Exodus 180

[Philc2001]

Most Cuban cigar smokers are familiar with the 1959 exodus, and the subsequent embargo enacted by president Kennedy. With recent softening of the embargo by president Obama the future of the Cuban cigar industry seems uncertain. What might happen if the Embargo is ultimately dissolved and Cuban tobacco becomes legal once again?

There is wild speculation on the possible outcome. Some speculate Cuban cigars will decline in quality as the demand for Cuban tobacco will overwhelm supply, thus some advocate stockpiling while you can. Some speculate the tobacco stocks will be bought up by established big brand names and new hybrid products will be invented that contain Cuban tobacco and thus a new breed of hybrid cigars will emerge and displace many established brands.

There is another possible outcome, which I suspect has been somewhat overlooked; the return of the Cuban cigar families to Cuba. Virtually all of the top cigar families escaped from Cuba during the exodus, many with loads of Cuban tobacco seeds. A lot of those families established operations in nearby countries, namely Honduras, Nicaragua, Dominican Republic, and of course the USA. Most, if not all the Dons from that era have since passed away, but in many cases their offspring still produce cigars. If conditions are right, and once the aging Castros die, I believe several of the cigar families will likely return in some measure to Cuba. 

The Cuban cigar families have refined their craft over the years. They have created new strains of tobacco, and improved the rolling and quality control. If they were to bring their knowhow and new strains to Cuba, I believe it could lead to a renaissance. It would take time to get established and it may take years before they have enough supply to produce top quality cigars, but over time they may turn Cuba into an even greater Cigar powerhouse. 

Before that happens I'm sure a lot of land claims would need to be settled in some fashion. I know some of these families, and they are still quite bitter over losing their farms and factories, so this matter alone could take decades.  Maybe the whole thing will wither on the vine and these disputes may just kill the whole idea. The new FDA regulations may be another huge hurdle. But what if?

I'd like to hear what others think about this.

[Colt45]

20 minutes ago, Philc2001 said:

There is another possible outcome, which I suspect has been somewhat overlooked; the return of the Cuban cigar families to Cuba.

The embargo could be completely lifted, but the industry can really only change when things change within Cuba. The Cuban cigar industry is a monopoly -  owned half by the Cuban government, half by imperial tobacco. What impetus could they possibly have to allow outsiders, or even Cubans in Cuba, to acquire Cuban tobacco and produce Cuban cigars?

I'm one who'd love to see independents produce cigars, but I guess Cubans should have the first shot when it eventually happens.

[NSXCIGAR]

I wouldn't really consider the recent changes in US Cuban policy significant in terms of economics. Cuban goods are still wholly prohibited with small personal use exceptions. Travel is still highly restricted and capital investment is very limited.

Also, the ending of the US trade embargo means nothing assuming the Cuban state maintains control of land and the means of production. That means with Tabacuba still running things nothing will change except possibly access to better equipment, chemicals and acreage that has been used to grow other crops that can now be imported being used for tobacco. 

Now, if the regime were to collapse and private property was to be respected again you'd likely see the top NC producers bidding the highest prices for the land and taking it over or taking it back. Since the communists will be out of power, I don't think land claims will go anywhere as there's no source for compensation. International courts might rule the land simply be returned or divided between the original pre-revolution owners with compensation to the current homesteaders, or simply given to the homesteaders as theirs. After all, many have lived and worked their whole lives on these lands. They could choose to keep it or sell it.

Tabacuba will be gone with the regime, however Imperial will still have some claim to some piece of the pie, possibly being allowed to keep the brands they have currently registered. Anything HSA controlled could still be Imperial's, but the "Habanos" name and trademark might not be desirable anymore. Remember, HSA owns nothing--Tabacuba does. HSA is technically just an office. Imperial will be forced to drop the brands it doesn't own and General does. Tobacco will be cultivated and processed privately as it was pre-revolution. Cuban tobacco will be shipped all over the world, blended with other countries' tobacco and rolled elsewhere as it was done pre-revolution.

The US FDA regs are another matter entirely that will affect all cigar producers, and we'll have to wait and see how bad the effects are in the next few years for those wanting to introduce new models.

