Cigar companies plan for when trade embargo with Cuba ends and Cuban tobacco floods U.S. market

[Professor Twain]

A piece in today's Tampa Tribune explores what might happen when the embargo ends.

http://tbo.com/news/politics/cigar-companies-plan-for-when-trade-embargo-with-cuba-ends-and-cuban-tobacco-floods-us-market-20140511/

Well worth a read.

[Rye]

Very good read! Thanks for sharing it Bill!

[hoyopr]

Good read Prof, thanks for posting it.

[SCgarman]

Good read, but all speculation. The embargo isn't going anywhere under the current administration and I truly wouldn't hold my breath that it is ever ended in my lifetime.

[oliverdst]

I think there is a big difference between the end of embargo and Cuba allowing foreigners buy farms and export tobacco.

[cybermadhatter]

The first article ever

that mentions cuban tobacco and cow semen.

[Natedog]

Great read. It will be a great day when I can just walk into my local b&m and pick up some CC.

[vivalanation734]

I like the embargo for selfish reasons (cheap cigars, great quality), but I hate the embargo because of how it hurts the Cuban people and my ability to freely travel to the island.

[maxcjs0101]

Agreed with vivalanation734 but for even more selfish reasons i hope that US Borders or Customs tightens their inspections for Cuban cigar parcels so none gets pass..

haha just joking.

[Habana Mike]

Some very interesting perspectives there.

One can only speculate what will transpire once the embargo is lifted.

The Fuente and Oliva slant to the article is somewhat telling though as I suspect they have the interests, relationships and finances to truly leverage the opportunities that may be presented.

That being said, I know a good friend that already owns rights to Makers Mark distribution to the Island once American Bourbon can be legally sold there.

Lots of potential on both sides of the toast.

[canadianbeaver]

Great read Bill, thank you. Interesting these articles never mention the biggest opportunity for fake Cuban cigars in the U.S. Now ther'e's a business op- yikes!

[sheppsea]

Very interesting read - thanks for posting!

As a Brit I must admit the only good side of the embargo is that there is a huge market we don't have to share out CCs with , but I think its only a matter of time before the embargo is lifted, it'll be interesting to see what will happen when it is lifted

[tippexx]

Interesting. But we know what happens when Habanos attempt to up production .... 1999/2001 all over again.

Cuba is no threat to the USA and hasn't been since Khrushchev turned his ships around. To lift the Embargo requires (I think) a Presidential Decree, which could have been made by any President post JFK had it not been for the iconic status JFK has in US politics. Perhaps Hillary Clinton may have the clout to do it .... but Fidel Castro needs to be dead first.

[CaptainQuintero]

Wright deals in cattle semen

[Ryan]

Very interesting article, thanks.

There is a lot of speculation around what might happen when Cuban tobacco becomes legal in the US.

Much of it will depend on Cuban law and how that changes with the embargo.

If the system of government changes, the constitution changes regarding land ownership, a decent land registry system gets set up and is backed up by the courts then there will be big changes.

Farmers will not have to sell to the state company anymore. Foreigners will be able to buy/lease tobacco farmland, hire the expertise, and then Imperial and Habanos can go shove it. That includes their quality control, production issues etc.

Cuba once produced 300 million cigars per year, that can be done again if they need to, given time for everything to settle out.

A 4 acre farm can produce a million cigars a year. If a retailer could sell that many cigars they would be the biggest cuban cigar retailer in the world. From 4 acres.

There are already plenty of rumours that there are tobacco farms "owned" by foreigners with an interest in cigars.

I played baseball with Marcus Daniel in Havana last year having met him at a party in Enrique Mons's shop the night before.

Very nice guy and I'd wish him all the best. I'm sure he knows better than anyone that he's not the only horse in that particular race.

[tmac77]

I think there is a big difference between the end of embargo and Cuba allowing foreigners buy farms and export tobacco.

I agree with this. I would also be concerned that if transition to a free market in cuban leaf were to be implemented to quickly it would be detrimental to not only the quality of cuban cigars in the main but also to the economics at the grass roots level as I doubt that the increased profits would make it down to the farmers and workers in Cuba.

[SCgarman]

Interesting. But we know what happens when Habanos attempt to up production .... 1999/2001 all over again.

Cuba is no threat to the USA and hasn't been since Khrushchev turned his ships around. To lift the Embargo requires (I think) a Presidential Decree, which could have been made by any President post JFK had it not been for the iconic status JFK has in US politics. Perhaps Hillary Clinton may have the clout to do it .... but Fidel Castro needs to be dead first.

It will take an act of the Pres and Congressional approval to end the embargo. And conservatives like Cuban-American Marco Rubio who has talked now of running for President will probably be dead-set against embargo ever ending!

[nem]

Frankly, the current situation is very much a catch 22 for Americans wanting to import Cuban cigars. Without significant political change in Cuba, it is unthinkable for the US government to end its trade embargo. However, the political changes necessary to justify lifting the embargo will inevitably translate to significant political and economic upheaval within Cuba that will likely affect the short term supply and prices of cigars.

