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

Cigar companies plan for when trade embargo with Cuba ends and Cuban
tobacco floods U.S. market
By Paul Guzzo | Tribune Staff
Published: May 11, 2014

NAPLES — Marcus Daniel has a business plan for expanding his cigar
brand. It involves baseball gloves.

The owner of Marcus Daniel Tobacconist in Old Naples, Daniel has visited
Cuba up to five times a year since 2009 and often brings gloves with
him, handing them to children living in the Pinar Del Rio province.

It's one way he curries favor with the people of the region, home to the
Robaina farm and what many consider the finest tobacco in the world.

When the U.S. trade and travel embargo with Cuba is lifted, whether next
week or next decade, Daniel hopes this relationship puts him at the
front of the line of U.S. tobacconists interested in the Robaina farm.

Currently, the region produces enough tobacco for 4 million cigars a year.

"I call it my 'Cuba Plan,' and whether they want to admit it or not,
every cigar manufacturer in the U.S. has one to some degree," Daniel
said. "They need to. When Cuban tobacco is allowed to flood the U.S.
market, it will be a game changer, and they need to be ready."

Tampa's oldest tobacco families with Cuban roots — the Fuentes and the
Olivas — agree.

They acknowledge that they give thought to the day when Cuban tobacco is
allowed again in the United States.

"I don't think it will be long now," said Tampa native Carlos "Carlito"
Fuente Jr., head of a family cigar empire that runs its U.S.
distribution operation from Ybor City. "Of course, my family's been
saying that for 55 years."❖ ❖❖ ❖ ❖

❖ ❖ ❖

Fuente said his late grandfather, patriarch of the 102-year-old cigar
brand and Cuban native Arturo Fuente, would annually proclaim that next
year was the year the Fuentes would return to the island to grow or
obtain bulk tobacco for its cigars.

"That was his plan," his grandson said. "But so much has changed."

Up to 1,000 people work on the farm. Another 2,500 work in four
factories in nearby Santiago.

The Fuente family, he said, is too entrenched economically and
emotionally in the Dominican Republic to ever shift operations back to Cuba.

Industry experts say the cigar company poised to profit most from Cuban
tobacco in the U.S. is a London firm, Imperial Tobacco, which is already
the international partner of Cuba's state-owned cigar company, Habanos.

Any Cuban cigar sold outside Cuba carries the Imperial brand.

Imperial sells non-­Cuban cigars in the U.S., such as Romeo y Julieta.

Cigar maker Daniel believes that when legal to do so, Imperial will
quickly introduce Cuban brands here and corner the market in the short term.

Habanos and Imperial plan to increase their tobacco production by 50
percent over five years to meet the U.S. demand once imports are legal,
said Richard Feinberg, a nonresident senior fellow with the
Washington-based Brookings Institution who has authored several studies
on the Cuban economy.

Feinberg estimates tobacco accounts for $400  million to $500 million a
year in economic impact for Cuba.

Increasing that by 50  percent, while not an economic "game changer,"
would certainly be a boost, he said.

This "sentiment is correct," said Imperial Tobacco spokesman Alex
Parsons, though he could not confirm the 50 percent projection.

"Of course there would be a significant upswing in production," Parsons
said. "Why wouldn't we want to take advantage of a new market? But it's
all speculation because the embargo has not been lifted nor are their
plans to, as far as we know."

❖ ❖ ❖

Fuente acknowledges that when Cuban tobacco is allowed into the U.S.
marketplace, consumers will rush to it at the expense of his Dominican
blends.

"Cuban cigars are the forbidden fruit in the U.S.," he said. "There will
be interest."

Still, he does not worry about taking an economic hit.

In the short term, until Cuba's tobacco harvest hits its peak, Habanos
and Imperial would have to pull cigars from other markets to meet U.S.
demand, Fuente said.

Parsons had no comment on that.

Fuente cigars are available around the world, but the U.S. accounts for
about 80 percent of sales, Fuente said.

He said he would seek out countries that get shorted on Imperials and
fill the void, creating new opportunities for international expansion.

"Great Cuban tobacco is great. But great Dominican is just as great,"
Fuente said. "A true cigar aficionado knows that."

He also said he is confident that by the time Cuba's production reaches
its peak again, his company will find a way to create its own blend
using the fine Cuban tobacco some U.S. smokers favor.

"We're chefs," Fuente said. "I am excited for the day when we have all
the herbs and spices available to us."

He said he would not want to grow tobacco in Cuba under the Communist
Castro regime, with its history of nationalizing industries.

But if Cuba were a democracy, respecting the right to own land, he would
consider adding a small farm on the island while keeping the Dominican
Republican as his hub.