[gweilgi]

1 hour ago, Colt45 said:

The embargo could be completely lifted, but the industry can really only change when things change within Cuba. The Cuban cigar industry is a monopoly -  owned half by the Cuban government, half by imperial tobacco. What impetus could they possibly have to allow outsiders, or even Cubans in Cuba, to acquire Cuban tobacco and produce Cuban cigars?

In short: maximising revenue.  Selling leaf to outsiders would increase the total number of cigars produced while cutting labour costs.

Moreover, permitting exiles to buy land (either outright or in some form of partnership with Cubans, such as is done in China) would immediately increase investment, production, taxable revenues.  

1 hour ago, Colt45 said:

I'm one who'd love to see independents produce cigars, but I guess Cubans should have the first shot when it eventually happens.

The question is, would native Cubans have the business knowledge and experience, and the financial muscle, to make a fair go of it?  

[NSXCIGAR]

12 minutes ago, gweilgi said:

In short: maximising revenue.  Selling leaf to outsiders would increase the total number of cigars produced while cutting labour costs.

Moreover, permitting exiles to buy land (either outright or in some form of partnership with Cubans, such as is done in China) would immediately increase investment, production, taxable revenues.  

The question is, would native Cubans have the business knowledge and experience, and the financial muscle, to make a fair go of it?  

Interesting point.

It may indeed be possible to generate more in absolute revenue by simply selling all their tobacco and reducing labor costs, likely freeing up labor for other productive uses. But increasing productivity and absolute revenue isn't always a priority for communist regimes. The state would have to employ many in the industry in other jobs, paying them anyway. Simply keeping people employed doing anything is a priority for the state, and the cigar industry is perfect for that. There is also some added value to the final price of a Cuban puro that they can capture. Also, the Cuban puro is something of a symbol of national pride, and is something the regime probably wants to preserve for cultural purposes.

As far as the Cubans running the private cigar industry, the market would figure out if they're effective in running it. If their revenues are greater than outside bids for the land and facilities, they're doing fine. As with any business, if it's more profitable to sell it than run it, it gets sold. 

[gweilgi]

4 hours ago, NSXCIGAR said:

Interesting point.

It may indeed be possible to generate more in absolute revenue by simply selling all their tobacco and reducing labor costs, likely freeing up labor for other productive uses. But increasing productivity and absolute revenue isn't always a priority for communist regimes. The state would have to employ many in the industry in other jobs, paying them anyway. Simply keeping people employed doing anything is a priority for the state, and the cigar industry is perfect for that. There is also some added value to the final price of a Cuban puro that they can capture. Also, the Cuban puro is something of a symbol of national pride, and is something the regime probably wants to preserve for cultural purposes.

As far as the Cubans running the private cigar industry, the market would figure out if they're effective in running it. If their revenues are greater than outside bids for the land and facilities, they're doing fine. As with any business, if it's more profitable to sell it than run it, it gets sold. 

I would rather assume that private firms would take on a fair few workers from the state in establishing their own manufacturing.  Experienced rollers have a desirable and marketable skill, after all.  Plus, the expansion of the industry, both through new lines of puros and through a brand-new segment of blended cigars, should result in an overall increase in sales.  IMO, it would even be quite acceptable to bar new firms from using any of the old names and marcas, thus satisfying the Cuban desire for protecting their brand and image.  

To my mind, the two main sticking points are that the current regime remains reassured of its continued grip on power; and further, that the descendants of the exiled families and dispossessed corporations (mostly American) accept the change in status quo over the intervening decades and refrain from trying to assert old property claims.  I do believe there is a fear in Cuba, from the Castro brothers right on down to the peons working the land, that those families and firms might want to roll back the times and re-estalish the bad old days.  If those two fears can be assuaged, I could see a bright future for us cigar lovers....

[Colt45]

8 hours ago, gweilgi said:

Selling leaf to outsiders would increase the total number of cigars produced while cutting labour costs.

Moreover, permitting exiles to buy land (either outright or in some form of partnership with Cubans, such as is done in China) would immediately increase investment, production, taxable revenues.  

