Cuba

What Obama's Cuba Deal Means for the Future of Cuban Cigars

Don't stop hoarding those Cuban cigars just yet.

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This week's announcement of more normal diplomatic relations between the United States and Cuba is welcome news for many reasons. Americans will now have somewhat fewer restrictions on travel, business, and banking on the island, and they will be allowed to send higher remittances to family living there. In Cuba, the deal includes the release of political prisoners and a promise of expanded Internet access. Yet the one benefit that captures the imagination of many is the possibility that Cuba's most famous export, cigars, may finally become legally available in the United States.

If only it were that simple. Even in a best case diplomatic scenario, we're still a long way from finding Cuban cigar brands at our local tobacconists. Here are three obstacles to getting Cuban tobacco into the U.S.

1. The Embargo Is Still in Place

Removing the embargo on Cuban imports that has been in place since 1962 would require an act of Congress. The new rules allow American travelers to return with up to $400 of Cuban goods, of which only $100 can be alcohol or tobacco for personal use. This is still a long way from allowing commercial importation. As before, any significant trade in Cuban cigars will be on the black market.

2. Trademark Battles Will Be Complicated

The United States is the world's largest market for premium cigars and our embargo with Cuba has essentially divided the global market in two: us and everybody else. Our embargo has created dueling trademarks for cigars. Cuban brands such as Romeo y Julieta, Cohiba, Partagas, Hoya de Monterey, Bolivar, and Punch are sold around the world. But since the United States does not recognize the Cuban trademarks, cigars of non-Cuban origin with identical brand names are sold here. (It should also be mentioned that the original owners of many of these brands had their assets seized by the Cuban government and had to rebuild their businesses in exile.)

Some of these dueling brands are linked through international subsidiaries, but others are in direct competition. The General Cigar Company owns many of these trademarks in the United States, and markets them domestically. A legal dispute over the General Cigar and Cuban claims on the Cohiba trademark has dragged on since 1997 and still has not been resolved. (Rum enthusiasts will face similar complications. The much sought after Havana Club rum is sold internationally by Pernod Ricard, but Bacardi owns the trademark in the United States. The two companies have been fighting for years. If the market opens, Pernod Ricard will likely have to sell Havana Club under the name Havanista in the U.S.)

So even if the embargo is lifted entirely, the transition to allowing Cuban cigars won't be a smooth one. Many of the Cuban cigars one can currently buy abroad would violate trademarks if imported to the U.S. Companies will have to fight this out in court or come to mutually beneficial agreements. Other likely outcomes are that Cuban products will be marketed under different names in the U.S, or that non-Cuban companies will create their own Cuban cigars or begin using exported Cuban tobacco in their blends. In any case, buying that Cuban Partagas Lusitania I enjoyed so much won't be as simple as stepping into the nearest cigar store, at least in the short term.

3. The FDA Could Ruin Everything

If the embargo is lifted and the trademark disputes are worked out, then we can buy Cuban cigars, right? Wrong.

When Barack Obama signed the Family Smoking Prevention and Tobacco Control Act in 2009, regulatory power over tobacco was granted to the Food and Drug Administration (FDA). Initially the FDA focused on cigarettes and smokeless tobacco, but earlier this year the agency announced plans to extend its authority to other tobacco products, including cigars.

The FDA has outlined two approaches to doing this. The agency's so-called "Option 2? would create an exemption for premium cigars, allowing them to be sold under less scrutiny than cigarettes. The proposed standards for this exemption are problematic in a couple ways, such as setting an effective price floor for cigars and banning all characterizing flavors (see my article in the Daily Beast for details). Despite these flaws, Option 2 would leave the door open for eventual Cuban imports.

The FDA's "Option 1", however, would be very bad news for new cigars of all kinds, including Cubans. Option 1 treats cigars just like cigarettes. Under the Tobacco Control Act, any tobacco products that were not commercially marketed in the United States as of February 15, 2007, must receive explicit approval by the FDA before being introduced. Winning approval is virtually impossible. As of my last coverage on the topic for Reason, only two new cigarettes had ever made it through the process, while thousands of product applications continue to languish in bureaucratic limbo.

There were a lot of cigars legally on the market in 2007, but obviously none of them were Cuban. We don't know yet know which option the FDA will choose, but Option 1 would have a disastrous impact on innovation in the cigar market. All Cuban imports and any new Cuban blends would have to get past FDA regulators, whose record on cigarettes suggests that this would be a very high hurdle. It's plausible that President Obama will be remembered both for helping end the Cuban embargo and for signing the poorly crafted Tobacco Control Act that creates a de facto embargo on Cuban cigars all over again.

I'm keeping my fingers crossed for something like Option 2. It is possible that the FDA could move the date for grandfathering in new products forward from 2007; several congressmen, including Speaker of the House John Boehner (R-Ohio), recently urged the FDA to do so in light of the law's impact on cigars and e-cigarettes.

The eased relations with Cuba are a good reason for breaking out the cigars, but for now smokers may want to follow the lead of John F. Kennedy and keep their own stash of Cubans intact. Given political opposition to removing the embargo, complicated battles over trademarks, and byzantine regulations imposed by the FDA, I suspect that I'll be slipping Cubans into my luggage on trips abroad for many years to come.