Musings Regarding Cuba

[F. Prefect]

As the time approaches when US citizens will again be able to legally purchase Cuban cigars, I sometimes find myself wondering what the first 6-12 months will bring when the embargo is lifted.

Given the fact that we "have" been able to pay through the nose to illegally purchase cuban sticks from cigar vendors in other countries, perhaps there is not a huge pent-up demand for Cubans. However, given the fact that many BOTL of today were not even born when the embargo began, I suspect that there will be plenty of smokers willing to pay the initially high prices just out of curiosity. If this does turn out to be the case, and the Cubans haven't had the foresight to have stored millions of premium sticks just waiting for the day to come (ha, ha) then I wonder what the quality as well as the age of Cuban cigars sold during the first postembargo year will likely be. I hope I'm wrong, but I would be willing to bet we are going to see a lot of green poorly constructed cigars in that first 1-2 year period.

Also during the near half century rule of Castro, the Cuban economy has been running on fumes for many of those years. And while during this time, some of the more robust Caribean economies have had the resources to experiment in the production of new tobacco varieties that 'may' now be superior to anything ever produced in Cuba. We just don't know it. Yet.

Should be some interesting times ahead anyway.

F. Prefect

[BigFrankMD]

Most of the good growers and makers left cuba and have been growing and producing smokes for some time. Honestly im probably going to stick with non - cubans unless the playing field gets leveled [rice wise somewhat some long time after the embargo is lifted.

[GrtndpwrflOZ]

I do not find this to be true.
In my opinion CC prices will go up up up with the tobacco tax added onto the price.
"From what I have heard"
CC's are much cheaper than NC's.
Where CC's are around $8 a stick for what I would consider high end CC's
The NC "equivalent" (and I use that term loosely) is 4 to 6 dollars more.

Now I am rounding and speaking vaguely. Perhaps one of my Brothers here can reiterate with more precise facts based too on what "they have heard"

Just my

B

FEAR THE

CHICKEN

Originally Posted by F. Prefect

As the time approaches when US citizens will again be able to legally purchase Cuban cigars, I sometimes find myself wondering what the first 6-12 months will bring when the embargo is lifted.

Given the fact that we "have" been able to pay through the nose to illegally purchase Cuban sticks from cigar vendors in other countries, perhaps there is not a huge pent-up demand for Cubans. However, given the fact that many BOTL of today were not even born when the embargo began, I suspect that there will be plenty of smokers willing to pay the initially high prices just out of curiosity. If this does turn out to be the case, and the Cubans haven't had the foresight to have stored millions of premium sticks just waiting for the day to come (ha, ha) then I wonder what the quality as well as the age of Cuban cigars sold during the first post embargo year will likely be. I hope I'm wrong, but I would be willing to bet we are going to see a lot of green poorly constructed cigars in that first 1-2 year period.

Also during the near half century rule of Castro, the Cuban economy has been running on fumes for many of those years. And while during this time, some of the more robust Caribbean economies have had the resources to experiment in the production of new tobacco varieties that 'may' now be superior to anything ever produced in Cuba. We just don't know it. Yet.

Should be some interesting times ahead anyway.

F. Prefect

[Sisyphus]

With some exceptions, the cost of a good quality Cuban is less than, say, a Padron 64. And much less than many of the other "premium" NCs out there. I don't think price is an issue. People will always be willing to pay more for higher quality. My guess is that the lifting of the embargo will tend to hurt the NC manufacturers. It's only a matter of to what degree.

-Ken

[Teninx]

Originally Posted by F. Prefect
"As the time approaches when US citizens will again be able to legally purchase Cuban cigars, I sometimes find myself wondering what the first 6-12 months will bring when the embargo is lifted."

I don't think the end of the embargo is at hand. Back in 2002 the US had offered to lift the embargo if Cuba would 'embrace democracy' and has recently reaffirmed that stance. The next Castro dictator said that he will 'open a dialogue' with America if the US agrees to stay out of Cuba's internal affairs. So nothing has changed in this regard and the embargo's end is no closer. If a new Presidential administration decides to lift the embargo, it will be a unilateral action and will subject the new President to as much blame as praise.

