Question: Why was the new name necessary so soon after the last one? Are they jettisoning pipe smokers or maybe even marginalizing them further? Is the name changing really worth the confusion?
Answer: We undertook the name change based on meetings with staffers dealing with health oversight responsibilities to whom “CPR” has a different connotation. And we were spending a lot of time in meetings overcoming the impression “CPR” has. We wanted to shift ourselves to much more of a lobbying group for premium/luxury tobacco products and that includes cigars. Plus, IPCPR is very long. The PCA is still very active in pipes. That said, 92%-97% of premium tobacco revenue is cigars. There would be no room for pipe tobacco without the cigar revenue.
Question: Are pipes and pipe tobacco out now? When they switched to IPCPR I thought it was an attempt to distance themselves from cigarettes, so if they go with Premium Cigar Association, doesn’t that at least imply that pipes will not be represented?
Answer: No not necessarily in the name change in 07. The change from RDTA was made to get tobacco and dealers out of the name. We were losing the narrative when tobacco was equated with cigarettes. With the emphasis on cigars, pipes, luxury premium and all-natural tobacco products the narrative is being won. Tobacco is seen as evil because of bad acts by big tobacco (cigarettes). If the cigar industry dies, pipes go with it. Pipes are still very important. CPA stands apart from cigarettes and big tobacco.
Question: Has the IPCPR Annual Convention settled permanently in Las Vegas?
Answer: No. Our main challenge is finding a place where we can smoke. Smoking is part of the trade show. Our members like to walk off the show floor, smoke and grab a drink together and talk. It’s all very relationship driven.
We have a multi-year contract with Sands Venetian. Ours is a relationship driven industry and we are exploring different areas including Florida, Tennessee, Louisville because of bourbon and cigars, that’s like chocolate and peanut butter, Dallas/Fort Worth area. We’re also looking at potentially holding the show at different times of the year. But it will be in Las Vegas for at least the next few years.
Question: Why are you changing the format of the IPCPR?
Answer: For so long it’s just been about the tradeshow. I’m not sure what is meant by format. Looking through the historical documents we have back at the office, a lot of the issues remain the same: regulations, taxes, smoking bans, things like that. We have formalized a strong political advocacy and grass roots outreach to combat the regulatory landscape.
As part of that we look at the trade show and the new ways to do business and conduct commerce, the need sort of demands that we evolve and approach association management in a different way and become more of a full-service association for retailers. That is why we’ve launched a new magazine. Really, we want to be the center of excellence for the premium retailer/tobacconist. So, we are trying to enhance the products and services we offer to the retailers and manufacturers.
Question: What’s the state of cigar retailers, particularly online vs. brick and mortar vendors? Especially now that the Supreme Court has ruled that states can tax internet purchases.
Answer: That is a very interesting question. There are a lot of interconnected layers. For a B&M vendor, their relationships with manufacturers is paramount for the success of both. These relationships are key to sell the inventory, making sure they have the relationship to understand where its placed where its selling and how its selling. And then you get to the bigger brands, like General Cigars that makes a lot of the big brands out there. They own Cigars International. Ashton owns Holts. So, all the big online sellers are owned by the big manufacturers so it’s kind of works like outlet stores and help them keep the prices down.
So, for the B&M we want to help support that and at the same time B&Ms don’t want to have an unfair tax situation. Internet sales are taking a dip while sales at B&M shops are rising. As we are looking at the maturation of the cigar consumer, we had the boom and with that boom, I’m sure most of your guys will remember the boom, we had a lot of crap coming onto the market. And as we get through the boom into the early 2000’s and leading up to the 2010/2012 time frame you really start to see some these great cigar brands. Pete Johnson comes onto the scene. Steve Saka whose been around for a really long time launches the Dunbarton brand. Skip Martin starts RoMa Craft.
The great boutique brands coming on the scene have elevated the craft. The premium cigar scene is similar to the craft beer world and small batch bourbons. All reflect the evolving tastes of the consumer. B&M shops are tasting rooms. They are the entry into the cigar tasting world. It’s interesting, in the magazine we talk about how small independent bookstores have made a comeback even in the age of Amazon.
People still crave interaction personally. You are not getting that as much with an online order where you’re simply getting the cigars sent to you. And you don’t know what you are going to get with some of these online retailers. Yeah, they are great deals but at the end of the day, the reason so many of us started smoking cigars isn’t because we were out there deal hunting but because we wanted to have a great experience with a well-crafted cigar.
