Barring some very on-brand 2020 curveballs, Joe Biden will be the next president of the United States. As I did the last time I published an article like this, I’d like to make it very clear: there are issues far greater than cigars, but this is a cigar blog and the cigar world will feel impacts from this election.
So, here are some ideas as to what this past week means for our little corner of the world.
THE ELECTION ISN’T OVER
As you will hear repetitively over the next couple of months, we won’t really understand what the 2020 election means until at least Jan. 5, 2021. That’s when Georgia will hold runoffs for what appears to be both of its Senate seats. It would seem likely that the Senate will have a split of 50-48 Republican before the Georgia runoff. If the Democrats are able to pick up both of those seats, it would mean a divided Senate where Vice-President-elect Kamala Harris would be the deciding vote.
That is, to put it mildly, a very different scenario than if Republicans are able to win one or both of those seats.
IF REPUBLICANS CONTROL THE SENATE
What we’ve seen from the last couple of examples of divided government, particularly when the Senate and White House are controlled by different parties, is that government slows down. In the Obama administration, that meant a lot more action under executive order and very little done in the way of standalone bills.
It would likely mean a world where omnibus spending bills would remain the norm, meaning that rather than passing individual spending bills, the government will rely on a series of smaller extensions and then a once-annual massive spending bill that contained not only budget-related items but also other changes to federal laws. An omnibus spending bill, for example, is how the minimum age to purchase tobacco products federally was increased from 18 to 21-years-old.
The cigar industry has had moderate success at getting favorable language to limit or remove FDA regulations in the standalone spending bills but has consistently been unable to get that language included in the larger omnibus bills.
I would suspect that remains the case going forward.
Over the years, I’ve been told by those involved in the lobbying efforts that Sen. Mitch McConnell, R-Ky., has been uninterested in seeing cigars get an exemption from FDA regulation. If Republicans retain control, McConnell will remain majority leader and continue to use his position with great power, more or less single-handedly deciding what can and cannot pass through Congress. I should be clear, I’m not sure McConnell is explicitly opposed to the exemption or whether he just doesn’t care, and as such isn’t willing to make it part of the negotiations.
IF THE SENATE IS 50-50 (DEMOCRATS HAVE THE TIEBREAKER)
Welcome to Pandora’s box.
On the most elementary level, a generic Republican policy is better for the cigar industry than a generic Democratic policy.
Republicans are more opposed to regulation, more into personal freedom and less tied to the lobbying power of large health groups. So, in theory, a Republican government should mean, at the very least, that things won’t get worse.
I was talking to an individual who is very involved in the lobbying efforts and he mentioned that he thinks it would be good for the cigar industry if Democrats won. I am, at the very least, skeptical of this.
His theory was that the Democrats are likely to want to modify the Tobacco Control Act, the bill that gave FDA the authority to regulate cigars, pipe tobacco, e-cigarettes, hookah tobacco and other products. Democrats would, presumably, like to modify it to enact tougher regulations on e-cigarettes, as well as changing the language so e-cigarettes were required to pay user fees. His theory is that the cigar industry might be able to get different rules for premium cigars as part of that discussion.
But that is opening Pandora’s box.
I think his theory might actually be more of an indictment of the last four years—much more on that below—because with recent Republican leadership, the cigar industry hasn’t gotten get any tangible benefits. So maybe with McConnell out of the way and everything back on the table, the cigar industry might have success.
The problem is, it could also lead to much stricter regulations. The premium cigar industry would be fighting a two-front battle thanks to likely opposition from both health groups and big tobacco.
I am concerned that modifying the Tobacco Control Act would lead to a net positive, or even really a 50/50 chance of it leading to a net positive. I also think it would force people in the industry to grapple with a question of whether the status quo is really bad enough to want to risk rolling the dice to make things better knowing it could get worse. To me, if there’s a guaranteed chance of the status quo, a 50 percent chance of making things better or a 50 percent chance of making things worse; the cigar industry should take the status quo.
It would seem likely that at some point during the Biden administration you will likely be able to once again legally bring back Cuban cigars to the U.S. and probably travel to Cuba with fewer restrictions. That’s because if there’s one cigar-related topic that doesn’t hinge upon what happens in Georgia in early January, it’s Cuba.
As was mentioned quite repetitively Tuesday night, Donald Trump used the powers of his presidency to specifically appeal to the Cuban and Venezuelan populations in South Florida. He did this by increasing sanctions on the leaders of both countries and rolling back much of Obama’s policies towards Cuba.
Given that improved relations with Cuba were a signature accomplishment of the Obama presidency, it would seem likely that Biden will reverse Trump’s restrictions and restore the Obama era policies.
And given that both Obama and Trump made these changes without Congressional approval, Biden could easily do so without worrying about Republicans getting in the way.
