Embargo Lifting = Decrease in Quality?

[SamuraiJack]

I know via searching this has been touched on in other topics, but I'd love to hear the opinions of the Czar crew, and its probably worth its own thread.

Were the embargo to be lifted, would quality go down? (increase in fakes aside).

My minuscule pool of knowledge tells me Habanos has not handled increase in demand well in the past, but maybe they have learned?

I am kinda scared that Obama will ruin quality Habanos

[KB24]

My opinion would be that Cuban cigar makers have been somewhat preparing for the day that the embargo is lifted. I think at first the quality might go down slightly but they will eventually come back up as they move forward and get used to larger production numbers.

-Patrick

[Jimmy2]

Habano's S.A. has learned there lesson and the past three years have proven that and a lot of the new sizes i think are tended towards the US market.

They are getting ready for the end of the embargo and I think they will increase slowly to meet the demands while not giving up any quality in their products worldwide. Also i think some vendors will get less cigars and will go to the US market until they can expand production and not give up quality.

And again the US will be the biggest buyer of Cuban cigars as they were before Castro and I think quality will only get better with the US helping out with our vast agricultural knowledge .

[Jesuscookies]

Disclaimer: I do not claim to have the answer, so it is only a guess on my part.

With that out off the way, I would be willing to bet we are years, and years, and years, away from seeing Cuban cigars on the US shores. If it happens in my lifetime I would be suprised.

Why you ask? Well, take a look at the way the current administration is changing the rules. They are not lifting restrictions on the Cuban Government per se. What they are doing is allowing US capital to flow directly to the people of Cuba. The goal of this, is in essence, to minimize the regimes role in the daily lifes of the Cuban people. The current administration is hoping that this will lead to meaningful change for the people of Cuba over the long run. It does not loosen restrictions on the country, I.E. the Government of Cuba.

The last thing Obama would want to do is allow a Cuban owned industry to export product here. It would go completely against what they are trying to acheive. .

Anyway, just my 2 cents. And, to answer your original question, given the history, we would probably be smoking nicaraugan's.

[El Presidente]

JC is right in that we are all speculating.

Personally, I can see the Embargo going in the final year of Obama's first term. For that to happen he would need the Cuban Government to show/give something as a sign of good faith. Raul knows this and they have 2 years to work out an acceptable middle ground.

Domestically Obama will need a nice lead in the polls at that time. The dropping of the embargo would be a nice policy coup to sign off the first term. It would be easier than the traditional (final year of term) Middle East Peace talks.

As for cigars there will be changes.

1. Price increases will temper demand somewhat. I don't think the US is overly ready for $25 Robusto's and $45 Esplendido's. Still, the first 24 months of distribution will sell out in the US out of curiosity.

2. There is rumoured to be 20 million cigars in storage in preparation for the first wave of cigars to the US. I suspect HSA will increase this over the next three years to 50 Million. This is easily achievable with minimal disruption.

3. There are good stores of filler. Wrapper is more seasonal.

4. ERDM Fabrica comes on stream this year. Partagas to be refurbished. Romeo y Juieta to come back on line (anticipated) some time next year.

Ths will mean capacity increases pre the opening up.

5. New regions have been tested and are ready to be planted subject to demand.

6. Currently a significant percentage of Partagas and Upmann factory rollers have been stood down due to an oversupply.

Many lessons were learn't in 99/00. There is a consciousness within HSA not to repeat the errors of the past. I am confident that they will get the supply/demand curve right in a manner which increases Return on Investment while maintaining quality. Unfortunately they will suppress demand through use of price.

[Jesuscookies]

Unfortunately they will suppress demand through use of price.

That one is probably less of a guess and more of a certainty.

Anyone up for a wager?

I will put up 1 finely crafted habano that says it does not happen at the end of Obama's first term.

EDIT:

Has anyone thought about the name brand issues? I wonder how they would overcome that obstacle? Litigationsville?

For those outside of the us, everyone of the cuban marque's has been trademarked and is used in a crappy NC version.

