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Is the FDA About to Kill the Cigar Industry?

Any day now, the federal government could announce radical changes to the way it regulates cigars and upend the industry in the U.S. for domestic as well as foreign cigars. One guide to the FDA’s proposed “deeming” regulations calls them potentially “the most substantial change to the premium cigar industry since the U.S. enacted an embargo on Cuba in 1962.”

Deeming pullquote“Deeming” is shorthand for the extension of Food and Drug Administration regulation of tobacco products to cigars, electronic cigarettes (e-cigarettes), pipe tobacco, waterpipe (hookah) tobacco, and novelties like nicotine gels and dissolvables.

Congress or the FDA itself could stop the damage to the cigar industry from going forward, but the worst-case scenario is that it will cost millions of dollars to be allowed to sell cigars in the United States in the future.

Under a proposal about to be finalized, the FDA would deem the additional tobacco products in need of regulation under the Federal Food, Drug, and Cosmetic Act (the FD&C Act) and require:

  • New health warning labels on cigars and in all advertising
  • That manufacturers provide the FDA with a list of the tobacco products they produce and the ingredients in each product
  • A ban on sales of covered products to users younger than 18 years old and a photo ID from buyers younger than 27 years old
  • A ban on distributing free samples of cigars and other covered tobacco products
  • A ban on vending machine sales, unless it’s in a facility that never admits youth
  • A ban on using such words as “light,” “low” and “mild” to describe a regulated tobacco product
  • A ban on claims of reduced risk unless the FDA confirms that scientific evidence supports the claim and that marketing the product will benefit public health as a whole.

For cigars not on the market before February 15, 2007, the manufacturer would have to seek FDA approval to sell them in the U.S. The executive director of the National Association of Tobacco Outlets wrote that “this means that most cigars and pipe tobaccos would need to have a PMTA (Pre-Market Tobacco Application) filed because the blends have changed since 2007.”

The Wall Street Journal cited a price tag of $2 to $10 million to collect data and complete each PMTA.

The FDA itself says in an economic analysis of deeming that the new regulations could significantly damage the cigar industry:

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 U.S. or reduce the number of distinct products they sell in the U.S.

The FDA analysis predicts that up to 50 percent of the cigars now on the market could disappear.

The FDA submitted its final proposal to the Office of Management and Budget (OMB) last October. Those watching the issue believe that, with the appointment last week of Robert Califf as the new head of the FDA, the announcement of final deeming regulations could come soon.

Premium Cigar Industry’s Future May Ride on ‘Option 2’

There is a ray of hope for premium cigar manufacturers among the FDA’s plans: Option 2.

When the process began in 2014, the FDA said deeming regulations were meant to reduce tobacco consumption, “especially in the shadow of alarming increases in the number of youths using unregulated products like electronic cigarettes and cigars.”

In addition to correcting “a misperception by consumers that tobacco products not regulated by FDA are safe alternatives to currently regulated tobacco products, … deeming would allow FDA to issue future regulations regarding these products, including regulations to reduce their harmfulness, if we determine that would be appropriate to protect public health,” the agency said.

As discussions of deeming moved forward over the last couple of years, premium cigar manufacturers and distributors got the FDA to listen to their argument that because of how premium cigars are smoked, they are not as dangerous as cigarettes, small cigars or e-cigarettes.

> Read Mario’s take on Cigars and Their Health Risks — and Benefits

Option 2 in the FDA’s proposed rule would define “covered cigars” and would exempt “premium cigars,” which would be handmade, 100 percent tobacco leaf cigars.

Officially, no one knows the contents of the FDA’s final deeming regulations. However, one group, the Tobacco Vapor Electronic Cigarette Association (TVECA), claimed in October that it had a copy of the document. Though it eventually reached an agreement with the FDA to not leak what it had, TVECA did release a redacted version of the document’s summary and content pages.

The material released by TVECA suggests the FDA has rejected the argument that cigars pose less of a health risk than other forms of tobacco, and also that the agency believes youths and young adults typically smoke premium cigars.

FDA Deeming Document

If this is in fact the FDA’s final recommendation for regulations, it could be disastrous for the cigar industry, as we outline above.

It could kill any attempts to market Cuban cigars to the U.S., as well, since imports must comply with the FD&C Act as amended by the Family Smoking Prevention and Tobacco Control Act (Tobacco Control Act), which the deeming regulations would become part of.

Cuban Cigars May Face High Hurdle to Get Into U.S. Market

Under deeming, for every cigar that is new to the U.S. market, the manufacturer would have to seek a Pre-Market Tobacco Application (PMTA). In many cases, manufacturers would try to claim their product is substantially equivalent to a product already on the market since 2007, an allowance that shortens the approval process.