Finished cigars sell for more than tobacco. Once again, they have a monopoly - they make all the profit - why share the wealth?

I'd also guess that Imperial would do what they could to protect their fifty percent stake.

 

8 hours ago, gweilgi said:

The question is, would native Cubans have the business knowledge and experience, and the financial muscle, to make a fair go of it?  

I imagine that Cubans in the industry might make the best go of it.

 

I guess the main point to me is that the embargo and the monopoly are separate issues.

[CaptainQuintero]

As others have pointed out, the embargo is not the regime. The embargo is essentially a trade agreement (No trade for you). A trade agreement ending doesn't mean the government is going anywhere.

While I see the embargo ending in the next 5-10 years, I don't see the regime going anywhere. It will evolve but unless it is forced from power there is no reason why it would go anywhere, they only have to look at Vietnam and China for their inspiration.

I don't think we will see Cuban tobacco being sold to NC manufacturers or NC manufacturers getting their hands on Cuban land/tobacco in my lifetime. That's like Saudi Arabia letting Iran buy up their oil fields. The monopoly on Cuban tobacco is priceless to any Cuban government regardless of political leaning.

Independent Cuban farms/brands I can see but they will always have some kind of benevolent hands of the government tied to them

[Fugu]

2 hours ago, Colt45 said:

I guess the main point to me is that the embargo and the monopoly are separate issues.

Yes, I'd think so, too... but, hey, hold on - actually I think they are linked and will be even more strongly liked with a potential falling of the embargo.

To be precise here, there is a monopoly on cigar production and marketing only. But there is no monopoly in growing tobacco! Only a part of the Vegas is state-owned, and actually not few tobacco farmers are actually owners of their land. But at the moment they only have one single buyer, which is the Cuban state. You'd think, should the embargo end, they could potentially and theoretically sell to anybody outside Cuba. There will be effectively no need for NC producers to actually "buy land", they just need to buy Cuban tobacco. And I guess here we are, where the story ends:

First: They could - theoretically - do so already right now, sell to producers outside the US, in DR, Nic, or Honduras. The only issue for those producers - those cigars could just not be marketed in the US - but, quite like Habanos, anywhere else in the world... [there always tends to be a rather US-centralistic view on this forum .... ]. So why not practising it now?! Because the Cuban state is not interested in it and Vegueros and Cooperativas are not allowed to! Second - Cuba will set in place all barriers to avoid that, i.e. a tobacco drain, since that would create competition for Cuban tobacco and drive prices for the raw material, and Tabacuba won't likely be able to compete. If they are smart, and they certainly are, they will keep their hands on the industry and keep everything firmly under their control! It is a USP they would be outright loco to give up.

So, quite like Colt, I can't see why anything of that should change in any way with or without the embargo. People tend to forget, the nationalization and expropriations happened well before the embargo(s)! The embargo has not been the cause, is was the result of the revolutionary nationalizations (often confused in discussions). As long as the political system in Cuba doesn't change, or as long as a lifting of the embargo will not in parallel be firmly linked with re-privatizations and settlements of any property claims on the Island, there will be no change in the Cuban cigar industry. A lifting of the embargo alone will change outright nothing apart from the fact that Cuban products will be "officially" available again in the US.

[Philc2001]

As I said in the opening thread; If conditions are right, and once the aging Castros die.

I would not anticipate anything significant changing while the regime is still in power. But at some point the Castro brothers will pass (for all we know Fidel is already dead), and I believe the regime will fall once both Castros are gone. 

The events and misdeeds of the revolution are pretty well documented, and it is pretty well known Castro stole everything from the Cuban exiles. The US Foreign Claims Settlement Commission (FCSC) has kept a record of the assets stolen from Americans, and there are other similar documented claims by Cuban citizens that recognize the true owners. The Cohiba trademark may be an exception since it was created after the exodus, but even though Cubatobacco registered it in many countries, it was General Tobacco that registered the Cohiba trademark in the US. There are many battles still ongoing over all this, not just over cigar trademarks, but another very lucrative spirit - Cuban rum. 

