On August 14, 2015, the United States flag was raised for the first time at U.S. Embassy in Havana since 54 years ago. At the same time, U.S. citizens can finally bring Cuban cigars back, legally.
On March 15, 2016, the U.S. government announce to relax a series of policy restrictions, including finance, trade, and tourism. Just in 5 days, Barack Obama will visit Cuba, making him the first sitting president going there in nearly 90 years. And before that, let’s look into the cigar business first.
Obama was attending a White House reception to welcome the start of Hanukkah, when a guest handed him a large cheroot.
Cuba has experienced embargo and trade sanction for over half a century, and Cuban cigar, the famed one, is really the legend of many American smokers. They can list 100 reasons why they are so desperate for Cuban cigars, but in my eyes the most important reason is, they are illegal.
Now, with no more ban on use of credit and debit cards in Cuba, U.S. citizens are allowed to bring up to $400 worth of goods bought in Cuba for personal use, which includes no more than $100 of alcohol or tobacco products.
Although it is still illegal to buy Cuban tobacco or alcohol from third countries or over the Internet, and the embargo is still in action until the vote of Congress, we all know that this is merely a start. We can fairly expect that one day, Cuban cigars will flood into the U.S. without limitation.
Will that hurt the American cigar industry a lot? Intuitively, Yes. However, we don’t need to worry that much.
First of all, competition will become fiercer in the industry, but the shock would be probably not so big. The U.S. is an open economy and the biggest cigar consumer in the world. Cigars all over the world have already been coming. And also, you can treat the cigars from Cuba and the domestic ones as two market. Foreign premium cigar producers will feel more about the shock.
Secondly, we have to admit that Cuban premium cigars are very attractive, but at least a large part of its attraction is due to the illegality. The most optimistic expectation, or maybe the most pessimistic in another way, is that 70% market share of premium cigars will be occupied by Cuban producers. This is really doubtful. More Americans will eventually find that Cuban cigars are just one of the best among the world, because they already have the ones from Honduras, Nicaragua, which are the same good, or sometimes even better.
Moreover, though the US is now the biggest consumer, its cigar industry is diminishing mainly due to labor cost. These hand-rolled tiny things cannot be produced automatically. Here is something called intra-industry trade happening, that is, many boutique producers export a very small number of cigars with relatively low price and premium flavor, while a large number of cigars are imported.
Last but not least, many domestic producers are actually quite confident, and they have their reasons. J.C. Newman Cigar Company, established in 1895, is the last big cigar company of Tampa area in Florida. Shanda Lee, Vice President of Marketing said that they did not think their business is facing huge challenge due to their tradition and innovation in planting and producing. Yes, technology is helping them fight because Cubans remain their process as 50 years ago. And quality control is even more important, because Americans cannot bear a box of 10 premium cigars within which 2 of them are bad. This could happen quite often in Cuba.
It is said that JFK got his press secretary to buy him 1,000 Petit Upmanns before he signed the decree banning all Cuban products. Now, Obama and his successor do not need to worry about their Cuban cigars again, and neither do they need for the whole trade issue with Cuba, I guess.