Tuesday, December 29, 2009

Top Cigar Stories of 2009...#5 to #1!

Top Cigar Stories of 2009 from Rich Perelman

From no. 5 to no. 1: our count-down of the biggest cigar stories of 2009!

Los Angeles, December 29, 2009 - There were plenty of great cigars on sale in 2009 from a wide variety of manufacturers. But it was a tough year to be a buyer or seller of cigars as the Obama Administration and a Democrat-dominated Congress punched harder than ever against all aspects of the U.S. tobacco trade this year, as shown in our top-five cigar stories of the year:

[5.] Two famed factories close in 2009

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At the dawn of the 20th Century, the city of Tampa, Florida has been synonymous with cigars, so much so that a brand which simply used the city's name became one of the country's most popular: Hav-A-Tampa.

Sadly, the significant increases in pricing brought on by heavy local and state taxes, plus the new SCHIP tax added on April, drove Hav-A-Tampa sales so low that the factory which made these cigars for decades - in Tampa - was closed by Altadis U.S.A. in August. After 107 years, these cigars (all machine-made) are no longer made in Tampa, but production was moved to the Altadis U.S.A. plant in Cayey, Puerto Rico. Some 495 local jobs were lost.

On the premium side, General Cigar decided to streamline its Honduran cigar production by concentrating all of its rolling operations in one factory, the former U.S. Tobacco facility in Danli. That meant that the famed Villazon factory in Cofradia, home to Hoyo de Monterrey, Punch, El Rey del Mundo, Excalibur and so many others, had to close on December 11 and will now be used for tobacco processing and warehousing. It's the end of an era.

[4.] Lounge wars!

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Major manufacturers, looking for a way to get closer to consumers, went crazy in 2009, opening heavily-branded "lounges" inside existing cigar stores all across the country.

Eight different lounge "brands" opened in 2009, for Cohiba, Diamond Crown, Graycliff, La Aurora, La Gloria Cubana, Montecristo, Perdomo and Torano Cigars, including three in 10 days in December for Cohiba, Perdomo and Torano.

We now count 13 lounge "brands" including the pioneering efforts of Club Macanudo (1996 in New York) and the Cuesta-Rey Cigar Bar at Tropicana Field in Tampa (1998), plus subsequent programs for Camacho (at Comerica Park in Detroit), Avo and Gurkha.

General Cigar now has the largest number of brands with lounges with three (Macanudo, La Gloria Cubana and now Cohiba), but the runaway leader in overall locations is the J.C. Newman Cigar Company, which has the Cuesta-Rey Cigar Bar at Tropicana Field in Tampa, Florida and at least 47 locations of its Diamond Crown lounges nationwide.

[3.] Imports surge, then dive, dive dive

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There are blips and there are declines. Cigar imports to the U.S. are now in a clear decline, with year-over-year decreases reported for the fifth straight month for October.

The October figures, supplied by the Cigar Association of America from U.S. Customs data, showed that imports of handmade, premium cigars totaled 19.51 million, some 15.2% less than the 23.01 million imported in October of 2008. That's not only the fifth monthly decrease in a row, but the sixth in seven months and the seventh out of 10 reports this year.

Only the post-SCHIP surge months of February and March showed substantial increases and there was a small, 2.63% increase reported - with some surprise - for May. Otherwise, it's been downhill.

The Dominican Republic, the bellwether nation for the health of the U.S. premium cigar industry, fell to third place among exporters to the U.S. in October with a total of just 5.61 million cigars, down 35.4% from the 2008 total of 8.69 million. Honduran cigar production, which has been down all year, fell again in October to 6.28 million, down 14.4% from the October 2008 total of 7.34 million. Nicaragua has been the only bright light among the three major cigar-producing nations for the U.S. market, heading toward its sixth straight year with increased premium-cigar exports to the U.S. For the month of October, Nicaragua led all premium-cigar-exporting nations at 7.42 million cigars, up 10.2% over the 6.74 million in October 2008.

Year-to-date figures showed increases for the Dominican Republic (thanks to heavy buying prior to the activation of the SCHIP taxes), a major drop for Honduras and continued strength for Nicaragua, which will likely have another record year for exports to the U.S.

When the full-year figures are in, U.S. premium-cigar import totals will be higher than for 2008, but well behind the 300-million-plus years of 2004-07. It could be worse.


[2.] U.S. Food & Drug Administration given oversight of tobacco

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A long-desired goal of the anti-tobacco movement is to have the tobacco industry regulated by the U.S. Food & Drug Administration. With a heavily Democratic Congress and a Democrat in the White House, it only took six months to pass and sign the "Family Smoking Prevention and Tobacco Control Act" on June 22.

It took even less time for the F.D.A. to not only begin exercising its regulatory authority, but abusing it. The legislative package that gave the F.D.A. control also eliminated the sale of flavored cigarettes (excepting menthol, of course) as of September 22, but the F.D.A. went further, saying that any flavored tobacco product that a consumer could essentially use in the same way as a cigarette was also banned, including little cigars.

That's not what the law says, and Kretek International of Moorpark, California, filed suit to obtain a declaration of whether its new Djarum Filtered Clove Little Cigars can be sold. That case is pending.

In the meantime, the City of New York voted to ban the sale of all flavored tobacco products – specifically including cigars, chewing tobacco, pipe and hookah tobacco – effective in late February of 2010.


[1.] Democrats pass SCHIP legislation, funded by new tobacco taxes

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Barack Obama was sworn in as U.S. President on January 20 and 14 days later he signed into law an extension and vast expansion of the State Children’s Health Insurance Program (SCHIP).

The new SCHIP program is funded by a series of new taxes on tobacco products, raising the Federal tax on a pack of 20 cigarettes or little cigars to $1.01 and sending the Federal tax on cigars from 20.719% of the wholesale price with a tax cap of 4.875 cents per cigar to 52.75% of wholesale with a tax cap of 40.26 cents per cigar, effective April 1. On a box of 25 cigars, the new tax added at least $8.85 to the price.

Never mind that the amount of taxes to be collected will quickly be less than the cost of the new SCHIP program, or that the rise in taxes will create new criminal activity. The SCHIP bill, combined with the F.D.A.-oversight law, may make things difficult for the cigarette trade, but are devastating blows to the relatively tiny premium-cigar industry in the United States.

All told, few in the cigar trade are sad to see 2009 left behind. We'll have a look ahead to what promises to be a turbulent 2010 in our New Year's column coming up on Friday.

~ Rich Perelman

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