Of course, Cuban cigars have not been on the U.S. market since 1962.

Among the proposed requirements of a PMTA is the inclusion of “full reports of all information, published or known to, or which should reasonably be known to, the applicant, concerning investigations which have been made to show the health risks of such tobacco product and whether such tobacco product presents less risk than other tobacco products.”

This includes “all information from investigations conducted both within and outside the United States” and requires “not only investigations that support the application, but also any investigations that do not support, or are adverse to, the application.”

For each study presented in a PMTA, the applicant must provide an abstract, summary and bibliography. For each study identifying a health risk (adverse to the application), the applicant must provide “documentation of all actions taken to ensure the reliability of the study and the protection of human subjects.”

A PMTA must also contain a “full statement of the components, ingredients, additives and properties, and of the principle or principles of operation” of the new tobacco product, and “a full description of the methods used in, and the facilities and controls used for, the manufacture, processing and, where relevant, packing and installation of the new tobacco product.”

The here-to-now isolated Cuban government will be expected to do this to U.S. standards, and to bear the costs.

At present, Americans are allowed to bring a maximum of $100 worth of Cuban cigars into the United States for personal use if they are bought in Cuba and brought straight to the U.S.

Officials with Habanos S.A., which markets Cuban cigars to the rest of the world,  this week claimed to have 70 percent of the global cigar market, not including the United States. They have previously said the U.S.’s $100 personal importation allowance would have a negligible effect on its manufacturing efforts.

While some have said that Habanos could have trouble meeting demand if the U.S. market were to open entirely, onerous restrictions due to FDA regulations could convince the Cubans they need not hurry to supply a market they have lived without for more than 50 years.

Could Congress Save Your Cigar’s Butt?

The OMB has had the FDA regulations since last October to review their financial impact. Typically the OMB would have 90 days to finish, but they can easily request and obtain extensions.

If and when the OMB approves the deeming regs, they will be published in the Federal Register for 30 days before becoming effective.

Federal legislation could override FDA rules, and both houses of Congress put forth bills last year that would have created the premium cigar exemption.

The Senate bill, S 441 (HR 662 is it companion bill), exempts “traditional large and premium” cigars from the FD&C Act. Its definition includes many elements of the FDA’s Option 2 and defines traditional large and premium cigars as:

  • Wrapped in 100 percent leaf tobacco
  • Bunched with 100 percent tobacco filler
  • Contains no filter, tip or non-tobacco mouthpiece
  • Weighs at least 6 pounds per 1,000 count, and
  • Has a 100 percent leaf tobacco binder and is hand rolled
  • Has a 100 percent leaf tobacco binder and is made using human hands to lay the leaf tobacco wrapper or binder onto only one machine that bunches, wraps, and caps each individual cigar; or
  • Has a homogenized tobacco leaf binder and is made in the United States using human hands to lay the 100 percent leaf tobacco wrapper onto only one machine that bunches, wraps, and caps each individual cigar; and
  • Does not include a cigarette or a little cigar.

This would cover Cuba’s Habanos cigars as well as other imported and domestic smokes.

The Halfwheel website reported in December that the House had a version of the cigar exemption in the budget appropriations bill, but the budget bill was approved without it. Language in the bill also would have changed the 2007 predicate date for requiring the PMTA process for new products, moving it to the date the new rules become effective.

Halfwheel quotes several sources with conflicting stories as to why the measure failed. Part of the blame falls to the change in PMTA date and that it would apply to e-cigarettes.

According to the site, Mark Purcell, CEO of the International Premium Cigar & Pipe Retailers Association, blamed “heavy lobbying by anti-tobacco health groups, a group of Senate Democrats.”

Halfwheel also said Speaker Paul Ryan, R-Wis., “didn’t want to have to make concessions to Democrats for the FDA-related riders.” One source said it was never under serious discussion.

Still, Republicans are in charge of Congress, and the regulations in the FDA proposal are just the type of government intrusion they profess to hate. Whether the matter would be worth a veto to President Obama during his last year in office remains to be seen.

Meanwhile, Halfwheel and others reported this week that the FDA was seeking bids for a cigar-smoking machine that measures carbon monoxide in cigar smoke.

“Given that FDA is specifically looking at carbon monoxide in cigar smoke, it could provide some insight as to a standard that manufacturers will have to adhere to once an announcement regarding premium cigar regulation is announced,” Halfwheel said.

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