Cigar Weekly

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Los Angeles – There were plenty of great cigars on sale in 2009 from a wide variety of manufacturers. But it was a tough year to be a buyer or seller of cigars as the Obama Administration and a Democrat-dominated Congress punched harder than ever against all aspects of the U.S. tobacco trade this year, as shown in our top-ten cigar stories of the year:

>> [10.] Two giants lost as Schneider and Lara pass
Two men intimately connected with the ascension of the Davidoff brand to worldwide success were both lost during the month of October: Ernst Schneider and Avelino Lara.

Schneider died at age 88 in Basel, Switzerland on October 13. He was the head of the Oettinger Group that purchased Zino Davidoff’s store in Geneva and its associated brand name in 1970 for the unheard-of sum of four million Swiss francs (about $970,000 U.S. at the time), but he knew what to do with it. In Dieter Wirtz’s 2006 book, Davidoff: Legend - Myth - Reality, Schneider remembered "We badly wanted a brand of our own and wanted it to be known worldwide. That is why I engaged Zino with his charisma and his magical name to be ambassador for five years. But I stayed in the background."

It was Schneider who had the idea to take the Davidoff name that was so highly regarded in cigar circles and expand it to leather goods, apparel, toiletries and many other items that are today available under the Davidoff name. He took over the reins at Oettinger Imex in 1962 when it was simply a tobacco-products distributor in Switzerland and when he handed control to Reto Cina in 1998, it was doing business in more than 100 countries with sales of more than two billion Swiss francs annually (about $1.96 billion U.S. at today’s rates).

Lara worked for many years as a roller and later as the head of the legendary El Laguito factory outside of Havana. He told interviewers that he worked not only to create the commercial version of the Cohiba blend in 1968, developed strictly as a diplomatic gift for the Castro regime, but also with Zino Davidoff to develop the Davidoff series in 1969 (it went on sale in 1970).

Lara retired as the chief of the El Laguito facility in 1996 and, so the story goes, had been to the Bahamas as a tourist and met Graycliff owner Enrico Garzaroli and arrangements were then made to allow Lara to relocate to the Graycliff complex and begin rolling cigars for patrons of the resort’s top-shelf restaurant.

The obvious quality of the cigars and the skill of the then-75-year-old Lara led Garzaroli to ask him to create a special blend just for Graycliff and just a year later – 1997 – the Graycliff brand was born. That blend is still available today in the Graycliff Original brand, with a red-and-gold band.

Lara died, also at age 88, on October 27 and was buried in Havana.

>> [9.] A new world-record cigar!
Jamaican sprint star Usain Bolt has stunned the world two years in a row by not just setting new world records in the 100 m and 200 m dashes, but smashing marks thought to be untouchable for years to come. So it was for Wally and Margarita Reyes, who set a new world-record for the longest cigar in history in November.

On November 21, they completed a stunning 196-foot, 3-inch long cigar (59.82 m) to highlight the 11th annual Cigar Heritage Festival held in Centennial Park in Tampa, Florida to raise money for the Ybor City Museum Society.

The final assembly was done in the presence of a validator from the Guinness Book of World Records, and if certified, would an amazing 47 feet, 6 inches to the old record of 148-9 by Cuba’s Jose Castelar Cairo set last year. It would be the second record for the Reyeses, who created a then-record 101-foot-long cigar that weighted more than 53 pounds at the 2006 Festival. This edition weighed in at about 112 pounds. Both were created, for the most part, at the Reyes’s shop, the Gonzalez Habano Cigar Co. in Tampa.

>> [8.] Cuban planting and production both down
Even the Cuban cigar industry is feeling the punch of the worldwide recession.

"Cuba slashes tobacco acreage amid flagging demand" read the headline on a story from the Reuters news agency on October 5, noting a Cuban National Statistics Office posting on its Web site that 30% less tobacco is expected to be planted this year.

The stark reduction was attributed to "financial restrictions that made it impossible to count on the necessary resources." The National Statistics Office notice indicated that the expected crop yield for the upcoming 2009-10 season is 22,500 tons, down 16% from the previously-planned total of 26,800 tons. The acreage to be planted with tobacco will shrink to 49,000 acres, well down from the 70,000 acres planted for the 2008-09 crop.

