As many do this time of year, it is time to once again look back upon the year coming to a close. But in this case, we look back not just on the cigar industry’s year, but specifically upon how my colleague Charlie Minato did in predicting answers to 10 key questions he thought about heading into 2021.
There was, of course, the big, overriding question of 2021: what will the year look like amidst an ongoing pandemic? The cigar industry is not immune to the challenges faced by society as a whole, meaning events were rescheduled or outright canceled, travel was limited and business was disrupted. That certainly presented challenges along the way, some of which affected the predictions.
But the industry had plenty of non-pandemic challenges to face. FDA regulations and other legislation remained part of the almost daily conversation. The inauguration of a new president suggested the possibility of new policies that affect premium cigars. The battle between brick-and-mortar retailers and their online counterparts continued, and a public skirmish between industry trade organizations threatened to spill over into 2021. Then there were people on the move and possibly waiting to step out of the shadows. While 2021 might not have been a year like 2020 where we had more questions to pose and predictions to make than space allowed, there were still a number of important topics to tackle.
So with that, let’s grade some predictions.
1. WHAT DO FDA AND ITS REGULATIONS LOOK LIKE POST-TRUMP?
Prediction: There won’t be any changes in substantial equivalence for 2021, but if there is a change it will come through the courts due to the ongoing litigation over the regulations, something that isn’t stopping due to FDA’s self-review.
Under the Biden administration, there haven’t been any significant changes to substantial equivalence and certainly none that are in effect for premium cigars. While the Biden administration rescinded FDA’s substantial equivalence plan that was announced in the last days of the Trump administration, it ended up enacting it verbatim a few months later. But because of a 2020 court ruling, those rules can’t be applied to “premium cigars.” FDA is waiting on the National Academy of Sciences to deliver a report recommending how premium cigars be handled under the rule, a report that the FDA will take under advisement and then decide how to proceed. So for now, the industry is waiting.
The Biden administration announced plans to ban flavored tobacco products, though as of now the details of those plans—including how they would affect cigars—remains unknown.
On the legal side, the cigar industry lost an appeal in July, although that loss didn’t change anything and a lower court had ruled against the industry.
2. WILL AMERICANS BE ALLOWED TO LEGALLY BRING BACK CUBAN CIGARS IN 2021?
Prediction: By the end of 2021 Americans will, once again, be able to legally bring Cuban cigars back when traveling abroad.
President Biden has certainly had his hands full with more pressing issues than Cuban cigars—the pandemic, the rollout of vaccines, not to mention the withdrawal of troops from Afghanistan along with a volatile economy and its resultant inflation.
As such, topics relating to Cuba have not seen much if any attention, and remain largely on pause following the July 11 protests, while the administration is said to be reevaluating the entire policy. That means that the September 2020 ban on Americans bringing back Cuban cigars and rum that was put in place by the Trump administration remains, although an American can still consume such goods while outside the United States.
3. WILL THE PCA BE IN A BETTER PLACE A YEAR FROM NOW?
Prediction: I have written a lot of critical words of the PCA in 2020 and it gives me no pleasure to write more. No prediction, here’s to hoping the ship is in a better place a year from now.
Charlie punted on a prediction so I can’t give a grade, and if we’re being honest, I don’t know what the scorecard is here. It seems to be a subjective feeling, so I will lay out what influences my thoughts while encouraging you to make up your own mind. But first, let’s think back to December 2020, when the absence of a trade show was still noticeable and it wasn’t certain there would be a trade show in 2021.
The first positive is the trade show: it happened—and without major issue—and the people who were there seemed to have an overall positive impression. While I imagine the financials of the event aren’t great, the fact it happened is a win.
Second, the lobbying efforts—of the PCA and others—seemed to score a big win when the Tobacco Tax Equity Act was removed from the Build Back Better Act in late October. PCA has to show it can lobby for its members, and while some things probably didn’t get as much attention as some would have wanted, this seemed to.
Third, the PCA hired Glynn Loope and promoted Ryan Parada, which for a group with furloughs and layoffs not that far in the rearview mirror, was certainly welcomed help. They could use more people, but this was a step in the right direction.
On the flip side, I have significant concerns about the financial health of the organization, something not seemingly helped by the smaller trade show. We know how the 2019 numbers looked, and I don’t know if things are better, flat or worse.
I also have concern about outreach to retailers, be it active members, former members or never-been-members, and if PCA can engage and energize them enough.
And I still have concerns about the health of the 2022 trade show, which largely determines the financial health of the organization. It’s likely too early to gauge its true health, though there’s no indication that Altadis U.S.A., Davidoff of Geneva USA, Drew Estate or General Cigar Co. will be back, and there are 50 or so companies that exhibited in 2019 but decided to not exhibit at the 2021 show. I’m also skeptical that companies that scaled down in 2021 will scale back up in 2022, and if non-attending retailers will be back after a significant drop in 2021.
