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Cigar Dealers Fear FDA Rules Would Kill Business, Jobs

Hand-made, premium cigars would be treated like cigarettes

If Food and Drug Administration regulators adopt new regulations that would place premium, hand-made cigars under the jurisdiction of a law originally passed to regulate cigarettes, sellers of the premium cigars say the changes could put them out of business.

The federal agency is considering adding premium cigars, as well as electronic cigarettes, pipe tobacco, certain dissolvable tobacco products that are not “smokeless tobacco,” nicotine gels, and water pipe tobacco to the Family Tobacco Prevention and Control Act of 2009.

This has the makers and sellers of premium cigars in North Carolina concerned.

Premium, hand-made cigars, unlike cigarettes and mass-produced stogies made by machine, are 100 percent tobacco and do not contain the additives that are the chief concern of the FDA, though some blends may add flavoring. Cigarettes, however, may have hundreds of additives.

Tom Kakadelis, who owns two premium cigar stores in Charlotte, was hoping to expand his small, hand-made cigar business, but if the proposed new regulations apply to premium cigars they could become too expensive to carry in his shop, causing him, and other small shop owners, who employ tens of thousands of people nationwide, to shut their doors.

“The cost of cigars is going to go up so high the average person isn’t going to be able to afford them” if the proposed rules are enacted, Kakadelis said.

If that happens, he said, “mom-and-pop” sellers will be so “overridden with regulation that they’ll just move the tobacco industry to Europe or to China, and we won’t even have a business.”

Kakadelis, who also is part owner of another cigar store in Georgia, and had been considering opening other shops in Virginia, said the FDA is “going to start treating cigars as if they are pharmaceutical designations.” His shops employ 12 people in North Carolina and five in Georgia.

“I’m tired of the federal government sticking its nose in stuff it doesn’t have any business doing,” he said, “because primarily it’s going to cost us billions of dollars that are going to be funneled through the FDA to try to control premium cigars, of which 1 percent of the adult population even enjoys.”

He said the FDA could impose hefty fees to test not just every new blend a shop has sold since 2007, but also could impose a testing fee on every size of cigar made with that same blend. There would be a two-year wait for approval under the proposed regulations, he said.

Health warning labels would be put on packages, and no free samples could be issued for retailers and consumers to test products before buying large quantities. Kakadelis said sampling is a vital part of the trade, likening it to wine or coffee tasting.

Rob Norris, CEO of JR Cigar, a New Jersey-based premium cigar company with heavy catalog and online sales, said his company is worried that the deeming regulations “would collapse the premium cigar industry.” JR Cigar also has North Carolina retail outlets in Burlington, Selma, and Statesville, two in New Jersey, and others in Washington, D.C., and Detroit.

Company officials oppose the deeming regulations and have submitted public comment to the FDA. Although JR Cigar is one of the largest premium cigar companies in the United States with 200 employees directly associated with premium cigars, Norris said there is no guarantee it would survive tough regulations.

“The honest answer is we don’t know to what extent we’ll be impacted, but there certainly will be an impact,” Norris said.

“We develop our own products, we develop our own private labels, and we would have to go through significant hoops to bring those to market,” Norris said.

“Premium cigar smokers enjoy tasting new blends, new products, and we would almost kind of crystallize the market as it is, and we would lose a lot of that kind of new variety, and new types of tobacco, and new blending processes that consumers really love about a nice niche industry like ourselves,” Norris said. “That’s a really big concern.”

Legislation has been introduced in both the U.S. House and Senate to exempt the hand-rolled, premium cigars from the pending regulations and preserve jobs related to the industry.

George Cecala, chief of staff for U.S. Rep. Bill Posey, R-Fla., said the bill, introduced by the Brevard County congressman to thwart the FDA action, has garnered 162 cosponsors, which include Republican members of the North Carolina delegation Howard Coble, Renee Ellmers, Virginia Foxx, Richard Hudson, Walter Jones, Patrick McHenry, Mark Meadows, George Holding, and Robert Pittinger, and Democrat Mike McIntyre.