Habanos S.A. officials told attendees at February’s Festival del Habano that the island’s cigar business dropped by 3% in 2008, but the Reuters story also noted a forecast for 2009 that sales would retreat another 15% in 2009 "because of the recession and the smoking bans adopted in a growing number of places as a public health measure." Reports that several of the major Cuban cigar factories had seen layoffs and were well below their full production capacity were also confirmed in the Reuters report.

>> [7.] Smoking bans continue their march across America
After years of debate, Michigan became the 38th state to adopt some form of smoking ban in public places in 2009 and smoking bans in bars, restaurants and even in outdoor settings such as parks and restaurant patios continued to proliferate.

Although primarily aimed at cigarettes, the smoking bans obviously impact cigar smokers and there was some push-back against such bans, notably in Indianapolis (where a ban was tabled), in Los Angeles (where a ban on smoking in outdoor dining areas has been trimmed) and in Texas, where a furious battle ended with no statewide ban adopted, but with anti-smoking forces vowing to continue.

The push against outdoor smoking has one anti-smoking academic – Michael Siegel of Boston University – so concerned against eventual blowback that he started a Web site – TobaccoControlIntegrity.com – to catalog the quarter-truths, half-truths and outright lies being told in the advancement of the anti-smoking case.

>> [6.] More brands than ever before!
One would think that with so many negatives, the number of brands available to U.S. smokers would be diminishing. Exactly the opposite is happening.

There are more nationally-marketed brands being sold to U.S. smokers than ever before. According to the 2010 edition of our Perelman’s Pocket Cyclopedia of Cigars, more than 1,473 brands are in production, with 1,321 handmade brands, even more than at the height of the Cigar Boom in 1997 and 1998.

Many came from established manufacturers adding new lines or lines sold by third parties such as Cigars International or J-R Cigars. Gurkha introduced nine new brands in 2009; Rocky Patel had six, Alec Bradley five and even four new lines of Montecristos came to market. But there were also brands like Doublegun, Fogo, Hammer & Sickle, White Buffalo and Zoidian that are being marketed by small distributors, all looking for a piece of the world’s largest cigar market.
Is a crash coming for these brands as well as those of established manufacturers and distributors? That’s a 2010 story.

>> [5.] Two famed factories close in 2009
At the dawn of the 20th Century, the city of Tampa, Florida has been synonymous with cigars, so much so that a brand which simply used the city’s name became one of the country’s most popular: Hav-A-Tampa.

Sadly, the significant increases in pricing brought on by heavy local and state taxes, plus the new SCHIP tax added on April, drove Hav-A-Tampa sales so low that the factory which made these cigars for decades – in Tampa – was closed by Altadis U.S.A. in August. After 107 years, these cigars (all machine-made) are no longer made in Tampa, but production was moved to the Altadis U.S.A. plant in Cayey, Puerto Rico. Some 495 local jobs were lost.

On the premium side, General Cigar decided to streamline its Honduran cigar production by concentrating all of its rolling operations in one factory, the former U.S. Tobacco facility in Danli. That meant that the famed Villazon factory in Cofradia, home to Hoyo de Monterrey, Punch, El Rey del Mundo, Excalibur and so many others, had to close on December 11 and will now be used for tobacco processing and warehousing. It’s the end of an era.

>> [4.] Lounge wars!
Major manufacturers, looking for a way to get closer to consumers, went crazy in 2009, opening heavily-branded "lounges" inside existing cigar stores all across the country.

Eight different lounge "brands" opened in 2009, for Cohiba, Diamond Crown, Graycliff, La Aurora, La Gloria Cubana, Montecristo, Perdomo and Torano Cigars, including three in 10 days in December for Cohiba, Perdomo and Torano.

We now count 13 lounge "brands" including the pioneering efforts of Club Macanudo (1996 in New York) and the Cuesta-Rey Cigar Bar at Tropicana Field in Tampa (1998), plus subsequent programs for Camacho (at Comerica Park in Detroit), Avo and Gurkha.

