What Obama's Cuba Deal Means for the Future of Cuban Cigars

[El Presidente]

A fairly concise summary from what I can see.

Reason.com

http://reason.com/archives/2014/12/21/what-obamas-cuba-deal-means-for-the-futu

Jacob Grier | December 21, 2014

This week's announcement of more normal diplomatic relations between the United States and Cuba is welcome news for many reasons. Americans will now have somewhat fewer restrictions on travel, business, and banking on the island, and they will be allowed to send higher remittances to family living there. In Cuba, the deal includes the release of political prisoners and a promise of expanded Internet access. Yet the one benefit that captures the imagination of many is the possibility that Cuba's most famous export, cigars, may finally become legally available in the United States.

1. The embargo Is Still in PlaceIf only it were that simple. Even in a best case diplomatic scenario, we're still a long way from finding Cuban cigar brands at our local tobacconists. Here are three obstacles to getting Cuban tobacco into the U.S.

Removing the embargo on Cuban imports that has been in place since 1962 would require an act of Congress. The new rules allow American travelers to return with up to $400 of Cuban goods, of which only $100 can be alcohol or tobacco for personal use. This is still a long way from allowing commercial importation. As before, any significant trade in Cuban cigars will be on the black market.

2. Trademark Battles Will Be Complicated

The United States is the world’s largest market for premium cigars and our embargo with Cuba has essentially divided the global market in two: us and everybody else. Our embargo has created dueling trademarks for cigars. Cuban brands such as Romeo y Julieta, Cohiba, Partagas, Hoya de Monterey, Bolivar, and Punch are sold around the world. But since the United States does not recognize the Cuban trademarks, cigars of non-Cuban origin with identical brand names are sold here. (It should also be mentioned that the original owners of many of these brands had their assetsseized by the Cuban government and had to rebuild their businesses in exile.)

Some of these dueling brands are linked through international subsidiaries, but others are in direct competition. The General Cigar Company owns many of these trademarks in the United States, and markets them domestically. A legal dispute over the General Cigar and Cuban claims on the Cohiba trademark has dragged on since 1997 and still has not been resolved. (Rum enthusiasts will face similar complications. The much sought after Havana Club rum is sold internationally by Pernod Ricard, but Bacardi owns the trademark in the United States. The two companies have been fighting for years. If the market opens, Pernod Ricard will likely have to sell Havana Club under the name Havanista in the U.S.)

So even if the embargo is lifted entirely, the transition to allowing Cuban cigars won’t be a smooth one. Many of the Cuban cigars one can currently buy abroad would violate trademarks if imported to the U.S. Companies will have to fight this out in court or come to mutually beneficial agreements. Other likely outcomes are that Cuban products will be marketed under different names in the U.S, or that non-Cuban companies will create their own Cuban cigars or begin using exported Cuban tobacco in their blends. In any case, buying that Cuban Partagas Lusitania I enjoyed so much won’t be as simple as stepping into the nearest cigar store, at least in the short term.

3. The FDA Could Ruin Everything

If the embargo is lifted and the trademark disputes are worked out, then we can buy Cuban cigars, right? Wrong.

When Barack Obama signed the Family Smoking Prevention and Tobacco Control Act in 2009, regulatory power over tobacco was granted to the Food and Drug Administration (FDA). Initially the FDA focused on cigarettes and smokeless tobacco, but earlier this year the agency announced plans to extend its authority to other tobacco products, including cigars.

The FDA has outlined two approaches to doing this. The agency’s so-called “Option 2″ would create an exemption for premium cigars, allowing them to be sold under less scrutiny than cigarettes. The proposed standards for this exemption are problematic in a couple ways, such as setting an effective price floor for cigars and banning all characterizing flavors (see my article in the Daily Beast for details). Despite these flaws, Option 2 would leave the door open for eventual Cuban imports.

The FDA’s “Option 1”, however, would be very bad news for new cigars of all kinds, including Cubans. Option 1 treats cigars just like cigarettes. Under the Tobacco Control Act, any tobacco products that were not commercially marketed in the United States as of February 15, 2007, must receive explicit approval by the FDA before being introduced. Winning approval is virtually impossible. As of my last coverage on the topic for Reason, only two new cigarettes had ever made it through the process, while thousands of product applications continue to languish in bureaucratic limbo.