B&M shops are starting to come back. We just conducted our survey and 63% of retailers say business is up for the year. Only a few say their business is down. People like to see their local retailers. The retailers spend so much time getting to know the blends, know the manufacturers, the local retailer can fill that role of a Cigar Concierge and offer an entry to that world of new blends. We’ve been working for the last several years to help the B&M retailer curate that experience. They can act as a Sommelier. I don’t like that term but that is the concept.
Question: You hear that term, Sommelier, more and more often in conjunction with cigars.
Answer: I would prefer a different term because it so specific to wine. I would love more of a Spanish term to get back to the roots of the cigar.
Question: If the invitation to the public is still a thing: Will the manufacturers and vendors be giving out samples if you have retail consumers on the show floor? How will that work for taxation purposes? In years past, when the show was in New Orleans, you had armed Louisiana ATF agents and Bureau of Revenue and Taxation enforcement officials on the show floor ensuring that these guys paid taxes on free samples. How much more will vendors and manufacturers have to bring to the show if consumers are on the floor? What about the excise taxes on all this as well?
Answer: We had an interesting time dealing with the Department of Taxation. Nevada was trying to claim taxes on orders placed in the state which is illegal. Consumer day is still a consideration. We had what we thought was an interesting working idea, and this is something that has been talked about for a lot of years, driven a lot by the manufacturers.
We announced that we wanted to have a Consumers Day starting in 2020 and we met some resistance. There a lot of moving parts here. I’ve talked to a lot of vendors, including Rocky Patel and Nick Perdomo who have been extremely active in this effort and the feedback was that manufacturers could not provide samples to the public. We would have to open up membership to consumers. This (the show) would still have to be a closed event, not like a Big Smoke. However, if you are not a retailer you would not be able to get samples. We will need to design a show or experience specific to consumers.
One thing we have that no other festival has is that everyone is there. At the show, the displays area intricate – like little stores. We have everybody there for 3-4 days. All the principals are there. That’s the big appeal – thinking about the consumers – connecting with the consumer who wants to know more about the business, how the cigars are made, and getting to see behind the scenes. In terms of the types of consumers who want to attend the show, our thinking is that specific limited show edition cigars are of more interest to them than a grab bag of cigars they can get from retailers.
I used you as an example of the type of consumer we think would attend a Consumer Day. Someone who has numerous humidors with a large inventory of cigars who’d be interested in engaging with industry leaders and interested in a unique experience and cigars specifically created for the show.
We are planning for a consumer day for 2021 and we’re enlisting membership to make it great experience for consumers. We are working through the process.On the tax question, last year there were no tax reps on the floor.
Question: What about the beverage set-ups? I know state agencies will not be bothered too much about coffee, but what about those that may serve a glass of bourbon or rum? How will that go from a customer privilege to something for all consumers? Or do they simply get rid of it as many did in Louisiana?
Answer: The consumer event would include experiences like small bourbon tastings. We need to work with the Sands and ensure we are adhering to their policies. These would need to be member- only events. The show will need to remain a member-only event. Consumer Class membership will be opened up shortly and a new CRM (Content Resource Management) tool is being deployed.
Question: When will consumers be allowed to attend the trade show (what year)?
Answer: It will not happen in 2020. We are looking to have the kind of consumer specific experience we discussed in 2021.
Question: Between new legislation that is in committee, the hearings, and court proceedings, it’s getting pretty difficult to know the players without a program.
Answer: That is a very loaded question. The 2009 Tobacco Control Act focuses on the marketing of cigarettes to kids. Premium cigars were not a part of that. Jump ahead to 2016 and the Deeming Rule comes out and said that cigars should be included in the 2009 act. The Deeming Rule includes the “substantial equivalence” provision which states that any product that comes out on the market needs to be “substantially equivalent” to products that existed in 2007. And this is what I mean when I say the cigar industry would be killed. Because anything from, well, what we talked about is the innovation that is driving the growth in the industry are these new brands.
All those would go away. Up until that point cigars were regulated by Congress and now its under the FDA. And the FDA lumped all cigars into one category. When they did that they said “teenage boys are smoking cigars at the same rate they’re smoking cigarettes”. So, we filed lawsuits and went back to the FDA and at the time Gottlieb who was the head of the FDA said “I’ll open this advance notice for proposed rule making to consider premium cigars vs. other cigars”.
We had some interesting data where the FDA and the National Institutes of Health (NIH) published a study where, when you control for a premium cigar by our definition (100% tobacco, no tip, no filter. Tobacco, water a little bit of gum), they could not find teenagers/kids who smoked premium cigars. They found the average age of a first-time cigar smoker is around 30 years old. And the average usage is about 1.7 days for every 30. The New England Journal of Medicine study shows same results.
