Taxes & Tobacco: A lesson in how the government raises revenue without raising taxes; or how unnecessary regulation of the premium cigar market can in turn make life in Central America harder for its citizens, harm small business and increase illegal immigration to the U.S.
Unbeknownst to the average cigar smoker, the government has been successfully taking aim at the Premium Cigar industry by lumping them in with all tobacco, adding cost to the price of the average stick.
In 2009, the Democratic-majority 111th U.S. Congress passed the Family Smoking and Prevention and Tobacco Control Act. This gave the FDA authority of certain tobacco products and get the Secretary of Health and Human Service the power to deem other products subject the FDA regulation.
In 2014, the FDA released a proposed regulation that would grant the FDA the authority to regulate other tobacco products including premium cigars. Then the FDA required all cigars brought to the U.S. market after Feb. 15, 2007 to submit a pre-market approval application, despite the fact it was already 2014. Those companies who had products on the market that were post the 2007 date, could keep them on the market if they submitted a substantial equivalence form or a premarket tobacco product application.
Cigar retailers scrambled to figure out what these changes would mean for their products and as a result, some spend thousands of dollars on attorneys; some cancelled cigars they had planned to bring to market and some decided to go out of business.
The Cigar Association of America, Cigar Rights of America and the International Premium Cigar & Pipe Retailers banded together to take steps to fight these laws with lobbyists, through bills in congress and lawsuits.
These regulations meant that many premium cigars, which have consistently been shown to be less harmful and addictive and are distinct from other tobacco products regarding the perception among youth, would face a harder approval process than cigarettes or snuff. According to the American Lung Association, cigarettes have more than 600 ingredients and when burned create more than 7,000 chemicals with at least 69 of those know to cause cancer. Premium cigars, however, are a hand-made product with no added ingredients. They are 100 percent tobacco that has been fermented to release ammonia and reduce the amount of nicotine.
To reduce potentially harmful effects associated with tobacco products, congress had just given the FDA the ability to penalize the premium cigar industry as stiffly as cigarettes. Registration of cigars has been only the first step. The FDA also implemented a health warning requirement that was to take effect Aug. 10 of this year. It included warning statements on cigar packages as well as well as point of sale and website warning signs.
Implementation of these rules has been delayed by a U.S district judge’s injunction. This delay is after the Cigar Association of America and other plaintiffs challenged the rule that applied FDA cigarette tobacco regulations to premium cigars.
If all the measures are applied and cigar companies must spend hundreds of thousands of dollars for every cigar brought to the market, the impact on the Central American tobacco industry would be felt significantly. In countries like Nicaragua, 75% of its tobacco production is exported to the United States. The tobacco industry generated 11.5 percent of the total employment of the companies operating under their free trade zones and exported $218 million.
The future of cigars is in the courts but no matter the outcome, the cost of cigars for the average smoker will rise to pay for the government’s added cost.