There were a lot of cigars legally on the market in 2007, but obviously none of them were Cuban. We don’t know yet know which option the FDA will choose, but Option 1 would have a disastrous impact on innovation in the cigar market. All Cuban imports and any new Cuban blends would have to get past FDA regulators, whose record on cigarettes suggests that this would be a very high hurdle. It's plausible that President Obama will be remembered both for helping end the Cuban embargo and for signing the poorly crafted Tobacco Control Act that creates a de facto embargo on Cuban cigars all over again.

I’m keeping my fingers crossed for something like Option 2. It is possible that the FDA could move the date for grandfathering in new products forward from 2007; several congressmen, including Speaker of the House John Boehner (R-Ohio), recently urged the FDA to do so in light of the law's impact on cigars and e-cigarettes.

The eased relations with Cuba are a good reason for breaking out the cigars, but for now smokers may want to follow the lead of John F. Kennedy and keep their own stash of Cubans intact. Given political opposition to removing the embargo, complicated battles over trademarks, and byzantine regulations imposed by the FDA, I suspect that I’ll be slipping Cubans into my luggage on trips abroad for many years to come.

[OleOle]

Thanks for posting this.

Although I'm in Australia, I'll still take the advice in the last paragraph, "for now smokers may want to follow the lead of John F. Kennedy and keep their own stash of Cubans intact."

Amen to that

[thecapo]

A fairly concise summary from what I can see.

Reason.com

http://reason.com/archives/2014/12/21/what-obamas-cuba-deal-means-for-the-futu

Jacob Grier | December 21, 2014[/size]

This week's announcement of more normal diplomatic relations between the United States and Cuba is welcome news for many reasons. Americans will now have somewhat fewer restrictions on travel, business, and banking on the island, and they will be allowed to send higher remittances to family living there. In Cuba, the deal includes the release of political prisoners and a promise of expanded Internet access. Yet the one benefit that captures the imagination of many is the possibility that Cuba's most famous export, cigars, may finally become legally available in the United States.

1. The embargo Is Still in PlaceIf only it were that simple. Even in a best case diplomatic scenario, we're still a long way from finding Cuban cigar brands at our local tobacconists. Here are three obstacles to getting Cuban tobacco into the U.S.

Removing the embargo on Cuban imports that has been in place since 1962 would require an act of Congress. The new rules allow American travelers to return with up to $400 of Cuban goods, of which only $100 can be alcohol or tobacco for personal use. This is still a long way from allowing commercial importation. As before, any significant trade in Cuban cigars will be on the black market.

2. Trademark Battles Will Be Complicated

The United States is the world’s largest market for premium cigars and our embargo with Cuba has essentially divided the global market in two: us and everybody else. Our embargo has created dueling trademarks for cigars. Cuban brands such as Romeo y Julieta, Cohiba, Partagas, Hoya de Monterey, Bolivar, and Punch are sold around the world. But since the United States does not recognize the Cuban trademarks, cigars of non-Cuban origin with identical brand names are sold here. (It should also be mentioned that the original owners of many of these brands had their assetsseized by the Cuban government and had to rebuild their businesses in exile.)

Some of these dueling brands are linked through international subsidiaries, but others are in direct competition. The General Cigar Company owns many of these trademarks in the United States, and markets them domestically. A legal dispute over the General Cigar and Cuban claims on the Cohiba trademark has dragged on since 1997 and still has not been resolved. (Rum enthusiasts will face similar complications. The much sought after Havana Club rum is sold internationally by Pernod Ricard, but Bacardi owns the trademark in the United States. The two companies have been fighting for years. If the market opens, Pernod Ricard will likely have to sell Havana Club under the name Havanista in the U.S.)

So even if the embargo is lifted entirely, the transition to allowing Cuban cigars won’t be a smooth one. Many of the Cuban cigars one can currently buy abroad would violate trademarks if imported to the U.S. Companies will have to fight this out in court or come to mutually beneficial agreements. Other likely outcomes are that Cuban products will be marketed under different names in the U.S, or that non-Cuban companies will create their own Cuban cigars or begin using exported Cuban tobacco in their blends. In any case, buying that Cuban Partagas Lusitania I enjoyed so much won’t be as simple as stepping into the nearest cigar store, at least in the short term.

3. The FDA Could Ruin Everything

If the embargo is lifted and the trademark disputes are worked out, then we can buy Cuban cigars, right? Wrong.

When Barack Obama signed the Family Smoking Prevention and Tobacco Control Act in 2009, regulatory power over tobacco was granted to the Food and Drug Administration (FDA). Initially the FDA focused on cigarettes and smokeless tobacco, but earlier this year the agency announced plans to extend its authority to other tobacco products, including cigars.

