By Elmo Rinaldi, Region 3 Advocate
It’s noteworthy to point out that most companies in the cigar industry qualify as a small business. With FDA’s greater familiarity with the large cigarette industry, they have had a tendency to over-regulate the hand-rolled cigar industry, costing many of these businesses a lot of money and causing them much grief.
During a small business forum that I hosted with a group of manufacturers, wholesalers and retailers in the premium cigar industry, the participants narrowed down their concerns to three major issues. I’ll reiterate these issues as they were described:
- Health warnings on packaging or advertisements can carry a cost in the millions. This cost was grossly underestimated by FDA, and they have not clearly articulated how any positive results from these health warnings can be measured as they relate to the cigar industry.
- Companies have to get FDA approval before they can put new products on the market. The lifeblood of the premium tobacco industry is getting new products to consumers. FDA is proposing a pre-market review process on manufacturers before they can roll out new products. This involves chemical testing, which will cost hundreds of thousands of dollars. Small companies don’t have the resources to go through this process. Once again, FDA underestimated the costs and can’t estimate what the benefits will be. What’s making it even worse is that they still have not defined what’s needed in the Pre-Market Review Packages. In the meantime, companies can’t introduce new products and the industry is frozen and locked down, thus strangling these companies. One retail cigar business owner said, “Businesses can’t function and they can’t invest when they don’t know what the future holds. I thought I was in the business of selling cigars, now I’m in the business of compliance. My primary competition is no longer other cigar businesses, but the federal government itself!”
Here’s a new added government twist: “Sample packs are now considered a new product by the FDA, which in effect causes these small hand-rolled cigar shops to be considered a manufacturer. An example of a sample pack would be if one of these cigar retailers takes five existing marketed boxes of cigars, then takes one cigar out of each box, and then sells those 5 cigars as a sample pack. A change in size, i.e. expanding an existing marketed box of cigars from 4 to 5 cigars, is also considered a new product to be approved, and yet another expense incurred. The big cigarette companies don’t run into this issue, because the typical cigarette smoker doesn’t want to sample different cigarettes.
- FDA requires “Cigar Testing,” but has not stated “what companies are supposed to test for” or “how often.” Companies have invested their own money with labs approved for this type of testing and those labs have said that there is no acceptable methodology for testing hand rolled cigars due to the fact that they are rolled in various shapes and sizes, but for cigarettes there are machines test them because they are all, for the most part, made in similar sizes, shapes, length, diameter, etc. Additionally, cigar leaves are very diverse, depending on the country of origin and its climate patterns.
The bottom line is that FDA has taken their template for regulating big cigarettes – a highly adulterated manufactured product that is based on consistency and brand loyalty – and forced it onto an artisan product.
It seems like certain regulators in Washington, D.C. are going out of their way to burn out the specialty cigar industry.
Elmo Rinaldi serves as the Region 3 Advocate for the SBA Office of Advocacy, representing small businesses in Delaware, the District of Columbia, Maryland, Pennsylvania, Virginia and West Virginia. Rinaldi works with small business owners, state and local governments, and small business associations to bring the voice of Region 3 to Washington DC. He can be reached at elmo.rinaldi@sba.gov.