CAA) launch a counterattack by filing a joint lawsuit in the district court of DC. Their case cites the FDA’s ruling “violates numerous federal statutes as well as the federal rule making process” and challenges the following:

  • FDA’s improper application of the February 15, 2007 grandfather date to cigars and pipe tobacco, which subjects those products to more intrusive regulations than cigarettes and smokeless tobacco;
  • FDA’s impermissible assessment of a tax in the form of user fees, and its allocation of these user fees only to cigars and pipe tobacco and not to other newly deemed products (Edit note: such as e-cigarettes);
  • FDA’s failure to perform an adequate cost-benefit analysis to consider the effects of the Final Rule on small businesses as is required by the Regulatory Flexibility Act;
  • FDA’s unjustified decision to require cigar health warning labels to be 30 percent of the two principal display panels of packages;
  • FDA’s unlawful designation of tobacconists who blend finished pipe tobacco or create cigar samplers of finished cigars as “manufacturers,” which subjects those businesses to greater regulation than if they were “retailers”;
  • FDA’s incorrect decision to regulate pipes as “components” or “parts” rather than as “accessories.”

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Enter the cake-shaped parade float emblazoned with “Eat Me” In November 2016, we elected a new leader. While I refuse to politicize this matter, many have already done so, but I’m not keeping score. Many of the bills proposed, for and against, are bipartisan. Sure, some are more laden with one side than the other, and others are surprisingly less lopsided. Like many battles, you must have two sides, you just want to make sure you don’t come in second. In the continuing fight, two additional bills (HR 662 and S.294) were re-introduced into Congress in early 2017 to amend the language and include exemptions for “premium” cigars. During this same time, the New England Journal of medicine published an article, partially funded by the FDA no less, that, among other things, suggests that less than 1% of youths smoked premium cigars. LESS THAN 1%. This finding is in contrast to the FDA’s claims in their final deeming conclusions on May 5, 2016. The article can be found here. By this account, the FDA has argued and fought to protect less than 1% of our youth. No, 2+2 still doesn’t add up to five. Again, a solution in search of a problem.

The litigation and the political wrangling continue as more bills are introduced to lessen the burden on manufacturers and most importantly, efforts to solidify the legal interpretation of just what exactly the FDA can and cannot do. FDA-imposed deadlines for compliance have been pushed back, more motions have been filed in federal court and the cigar industry, embodied by an age-old culture, sits in disbelief thinking, “is this really happening?” President Trump’s nominee for FDA chief is Dr. Scott Gottlieb – yep, the very cigar-friendly person who wrote that op-ed almost 5 years prior – who is appointed on May 9, 2017. There is still breath in our cause. Further, House bill HR 3354 passes the House on September 14. This appropriations bill prevents the FDA from using its budget funds to further its final deeming of premium cigars.

Battles have been won and lost, but fear not my friends, the war is not over. We devoted cigar enthusiasts have a voice as well and there’s plenty we can do. I encourage you to engage with the CRA, IPCPR and CAA, write your congressmen and congresswomen, fill up Gottlieb’s inbox, tell POTUS how you feel and I encourage you to sign CRA’s petition NOW –  Here’s some important contact info:

Thanks to the folks at CRA, IPCPR, CAACigar Aficionado and Cigar Insider for keeping us all looped. Lots of great info there. Now you know more than you probably ever wanted to. So, do your part, enjoy a cigar and and leave everything on the field. – In Fumo Pax!

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