The FDA has outlined two approaches to doing this. The agency’s so-called “Option 2″ would create an exemption for premium cigars, allowing them to be sold under less scrutiny than cigarettes. The proposed standards for this exemption are problematic in a couple ways, such as setting an effective price floor for cigars and banning all characterizing flavors (see my article in the Daily Beast for details). Despite these flaws, Option 2 would leave the door open for eventual Cuban imports.

The FDA’s “Option 1”, however, would be very bad news for new cigars of all kinds, including Cubans. Option 1 treats cigars just like cigarettes. Under the Tobacco Control Act, any tobacco products that were not commercially marketed in the United States as of February 15, 2007, must receive explicit approval by the FDA before being introduced. Winning approval is virtually impossible. As of my last coverage on the topic for Reason, only two new cigarettes had ever made it through the process, while thousands of product applications continue to languish in bureaucratic limbo.

There were a lot of cigars legally on the market in 2007, but obviously none of them were Cuban. We don’t know yet know which option the FDA will choose, but Option 1 would have a disastrous impact on innovation in the cigar market. All Cuban imports and any new Cuban blends would have to get past FDA regulators, whose record on cigarettes suggests that this would be a very high hurdle. It's plausible that President Obama will be remembered both for helping end the Cuban embargo and for signing the poorly crafted Tobacco Control Act that creates a de facto embargo on Cuban cigars all over again.

I’m keeping my fingers crossed for something like Option 2. It is possible that the FDA could move the date for grandfathering in new products forward from 2007; several congressmen, including Speaker of the House John Boehner (R-Ohio), recently urged the FDA to do so in light of the law's impact on cigars and e-cigarettes.

The eased relations with Cuba are a good reason for breaking out the cigars, but for now smokers may want to follow the lead of John F. Kennedy and keep their own stash of Cubans intact. Given political opposition to removing the embargo, complicated battles over trademarks, and byzantine regulations imposed by the FDA, I suspect that I’ll be slipping Cubans into my luggage on trips abroad for many years to come.

Great explanation Rob:

I believe you are 100% accurate! This will be a very long process and peeling back this onion one skin at a time is years in the making.

I foresee more travel and US businesses gaining. I do not see free trades of yet.

Second, when the US presidency changes hand, it will make this nearly impossible since the other party is adversity against these issues.

[kuma]

This looks like it will be quite (Years) some time before CC's will be legal in the states. I'm very happy to

have a good relationship with a vendor that is above reproach. This looks like it will take a long time to

straighten out. At first I thought CC's in the states would happen very fast but looks like I was wrong

on many fronts. Oh well the next LFTW / H can't come fast enough for me!

[Cisco]

Here's my question. If CCs are no longer illegal to smoke in the USA ( I'm assuming the tourists bringing back the $100 of tobacco are entitled to smoke the tobacco legally, a change from the past policy), can I not, as a non USA citizen visitor, bring my own CCs into the USA to smoke?

[parabola66]

Being new to this world.. It is great that tensions are easing and importing has taken a turn for the better, but I haven't found a "solid" answer on importing and any any limits or restriction from other countries with Cuban distributors such as, let us say, Australia..

I will also add that I hope the embargo doesn't change too quickly.. I wouldn't want the quality or brands to change just am I am getting into this world of CCs..

[OZCUBAN]

Thanks for posting Rob

A very concise and lets say honest reflection on what is a tricky situation.can't imagine the Cuban Govt negotiating with the F.D.A / and or Legal dispute,though,lets say they do have a reputation of shooting themselves in the foot

Americans already know what they need to know about cuban Cigars

[LLC]

Here's my question. If CCs are no longer illegal to smoke in the USA ( I'm assuming the tourists bringing back the $100 of tobacco are entitled to smoke the tobacco legally, a change from the past policy), can I not, as a non USA citizen visitor, bring my own CCs into the USA to smoke?

Very good question. Not sure there is a clear answer yet.

[LordAnubis]

Here's my question. If CCs are no longer illegal to smoke in the USA ( I'm assuming the tourists bringing back the $100 of tobacco are entitled to smoke the tobacco legally, a change from the past policy), can I not, as a non USA citizen visitor, bring my own CCs into the USA to smoke?

The Cuban embargo only applies to US citizens and corporations I thought. It doesn't apply to the "land". As a non US Citizen you should be free to take in your Cubans and light them up wherever you feel like it. Their embargo doesn't effect you... or so I thought.