Or perhaps, he said, he would purchase tobacco from a wholesaler, such
as his longtime friend and Tampa native John Oliva Sr.

❖ ❖ ❖

The 80-year-old Tampa-­based Oliva Tobacco Co., founded by the late
Angel Oliva, has farms in Honduras, Nicaragua and Ecuador. Among its
customers is Fuente, who blends Oliva tobacco with his own.

"Every Fuente has Oliva tobacco in it and always will," Fuente said.

Oliva said he would be interested in adding a fourth farm in Cuba if
U.S. law allowed, although like Fuente he would hesitate to do so under
the Communist government.

He opened his first cigar shop in California 20 years ago and relocated
to Naples to open a second shop so he could be closer to Cuba for the
regular trips he makes there.

"I have no roots in Cuba, so have to establish them," Daniel said.
"Tampa, however, has families with deep roots."

Tampa was the cigar capital of the world from the early to mid-1900s.

At the industry's peak, more than 10,000 people worked in more than 200
factories producing up to half a billion cigars a year, primarily with
Cuban tobacco.

The Olivas and Fuentes are the last of the major Tampa tobacco families
with roots in Cuba, surviving and thriving by learning how to grow
Cuban-quality tobacco in other countries.

Neither family has been to the island nation since the embargo was
enacted in the early 1960s in reaction to the Castro revolution.

"We have a reputation in that country and have family there," Oliva
said. "So I don't think we'd have a problem going back and growing
tobacco or purchasing it to resell in the U.S."

Fuente said he has been told some Cuban cigar shops display a photo of
his grandfather in a tobacco field.

❖ ❖ ❖

Johannes Werner, editor of the online economic publication CubaStan
dard.com, wonders whether roots in Cuba — old or new — will really matter.

And he said it's unlikely the fine tobacco grown on the Robaina farm
will ever find its way to the U.S.

"I do not think Cuba would allow their premium tobacco to go to anyone
other than Imperial," Werner said. "They have a deal."

Parsons, the Imperial spokesman, agrees.

"We have exclusive rights to international distribution," he said. "Our
relationship with Cuba is strong, and we only envision it getting stronger."

Still, in any business and any nation, money talks, and Cuba may be
willing to bargain, said John Park Wright, grandson of Tampa pioneer Dr.
H.T. Lykes.

Wright deals in cattle semen with Cuban farmers, which is legal under
U.S. law allowing agricultural trade on a cash up front basis.

There is no way of knowing whether Imperial's partnership would exist if
the end of Communism turns out to be the reason the embargo is lifted.

Feinberg with the Brookings Institution said Cuban tobacco might make
its way to the U.S. before the end of the embargo, noting that there is
pressure for the U.S. to allow trade with non-state owned companies in Cuba.

That might include private tobacco producers if Cuba allowed them.

"There are so many variables to this equation," said Gordon Mott, editor
of Cigar Aficionado magazine. "Will Cuban maintain control over its
tobacco? Will the same Cuban government be in place? Will Imperial's
deal remain the same? Will foreigners be allowed to purchase land? Will
they allow their best tobacco to be sold or will they control it?"

❖ ❖ ❖

Unless the finest Cuban tobacco can be added to his cigars, Fuente would
have no interest in it.

But however the opening of the Cuban cigar industry plays out, Fuente
sees only opportunity.

"There would be a cigar boom," he said. "People who don't smoke cigars
will rush to buy a Cuban to try one. Some will realize that they enjoy
smoking but the Cuban taste is not right for their palate and try
another, perhaps a Fuente."

Mott said: "It would be a short-lived peak of the Cuban market but a
long-term peak for the cigar industry. Cuban cigars will introduce a new
group to cigars of all kinds."

Mott compared tobacco to wine. People enjoy wines from regions around
the world, not just France.

"There is equally great tobacco being grown in the Dominican Republic,
Honduras, Nicaragua, Mexico and other regions," he said. "When people
realize this, they'll try them all and find the one they like the best."

Fuente said he believes even Cubans will realize this.

"I look forward to the day I can walk down the streets of Cuba and hand
my finest cigars to a cigar maker there," he said.

Daniel said he knows from experience that Cuba already respects cigars
using tobacco from other regions.

He said in 2010 he was the first American to exhibit a cigar at the
Havana International Fair, the largest annual trade fair in Cuba.

Daniel uses tobacco from growing regions throughout Latin America,
except Cuba.

When Cubans at the fair sampled his wares, he said they were shocked to
learn no tobacco from their farms was used.

Still, Daniel said his blend would be even better with Cuban tobacco.

"If you want to be an actor, you want to be in Hollywood. Cuba is
tobacco's Hollywood."

pguzzo@tampatrib.com

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