Anyone who did business in Mainland China in the 80s or currently holds business interests in North Korea can tell you that communist economies moving toward (aspects of) capitalism provide great opportunities, but also significant uncertainty and volatility. There are cases in North Korea where local officials would sell identical mining rights to multiple foreign parties, and that's supposedly with oversight from a somewhat functional central government. Just imagine what would happen if it became possible for foreigners to buy farm land in Cuba during or immediately following a regime change.

However, if premium tobacco farm land becomes available for purchase in Cuba, and you want some without paying a ridiculous premium, you better move in first. Otherwise, be prepared for everything to be divvied up by the politically connected.

[Bartolomeo]

Great article, thanks for sharing Bill

[Professor Twain]

I'm glad that so many people are enjoying this article. I found a number of things fascinating. First, the idea that Cuban cigar production would be increased. That's dangerous in terms of quality control. Second, the idea that companies that sell non Cubans would use the presumed shortage of Habanos in the rest of the world to ramp up their efforts to distribute in other countries. Third, while highly speculative, the idea that at some point Cuban farms would have private ownership and the current centralized control of cigar production is mind blowing. None of this will happen right away but I'd be shocked if it doesn't happen in the next 10 years.

I'd love to get Rob's take on this.

[Professor Twain]

A 4 acre farm can produce a million cigars a year. If a retailer could sell that many cigars they would be the biggest cuban cigar retailer in the world. From 4 acres.

Ryan, this is an astonishing figure. The article says that annual production from all of Cuba is only enough for 4 million cigars a year. I'd love to hear more about how you came up with this figure.

[cigcars]

In the article, Fuente is quoted saying that he would only want quality Cuban tobacco if allowed to get Habana tobacco. I'm wondering if he wouldn't consider tobacco from the Vuelta Arriba regions for his use as opposed to just the Vuelta Abajo region. In the meantime, Professor Twain, I can just envision all of our tobacco stores, shops, outlets and websites loudly announcing in their ads, "...'particular cigar' contains CUBAN TOBACCO!" Although it may be just one tiny sliver of leaf or such.

[Ryan]

Ryan, this is an astonishing figure. The article says that annual production from all of Cuba is only enough for 4 million cigars a year. I'd love to hear more about how you came up with this figure.

The article states "Currently the region produces enough tobacco for 4 million cigars per year".

Habanos exports 70-80 million cigars per year, with a similar number produced for the domestic market.

At one point in the 1920s, 300 million cigars were exported from Cuba.

The writer probably meant to state "The Robaina farm currently produces enough tobacco for 4 million cigars per year". He has quite a big farm (relatively), about 16 acres I think. The article is talking specifically about Robaina at that point.

Where I got my numbers was 2 years ago I stood on Pancho Cuba's porch while he opened up his notebook and went through his numbers of wrapper and filler leaves from that year's harvest. One of his bigger fields had been destroyed by Black Shank yet he still had enough tobacco, we worked out, for about 950,000 cigars.

Regarding the fall of the embargo and the opening up of the Cuban economy, while ignoring for now the not-minor impact that will have on the lives of every Cuban. Once the embargo falls, it is very likely that the government will move to a more market driven economy. Private enterprise will have to be allowed more, property ownership will be more available as will competition in business.

Specifically for cigar smokers, it will be fantastic. As I said earlier, Habanos quality control issues and production issues only matter if you buy Habanos cigars.

You will be able to buy cigars that have nothing to do with Habanos, Altadis or Imperial or the monopoly of distributers they control.

Farmers wil be able to sell to whoever they want, or else form cooperatives (or get big enough on their own) to have a sorting/stripping house and seed development facility.

A privately owned cigar factory could source tobacco from whomever they want or form relationships with farmers/groups of farmers or own their own farms. Again.

Finally, cigar smokers would be able to tell the differences between Marcas. Again.

[Colt45]

Once the embargo falls, it is very likely that the government will move to a more market driven economy. Private enterprise will have to be allowed more, property ownership will be more available as will competition in business.

As usual, I don't really understand the correlation - if the emargo falls tomorrow, the Cuban government will change along with it? I'm a proponent of private producers, and look forward to the day......

I'll be interested to see how Imperial / Habanos / Cubatabaco react....

Good stuff, Bill

[Professor Twain]

The article states "Currently the region produces enough tobacco for 4 million cigars per year".

Habanos exports 70-80 million cigars per year, with a similar number produced for the domestic market.

At one point in the 1920s, 300 million cigars were exported from Cuba.

The writer probably meant to state "The Robaina farm currently produces enough tobacco for 4 million cigars per year". He has quite a big farm (relatively), about 16 acres I think. The article is talking specifically about Robaina at that point.

Where I got my numbers was 2 years ago I stood on Pancho Cuba's porch while he opened up his notebook and went through his numbers of wrapper and filler leaves from that year's harvest. One of his bigger fields had been destroyed by Black Shank yet he still had enough tobacco, we worked out, for about 950,000 cigars.

Thanks Ryan. Most interesting.