If and when the embargo ends, I think Cuba will continue to produce cigars just as before. I'd expect a surge of American orders for Havana cigars from offshore vendors, but Habanos SA has greatly benifited from its partnership with Altadisand I doubt they will revert to producing crap just to satisfy increased demand.

[Bob]

I don't think it will matter much. I don't think it will put a dent in what is sold here. It might be popular for a bit but I doubt it will do much. I honestly don't see Davidoff going back. Why should Padron or Torano or any of the others? Pepin is already making cubanesque cigars here. Heck, if I were him I would "blend" that to the max.
The big problem I see is the Tobacco taxes and bans going worldwide, blaming us for pollution and sickness when in acutality it is the internal combustion engine and big industry giants causing our pollution problems.
Cuba is and always will be Cuba. But, what it offers in the way of cigars will only be faddish here. I don't see it changing much. People will buy what they can afford and that is what makes this little world jingle and jangle!!

[Lanthor]

The forces of supply and demand will obviously kick in, with initial spikes in prices and declines in quality, leading to an eventual decline in demand due to lack of availability and poor quality. This will lead to prices slowly coming down and quality normalizing.
I believe if consumers have to struggle to find something, and/or they perceive it as being overpriced (we are talking discretionary dollars here) they eventually lose interest (or perhaps just head to the sidelines for a while).
I think the increase in demand will more than offset the current 'embargo' premium reflected in prices (obviously this varies retailer to retailer), but to what extent, and how long supply, demand, and price will normalize is the real question, 2, 5, 10 years??
Another question is what happens to the prices of NC's. Due to an assumed shift in demand from NC's to CC's (initially), one would expect some price erosion in this product category. With the understanding being that margins are fairly thin as it stands, safe to assume some smaller companies could shut there doors.
An interesting dynamic to watch unfold regardless of the outcome in my opinion. I know a lot has been posted on this subject, and my thoughts are probably not unique, and I am not an expert on the industry by any stretch of the imagination.

[adsantos13]

Just a couple comments...

First, Americans who choose to buy Cubans illegally through foreign sources are actually paying less for their cigars simply because they do not pay taxes on their purchases (since the purchases are illegal and thus unmonitored). So saying that Cubans are more expensive IN GENERAL, is not necessarily true at all. Further, a lot of the cheaper Cubans that are attainable for around $4-5 a stick, are widely regarded by BOTL's as amazing smokes.

Secondly, no matter how much money and expertise is put into cigar making in countries such as the DR and Nicaragua, their products will never be able to approach the "taste" of a cuban cigar. For example, California wine makers import grapes from France but the end product tastes inherently different. This is not to say one is better than the other, just different.

[kurly]

I think a really interesting part will be all of the trademark issues that seem likely to develop when importing/distribution actually starts. I know that all of the 'pundits' have weighed in on it, but since so many of the brands 're-emerged' in the U.S. domestic market (most prolifically during the last cigar boom) after the names were stolen by Castro's government what happens?

Will Cuba rename their brands? Probably not because they are right now producing at 'current' capacity and can barely keep up with demand.

I'm thinking they will come up with new brands down the road, rather than fight all of the patent issues, but that would take time, and I doubt they have either the factory or agricultural capacity to meet the (in all estimates I've read) 20% additional demand that the U.S. will make up.

I think I would also be surprised even if the embargo is lifted whether the government would even be interested in selling its brands, factories, plantations etc. It's like up here in Ontario where the g-men own (almost) all of the distribution rights to alcoholic beverages. It's a hassle, and private industry could probably do it better, but it's a cash cow.

Perhaps if the US lifted the bans 6 months or a year after the collapse of the Soviet bloc when they truly NEEDED short term cash, but now why would they?

I think the most likely situation (short term) will be Cuba opening more fields for growing tobacco and selling it (and product from established plantations) to anyone willing to buy it. That way you avoid all of the name ownership rights battles. I think private ownership will take on a big role within the agricultural component of this process if there is a major shift in government priorities from a Marxist state.

[Andyman]

Originally Posted by kurly

I think a really interesting part will be all of the trademark issues that seem likely to develop when importing/distribution actually starts.

