Nate's Questions For The Cigar Industry in 2024

 

There has not been a new region for growing tobacco in the cigar industry in some time. 

 

When Davidoff released the Yamasa in 2016, it used tobacco from the Yamasa region in the Dominican Republic previously not known for producing quality tobacco. Now it is one of their best-selling blends. There have been rumblings of other manufacturers looking to experiment more. CLE/Eiroa has already announced that they are growing tobacco in an “unnamed” South American country.  Warped has been releasing more Dominican blends of late. Mexican San Andrés is more and more prevalent in cigar blends. Fuente is building a factory in Nicaragua where they already have farms. 

 

Since Judge Mehta threw out the deeming rules, cigar manufacturers do not have to worry about releases needing to closely match cigars that came to market in the past for Substantial Equivalence waivers (one of the requirements of the deeming rules was that new releases brought to markets would have to be "substantially equivalent" to a blend that had been on the market prior to 2007. This opens the door to experimentation with new varietals of tobacco as well as regions that have not historically grown tobacco. Major weather events in the Dominican Republic and Ecuador are compounding already tight tobacco stocks. There were rumors of a US-Nicaraguan embargo in 2022.

 

All of this adds up to it being a compelling time to explore for cigar manufacturers. 

 

 

While Gordos have seen a small decrease in purchases in our shop over the last year, reps have made clear this is not the case everywhere. With price increases still taking place, some cigar smokers look to larger cigars as a value proposition. If a brand does a 50c price increase across its line, that Gordo does look like a better value.

 

That being said with cigar manufacturers making 8x80, 9x90, and even a few 10x100’s… Cigar sizing has gotten out of control. I have yet to have a single manufacturer give me a legitimate reason why these cigars should be made other than customers buy them. Sure, gifting one to your buddy is good for a laugh… One time. With the cigar boom I’m sure plenty of new cigar smokers grabbed it and chuckled to themselves as the cashier was ringing it up and later when they gifted it. That same cigar is still sitting in their buddies humidor somewhere, unsmoked and just taking up room. These customers are more experienced now. I doubt many of them continue to snatch up these large releases.

 

 

 

 

Last year Alec Bradley got acquired by STG, who had just completed a purchase of Room101 cigars in 2022. While boutique brands have historically been the focus of corporate acquisitions, there have been rumors of some big name cigar brands being for sale for the right price. With ownership of these larger brands starting to age and coming off the COVID cigar boom, it could be the right time to sell for those looking to exit at the top. 

 

 

 

 

Last year after 7 years of fighting, the cigar industry scored a big win when Judge Mehta vacated the FDA’s deeming rules for cigars that met his definition of a “Premium Cigar”. After a short delay, the FDA filed an appeal to that ruling. However, this appeal was filed without any injunctions, meaning that while the appeal process is pending “Premium Cigars” are not subject to the deeming rules in question. Briefs are due at various points in the first quarter of 2024 with no set date for oral arguments. 

 

 

 

 

The FDA had planned to ban the sale of flavored cigars and menthol cigarettes in 2023 - that didn’t happen. Legislators at both the local, state, and federal level seem to have their minds set on banning flavored cigars.   Last year, individual states and other local governments have started to pass legislation to ban flavored tobacco products, though most have exempted larger flavored cigars so far. 

 

Flavored tobacco products have become a priority for anti-tobacco lobbyist groups, claiming that they are marketed towards children and are a gateway to early addiction. Despite evidence to the contrary, flavored cigars have been lumped in with other flavored tobacco products such as vapes. This comes after studies have found that only .6% of youth reported smoking a cigar in the last 30 days. 

 

The flavored cigar market is a large revenue driver for cigar manufacturers, with Drew Estate having the most exposure (Acid Kuba Kuba and Acid Blonde are two of the best selling cigars in the industry. Drew Estate also manufactures the Java line for Rocky Patel cigars and the Deadwood line has exploded in sales). Recently, Asylum has released the 867 series that are “steeped” in flavor and Caldwell has released a sweet tip version of Blind Mans Bluff. 

 

Not only would this potential ban affect manufacturers but also retailers with their lost sales. Relative to other lounges, flavored cigars aren’t a huge portion of Renegade’s sales. However they still account for about 4% - no small number. While some flavored cigar smokers might move to traditional cigars, a significant portion will not. 

 

While the FDA ban has been pushed back to March of 2024, it is still on the FDA’s to-do list. Opinions are mixed on whether this will be rolled out before the election and what the final rules will look like.