We’ve been using these studies to educate legislatures about premium cigars vs. other cigars (i.e. Swisher Sweets that can be bought in convenience stores. We’ll call them convenience store cigars) and then also the thing is the juxtaposition against Juul and some of the other e-cigarettes.
We say, “look you are going after nicotine addiction. You are going after Electronic Nicotine Delivery Systems (ENDS). If you are looking at going after addiction, using a product 1.7 days out of 30 is not an addictive behavior”. If I have 1.7 drinks a month, I’m not an alcoholic. If I have 1.7 cheese burgers a month, I’m not at risk for heart disease.
We’ve got bills in both the House and Senate that would exempt premium cigars from FDA regulations. The FDA regulations would focus on cigarettes, e-cigarettes, and vaping devices that target kids. Historically, premium cigars have never been marketed to kids and they are completely priced out of a kid’s pocket book range anyway.
Beyond that we have Senator Rubio, who is the sponsor of our Senate bill, which is S9 and Kathy Castor, who is a Democrat and represents Tampa is the sponsor of our House bill HR 1854. Her Republican counterpart, Bill Posey is the Republican sponsor on that bill. But what is interesting about Rep. Castor is that she has been a big health advocate and has a lot of awards form a number of health groups. But she understands the express purpose of the 2009 act. We often refer to ourselves as the dolphin caught in the tuna net.
By in large that is where we are. We have a couple of lawsuits out there. The big one is coming up on October first which is the substantial equivalence. The reason why that is there is that anyone who buys a box of cigars knows that no two of those cigars are the same. That’s what the regulators don’t understand. They think cigars are the same as cigarettes where you can make a million of them and they are all exactly the same.
Therefore, because they test cigarettes, they want to apply that same principle to cigars and that’s impossible. Some manufacturers are saying the testing costs would be about $18,000 per SKU. That would mean tens of millions of dollars to comply. There are only about 4 companies that can comply with that. There are only a handful of companies that had product out in 2007.
So, if this were to go through, most B&Ms would have to take about 80% of their products off their shelves and really the consumer would only have a choice among a handful of cigars that were around 12 years ago.
Question: Tabacalera A. Fuente, and J.C. Newman have been on the forefront fighting for the cigar industry. They have been consistently advocating that jobs will be lost given the continuing assault on cigars by the Food and Drug Administration. Might we glean some good news in all of this by the fact that J.C. Newman is preparing to enlarge their production capacity with a new facility? What meaning, or trend, might this suggest for the rest of the cigar business? Can we feel encouraged?
Answer: In some ways I think we can just because in some ways we’ve made some good headway. The cigar industry has been growing — people don’t realize over the past several years. But because of the uncertainty from the 2016 ruling, a lot of cigar makers are reticent to reinvest that money. And I think the Fuentes and Newman are confident enough that whatever happens is not going to be as deleterious as previously anticipated.
I am guardingly optimistic that we are making some good headway. We’ve got good scientific data that shows the usage and all the other patterns we have for premium cigars demonstrating the difference between this industry versus any other tobacco industry.
And we have a really good mix of bi-partisan champions on Capitol Hill that can help us. It’s unfortunate that the deregulatory mindset that Trump and his administration brought in has not spilled over to the FDA. The FDA is the one area that has not followed suit. It has been quite the opposite.
The other thing is Trump doesn’t smoke. Trump doesn’t drink. He doesn’t care about the vice industries in that regard. If we were gambling or some other vice industry it might be different. We’ve tried. We have a lot of connections with people who have direct connections to the Oval Office, it’s just that anytime we talk to anybody close to Trump they say “You know what? It will be very difficult to raise this to the level that he is going to want to pay attention.”
So, the main areas that we are focusing on are Pennsylvania and Florida. Both are key to the election and key to the cigar industry. I think that we have some very solid arguments in both the courts and as well in legislation. And I think that what will probably end up happening is that, as a lot of us have been saying is that regulation is still coming but we have carved ourselves a seat at the table.
With us being at the table hopefully we can get it to the point where it doesn’t end up killing the industry. Something the industry can live with. If we could get more certainty there would be a different landscape and the industry could start moving forward and have more investment.
I think what is to come in the next few years — again, none of this moves quickly. I think it will take the next few years but I think once some of this stuff settles down, I think this will set us up for with a foundation of clarity. Which I then think you’ll start to see a bit more of the innovation and the expansion of the industry.
Question: Why doesn’t the industry focus on promoting consistent quality over promoting new trends? In other words, why doesn’t the industry spend more time on marketing great products instead of some new trend?
