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Tuesday, Sep 02, 2014
Politics

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

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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.”❖ ❖❖ ❖ ❖

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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.”

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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.

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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.

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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?”

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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

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