General Cigar now has the largest number of brands with lounges with three (Macanudo, La Gloria Cubana and now Cohiba), but the runaway leader in overall locations is the J.C. Newman Cigar Company, which has the Cuesta-Rey Cigar Bar and at least 47 locations of its Diamond Crown lounges nationwide.

>> [3.] Imports surge, then dive, dive dive
There are blips and there are declines. Cigar imports to the U.S. are now in a clear decline, with year-over-year decreases reported for the fifth straight month for October.

The October figures, supplied by the Cigar Association of America from U.S. Customs data, showed that imports of handmade, premium cigars totaled 19.51 million, some 15.2% less than the 23.01 million imported in October of 2008. That’s not only the fifth monthly decrease in a row, but the sixth in seven months and the seventh out of 10 reports this year.

Only the post-SCHIP surge months of February and March showed substantial increases and there was a small, 2.63% increase reported – with some surprise – for May. Otherwise, it’s been downhill.

The Dominican Republic, the bellwether nation for the health of the U.S. premium cigar industry, fell to third place among exporters to the U.S. in October with a total of just 5.61 million cigars, down 35.4% from the 2008 total of 8.69 million. Honduran cigar production, which has been down all year, fell again in October to 6.28 million, down 14.4% from the October 2008 total of 7.34 million. Nicaragua has been the only bright light among the three major cigar-producing nations for the U.S. market, heading toward its sixth straight year with increased premium-cigar exports to the U.S. For the month of October, Nicaragua led all premium-cigar-exporting nations at 7.42 million cigars, up 10.2% over the 6.74 million in October 2008.

Year-to-date figures showed increases for the Dominican Republic (thanks to heavy buying prior to the activation of the SCHIP taxes), a major drop for Honduras and continued strength for Nicaragua, which will likely have another record year for exports to the U.S.

When the full-year figures are in, U.S. premium-cigar import totals will be higher than for 2008, but well behind the 300-million-plus years of 2004-07. It could be worse.

>> [2.] U.S. Food & Drug Administration given oversight of tobacco
A long-desired goal of the anti-tobacco movement is to have the tobacco industry regulated by the U.S. Food & Drug Administration. With a heavily Democratic Congress and a Democrat in the White House, it only took six months to pass and sign the "Family Smoking Prevention and Tobacco Control Act" on June 22.
It took even less time for the F.D.A. to not only begin exercising its regulatory authority, but abusing it. The legislative package that gave the F.D.A. control also eliminated the sale of flavored cigarettes (excepting menthol, of course) as of September 22, but the F.D.A. went further, saying that any flavored tobacco product that a consumer could essentially use in the same way as a cigarette was also banned, including little cigars.

That’s not what the law says, and Kretek International of Moorpark, California, filed suit to obtain a declaration of whether its new Djarum Filtered Clove Little Cigars can be sold. That case is pending.

In the meantime, the City of New York voted to ban the sale of all flavored tobacco products – specifically including cigars, chewing tobacco, pipe and hookah tobacco – effective in late February of 2010.

>> [1.] Democrats pass SCHIP legislation, funded by new tobacco taxes
Barack Obama was sworn in as U.S. President on January 20 and 14 days later he signed into law an extension and vast expansion of the State Children’s Health Insurance Program (SCHIP).

The new SCHIP program is funded by a series of new taxes on tobacco products, raising the Federal tax on a pack of 20 cigarettes or little cigars to $1.01 and sending the Federal tax on cigars from 20.719% of the wholesale price with a tax cap of 4.875 cents per cigar to 52.75% of wholesale with a tax cap of 40.26 cents per cigar, effective April 1. On a box of 25 cigars, the new tax added at least $8.85 to the price.

Never mind that the amount of taxes to be collected will quickly be less than the cost of the new SCHIP program, or that the rise in taxes will create new criminal activity. The SCHIP bill, combined with the F.D.A.-oversight law, may make things difficult for the cigarette trade, but are devastating blows to the relatively tiny premium-cigar industry in the United States.
 

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