FDA’s Regulation Shaker

Whether in Europe with the TPD2 (EU’s revised Tobacco Products Directive) or in the US with the new US Food & Drug Administration regulation, the cigar world feels that it is in the shaker for a new cocktail recipe, and it’s one that tastes slightly sour.

By Eric Piras

The history

So far cigars in the US have been somewhat free of the intense regulations they might encounter in some other countries. Well, this is about to change, and the powers in charge are going from one extreme to the other.

In May, when the US Food & Drug Administration (FDA) announced its willingness to regulate tobacco products, including cigars, it issued a 499-page document detailing the new rules and its intentions. The agency had the option of exempting premium cigars from this new regulation, but instead chose to treat premium cigars like other tobacco products.

Craig Williamson, president of the Cigar Association of America, stated, “We all worked in good faith to inform and educate FDA on the unique nature of our industry, its members, and our consumers. We hoped FDA would craft a flexible regulatory structure that accounted for the uniqueness of our industry. Instead, we got a broad, one-size-fits-all rule that fails to account for how cigars and premium cigars are manufactured, distributed, sold, and consumed in the United States.”

The main concept

From August 8, FDA requires cigar manufacturers to submit pre-authorization applications before they are allowed to sell their products. This is the general guideline:

- products that were marketed prior to February 15, 2007 are considered grandfathered and as such are exempt from FDA regulation. However, cigar makers will be required to put large health warning labels on the box and submit a list of the cigar’s ingredients. No free sampling allowed.

- products that were marketed between February 16, 2007 and August 8, 2016 will also be able to remain on the market, but manufacturers will have to submit these products for approval by FDA before 2018. Health warning labels similar to the first category, and no free samples either.

- products that are marketed after August 8, 2016 need to apply for FDA approval.

The consequences

It is estimated that 60% of all cigars currently sold in the US (according to FDA) are grandfathered in. However, every change in blend, size, and packing design could potentially require new applications, new paperwork, and new fees.

Scott Drenkard, a writer for the Tax Foundation, reported that “by FDA’s own appraisal, their new regulations would wipe out somewhere between 10 and 50% of these products as it will not be cost effective to put many of the products through review”.

It is hard to predict the exact cost of applications but FDA confirmed that all required applications could “cost hundreds of thousands of dollars” per application. While large-scale cigar manufacturers may be able to adapt to the regulation, smaller businesses that have launched their own manufacturing company may struggle to keep afloat.

At the moment, the known cost is the one required by the testing procedure: in order to obtain approval, each product will have to go through testing and the cost is estimated by industry professionals at US$10,000 at least, by product. New products and limited editions are an important part of the cigar market. Product verification and government approval prior to the release of new products would seriously slow down the process of getting products in retail outlets, and would greatly add to the cost of business. It also means higher retail prices, as the costs of approval will logically be passed onto the consumers.

A small note about Cuban cigars: since they were not legally on the US market in 2007, they will obviously not be grandfathered in and will be considered as new brands, with the huge amount of paperwork and costly applications that the new procedure will require.

When FDA released the new regulation guidelines, Glynn Loope, executive director of the Cigar Rights of America, told Cigar Aficionado that “the associations are focusing on two parts: one is advancing the legislation… which calls for an exemption on premium and large cigars, and getting that through the full House of Representatives and adopted by the Senate, which probably won’t happen until this year. Secondly, we’re going to be evaluating immediately all of our legal options for litigation.”

The lawsuits

And that’s what they did. On July 15, the three major lobbying groups representing the cigar and pipe industries (Cigar Association of America, International Premium Cigar and Pipe Retailers, and Cigar Rights of America) filed a joint lawsuit against FDA in the US District Court for the District of Columbia. They were challenging FDA’s final rule, claiming it “violates numerous federal statutes as well as the federal rulemaking process.”

Another lawsuit has been filed by Global Premium Cigars LLC, which is seeking to set aside the entire set of deeming regulations.

The lawsuits focus on:

- FDA’s decision to apply the date of February 15, 2007 as the grandfather date to cigars and pipe tobacco, which subjects those products to more intrusive regulations than cigarettes and smokeless tobacco;

- FDA’s failure to perform an adequate cost-benefit analysis to take into account the effects of the final rule on small businesses as is required by the Regulatory Flexibility Act;

- FDA’s unjustified decision to require warning labels on 30% of the two principal display panels of a cigar box.

And on August 16, tobacco companies have won a partial victory in the fight against FDA: Judge Amit Mehta of the DC District Court ruled in favor of Altria, Lorillard, and Reynolds America (the three largest American tobacco companies) that a label change on a tobacco product does not mean the agency should consider it to be a new product.

Judge Mehta’s ruling sided with complaints made by many tobacco companies: that a product shouldn’t be considered new if the only thing that changed was the packaging. In his ruling, he wrote that under the act, “a modification to an existing product’s label does not result in a new tobacco product, and therefore such a label change does not give rise to the act’s substantial equivalence review process.”

However, he did rule that a change in quantity of the product in the packaging (such as switching the number of cigars in a box from 20 to 10 sticks) does constitute a new tobacco product that would need FDA approval.

Since any cigar introduced after August 8 will be subject to pre-market approval by FDA, many products were rushed to market before the deadline, sometimes without finalized packaging.

Prior to this lawsuit, manufacturers would have been legally bound to make only “minor” changes to packaging, meaning any cigar shipped with plain bands or plain boxes would have had to remain in a similar packaging or risk a major packaging change, triggering substantial amounts for the brand owners.

While there is hope after this lawsuit, the path to victory is uncertain and certainly expensive, and Congress might actually be the premium cigar community’s best hope.

The House Appropriations Committee has recently passed a draft of its FY2017 agriculture bill, including two provisions that would directly affect today’s rule:

- the first provision would exempt premium cigars from FDA regulation

- the other would change the grandfather date to August 8, 2017

Exempting premium cigars is less controversial than changing the grandfather date (as this would also grandfather in most of the e-cigarette industry) and the hope for cigar smokers now lies in the cigar-friendly members of Congress. But it might not happen until after the November elections.

In the two main cigar markets that are Europe and the US, the cocktail shaker contains a good dose of inane legislation, a dash of paternalism, and a pinch of bitterness. Not the best cocktail indeed, but one we will have to drink nevertheless, praying we don’t all choke on it.

Sources: halfwheel.com, cigaraficionado.com, thecigarauthority.com, miamiherald.com, mikescigar.com

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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 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 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.

The ruling includes:

• Establishing a federally mandated minimum of 18 years for the purchase of any tobacco product, including sales made online, and age verification made by photo ID;

• The banning of free tobacco samples;

• The requirement of products released after February 15, 2007 to be verified by FDA before going to market.