Answer: A lot of the companies focus on consumer analytics. And I think that this driven by the consumers. The question our retailers are most often asked in their stores is “What’s new?”. Steve Saka has talked about this, that it takes several years to hone the cigar and blends and aging part of it.
Another part of what we want to do is consumer education in terms of here’s why you continue to go back to these brands that are consistent. I never smoked a Tatuaje cigar that I haven’t enjoyed. It’s a good point. I don’t think they are necessarily exclusive, consistency versus new, but its really the demand for “what’s new” that is driving the brands to innovate.
The cigar industry is a lot like the wine industry in that you have vineyards that produce these phenomenal bottles of wine that cost $75, $130 a bottle. But these same vineyards are producing on larger quantities at $15 -$20 bottles. And you see that with the cigar factories as well.
Question: What are your thoughts about all the recent FDA stuff happening?
Answer: Like I said, I think that we are making some headway. At our Small Business Administration (SBA) roundtable, their Office of Advocacy is a big advocate of ours in our fight and there were FDA people, I think we had 4 or 5 people there. A lot of people that the FDA are starting to listen to the positions and the medical evidence we’re presenting.
It was unfortunate that Gottlieb (Former FDA Commissioner Dr. Scott Gottlieb) left as he was sympathetic to our arguments or at least sympathetic to listening to our arguments. (Illinois) Senator Dick Durbin is the worst enemy of the premium cigar industry. He is so anti-tobacco. Anything to do with it. We’ve had manufacturers like Glenn Case from Kristoff, we have a bunch of retailers in Chicago like Uptown Cigar for example. It’s number one on their historic sites tour and you know, we have a lot of people from Chicago and Durbin is “No. I don’t want to hear it. I will never, ever be on the side of tobacco in any shape or form.” So, we have got some people like that.
Because Gottlieb was willing to listen to comments from the industry and because of the research it is a good sign that FDA sent people to our SBA forum that was specifically about premium cigars.
We had Drew Newman from the Newman factory talking about it from the manufacturer’s perspective and our President, John Anderson (owner of W. Curtis Drapers in Washington DC) both spoke on that and how it (regulations) could impact both of their businesses. At the end of the day, 83% of our membership are single store operators. It is the definition of the small business in America.
Within the Tobacco Act charter, it states that the act cannot destroy an industry without measurable public health benefits to outweigh that. They have fallen so far short of proving that for premium cigar products, that is a reason to be optimistic. But with work we’ve done with the FDA and our advocates on the Hill we’re starting to see the ball move in our favor.
Question: How are CPA members dealing with all this uncertainty?
Answer: Really lack of reinvesting back in the businesses. The biggest concern for our members is not being able to introduce new products. That is the lifeline of B&M shops. It’s really been kind of a pause. A lot of them would love to reinvest back in their businesses I think we’d see a lot of reinvestment and expansion if there wasn’t as much uncertainty.
A few of the big guys, the bigger manufacturers are starting on the process of putting warning labels on their products and trying to figure out what a testing process would be. At this point it’s a wait and see mode.
Question: How are members, and others, reacting to the new name of the association?
Answer: By and large it’s been very positive. There are some questions but by in large the new name is seen as more modern, cleaner. An oil lobbyist told me that as a lobbying group, the PCA “punches” way above our weight class. We represent a small niche market but are very effective because of the cache group value the premium, luxury tobacco products, particularly cigars have. Everyone enjoys cigars.
Question: What impact, if any, has the loosening of regulations against bringing Cuban cigars back into the country had on the industry?
Answer: Very little. I think Cuban cigars are a novelty because you (U.S. consumers) can’t get them. I think it will be worse for Cuba if they had to open up market due to the innovations in the industry outside Cuba. The Cuban cigar industry has such strict rules and regulations regarding how they blend and their market and industry is so regulated it would probably hurt Cuba if they had to open up. They just cannot match the innovations of the industry outside of Cuba. I think it would hurt Cuba more if they had to open up. Cuba is very big in Europe that’s where they have a pretty big stronghold. But of the 500 million premium cigars that sold each year in the world, 320 some are sold here in the U.S.
Question: How do see American (non-Cuban) manufacturers doing outside of the U.S.? Are those overseas markets opening up?
Answer: Manufacturers are doing more and more tours in the oversea markets. These markets are starting to see and understand American cigar culture. We have a relationship with the cigar that the Europeans do not. We’re starting to see growth in the European markets. China will explode. We are thinking about potentially having an expo in China. I see a broader expansion over the next 15-20 years. I think we’ll see parity with Cuba in the oversea markets. The premium cigar industry is still fairly young. As long as FDA doesn’t kill the industry, we’ll see growth.