In his editorial, Charlie wrote, “The question isn’t just whether it can get the ship pointed in the right direction, but more if it can get the ship in a position where it’s capable of being effective. And just like I don’t know exactly where the ship is at the moment, I’m not sure where the PCA wants its ship to end up.”
I’ll save the ship analogies, but for as optimistic as I am and want to be, I can’t ignore that the Premium Cigar Association is far from out of the woods in terms of health and direction.
Grade: Since there was no prediction, there’s no grade, but it seems our hope remains.
4. WILL THE TRADE ORGANIZATIONS CONTINUE DOWN THEIR WAR PATH?
Prediction: There won’t be any public performances of “Kumbaya,” but the disagreements will stay out of the public eye for 2021.
There are few things I don’t like seeing and which I find more disconcerting than infighting, whether it be on the sidelines during a football game or among organizations that are supposed to be on the same side of an issue.
Even worse is when the disagreement seems to involve who is getting credit for something. That was the case with a public disagreement between the Cigar Association of America (CAA) and the duo of the Premium Cigar Association (PCA) and Cigar Rights of America (CRA), the three co-plaintiffs of a lawsuit filed against by FDA. While credit was certainly part of it, the heart of the matter seemed to stem from who was funding the legal and legislative efforts. A Sept. 9, 2020 press release from the PCA and CRA saying they completely funded a lawsuit that led to a court ruling indefinitely delaying substantial equivalence. CAA responded both privately and publicly to that press release and the tension between various parts of the cigar industry was building heading into 2021.
Thankfully this issue seemed to stay behind doors in 2021. I haven’t heard of animosity between the groups, and while that’s not to say some might still exist, at least the public appearance seems to be a more unified front.
5. WHICH TRADE SHOWS WILL HAPPEN IN 2021?
- TPE 2021 (May 12-14) — No.
- PCA Convention & Trade Show (July 10-13) — Yes.
- InterTabac 2021 (Sept. 16-18) — Yes.
Meat Loaf famously sang that “Two Out of Three Ain’t Bad,” but never addressed how to grade going one out of three, which is what Charlie went in this one. In fairness, guessing how trade shows in 2021 would play out amidst a global pandemic and its rapidly changing landscape was a tough challenge. TPE 2021 did take place, as did the PCA Convention & Trade Show, while InterTabac 2021 was canceled in March due to what was described as the vast majority of constituents being against holding the event. While batting .333 would make you an All-Star in baseball, it only prevents me from handing out an F in this context.
6. WILL THERE BE NEW RESTRICTIONS ON MAIL ORDER CIGARS?
Prediction: I think many states will try to introduce language to collect tobacco taxes on mail-order shipments with probably a less than 50 percent success rate. I don’t think there will be any changes on the federal level.
This was one of the quieter segments of the legislative landscape in 2021, which was dominated by bans on flavored tobacco sales. That said, Virginia started the new year by requiring out-of-state cigar retailers to collect the state’s excise tax, joining Maryland and Ohio with similar laws. In November, North Carolina passed a bill that will require out-of-state retailers to pay taxes on products it sells to consumers living in the state, as well as requiring sellers to obtain a $10 license. The likely outcome of this is that cigars purchased online or through catalogs and shipped to customers in North Carolina will increase in price once the law takes effect in July 2022.
On the other side of the coin, good news came to South Dakota in March when legislation was signed that will allow cigar retailers to ship into the state as of Jan. 1, 2022, with requirements for age verification and a signature of someone at least 21-years-old for the package.
But that was all that we got word of, and two states does not meet the definition of many, and once again, I’ll gladly trade having to say that Charlie was incorrect when it means there are fewer restrictions on cigars. He was correct about the federal level, so points for that.
7. (HOW) WILL BRICK AND MORTAR CIGAR SHOPS STOP THE BLEEDING?
Prediction: I don’t have much of a prediction here. I think mail-order will continue to gain market share, which isn’t anything groundbreaking.
I’ve long said we need hard data with these predictions, which we don’t have, and once again there’s a punting of the prediction. But one thing that I can say I was told is that seemingly all retailers who were able to offer online, phone or mail order have done well during the pandemic, as they were able to refill consumers’ humidors when other stores were either closed or consumers were looking to avoid whatever in-person transactions that they could. For an already sizable and growing segment of the retail landscape, becoming a viable go-to for many consumers was a boon.