A lot of Cuban exiles with registered claims are bidding their time until the regime falls. I've spoken to some over the years, and they have no intent of giving up. Imperial Tobacco has muddied the water to an extent, but Imperial can't change history. The sword of justice may fall in two different outcomes in trademark versus land claims. Imperial has been successful in registering many Cuban trademarks outside the US, and may be able to win many of those fights. But it may lose in the lands Castro forcibly and illegally confiscated. Ultimately the land claims will have to be settled too, but not before a bitter battle.  

IF (big IF) Cuban tobacco export becomes viable, and IF other cigar companies get a stake in growing Cuban tobacco, the industry as we know it could change dramatically I think.

The activity has picked up as both Cuba and other tobacco interests are anticipating the lifting of the US embargo. I think the one thing we can count on is there is no telling which way all this will settle, but it will be interesting to watch and talk about.

 

[Philc2001]

A good but very long read on the topic:

http://www.villagevoice.com/news/cigar-wars-as-the-cuban-embargo-fizzles-the-battle-for-stogies-smolders-6704104

 

[Colt45]

46 minutes ago, Philc2001 said:

 I believe the regime will fall once both Castros are gone.

That's the crux, isn't it? It has nothing to do with the embargo per se, but everything to do with the Cuban government. Until the Cuban government changes or at least makes some concessions / recognizes claims, nothing else can really change.

If my aunt had nuts she'd be my uncle 

[Smallclub]

1 hour ago, Philc2001 said:

A lot of Cuban exiles with registered claims are bidding their time until the regime falls. I've spoken to some over the years, and they have no intent of giving up. Imperial Tobacco has muddied the water to an extent, but Imperial can't change history. The sword of justice may fall in two different outcomes in trademark versus land claims. Imperial has been successful in registering many Cuban trademarks outside the US, and may be able to win many of those fights. But it may lose in the lands Castro forcibly and illegally confiscated. Ultimately the land claims will have to be settled too, but not before a bitter battle

I don't see anything like this happening.

if Cuba accepts a rapprochement with the US /rest of the world, it's certainly not with the idea of redressing wrongs done over 50 years  ago...

[CaptainQuintero]

There's a couple of points. 

Seized land/goods/farms/copyrights/cigar brands etc

As far as I understand it, all of the above were nationalised during the revolution. Nationalisation is a completely legal act for act government to do. It undermines investor confidence in a nation but that's as far as it goes. Legally the people who had their property nationalised by the Cuban government have no leg to stand on. At most they could possibly get some kind of good will gesture if it helps smooth any deal ending the embargo.

The regime when the Castro brothers shuffle on. I'm sure that suitors and heirs have anyway been lined up and everyone within the party already knows who their next boss already. If my memory serves me right Raul's step son or something similar is already wearing the inaugural clothing and power is already consolidated with him.

[Ethernut]

I think Cuba should be our 51'st state! LOL I know, I'm no stranger to controversy. ;-) Good thread Gents! Been enjoying it. 

[Philc2001]

As far as I understand it, all of the above were nationalised during the revolution. Nationalisation is a completely legal act for act government to do. It undermines investor confidence in a nation but that's as far as it goes. Legally the people who had their property nationalised by the Cuban government have no leg to stand on.

I think there is considerable debate and legal precedents to counter that. Nationalization of Cuban assets by Castro is not globally legitimized. In many cases Castro brutally murdered Cuban citizens and took their property. Many American companies and American nationals have outstanding and legal claims, which have yet to be settled. I suspect this will be one of the key roadblocks to fully lifting the embargo in the US.

In any event, Cuba will eventually have to privatize and establish some kind of framework that protects foreign and private interests if they are ever to emerge from the dark ages. Until then, few corporations will be willing to risk losing their investment in building their business interests in Cuba.


Sent from my iPhone using Tapatalk

[CaptainQuintero]

28 minutes ago, Philc2001 said:

 

I think there is considerable debate and legal precedents to counter that. Nationalization of Cuban assets by Castro is not globally legitimized. In many cases Castro brutally murdered Cuban citizens and took their property. Many American companies and American nationals have outstanding and legal claims, which have yet to be settled. I suspect this will be one of the key roadblocks to fully lifting the embargo in the US.