[GP012]

Has anyone thought about the name brand issues? I wonder how they would overcome that obstacle? Litigationsville?

For those outside of the us, everyone of the cuban marque's has been trademarked and is used in a crappy NC version.

Altadis owns about half of the brands, and they also hold a 50% stake in HSA. Everything won't be resolved over night, but I don't think it will take an absurd amount of time to clear up.

[El Presidente]

Altadis owns about half of the brands, and they also hold a 50% stake in HSA. Everything won't be resolved over night, but I don't think it will take an absurd amount of time to clear up.

Imperial now own Altadis and so own 50%

Money will sort out the rest of the trademark issue. This should test Imperial's committment to cigars. Selling out the cigar division would be one solution

[SamuraiJack]

Would pricing outside of the U.S. remain the same? I can see the prices within the U.S. being insanely inflated (some of those $'s going to brand owners even?)

In other words, might us internet buyer's remain relatively unscathed?

Branding: wow I hope the right thing happens here. I would HATE to see a renaming of all Habanos brands or something ridiculous like that.

[Padrino]

Would pricing outside of the U.S. remain the same? I can see the prices within the U.S. being insanely inflated (some of those $'s going to brand owners even?)

I imagine internet sales would still be popular and cheaper than prices inside the U.S. whenever the embargo is lifted. I imagine the majority of states increasing taxes/duties on tobacco due to the inevitable boom in Habanos sales. The honeymoon won't last very long, everyone and their mother will ride that wave for as long as they can. The government included.

[Stalebread]

I imagine internet sales would still be popular and cheaper than prices inside the U.S. whenever the embargo is lifted.

And the supply of aged/vintage stock?

Will aged stock make it to US retailers?

Will the newly legallized US smoker/buyer be interested in aged stock or will the current production, as it becomes available in the US, satisfy that market segment?

[SethG]

I think we're already seeing the correct moves to control that over the next two years. All these LE's, standardizing the meaning of LE and Reserva in terms of tobacco quality, opening an LE factory... All these things lead to the ability to create ultra premium marque's. And I think we'll be those guys telling war stories about 10 dollar Monte 2's to guys that are paying 30-40. It's logical right, look at wine. A first growth in it's first years is 80 dollars per glass. Why not 40-50 dollars for a monte 2?

What I'm saying is that we're sensitive to cost as a comparison factor, not because we're seriously thinking through the experience from a new comers perspective. And that being said I think we'll see a lot more of the minor marquee's taking the questionable filler etc... to the 150-200M/year volume numbers Cuba needs.

One last thought though, I don't see any of the dominican or nicaraguan cigars remaining as is. I believe all of them will want to immediately take bulk filler and wrapper from Cuba and begin integrating them in their blends. Meaning older NC blends will disappear as we know them. Which could be good anyway.

[SethG]

And the supply of aged/vintage stock?

Will aged stock make it to US retailers?

Will the newly legallized US smoker/buyer be interested in aged stock or will the current production, as it becomes available in the US, satisfy that market segment?

One word: "Auction"

Imagine the moment that (six months into US availability) we all open our humidors for vintage stock and find people with money want the "good stuff."

Anybody see what the old Christies auctions were doing with Davidoff's and Dunhill's? Get ready.

And I don't think the embargo is lasting much longer frankly. Let's not forget the tax revenue here. And taxes make the US policy machine go round. The cigars we're buying now are like moonshine, and they locked moonshiners up. Imagine when ATF gets into this puzzle on enforcement. If you're afraid of OFAC you haven't seen anything yet.

[Padrino]

I believe all of them will want to immediately take bulk filler and wrapper from Cuba and begin integrating them in their blends.

I imagine Habanos SA guarding their golden goose with an iron fist, I can't see them allowing any quality filler/wrapper to leave their shores.

[Rogers72]

It seems to me that one huge factor that would influence pricing in the US should the embargo be lifted is the amount of NC's we have on our shelves here. If Habanos increases prices to curb demand, would the NC manufacturers also increase their pricing or would they drop prices because of the decreased demand and subsequent supply glut?