So much so that I’ve had a manufacturer tell me that almost all of its arriving products were going to online retailers during the height of the pandemic, while another said that the online guys made big strides in 2021 and are eating brick-and-mortar’s lunch. For what it’s worth, I avoid conjecture and over-generalizing whenever possible, but on the whole, the shift seems to be continuing.
That said, with loosened restrictions on retail and gatherings, I also see plenty of cigar shops in the Phoenix area with a steady stream of customers, and there have been many times in the 2021 where I’ve seen shops at or near capacity. When the measures put in place to help slow the spread of coronavirus were relaxed, it seemed that cigar shops were one of the places people headed for some socializing, or if nothing less, simply to get out of the house.
Brick and mortar cigar shops will seemingly always have big challenges and big opportunities. The vast majority are almost always at a disadvantage when it comes to pricing, and in a click-and-buy world, many now face an even more tangible reality of people experiencing the convenience that can come with online ordering. Yet they also have the opportunity to be the gathering spot for cigar smokers, the respite from an increasingly anti-tobacco world, and a place where consumers can really dive into the world of cigars, maybe even turning an interest into a passion. That, of course, requires investments in creating a clean, comfortable space, knowledgeable staff and a welcoming atmosphere. How long enough people may be willing to pay a premium—or at least pass on a discount—for the opportunity to sit in a well-appointed smoking lounge remains to be seen, but the opportunity is there for B&Ms to give them some compelling reasons to keep doing so.
Grade: Without data or a prediction, the grade is incomplete, but barring legislation there doesn’t seem to be much indication that mail-order buying is slowing down.
8. WHERE DOES MICHAEL HERKLOTS END UP?
Prediction: As much as I think Herklots makes a ton of sense as General Cigar Co.’s president, I’ve learned that these predictions aren’t about what I think makes sense. I think the more accurate guess is a broader one. I’ll say Herklots ultimately takes a job outside the cigar business because it seems like a safer guess than picking a specific cigar company.
Michael Herklots is one of a small group of people who I thought—and still think—could succeed almost anywhere, be it inside the cigar industry with an existing company, leading a trade group, or working in any number of non-cigar industries. But one thing that didn’t make the radar of possibilities in Charlie’s predictions would that he would start a new company. Along with fellow Nat Sherman International alum Brendan Scott, he launched Ferio Tego, LLC in January 2021—not long after the above prediction was published. Since then, the company has released its own blends—Generoso and Elegancia—and begun returning the Nat Sherman portfolio to stores, though not with the Nat Sherman name, which has been retained by Altria. That includes the Timeless Prestige and Timeless Sterling, along with ashtrays and humidors.
I’m glad to see that Herklots remained in the cigar industry, even if it means I have to give Charlie a bad grade on his prediction.
9. HOW MANY COMPANIES FOLLOW MIAMI CIGAR & CO.’S LEAD AND MAKE SUBSTANTIAL STAFF CUTS?
Prediction: I will say 1-2 companies make substantial cuts a la Miami Cigar & Co. but most major cigar companies keep their salesforce pretty much how they are.
As a refresher, in November 2019, Miami Cigar & Co. announced that it would be drastically reducing the size of its sales force, going from 14 sales representatives and brokers down to just five. There wasn’t much in the way of specifics, other than that Jason Wood, the company’s vice president, said that the company was going in a different direction.
In a world that has seen enough of its share of struggles since that announcement, I am glad that this prediction fell short.
10. WILL WE SEE CHANGES TO HOW ALTADIS U.S.A. & HABANOS S.A. OPERATE IN 2021?
Prediction: We will find out who bought Imperial’s cigar division in 2021, but in terms of visible changes, there won’t be major ones to either the Cuban or non-Cuban parts of the businesses.
As someone who doesn’t really believe that corporations are people, I’m hesitant to say that we found out who bought Imperial’s cigar division, but we did find out what bought them back in October 2020. Gemstone Investment Holding Ltd. purchased the U.S.-based businesses, including Tabacalera USA, Altadis U.S.A., Casa de Montecristo and JR Cigar. As for the other assets, those were sold to Instant Alliance Limited, which acquired the Flor de Copan and Tabacalera de García factories; 50 percent stakes in Habanos S.A., Internacional Cubana de Tabaco S.A. and Promoter de Cigarros S.L., as well as stakes in local Habanos distributors via a 50 percent share of Altabana S.L.
Yet, to the best of my knowledge, we don’t know who bought them, and for me, that is the more interesting question and one that remains unanswered.
As for visible changes, I haven’t seen any, and from what I can tell from talking to colleagues and others in the industry, they haven’t either, whether it be in company leadership or how they interact with the various entities. While I suspect that more time will bring about some changes, for now, it seems that the vast majority of things are still status quo.