[Dara]

Here's my question. If CCs are no longer illegal to smoke in the USA ( I'm assuming the tourists bringing back the $100 of tobacco are entitled to smoke the tobacco legally, a change from the past policy), can I not, as a non USA citizen visitor, bring my own CCs into the USA to smoke?

The only CCs that can be legally brought into the US or smoked inside the US are the ones that come back from Cuba as someone's $100 allowance (and this only applies to authorised trips with a US government license).

It's still illegal for anyone to bring CCs into the USA (whether they're a US citizen or not) and for US citizens to smoke CCs outside of the US.

For non US citizens, it's a case of "when in Rome" (the legislation applies to non citizens living in the US and non citizens visiting the US).

[CaptainQuintero]

Its obviously changed now but I thought the old policy was no us citizen was allowed to buy any cuban products anywhere in the world?

[LordAnubis]

The only CCs that can be legally brought into the US or smoked inside the US are the ones that come back from Cuba as someone's $100 allowance (and this only applies to authorised trips with a US government license).

It's still illegal for anyone to bring CCs into the USA (whether they're a US citizen or not) and for US citizens to smoke CCs outside of the US.

For non US citizens, it's a case of "when in Rome" (the legislation applies to non citizens living in the US and non citizens visiting the US).

Yeah right... never knew Another reason I have no interest in visiting

[Dara]

Its obviously changed now but I thought the old policy was no us citizen was allowed to buy any cuban products anywhere in the world?

Until they officially end the embargo that is still the case. American citizens are technically forbidden to buy North Korean or Cuban produce anywhere in the world!

[santela]

Its obviously changed now but I thought the old policy was no us citizen was allowed to buy any cuban products anywhere in the world?

And I think you are right. If I'm understanding correctly, the embargo is still intact, nothing has changed on that, therefore we still aren't allowed to buy Cubans anywhere in the world? The only exception is those who are going to Cuba legally can have a $100 budget on CCs?

This is still all very confusing to me.

[avaldes]

Isn't it amazing that in the 21st century, our gov't is still trying to regulate cigar consumption from one particular country? Especially the bit about not being allowed to smoke Cuban cigars in other countries. Remember when there was the big hubbub about president Clinton smoking a Bolivar in Heathrow airport?....IT'S A FREAKING CIGAR!! Ok, I feel better:)

[cooper669]

Isn't it amazing that in the 21st century, our gov't is still trying to regulate cigar consumption from one particular country? Especially the bit about not being allowed to smoke Cuban cigars in other countries. Remember when there was the big hubbub about president Clinton smoking a Bolivar in Heathrow airport?....IT'S A FREAKING CIGAR!! Ok, I feel better:)

Makes me wonder if it was a Bolivar with that other thing he did with a cigar!

[parabola66]

So would this mean Americans are still "unable" to purchase Cuban cigars from other countries such as Switzerland or Australia?

[1LegLance]

There is soooo much misunderstanding, but that is not surprising as it is a complicated issue.

So first understand.

It is NOT against the law to SMOKE a cuban cigar regardless of when is was created.

That is why politicians and celeb's can do it and not get in trouble.

The Trading with the Enemy Act is under the Treasury Dept, thus it is illegal to BUY cuban cigars by anyone who is a US Citizen or has a green card...UNLESS they are on a licensed trip to Cuba (before 2006 you could have $100 of cigars and now you can again).

Therefore if as a US Citizen if I order cigars from overseas that is illegal, if I smoke cigars that magically appeared in my humidor that is NOT illegal.

Strange but true.

Please don't confuse an ECONOMIC Embargo with something like Heroin where the substance itself is illegal to have.

So for us average folks the only real change is now it is much easier to travel to Cuba, you can use your US credit card there and you can bring back $400 worth of goods of which $100 can be alcohol or tobacco.

[AlohaStyle]

There is soooo much misunderstanding, but that is not surprising as it is a complicated issue.

So first understand.

It is NOT against the law to SMOKE a cuban cigar regardless of when is was created.

That is why politicians and celeb's can do it and not get in trouble.

The Trading with the Enemy Act is under the Treasury Dept, thus it is illegal to BUY cuban cigars by anyone who is a US Citizen or has a green card...UNLESS they are on a licensed trip to Cuba (before 2006 you could have $100 of cigars and now you can again).

Therefore if as a US Citizen if I order cigars from overseas that is illegal, if I smoke cigars that magically appeared in my humidor that is NOT illegal.

Strange but true.

Please don't confuse an ECONOMIC Embargo with something like Heroin where the substance itself is illegal to have.