A BRIEF NOTE ON DONNA SHALALA
Rep. Donna Shalala, D-Fla., was one of a number of Democrats in the House who lost their seats. Shalala represented a district that included parts of Miami, an area where Trump dramatically improved on his performance from 2016. Unfortunately for the cigar industry, Shalala was a Democrat who was sympathetic to the cause.
She, along with Rep. Kathy Castor of Tampa, was specifically mentioned by Drew Newman of J.C. Newman earlier this year when premium cigars were given some carve-outs from a potentially damaging anti-tobacco bill that was working its way through the House of Representatives. While plenty of Republicans supported the cause, Shalala and Castor were crucial Democratic voices making sure it was able to pass with the carve-outs.
While that bill never had a chance of becoming law under the last Congress, losing a cigar-friendly Democrat just as Democrats take over the White House is not good.
Just as a generic Republican is better for the cigar industry than a generic Democrat, a cigar-friendly Democrat is worth more than a cigar-friendly Republican. It might not be like trying to find a unicorn, but it certainly is tougher. And that means when the cigar industry gets Democratic friends, it really doesn’t want to see them go.
Castor, for those wondering, was reelected.
TAX INCREASES IN COLORADO & OREGON
Voters in Colorado and Oregon approved tax increases for tobacco products, including cigars.
In Colorado, the tax rate on cigars will increase from 40 percent of the wholesale price to 50 percent of the wholesale price, effective Jan. 1, 2021. Unfortunately, that’s not all. The ballot measure will increase the tax rate to 56 percent on Jan. 1, 2024, and finally 62 percent of the wholesale price on Jan. 1, 2027.
Oregon’s tax cap will increase from 50 cents to $1, meaning that as of Jan. 1, 2021, consumers should expect to pay $1 more per cigar in the state because of how most retailers set margins on cigars.
WHAT DID THE TRUMP ADMINISTRATION MEAN FOR THE CIGAR INDUSTRY?
If anything, the more fascinating part of this topic is what the last four years have meant for the cigar industry.
It’s really, really complicated.
In the binary choice that the 2016 election was, I think that a Trump presidency has been better for the cigar industry than the alternative of a Hillary Clinton presidency. For the same reasons I’m concerned about seeing the Tobacco Control Act revisited, I think it’s hard to argue against Trump being better for the cigar world than Clinton. Even if you think the Trump administration delivered zero tangible wins for the cigar industry on the regulatory front—more on that below—doing nothing is probably the best-case scenario for regulations under a Clinton administration.
I also think most cigar companies enjoyed the tax policies of the recent administration, so there’s a definitive win.
THE NOT SO GOOD
But boy does it get more complicated after that.
If you had to think about where the regulatory environment was for the cigar industry four years ago and compare it to today, things have, by-in-large got better.
The highlights are as follows:
The only problem is, when you look at which government actor is responsible for those changes, Trump’s scorecard for wins isn’t great.
- Judge Mehta*: Substantial equivalence, the product approval process for cigars that was the most feared part of the deeming regulations has been delayed indefinitely.
- Judge Mehta, then D.C. Appeals Court: FDA warning label requirements for all cigars are no longer required.
- FDA: HPHC testing for cigars, believed to be the costliest part of the regulations, has been delayed indefinitely. (This is presumably because FDA hasn’t figured out the science.)
- No one: User fees for cigars have increased by a couple of cents. (This is the natural progression of things that really no one directly controls.)
- Congress & Trump: The minimum age to purchase tobacco products on the federal level has been raised to 21-years-old, though is not yet in effect due to clerical requirements.
*There’s a debate about the first part, which is arguably the most or least impactful part, though it’s one that I’m not sure any single person really knows the answer to. But here’s both sides to whether the Trump White House played a role.
…THE TRUMP ADMINISTRATION PLAYED A ROLE
I’ll start with the scenario where the Trump administration played a role in getting the delay, which would probably be the only tangible win the cigar industry has gotten from the White House over the last four years.
In short, this past August the Department of Justice informed the courts that FDA planed on delaying the substantial equivalence rules for premium cigars until after the agency evaluated whether it should enact a different set of rules for premium cigars. This seems to be in response to two actions. One, Judge Mehta, the federal judge overseeing the main cigar industry lawsuit against FDA, seemed increasingly ready to rule against FDA over whether it acted improperly when it came to its legal obligations to fully consider whether it should exempt premium cigars from regulations. Two, lobbying of the Trump administration by the cigar industry to get better FDA rules.
The issue is, I’m not sure anyone really knows which one was the bigger cause of the change.
What I do know is that when the Department of Justice announced its sudden change of plans only weeks before the substantial equivalence rules were set to take effect, the people who had been lobbying the Trump Administration were furious.
They had been led to believe that the cigar industry was on track to get much better relief, perhaps a full exemption. Instead, what they got was a delay while FDA reconsiders whether it acted properly the first time. And while it’s possible FDA decides to implement different rules, it’s entirely plausible—and probably more likely than not—that FDA decides that the decision it made the first time around was the one it wants to do moving forward.