 

 

But that is my point, despite the moral ambiguity it's all legal. In every country in the world the national governments have nationalised private property. It's horrible for those on the wrong end of it but it's a nation's governmental right.

A point to the global legitimacy given to this nationalisation is how the Cuban cigar brands are legally recognised in every nation that isn't the USA: All NC versions of Cuban cigars are banned from using the Cuban namesake eg NC La Gloria Cubana has to be named El Credito in every country except the US. It isn't a huge step to say the major reason why the NC versions only exist is because the US legal system does not recognise any Cuban legal rights.

When the Cuban government is given back it's legal standing in the US/the embargo end is being negotiated I'd suspect that those with claims will be the victims of the historic occasion that politicians on both sides will create out of it, and will be subsequently swept under the carpet in the name of progress. Big business and politicians egos won't let descendants of historic claims damage any legacy for themselves or the ability to make money. What's happened this year in terms of political actions and business investment has shown that the past, as far as those with the power to make decisions, is very firmly in the past.

 

[Smallclub]

5 minutes ago, CaptainQuintero said:

When the Cuban government is given back it's legal standing in the US/the embargo end is being negotiated I'd suspect that those with claims will be the victims of the historic occasion that politicians on both sides will create out of it, and will be subsequently swept under the carpet in the name of progress. Big business and politicians egos won't let descendants of historic claims damage any legacy for themselves or the ability to make money.

I believe it's an evidence, unless of course the new powers in Cuba want to be overwhelmed with complaints and lawsuits of all people dispossessed by the Revolution…

[Philc2001]

@CaptainQuintero you may be right, I'm no expert in such matters, but I believe many of the American claims are legit and will hold up in international courts. Another key factor to bear in mind is the fact that Cuba needs the US much more than than the US needs Cuba. For all American intents and purposes, the US embargo could be maintained indefinitely. It's really up to the Cuban officials if they want to achieve a normalized relationship with the United States, their closest and wealthiest neighbor. That, in and of its own, is a big motivator for the Cuban nationals, despite being a major sore point for the Castro regime. While Castro remains there won't be any reparations, of that I am certain, but the successors may have a very different view. 

This NY Times piece lays out some of the claims by US corporations. It seems to support the notion that American property claims are within bounds of the international legal framework. It does not say much about the thousands of individual claims of Cuban-American nationals that were dispossessed of their wealth, their physical and intellectual property though.

http://www.nytimes.com/2015/12/14/world/americas/talks-begin-in-cuba-on-confiscated-us-property-worth-billions.html?_r=0 

Quote: When the Berlin Wall fell, American claimants got 100 percent of the value of their properties, plus interest.

In Latvia, Estonia, Lithuania, the Czech Republic and Slovakia, confiscated properties were sometimes returned to their original owners.

Of course, there are other precedents that were not as favorable for the claimants, but in most cases the claimants got not less than 10% of what they lost. As it pertains to our hobby, the key concern is what happens to Cuban tobacco. I think there is sufficient reason to believe Cuban tobacco will one day be exported, and that non-Cuban cigar interests will one day operate tobacco farms in Cuba, even if that is not any time soon. I don't really know whether that would be a good thing, or bad for cigar aficionados. 

[NSXCIGAR]

11 hours ago, gweilgi said:

I would rather assume that private firms would take on a fair few workers from the state in establishing their own manufacturing.  Experienced rollers have a desirable and marketable skill, after all.  Plus, the expansion of the industry, both through new lines of puros and through a brand-new segment of blended cigars, should result in an overall increase in sales.  IMO, it would even be quite acceptable to bar new firms from using any of the old names and marcas, thus satisfying the Cuban desire for protecting their brand and image.  

To my mind, the two main sticking points are that the current regime remains reassured of its continued grip on power; and further, that the descendants of the exiled families and dispossessed corporations (mostly American) accept the change in status quo over the intervening decades and refrain from trying to assert old property claims.  I do believe there is a fear in Cuba, from the Castro brothers right on down to the peons working the land, that those families and firms might want to roll back the times and re-estalish the bad old days.  If those two fears can be assuaged, I could see a bright future for us cigar lovers....