So for us average folks the only real change is now it is much easier to travel to Cuba, you can use your US credit card there and you can bring back $400 worth of goods of which $100 can be alcohol or tobacco.

Yes it can be hard to understand but you too are not stating the facts correctly. An American violating the Cuban Assets Control Regulations can be charged both Criminally and Civilly. This includes within the US, or outside while in another country. It includes the act of buying/selling, but also "dealing in or engaging in any transaction" which basically means any transaction of Cuban goods whether it is buying or gifting.

Regarding bringing Cuban goods into the US, the rule states about gifts "Importation of these Cuban goods is prohibited whether the goods are purchased directly by the importer or given to the importer as a gift."

If caught with Cuban cigars/goods and you try to play dumb by saying it just magically appeared, that won't fly. Physically being in possession of Cuban goods means Cuba was gaining economically by you having that cigar, bottle of rum etc and you could be prosecuted by rule. Of course would you really be prosecuted, not likely.

Also just curious as you say it will be much easier to travel to Cuba... have you seen any details on this? My understanding is that nothing has changed for the average joe wanting to go to Cuba. You can sign up and pay the big bucks and go on the approved People to People tours, but that's nothing new. I haven't seen any details shown on the travel restriction portion of Obama's announcement so just wondering what the details actually are?

I was excited to hear credit cards will be allowed there, but it states for people approved and on license. Not sure I would want to risk using my card there on the off chance someone is actually monitoring usage or more likely, credit card companies have to report Cuban transactions. Highly unlikely, but paper trails are no bueno. lol

Here is a document from the Treasury's site where I pulled the quotes: http://www.treasury.gov/resource-center/sanctions/Documents/ccigar2.pdf

[AlohaStyle]

And for the American gov't having this archaic law making us citizens with "freedom" even discuss this is absolute BS.

[AlohaStyle]

Also just curious as you say it will be much easier to travel to Cuba... have you seen any details on this? My understanding is that nothing has changed for the average joe wanting to go to Cuba. You can sign up and pay the big bucks and go on the approved People to People tours, but that's nothing new. I haven't seen any details shown on the travel restriction portion of Obama's announcement so just wondering what the details actually are?

This is the quickest/best summary I've seen on the travel bit... "President Obama’s executive decisions only eases travel restrictions for Cuban and Cuban Americans wishing to visit relatives in their homeland; on entertainers seeking to perform publicly and on professional, educational and religious travel."

I need to book a few gigs in Havana this Winter.

[JohnS]

So would this mean Americans are still "unable" to purchase Cuban cigars from other countries such as Switzerland or Australia?

Yes that's correct. And as a guide to our American brothers and sisters on the forum, $100 doesn't buy you much after a trip to Cuba. But don't feel bad, Australians are only allowed to bring in 50 grams of cigars per person duty-free since the law changed in 2012 (it used to be 250 grams).

http://www.cigaraficionado.com/webfeatures/show/id/100-Dollars-In-Cuban-Cigars-What-It-Can-Buy-17928

[Hugomarink]

Until they officially end the embargo that is still the case. American citizens are technically forbidden to buy North Korean or Cuban produce anywhere in the world!

I know, it really sucks we don't have access to those coveted North Korean cigars! Rob, when are you going to start carrying those?

[PigFish]

... again, what is left out of this equation is the absolute control over the flow of Cuban tobacco as a monopolized commodity. Like I said in a different post, I believe that anti-competitive trade law suits will be precipitated from the legalization of Cuban tobacco the day it happens. Even the Cubans claim that their tobacco is unique (and most of us agree here) and that will be used against them in court. It is my guess that Tabacuba will be forced to sell tobacco openly to other companies in order for them to sell finished cigars in the USA.

-Piggy

[CaptainQuintero]

... again, what is left out of this equation is the absolute control over the flow of Cuban tobacco as a monopolized commodity. Like I said in a different post, I believe that anti-competitive trade law suits will be precipitated from the legalization of Cuban tobacco the day it happens. Even the Cubans claim that their tobacco is unique (and most of us agree here) and that will be used against them in court. It is my guess that Tabacuba will be forced to sell tobacco openly to other companies in order for them to sell finished cigars in the USA.

 

-Piggy

You'd think if this did become true, Cuba would give serious consideration to simply not selling cigars officially to the US? To just let the gray market supply demand there as the product would not be illegal to buy from abroad if the embargo ended?

From the little I know about Cuba, the last thing they would ever do would be give raw tobacco too their competition, right?