Question: If the embargo ever ends do you think some manufacturers will make blends of Cuban tobacco and other tobaccos? Or is there simply not enough Cuban tobacco to do that?
Answer: Not sure. I’m not sure I would even know the answer to that. That is really interesting. I know that a lot of the tobacco seed in Honduras and Nicaragua is Cuban seed that they obviously took over there. I can ask Pete Johnson when he’s in town. (note: Pete Johnson premiered a move he produced called Hand Rolled which is all about the premium cigar industry that starts with the fall of Batista (Former President Fulgencio Batista of Cuba) and the rise of Fidel Castro. The movie is available on iTunes and Amazon).
Question: What is the relationship between IPCPR/PCA and CRA?
Answer: We work hand in hand with them. The CRA is very much a manufacturer-driven organization even though I know it is for consumers but the manufacturers really are behind it. They tend to focusmore on manufacturer issues. For example, Drew Newman, Carlito, Jorge Padron, Rocky Patel, Alex Rubin — they are all really, really involved with CRA. But this HPHC testing that they want to do for cigars like they would with cigarettes, that’s something they’re answering and talking about. That’s a strict manufacturing issue.
You know, we’re joining with them on things like the SE lawsuit, the warning labels lawsuits, the SBA roundtable we hosted with them. We did the diversity and entrepreneurship workshop with the Congressional Black Caucus two weeks ago that we co-hosted with them. We have weekly calls with them. We work with their lobbyists as well. So we very much keep up on a lot of issues because of strength in numbers.
Question: At one point in time there was talk about you guys bringing them on board with you. Did that fall through?
Answer: It didn’t really fall through. I think what it ultimately comes down to is what does it look like for us to come together? To work on our policy aspects to maximize our dollars and our efforts? And these are conversations that are ongoing. However, that may or may not happen. I know that there were some rumors that were put out there. But the reality is that there was nothing ever concrete for us to go with. We’re always in talks to work better and those will continue.
Question: What do you see as the biggest challenges, other than the FDA stuff and smoking restrictions, to the industry?
Answer: There are 40,000 municipalities in this country and at any given time they are coming up with restrictions and taxes on cigars. Those are the big issues. In a lot of ways these are standard retail issues. For a lot of folks who get into the cigar business, especially the retail side of things, it is because they are passionate about the product and sometimes don’t necessarily know how to run a retail store.
That is one of the main reasons for our evolution as an organization, and for things like the magazine and some of the other educational initiatives and networking initiatives that we are doing is to help those retailers to truly understand what it takes on a consistent basis to run a profitable machine. Also navigating the regulatory aspects to get your tobacco license, business licenses, what you can build, what you can do, where you can smoke.
We have representation covering pretty much all 50 states now. Local issues will percolate up to the national level. Whether it is going to Tobacco 21, which in some ways was important in other ways — look most people don’t start smoking premium tobacco until they are well into their 20’s if not their 30’s so for us it was, we fought where we could and leveraged it in other ways that we could. Politics is never black and white.
What we really try to focus on is that products cost the least amount for our retail members because they are always hit with so many different taxes. One of the interesting challenges we’ve made a lot of headway on is tax caps, like 15 cents a stick for example. We’ve got good data that shows that states actually, when we put a tax cap on a cigar states actually make more revenue because people end up spending that money in state at their B&M retail stores. That’s one of the good things we’ve worked. We’ve passed them in places like New Mexico, Minnesota and Michigan as well.
Question: Have the vaping incidents had any impact on the premium cigar industry?
Answer: Yes, positive and negative. Negative in that people still relate tobacco as being bad and people still relate vaping to tobacco. There isn’t really a whole lot of tobacco that goes into vaping. They have nicotine but you can get nicotine by eating a lot of peppers and tomatoes if you wanted to.
The other part of it is, the flavors used that were directly tied to the health problems are typically not for people like us who are smoking cigars or drinking Scotch. That’s a very adult palate. But there a few cigars out there — I won’t name names — but they are very much a part of that conversation. Because when they consider flavors, the regulatory body at large view anything that mutes that tobacco flavor, that provides a softer entrée to getting people “addicted” is evil.
We have very good and strong data that shows that cigars are not addictive, people are not using them in addictive manners. Cigars are luxury products. Even if the cigar is infused, we still have that data. It is one of those problems for the industry in that some of those infused flavors could become illegal. That could be potentially several years down the road.
Positive when you juxtapose products and users and emboldens the message why cigars should be treated differently than ENDS (Electronic Nicotine Delivery System). We have a very good story to tell. There is a powerful counter argument between a completely natural product vs. products that are not natural or e-cigarettes. We’re using it as a juxtaposition to show what we are versus what they are.