Cigar Alert

Manufacturers prepare for the worst from FDA's OTP announcement.

By
Melissa Vonder Haar, Tobacco Editor

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NJOY’s Practice of Self-Regulation

Cigar manufacturers aren’t the only suppliers preparing for the future: Industry leader NJOY has been setting itself up for any regulations the FDA has in store.

“We’re big believers at NJOY to skate to where the puck is going to be in respect to regulations,” says Craig Weiss, president and CEO of the Scottsdale, Ariz.-based e-cig company.

Despite the fact that there are currently no regulations on how electronic cigarettes are made, sold or marketed, NJOY has chosen to operate as though regulations are in place. As such, the company refuses to merchandise its products as self-service at retail (and actually walked away from a prominent retailer who insisted on self-service); requires age verification of all its retail partners; is the only independent e-cigarette company to join the We Card program (and sits on the organization’s board); and manufactures products only in traditional and menthol flavors.

“We believe that we’ve put ourselves in a very strong position with respect to anticipated FDA regulations,” Weiss says. As for companies who haven’t taken such measures? As with cigars, FDA regulations could actually serve to improve the competitive environment by forcing weaker manufacturers out of the business.

“Some regulations could be good for the industry,” says Lou Maiellano, president of the Sevierville, Tenn.-based TAZ Marketing& Consulting Group. “It would clear the field to some extent, but it would also consolidate industry leadership with the well capitalized and well-established companies, including Big Tobacco and possibly Big Pharma.”

A Premium Difference

In the midst of the debate of what cigar regulations the FDA might roll out is the question of whether premium cigars should be treated differently from mass-manufactured products.

Although premium cigars account for only about 240 million of the nearly 13 billion cigar units sold annually in the United States, Republicans and Democrats alike have spoken out in favor of exempting premium products from potential regulations: Both the House and Senate issued strongly worded warnings to the FDA on the issue of premium cigars last June.

At the center of these warnings were the higher price points, lack of marketing toward minors and the unique characteristics of premium cigars. Richmond, Va.-based General Cigar Co., the nation’s leading manufacturer of premium cigars, agrees with such assessments. “The premium cigar price spectrum ranges from approximately $6 to $20 per cigar, with rare vintage offerings commanding a per-cigar price of $100 or more,” says Alan Willner, General Cigar’s vice president of marketing. “The average retail price for a mass-market cigar is around $1.”

The price differential alone serves as a barrier to youths looking at premium cigars. In fact, Willner estimates the majority of premium-cigar smokers are over 40. But it’s not just cost regulations that could be harmful to the premium cigar market: A potential ban on self-service would interrupt the consumer-product interaction that’s part of the ritual of selecting a premium cigar.“At the retail level, premium-cigar consumers expect to be able, to see, handle and smell the product,” says Daniel McGee, general counsel for General Cigar. “There is a very strong educational and experiential component tied to the purchase of premium cigars. Interaction with the product, ordinarily with the assistance of a sales clerk, is an integral component of the overall retail experience.”While it’s unclear whether the FDA will heed the advice of the House and Senate, McGee is cautiously optimistic the agency will at least consider it.


What Will the FDA Do?

Predicting the FDA’s actions may be an effort in futility, but here are just a few ideas from those in the know.

Cigars:

  • Flavor ban or regulations
  • Single and pack regulations
  • Self-service ban
  • Possibility of exemption for premium cigars

E-Cigs:

  • Age verification
  • Flavor ban or regulations
  • Limiting nicotine density
  • Self-service ban
  • Manufacturing practices requirements
  • Remote sale (internet) ban
  • Advertising ban or regulations

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