Yes, that's true and I apologize if I was unclear in statement about workers--I was not referring to private enterprise there. Yes, the many of former state workers would be picked up privately and likely paid more with better conditions as today's NC rollers are. And yes, total gross revenue from tobacco should rise under a private system.

My comment was about the state's motivation to improve productivity and free up labor or reduce labor costs by implementing the changes you mentioned under the current system. I think you were referring to the dynamics of an exclusively private system, and I was thinking you had introduced the idea of the state selling raw tobacco when you actually meant private actors post-state.

To your last comment, as I touched on earlier I think it's likely going to be up to international courts to decide the fate of the land claims. The pre-rev owners can't be compensated directly since the Cuban regime will have dissolved and the coffers emptied. Either the courts will decide to give property back to the original owners with compensation to the homesteaders or vice-versa. Not sure what the case law is on matters such as this is but it will certainly be interesting. 

Hopefully the Cubans realize that the pre-Castro "bad old days" were a result of the same dictatorial control that they live under now. Batista was just as much a fascist as Castro a communist. 

[gweilgi]

7 hours ago, Ethernut said:

I think Cuba should be our 51'st state! LOL I know, I'm no stranger to controversy. ;-) Good thread Gents! Been enjoying it. 

51st state?  Don't you mean 52nd state ... after Puerto Rico?  

[Ethernut]

16 minutes ago, gweilgi said:

51st state?  Don't you mean 52nd state ... after Puerto Rico?  

Haha! Absolutely!

[Fugu]

6 hours ago, CaptainQuintero said:

But that is my point, despite the moral ambiguity it's all legal. In every country in the world the national governments have nationalised private property. It's horrible for those on the wrong end of it but it's a nation's governmental right.

This is not exactly and undoubtedly true - it is not legal (constitutional legality and conflict of laws) if done without compensation. At least that is the core matter of all legal claims reg. Cuba.

[gweilgi]

24 minutes ago, Fugu said:

This is not exactly and undoubtedly true - it is not legal (constitutional legality and conflict of laws) if done without compensation. At least that is the core matter of all legal claims reg. Cuba.

The Germans have a saying that translates as "you can't reach into the pockets of a naked man".  How would any large claimant expect to receive compensation from Cuba?  They have no money.  All they could do to satisfy those claims would be to sign over rights (mining, oil, etc), hand out preferential tax treatment in lieu of cash, and sign all those large plantations back into the hands of the original owners ... and then we'd be right back in the bad old days of Batista.  

Cubans have suffered and lost out, both under Batista and Castro.  To now insist on restitution claims dating back 60-odd years is to perpetuate their disenfranchisement and deprivation, IMO.  Legally, such claimants might have a point ... morally, they do not. 

[gweilgi]

13 hours ago, Colt45 said:

Finished cigars sell for more than tobacco. Once again, they have a monopoly - they make all the profit - why share the wealth?

I'd also guess that Imperial would do what they could to protect their fifty percent stake.

Of course I am not privy to the precise arrangements between Imperial and Tabacuba, but it would not be too far-fetched to assume that they do not cover new ventures with third parties that do not include existing sales and marcas, nor new private-public partnership ventures.  

Plus, it would not be a matter of sharing the wealth so much as increasing the market, opening up new segments.  As we all know only too well (says he, taking a look at his own stock), cigar lovers are an acquisitive bunch.  We are collectors.  We are suckers for new products and new lines.  The sales success of regional editions, limited editions and Casa-only releases prove this.  That being so, I cannot imagine that launching a new marca, say a cooperation with Fuente, would cannibalise existing sales -- it would lead to increased overall sales, and thus to increased overall wealth.

13 hours ago, Colt45 said:

 

I imagine that Cubans in the industry might make the best go of it.

 

I guess the main point to me is that the embargo and the monopoly are separate issues.

Separate but related -- not least in the matter of brand names and marketing.