And I think the anger that was shared privately by those who had spent the time—and presumably, money—lobbying the Trump Administration is really all you need to know.
There’s no doubt that for most people, having the substantial equivalence regulations delayed indefinitely is better than the alternative. But the issue was that the announcement about the delay came so late in the process that for many, it didn’t matter. Any company that was treating the substantial equivalence process responsibly should have either been ready or very close to ready by the time the delay was announced. The money and time were spent, so what savings could have been realized are for not. There’s also some concern that FDA could decide to modify what it requires for substantial equivalence, meaning that more work might be required at a later date, which would make the delay costlier for some companies.
For what it’s worth, I have been told that the Trump administration told those in the industry that were involved in lobbying that it would push for a better outcome after it won reelection. I’m of the belief that if the Trump administration cared about premium cigars, it would have already done what it did for so many other industries.
…THE TRUMP ADMINISTRATION DIDN’T PLAY A ROLE
But it’s also quite possible that Judge Mehta would have gotten to the same place without the last-minute change of direction from FDA/DOJ.
Dating back to the Obama Administration, Mehta has repeatedly pointed out that FDA’s process of creating the regulations, for lack of a better term, has sucked for the cigar industry. And to be clear, Mehta is an Obama appointee, which also wipes out the argument that some might make that Trump appointed the judge that granted the cigar industry wins. Mehta also ruled that warning labels shouldn’t be required for premium cigars, although that decision was technically overturned unanimously by an appeals court—where one of the three judges was a Trump appointee—to expand the ruling to all cigars.
In the hearing following the proposed delay from FDA, Mehta seemed to understand what FDA was doing and he didn’t seem thrilled about it:
“(It is a) little bit surprising that the agency, here at the 11th hour, has now announced this alternative. I shouldn’t call it an ‘alternative.’ (A) delay (for) substantial equivalence for premium cigars,” said Mehta. “(FDA) has really provided no guidance about how long this study will take when all along the premium cigar folks, and cigar folks more generally, have been asking for relief either this time of relief or some other form. And here we are, this matter is ripe for decision, we’ve certainly been working on in terms of getting out a decision, and now the agency has thrown a wrench (in these proceedings.)”
At times, Mehta took long pauses and at other times he had to preface his comments to make it clear he was not attacking Coyle personally, but rather FDA and its decisions.
“On some level, it feels like the agency is trying to save itself from itself from the (substantial equivalence) applications if I rule against the plaintiffs (and let the rule stand.)”
Ultimately, he let FDA go forward with its plan. I would suspect, Mehta viewed this as the most sensible approach: see if FDA can figure this out on its own, and if it can’t to his satisfaction, perhaps then he starts to blow up parts of the rules. Mehta took a similar path with the warning label rules, delaying the enactment of the warning label requirements while the agency tried to justify what it did, before ultimately striking them down when it was clear the Department of Justice was going to be unable to convince him what it was doing was legal.
And if it’s the case that if the delay hadn’t been proposed by the government, that Mehta would have either delayed the substantial equivalence requirements or struck them down, then the tangible benefits from the Trump administration aren’t much beyond not making things worse and those better tax rates.
THAT FEELING WHEN YOU PUNT FOR A TIE
If the Trump White House didn’t really matter when it came to the delay—and I think that’s probably more true that not—then there are zero tangible accomplishments the Trump Administration provided the cigar industry on the regulatory battle. Zero.
When it comes to tobacco regulation, “not making things worse” is a win. It’s a win that the cigar industry should take every day of the week.
But, if you are a cigar smoker or in the cigar industry, you should probably be disappointed with what was(n’t) accomplished over the last four years. The Trump Administration promised and delivered on the idea that it would be the most anti-regulatory in history. But those benefits didn’t extend to the cigar industry.
And even if you think that the Trump Administration is the main reason for the delay, the results aren’t that great. As it stands now, that action was just to delay the process, a delay that will now likely be resolved while a Democrat is president.
If you had to play the whose shoes would you rather be in game, I’m not sure it plays out well for the cigar industry over the last four years. Under the Trump administration, “not making regulations worse” seemed like the bare minimum. If you are part of the anti-tobacco lobby, you probably think the last four years went a lot better than it could of when it comes to premium cigars.
It’s sort of like if a football game was tied and your team had the ball on the opponent’s seven-yard line with 30 seconds left and one timeout. You feel like you should be able to get a win in a number of different ways. If for whatever reason you find the game ending in a tie, things didn’t go as planned.
I’ll look back on how the cigar industry fared under the Trump administration with about the same type of frustration as I did while watching my favorite football team, the Philadelphia Eagles, during week three of the 2020 season. Its last offensive snap was to punt for a tie in overtime. It’s not a loss, but there’s no way to watch that game and be anything but frustrated.