Under pressure from the White House, the Food and Drug Administration gave premium cigar-makers and importers a win last week, indicating it may spare the industry from costly regulation set to go into effect this spring.
The premium cigar industry is facing a May deadline that requires all new tobacco products to obtain regulatory clearance from the FDA. Those that do not will be technically marketed illegally and subject to enforcement. But the mom-and-pop shops that dominate the premium cigar industry have said the required compliance costs would effectively put them out of business. The premium cigar industry, like the wine industry, relies on releasing new varieties to sustain the interests of its connoisseurs.
According to data compiled by Mangum Economic Consulting and provided by Cigar Rights of America, the rules would put 88% of U.S. cigar manufacturers and importers out of business and destroy 5,300 U.S. jobs.
The White House has pushed the FDA to carve out premium cigars from the regulations, two people familiar with the situation told CNBC, requesting anonymity because the conversations are confidential. White House budget director Mick Mulvaney has been a particularly strong opponent of its inclusion in regulation, one of the people said.
Premium handmade cigars are more expensive than the mass-produced cigars sold in convenience stores and are bought less frequently. The cigar industry is strong in Florida, a swing state whose 29 Electoral College votes is tied with New York for third place among states.
The FDA last week offered a small concession. While it did not go so far as to give the industry what it wants — exemption from the regulation — it implied it may turn a blind eye to cracking down on premium cigar companies not in compliance.
"FDA will make enforcement decisions on a case-by-case basis, recognizing that it is unable, as a practical matter, to take enforcement action against every illegally marketed tobacco product, and that it needs to make the best use of Agency resources," the agency wrote.
Its "lowest priority among these products will include relatively expensive, large hand-rolled cigars that do not have flavors (e.g., fruit, candy, or mint), given what FDA understands to be their comparatively lower youth usage rates."
The news was cautiously welcomed by the premium cigar industry.
"We appreciate the recognition of being on the lower end of risk," said J. Glynn Loope, executive director of Cigar Rights of America. "But we'd like to not be subject to this regulation at all."
To officially exempt premium cigars from the regulation, the FDA would need to put out a policy saying it will offer extended enforcement discretion to the industry.
Spokespeople for the White House and Mulvaney did not return requests for comment. A spokeswoman for the FDA said the agency is "unable to comment on an internal, deliberative process."
The FDA made the pronouncement as it outlined its priorities for regulating all tobacco products edging up against the May deadline. The regulations in question stem from a 2016 decision by the FDA under then-President Barack Obama that subjected all tobacco products — including e-cigarettes, hookah tobacco, pipe tobacco and smokeless tobacco — to FDA rules.
Given the FDA's scant resources, its focus will be on cracking down on products like flavored e-cigarette cartridges that teens prefer, it said last week. It will proceed with previously announced plans to regulate flavored cigars.
In 2017, 7.7% of high school students and 1.5% of middle school students reported smoking a cigar within the previous 30 days, according to the FDA. By contrast, nearly 28% of high school students reported using an e-cigarette in the previous 30 days, according to a report released in September.
The cigar industry has pushed back against regulation. Three of its lobbying groups are suing the FDA, arguing the agency violated the Regulatory Flexibility Act by not taking into account the regulation's impact on small businesses.
Across the country, 11,140 U.S. tobacco retailers could be impacted by the Obama regulation, according to the Mangum Economic Consulting report, citing 2015 U.S. Census Bureau numbers.
The U.S. has 160 domestic cigar manufacturing facilities and 216 cigar importers. Companies impacted by the regulation would include the J.C. Newman Cigar Co., the family-owned manufacturer of Nicaraguan, Dominican and American cigars. It would not include Cuban cigars.