[Jimmy2]

NC companies would be in trouble and their prices would drop remember before the embargo 99% of all cigars in the USA were 100% Cuban or had had some Cuban tobacco mixed in.

I think this time around when the embargo is over the NC companies will get no Cuban leaf which will hurt them in the long run.

At fist i think the NC companies will stay afloat becuase of the high prices of Cubans in the USA in the first year or so but when more Cuban cigars are available in the USA their price will drop which will hurt the NC companies big time.

[Rogers72]

I think you're right Jimmy. I love Habanos as much as you do but at 20-30 USD for a Cuban robusto, I would be smoking $5 Padrons all day. I guess that is the way it already is in most of Europe and Canada though. Which is why those guys are buying online as well.

[SethG]

I imagine Habanos SA guarding their golden goose with an iron fist, I can't see them allowing any quality filler/wrapper to leave their shores.

I don't know, I think at one time something like 40% of all leaf was exported pre-embargo. It'd be hard to imagine them tossing that, especially with a shortage of quality rollers.

[Colt45]

I don't know, I think at one time something like 40% of all leaf was exported pre-embargo. It'd be hard to imagine them tossing that, especially with a shortage of quality rollers.

I think I'm apt to agree with Padrino here. HSA / Cubatobacco have a monopoly that I imagine they'd be disinclined to give up.

Also, pre-embargo equates to pre-nationalization of the industry, an industry still half owned by the state. As much as I'd love

to see competition opened up, I'm not overly hopeful for the near future, but one never knows for sure.

If I recall correctly, I believe Rob once said that Cubatobacco would do everything in their power to keep it from happening.

[bobsled]

What about ownership issues, didn't the state seize at least some of these name brands? Could there be suits brought to regain ownership much like holocaust victims have been able to (rightfully so) regain property stolen by the Nazis????

[GP012]

Ah, I found what I was looking for. A friend of mine (Bryan, goes by the username "Addiction") posted this on another board's thread regarding the embargo:

I was lucky enough back in November to attend a dinner with a couple of VPs of Altadis and I'll just cut to the gist of the conversation. For a Cuban the MC the cost to them is something along the lines of 34% of price. For an NC MC its on average around .05% of price. Altadis has no plans to stop selling those cigars when the embargo breaks it has a captive market at a high profit margin and a couple of years of inventory.

Very interesting, no?

[terrasco]

As far as cigars go, I see no good in lifting the embargo. Politically I think the lifting the embargo would go a long way in democratizing Cuba and reforming their economic system.

A lifting of the embargo will cause chaos in the cigar industry. Their will be a new "boom". The American market manufacturers will race to buy filler from Cuba just so they can advertise "Cuban" cigars. There will be a massive reblending effort. Prices for Cubans will rise dramatically. The initial demand will be huge as casual cigar smokers will rush to the stores. Quality cannot help but be impacted with the huge demand. There will have to be some sort of allocation system. Prices will have to rise, even in the internet dealers, because demand will increase.

I have to say that from a selfish perspective, the current situation is working very well for me and the prospect of change is a bit daunting.

[Colt45]

A lifting of the embargo will cause chaos in the cigar industry. Their will be a new "boom". The American market manufacturers will race to buy filler from Cuba just so they can advertise "Cuban" cigars.

As has been mentioned here and in other threads on the topic, Cubatobacco is unlikely and under no obligation to sell Cuban tobacco to other manufacturers.

HSA / Imperial / Cubatobacco currently have a monopoly on the Havana cigar. Why would they give that up?

[Colt45]

Ah, I found what I was looking for. A friend of mine (Bryan, goes by the username "Addiction") posted this on another board's thread regarding the embargo:

Very interesting, no?

Yes, I see no reason why they'd stop manufacturing their NC lines. I always imagined they'd just call them something like

"Montecristo Dominican" or similar.