CubaNews / April 2008
By Larry Luxner
What if Cuba could once again export cigars freely to the United States? That’s the question on the minds of many in the U.S. tobacco industry, now that Fidel Castro is no longer in power and Presi-dent Bush approaches the end of his term.
Clearly, an eventual end to the punishing U.S. trade embargo would give a major boost to Cuba’s tobacco industry, which brings in $240 million annually. Each year, the island produces around 150 million cigars, with the vast majority now exported to Europe.
“It would bring a new excitement to the industry. Any time the American consumer is told he can’t have something, he wants it more,” says Michael Gold, president of Arango Cigar Co. in Northbrook, Ill., which imports cigars from a variety of countries.
“It’s similar to what we here in the Midwest experienced back when you couldn’t buy Coors beer east of the Mississippi River. So people drove into Denver to load up their cars and bring beer back to college towns,” Gold told CubaNews. “Everyone clamored to get it, but once Coors became available east of the Mississippi, its market share dropped lower than most other beers.”
Likewise, he said, once Cuban stogies are freely available to Americans, they’ll grab less of a market share than Dominican or even Honduran cigars.
In 2007, according to the Cigar Association of America, 5.55 billion cigars worth $3.2 billion at the retail level were sold to U.S. consumers. About 94% of that total were manufactured domestically — nearly all of them by machine — and sold for $1.25 apiece or less.
The remaining 6% consisted of premium imported cigars selling for an average $2.50 each. By far, the leading supplier of premium cigars is the Dominican Republic, accounting for 177.6 million units, or 53% of the 2007 total.
Other key suppliers are Honduras (84.6 mil-lion units) and Nicaragua (69.2 million units), with much smaller volumes of cigars coming from the Bahamas, Costa Rica, Indonesia, Jamaica, Mexico, Panama and the Philippines.
CAA President Norm Sharp said what people generally don’t understand is that “it was always Cuban tobacco that was highly sought after, not the cigars themselves.”
He said most of the premium cigars consumed domestically prior to 1962 — when the embargo went into effect — were handmade in Customs-bonded factories in Miami, Tampa, New Jersey and other U.S. cities with large Cuban immigrant populations.
Even with cheaper machine-rolled cigars, Cuban tobacco was used in the blend.
“It’s generally felt that, were the market to open to Cuban cigars, you’d see a resurgence of cigar sales in the United States, because people would experiment with Cuban cigars and be able to compare them to the cigars they’re now getting from the Dominican Republic, Honduras and Nicaragua, none of which really had a cigar industry prior to the embargo,” Sharp told CubaNews.
“There’s going to be pronounced competition for Cuban tobacco” which grows mainly in the western province of Pinar del Río, he said. “A lot of people will be looking towards incorporating Cuban tobacco in their blends, whether those cigars are made in the U.S. or elsewhere.”
Richard Di Meola, a retired cigar-industry executive in Boca Raton, Fla., doesn’t think an end to the embargo will mean Cuba would suddenly flood the U.S. market with cigars. In the five or six years prior to 1962, when the embargo went into effect, Cuban factories supplied an average 14 million of the 185 million premium cigars smoked in the United States — or only 7.5% of the total, he said.
“When the embargo was enacted, we could not get Cuban tobacco anymore, and as the stocks were depleted, the market for premium cigars declined to as low as 50 million.
“But it began to come back after the Cuban cigarmakers left Cuba when their companies were nationalized. They established cigar-making affiliations in other parts of the world,” said Di Meola, who in 1956 began working with Faber, Coe & Gregg Inc., then the nation’s leading importer and distributor of Cuban cigars.
Di Meola retired in 1998 from Consolidated Cigar Corp. (now Altadis USA) as chief operating officer and executive vice-president.
“I think if Cuban cigars once again became legal in the United States, there would be another cigar mini-boom,” he predicted.
“There will be heavy interest focused on the premium cigar business, similar to what took place in the ‘90s but not as intense. Cu-ban cigars will be tried and tested, and over time, they’ll compete on a more even playing field with other fine cigars being produced in the Dominican Republic and Honduras.
“Eventually, when the sense of the forbidden is gone, the Cuban cigar will no longer compete on its reputation alone, but on quality as measured against all other good cigars in the world,” he said, suggesting that in some ways, Dominican cigars are superior to their Cuban-made rivals from a construction point of view.
“But when a Cuban cigar is good,” he added, “it’s very good.”
Some wonder whether Cuba could make enough cigars to satisfy the burgeoning market. And even if it could, a series of nasty trademark disputes would have to be resolved before the first Cuban-made cigar ever reaches U.S. shores legally.
For example, even if Altadis wanted to bring Cohibas into the United States, it could not because General Cigar — a subsidiary of Swedish Match — owns the Cohiba trademark in the United States.
Interestingly, the CAA doesn’t endorse or oppose the U.S. embargo.
It can’t, said Sharp, because “within our membership, we have divergent views.” Some companies like Altadis have a close relationship with the Cuban government, while others are run by Cuban exiles fiercely opposed to the Castro regime.