Business

Could Miami cigar industry go up in smoke?

Luis M. Sanchez, also known as The Mad Scientist, sits in his cigar shop La Tradition Cubana on July 7, 2016. New FDA regulations will have an impact on Miami's cigar producers in the coming months and years.
Luis M. Sanchez, also known as The Mad Scientist, sits in his cigar shop La Tradition Cubana on July 7, 2016. New FDA regulations will have an impact on Miami's cigar producers in the coming months and years. lriely@miamiherald.com

At a snug shop in Little Havana, a dozen workers lean over plantation-style desks, bundling crisp tobacco leaves into cigars prized by connoisseurs. A distinctive, spicy scent pervades the factory and shop of El Titan de Bronze, where the cigar-rolling tradition continues much as it has since King Philip V claimed Cuba’s tobacco trade as a royal monopoly.

But Miami’s cigar makers soon could be snuffed out — not by warming relations with Cuba, but by new federal regulations that extend regulations on tobacco sales and labeling to e-cigarettes, nicotine gels and all cigars.

Beginning Aug. 8, the Food and Drug Administration will require cigar manufacturers to submit pre-authorization applications before they are allowed to sell their products. The regulation mirrors rules governing cigarettes since 2009. But, say industry supporters, the rule presents a greater burden to cigar makers because of their product’s custom nature and the boutique size of companies that roll the smokes by hand.

“I mean I get it — you have to do what Uncle Sam says,” said Sandy Cobas, owner of El Titan, one of the 119 Miami businesses that Miami Mayor Tomás Regalado says depend on hand-rolled cigars. “But how are we going to be able to afford this?”

She isn’t alone, say industry experts like Marvin Shanken, founder, editor and publisher of Cigar Aficionado magazine.

“Miami, and South Florida in general, is the heart of the cigar industry,” Shanken said. “The impact will be most visible there, without a doubt.”

The FDA estimates that small businesses like El Titan, which produces 250,000 to 300,000 cigars per year, will pay $278,000 to $397,000 in application fees and other costs during the initial compliance period. While El Titan will be able to pass some of those fees on to the companies that hire it to make private-label smokes, it will still need to raise prices.

The new rules will have the greatest impact on companies less than a decade old, which will be required to apply for pre-market approval at an average cost of $6,560 per application, according to FDA estimates.

Fourth generation cigar roller, Jose Blanco, who opened Los Cumbres Tabaco in Doral in 2014, figures he will have to submit between 25 and 30 applications, which likely will cost more than $100,000. “For companies starting off in this business, you’re lucky to be breaking even like we are,” Blanco said.

Cigars sold prior to Feb. 15, 2007 — an estimated 60 percent of all cigars sold in the U.S., according to the FDA — are grandfathered in.

Though Tamarac-based Gurkha Cigars was incorporated in 1989 (the brand was first established in 1887), the company estimates it will pay $500,000 in legal costs on top of fees for 800 individual applications.

Part of the problem: Miami cigar-makers specialize in hand-rolled smokes favored by aficionados drawn by new blends. Every change in blend, size and packing design could potentially require new applications, new paperwork, new fees, according to the FDA.

The FDA has said that it will not require applications for minor blend changes from year to year.

“We understand that these products are grown in the ground and that companies have to account for those variations by making occasional changes in the blend. But if it fundamentally changes the product, then that’s different,” said Mitch Zeller, director of the FDA’s Center for Tobacco Control.

But manufacturers across the $4.7 billion U.S. cigar-making industry are concerned about how the FDA will decide what blend changes will require approval applications.

“The cigar industry is artisanal by nature. The cigar aficionado wants to try new blends, they want to see variation in what they’re buying. It’s not like the cigarette, which is very uniform in its production,” said Kaizad Hansotia, CEO of Gurkha, which produces about 9 million cigars each year.

And the FDA has yet to announce how it will deal with limited editions and special blends often made for events or organizations.

“How do you decide what’s new?” said Luis Sanchez, owner of La Tradicion Cubana.

Though his company has operated in Little Havana since 1995, he produces more than 50 limited edition brands each year for various businesses, events and organizations. “It’s the same tobacco from year to year, usually from the same countries. But it’s still constantly changing.”

At Gurkha, about 25 percent of its overall business comes from limited editions — special blends available for a limited period, much like a limited art edition or a vintage reserve wine.

For its part, the FDA says all tobacco poses the same risks. “All cigars can cause cancer,” Zeller said. “There was no public health justification to exempt them from regulation.”

Cigar Aficionado’s Shanken and other industry supporters argue that with the new regulations, custom rollers may go up in smoke.

“You’re going to start seeing retailers, manufacturers and consumers focusing on older brands that predate the grandfather date,” Shanken said. “Prices will go up for the consumer, cigar makers will lose money, and small companies will struggle to survive.”

Complete list of new rules for cigar manufacturing

The final rule will subject all manufacturers, importers and/or retailers of newly regulated tobacco products to any applicable provisions related to tobacco products in the Federal Food, Drug, and Cosmetic Act and FDA regulations, including:

Rules aimed at manufacturers:

▪ Manufacturers must register all production facilities and providing product listings to the FDA

▪ Manufacturers must report all ingredients, and harmful and potentially harmful constituents.

▪ Manufacturers must apply for pre-market authorization selling cigar products.

▪ Health warnings will be required on all cigar product packages and advertisements.

▪ Products listed as “light” or “low” cannot be sold unless otherwise authorized by the FDA.

Rules aimed at combating underage use:

▪ Cigar products may not be sold to persons under the age of 18 years (both in-person and online).

▪ Customers will now be required to provide age verification by photo ID.

▪ Cigars cannot be sold in vending machines (unless in an adult-only facility).

▪ Free cigar samples are banned.

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