“The underlying bill, which was the Tobacco Control Act, was never intended to regulate premium cigars,” Cecala said. “The debate was about controlling teen smoking of cigarettes. There was no mention in hearings or debate of regulating premium cigars.”

But the FDA, which says it still is weighing whether to exclude or exempt premium cigars, believes that bringing those additional tobacco products under FDA’s authority “is an important consumer protection. Science-based regulation can help reduce the public health burden of tobacco use on the American public, including youth,” said FDA spokeswoman Jennifer Haliski.

The FDA included premium cigars by “deeming” them to have some qualities that fall under the original Tobacco Control Act. That “will help FDA protect public health by requiring the review of new tobacco products and health-related claims for regulated tobacco products,” Haliski said.

Including additional tobacco products in the regulations will allow the FDA to issue future regulations “intended to reduce their harmfulness, if FDA determines that such regulations would be appropriate for the protection of the public health,” Haliski said.

But John Staddon, James B. Duke professor of psychology and professor of biology emeritus at Duke University, a frequent critic of claims by anti-tobacco activists, said the science behind the FDA’s claims is questionable.

“I don’t know of any study showing cigars are dangerous. Probably they are, in a small way,” Staddon said, but added that any risk that exists is borne solely by the smoker, and is not a public health threat.

“The supposedly lethal effects of smoking are both uncertain and long delayed. All you have are correlations, which are confounded in all directions — and I don’t know of even correlational research on cigar smokers,” he said.

“If you smoke a cigar every few days, the health risk, if there is any health risk, is immeasurably small, unless you’re Winston Churchill, who was felled by cigars at the age of 89,” Staddon said in jest to make the point about the relative lack of danger in cigar smoking.

“The FDA really doesn’t care about the facts, they just know tobacco is bad, and off they go,” he said.

“You’re attacking small businesses in an extremely unfair way without any basis in science,” Staddon said. Passing laws and regulations to protect people from their own choices “is just an appalling way to run a country. You infantilize the country.”

The premium cigar regulations, like the federal Environmental Protection Agency’s attacks on coal-fired power plants, is an example of administrative law being written by executive branch agencies instead of the legislative branch, as the Constitution prescribes, Staddon said.

“The government passes these feel-good rules … and then the bureaucrats go off unrestrained. They’re given license to cause all sorts of trouble. They’re not accountable to any electorate or anything. They have nothing to lose by regulating and everything to gain. It’s a very, very dangerous thing,” Staddon said.

Cecala, Posey’s chief of staff, says the fact that Posey’s bill has bipartisan support, and a number of its cosponsors backed the original Tobacco Control Act, is evidence that the FDA “is overstepping its authority.”

“This is ultimately an issue about the freedom of adults,” Cecala said. “If the FDA wants to try to take away freedom, then Americans, adults who enjoy this product, have every right to be upset. ”

He said the industry estimates there are about 85,000 jobs directly tied to cigar manufacturers and retailers in the United States, and including premium cigars in new regulations could place those jobs at risk.

“The average cost for compliance with a regulation on a small business is up to $10,000 per employee, per year, in general,” Cecala said. “If you add on top whatever the FDA wants to do it will severely hurt many mom-and-pop businesses throughout our country at a time when the economy is struggling to recover,” Cecala said.

Kakadelis said compliance costs of new regulations would compound the tax burden that premium cigar firms already pay.

There is a 42-cent federal excise tax for every cigar that is imported into the United States, Kakadelis said, and every state has a premium cigar tobacco tax. There also is a wholesale tobacco tax, and retail taxes. North Carolina charges a 12.8 percent OTP [other tobacco products] tax that is as high as 40 percent in some states.

Dan E. Way (@danway_carolina) is an associate editor of Carolina Journal.