After the embargo is lifted before venders can start selling Habanos the trademark issue needs to be ironed out. That could take a long time because I don't see the cigar companies "giving" up the trademark. If altadis owns 50% of habanos and also owns the trademark to the Domestic MC, RYJ, Etc. It will be interesting to see how it pans out.

I think we will see the domestic brands disappear.

Until then, the internet will be the medium to buying Habanos and I am sure this will initially put strain on demand and prices will go up.

[F. Prefect]

Originally Posted by adsantos13

Just a couple comments...

First, Americans who choose to buy Cubans illegally through foreign sources are actually paying less for their cigars simply because they do not pay taxes on their purchases (since the purchases are illegal and thus unmonitored). So saying that Cubans are more expensive IN GENERAL, is not necessarily true at all. Further, a lot of the cheaper Cubans that are attainable for around $4-5 a stick, are widely regarded by BOTL's as amazing smokes.

Secondly, no matter how much money and expertise is put into cigar making in countries such as the DR and Nicaragua, their products will never be able to approach the "taste" of a cuban cigar. For example, California wine makers import grapes from France but the end product tastes inherently different. This is not to say one is better than the other, just different.

Some good points. Since the only Cuban sticks I have or have smoked were gifted, I hadn't realized a good Cuban could be had for $4-5 bucks from a Canadian or European dealer. Most of what I came across where 200.00-300.00/box of 25, but since I wasn't "in the market" for any, I did very little shopping.

Whether or not growing conditions can be duplicated close enough to produce a product that would be equal or superior to a Cuban cigar or a bottle of some French wine is probably doubtful at present, but we humans have come a long way in the past 50 years and I wouldn't bet against anything in the next 50, but as for now, I'll have to agree with your until something comes along to trump it.

F. Prefect

[F. Prefect]

Originally Posted by Lanthor

The forces of supply and demand will obviously kick in, with initial spikes in prices and declines in quality, leading to an eventual decline in demand due to lack of availability and poor quality. This will lead to prices slowly coming down and quality normalizing.
I believe if consumers have to struggle to find something, and/or they perceive it as being overpriced (we are talking discretionary dollars here) they eventually lose interest (or perhaps just head to the sidelines for a while).
I think the increase in demand will more than offset the current 'embargo' premium reflected in prices (obviously this varies retailer to retailer), but to what extent, and how long supply, demand, and price will normalize is the real question, 2, 5, 10 years??
Another question is what happens to the prices of NC's. Due to an assumed shift in demand from NC's to CC's (initially), one would expect some price erosion in this product category. With the understanding being that margins are fairly thin as it stands, safe to assume some smaller companies could shut there doors.
An interesting dynamic to watch unfold regardless of the outcome in my opinion. I know a lot has been posted on this subject, and my thoughts are probably not unique, and I am not an expert on the industry by any stretch of the imagination.

Given a "free hand" to work, as you point out, supply and demand should eventually be the primary forces at work. A lot will depend upon the regime that follows Castro into power. If they are willing to join the rest of the Economic Community in fair trade (well, semi-fair trade) and are willing to do what is necessary to maximize tobacco production and train a work force to produce a quality product, there is little doubt in my mind that Cuba could produce far more tobacco products than they are doing today, with much of the increase coming from the production of neighboring Caribean nations, currently the World leaders in Cigar production.

It's doubtful that the opening of the Cuban cigar market will increase the overall demand for cigars, but they should have plenty of room to increase their market share. The net result, in theory at least, is that we should see an increase in cigar production worldwide and if your correct about supply and demand, we should eventually see lower prices for almost all cigars. But with so much red tape regarding "name rights" for example, we may never see the industry truly controlled soley by supply and demand, but I can't think of any industry that is.

F. Prefect

[Lanthor]

Originally Posted by F. Prefect

It's doubtful that the opening of the Cuban cigar market will increase the overall demand for cigars, but they should have plenty of room to increase their market share.

No I agree, I think there is a lot of pent up demand for CC's here in the U.S. that would initially be released by those who -for whatever reason- choose to refrain from purchasing CC's. So we may see some new demand from the curous (ie. the once/twice a year smoker), but I think more likely is a demand shift from the NC's to the CC's.