Cigar Captain

I will be the first to admit that I’ve never been too interested in Economics.  The class didn’t appeal to me in school and the subject never gained in interest to me.

That being said, even a relative neophyte such as I has to begin to question the wisdom behind smoking bans, from a purely economic standpoint.  I’d like to begin by bringing to your attention, good reader, a movement currently afoot far removed from where I sit writing these words.

It seems that in Australia, there is a bill that has been introduced that will impose the following limitations on tobacco product labeling.  Keep in mind, this is all tobacco products, cigarettes, cigars, pipes, you get the picture. 

Under the new law, all tobacco products will:

1. Have to be packaged in a “plain brown” wrapper.  No photos, illustrations, or graphics of any kind, except….
2. All packages will be required to prominently display graphic warnings about the hazards of tobacco use….  (Sound familiar?  It should…)
3. Manufacturer or product names will be required to be printed in a standard font…  (No way to set yourself apart here either…)
4. Tobacco products will not be allowed to bear a manufacturer or product name on the product itself… (So, no little “Marlboro” on your smokes, and no bands on your cigars!)

I’m sure that there are other conditions and stipulations included in this legislation, but those are the big four that stuck in my mind after reading an article in the autumn edition of Cigar Journal.  So, let’s take a quick look at each of these limitations and consider the economic ramifications these laws could have on the premium cigar industry both in Australia and around the world.

The first restriction has vast implications for the premium cigar industry.  In a business where image is everything, the ability of manufacturers to create beautifully artistic means of presentation is of paramount importance.  Many manufacturers have made a name for themselves for their ornate presentations such as K. Hansotia of Gurkha, the many interesting boxings by C.A.O., even standard brands such as Punch, Hoyo de Monterrey, Arturo Fuente, and others feature incredibly intricate color lithography on their dress boxes.  If a law such as is being proposed were to pass, all of this would be a thing of the past.  Even the Rosa de Copan tubes I ordered which came packaged in a god’s honest brown paper package had illustrations to improve the aesthetics of the product.

Moving on to the second part of the law, the prominent display of graphic warnings about the hazards of tobacco use are something you and I may as well get used to.  If the US Food and Drug Agency has their way, we’ll be looking at these on at least 50% of the surface of our cigar boxes too.  This legislation this rule has already been put, essentially, into effect.  If you have not had a chance to see what the new Opus X boxes will look like next year, here’s a link to the FDA’s Frequently Asked Questions page about the final rule on graphic tobacco warnings.  It’s an interesting read… (http://www.fda.gov/TobaccoProducts/Labeling/CigaretteWarningLabels/ucm259953.htm )

The third portion of the new rule is another stab right into the heart of the marketing and advertising portion of the premium cigar industry.  Lacking the ability to create unique packaging the industry will be hard pressed to differentiate themselves to customers.  Requiring all manufacturer or product names to be printed in one standard font and standard size removes the last chance for on the shelf product differentiation.  Welcome to the world of the Wal-Mart brown-bag cigar store…

And finally, if the rest was not enough, the Aussie brains behind this set of laws have removed the last possible place a manufacturer could claim their product as their own, on the product itself.  Cigarettes will not be allowed to have the brand name printed on the paper as is currently the practice throughout the world, just white sticks with gold, speckled ends… well, unless they require filter wraps to be gray.  But, this portion of the law again has serious potential implications for the premium cigar industry.  Cigar bands have been an industry standard since they were introduced in Cuba in the mid-19^th Century.  Brands are known by their distinctive bands;  special bands are created to commemorate special events, famous people, and worthy causes.  All of this will cease to exist.  There will be no way to tell what kind of cigar you are smoking.  None.  In Australia, a country where Habanos has a strong distribution network, Cuban cigars would suddenly become one huge, homogeneous mess.  Aside from relative shape, size, and wrapper color, there will be no way to tell one cigar from the next.  At this point, marketing becomes a moot point.

So, what are the economic problems that I see here?  Well, let’s start at the very beginning…

You may have heard the cigar saying, “By the time a cigar gets to you, over 300 pairs of hands have touched it.”  I’ve seen 400 hands, 350 hands, regardless, a lot of people are involved in the making of a premium handmade cigar.

Off the top of my head there are the seed dealers who sell the seeds to the farmer.  The farmer had numerous employees involved in the various aspects of cultivating premium black tobaccos for premium cigars.  From the farms, the leaves usually go to a manufacturer where they are either processed or stored.  Again, many employees are involved in the handling and storage of the leaves before they see a roller’s table.  And, let’s not forget the transportation industry employees that brought the seeds to the distributor, the leaves from the fields, and eventually to the manufacturer.

Once the leaves are deemed ready to use, there’s the matter of de-stemming the leaves, sorting the leaves, mixing the blends, all done by hand by real humans.  From there, the leaves are transformed into the premium cigars we all enjoy so by the bunchers and rollers.  Then, the finished cigars are checked and rechecked by supervisors and quality assurance technicians.  From there, the cigars are usually stored to age, frequently checked to ensure proper storage, by humans.

Once the cigars are ready, they are taken to be re-sorted, banded, and boxed.  Again, all by human hands.  And while we’re at this point, I’ll draw your attentions specifically to the banding and boxing as under the Australian rule, these processes would all but cease.  That’s bad news if you happen to be a cigar bander, but let’s not forget the other players at this stage.  Let’s not forget the box manufacturers, the cigar band manufacturers, the lithographers and printers, the company that manufactures cellophane sleeves, and all of the companies that provide materials to these companies.  And again, let’s not forget the transportation sector contribution to this.  Lots of planes, trains, and trucks, and ships are involved in these processes and they all need someone to drive them.

So, something as seemingly innocuous as plain packing of cigars has global economic implications for many different business sectors.  But, what are the implications for non-Australian cigar aficionados?

Higher prices as manufacturers either try to accommodate the new rules and restrictions in an effort to maintain their market place, or as a result of the manufacturers’ need to increase revenues due to the loss of market place.  Cuban cigars, known as one of the most frequently counterfeit commodities around will become almost impossible to authenticate.  Lacking bands, boxes or other identifying markings, including the would-be-banned, famous Cuban seal, Habanos S.A. would be hard pressed to continue to sell in this market.  

And finally, the very people that we buy our cigars from will suffer.  Retail cigar companies worldwide could feel the impact of these laws as manufacturers scramble to work out workable ways to compensate for losses.  This will inevitably result in higher wholesale cost which translate directly into higher retail costs.

But, the bigger question in my mind, given the current economic challenges we’re facing worldwide, is now the time we really want to pass laws that will:

• Decrease tax income (less or no tobacco means less or no more tobacco tax revenue that will have to be made up for elsewhere… read as higher personal taxes!)
• Cost potentially thousands of jobs, many low paying manual labor jobs located in Central American and Caribbean nations.  Countries where tobacco is a major contributor to the GNP.  Countries not historically politically stable, nor cash rich nations.
• Eliminate jobs in “supporting” industries such as transportation and printing.
• Create new, larger markets for counterfeit products, one in which determining the authenticity of any given product will be all but impossible.

So, thanks to some “well-meaning” Aussies, that 5-buck puro you’re smoking while you’re reading this might soon be a 25-buck puro…. Or in Australia, it could be any puro, how the hell will you know?

[Editor’s note:  These opinions are strictly my own and do not necessarily reflect those of Mike’s Cigars or any of its employees.  This rant is all mine…  - M.K.]

Tags: cigar ban, cigar legislation, handmade cigars, premium cigars, smoking bans, smoking law

This entry was posted on Friday, October 21st, 2011 at 5:31 pm and is filed under Legislative Updates. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.