The Food and Drug Administration’s (FDA) “deeming” regulations could see a swathe of cigar brands put out of business and spark a blooming black market.
The FDA announced May 5 that cigars, along with vapor products and pipe tobacco, will be brought under the agency’s control, in line with the terms set out in the 2009 Tobacco Control Act.
Amounting to nearly 500 pages, the regulations put huge demands on the cigar industry to get their products approved. Any cigar put on the market since 2007 will have to prove it is “substantially equivalent” to products that have already been approved.
These applications can be ruinously expensive and take hundreds of hours of paperwork. Because many producers won’t be able to withstand this regulatory onslaught, a large chunk of cigars on the market today will be withdrawn. Cuban cigars, which were illegal in the US in 2007, will not be grandfathered in.
“By their own appraisal, their new regulations would wipe out somewhere between 10 and 50 percent of these products as it will not be cost effective to put many of the products through review,” writes the Tax Foundation’s Scott Drenkard.
“The premium cigar industry is composed of some big players, but also many smaller businesses and boutique brands, many of which will likely go by the wayside,” Drenkard added.
“Going onward, they (FDA) project that just 198 premium cigar applications will be submitted in a given year, likely meaning a substantial decline in variety in the cigar market.”
The process of getting these products approved is also notoriously slow. According to a 2012 investigation by the Associated Press, the FDA had not issued a single ruling on the 3,500 applications received since 2009. If applications aren’t approved within 24 months they will be pulled off the market.
Drenkard predicts dire consequences for innovation and quality in the US cigar market:
By the FDA’s own appraisal, many of these brands will shut down or see their offerings substantially narrowed (fewer size options, fewer blends, fewer pricing options).
I think there is some likelihood that the dearth of options in the new regulated American cigar market turns more consumers over to black market sales on the internet, specifically international sales of smuggled Cuban cigars. The irony of American consumers turning to a communist country for more market choices is, of course, hard to miss.
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