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Reading The Tobacco Leaves

Reading the Tobacco Leaves

Smoking sages weigh in on what’s in store for the new year.

The coming year looks like this: a leveling off of demand, a tobacco farm labor shortage, some price hikes here and there, and a hold on federal regulation of premium cigars.

This is the forecast of more than a dozen experts who responded to our request for an outlook on the year ahead. We queried more than two dozen folks for this story, and of those who responded, most prefaced their remarks with an upbeat intro, noting “2021 was our best.” Which of course it was for so many – from producers to retailers.

Fortune telling is a long shot craft, but in a select and finicky segment like premiums, those on the ground have a terrific view to read the tobacco leaves. The relatively small size of our community means projections are easier and often more accurate, and our group of sages was kind enough to impart its wisdom.

In talking with so many retailers and producers last year, we heard how they were having a great ride, flush with demand as well as fresh customers and familiar faces who were upping their daily smoking as they worked conveniently from home. Visits to cigar lounges across the country in 2021 saw plenty of customers toiling away with open laptops, a lit cigar nearby. We’d bet work production increased among those happy souls.
Now, for this year. Fortune telling…

In their own words, here’s what our newly minted sages had to say as 2022 kicked off in earnest.

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Cory Bappert, CEO, Oliva Cigars

Cory Bappert, CEO, Oliva Cigars:

These last two years have been pretty good, and I think consumer demand will remain, and hopefully we can even grow the pie a little more. I expect by the second half of 2022, most companies will have their supply chain fixed. We’re good on supply, we’re not suffering although some people are. We foresaw a lot of this stuff happening and keep a healthy inventory regardless. At the end of 2019 we expanded our factory to the point that it can handle growth for five years. One of the major problems we’re having and will have is labor. This is a massive problem, especially in Nicaragua, because of the border situation in the U.S. People now think they can walk across the border. Some are coming back. I talk to people who are supervisors and have worked in the industry for 10-15 years and they leave. Even though they are told they are being sold false information about getting into the U.S., they hire people to take them there. We hope to hire some when they come back.

Reinier Lorenzo, owner, HVC Cigars:

Most [workers who leave for the U.S.] are getting in and staying there. We have to expect that to continue, so we really need workers. We try to pay a little more but it’s still hard to get them. Other than that, we had a great 2021 and have no reason to expect 2022 will be anything less. We have new products that we’re still developing.

Tony Gomez, production supervisor, La Flor Dominicana:

The catch for us last year was production, but we’ve opened 2022 in a better spot than 2021. Not quite at 100% but 2022 could be our greatest year if everything comes together as we expect they will. We also had an employee shortage, but since the fall, we’ve been chipping away at all the challenges. We’re a small, family-owned boutique business, and we like to have full control of what’s going on. And we’re getting back to something like normalcy this year.

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A scarcity of labor is projected to affect manufacturers in 2022.

Juan del Cerro, U.S. customs broker for cigar brands:

The current cigar importers are bringing in real quality stuff and the price is right. The bottom line is the high quality, and the demand keeps growing. I expect that to continue in 2022.

Robert Caldwell, founder, Caldwell Cigars:

Marketwise, we’ll see some stabilization in 2022. I don’t think the supply chain issues will go away but people are going to start making better market assumptions. It’s a new supply chain ecosystem to deal with starting this year and in a perfect world, that will make it easier to navigate.  A lot of companies were caught off guard by how the pandemic affected everyone.

We’re also seeing an issue that started before the virus, where wrapper whole-leaf tobacco is being taken by non-premium tobacco product companies for blunts. There’s been a big push toward natural leaf tobaccos in that industry, and I think that in 2022 that will continue and as a result, can cause a shortage for premium producers.  Growers are going to go with whatever buyer pays, and this push into organic, clean food and clean ingredients is a movement away from mass-produced, and the blunt industry has gotten into it.

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Over production is a real risk cigar makers face as the increase in demand caused by the pandemic can trigger inventory gluts once consumption returns to normal.

Cory Bappert, Oliva:

There is also the concern of the available filler for premium growers. They don’t like to grow filler as there isn’t as much [profit] margin on it. So, if you don’t grow your own tobacco, it could be an issue as we get to the end of the year.

Abe Dababneh, owner, Smoke Inn/The Great Smoke:

There will probably continue to be a shortage of filler, as well as a labor shortage. But I sure hope people don’t over ramp or overdo it when they increase production. People are starting back to their regular cadence of smoking, the way it was before the pandemic. They can’t smoke all day as they did in the past couple years, so there’s that danger that people will overproduce.

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Nicholas Melillo, founder, Foundation Cigar Co.

Nicholas Melillo, founder, Foundation Cigar Co:

We look at 2022 in the 35 to 40% range of growth. The past year was 60%, so we are managing production, as we need to ensure the quality. We can see that in the 90s, the last real boom, people committed to contracts and overproduced. People in this business know that. The brick and mortars have really picked up on us, and one of our biggest drivers has been my infused brand, which is up 70% and was one of our biggest gainers last year. All kinds of people are now coming through humidors, including newcomers, and they want to try things. And retailers are seeing that.

Steve Saka, Dunbarton Tobacco & Trust:

We’ve had to increase prices for this year, and I’m surprised not more people have done the same. We’re under the same inflationary stresses as everyone else and everything is costing more. Most consumers don’t understand that manufacturers never want to raise prices, we’d like for things to be the same all the time. The only time a manufacturer raises prices is when they are forced to because margins get thinner and thinner, and we must maintain quality. Most manufacturers did not take a full price increase so let’s see where it is heading.

Frank Santos, sales and marketing, AJ Fernandez:

Labor costs are going up, the whole supply chain has gone up, and we will do a price increase of roughly 5% on wholesalers in March. The last time we did that was two years ago before the pandemic, where we had a restructuring, and some prices went up and some went down. These are increases at a wholesale level, so the retailer can decide if prices go up or not.

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Price increases could be in store for cigar smokers due to inflationary pressures on production costs.

Jeff Haugen, founder, Crux Cigars:

I see retailers leveling off from the growth after that record year of 2021 and most of 2020. Most retailers I know had double-digit growth last year for the usual reasons – people working away from the office could enjoy a cigar while working in lounges. The first challenge of 2022 is the omicron variant, although it looks to be going away very swiftly, although the quarter will be hard for retailers and there could be a dip of around 10 to 15% from last year. That will panic some retailers, but on the other side, when this current virus is done there will be a celebratory period in the spring and an economic rebound. By Q2, people will be back on track although not like 2021. This boom of the last two years has created the production issue among manufacturers, though, so that will be the biggest challenge.

Les Mann, VP of sales, ST Dupont (luxury accessories):

I am bullish for 2022. Tobacconists want to have nice product in their stores, and that will fuel our growth in 2022.  Customers come to the stores for their cigars, but retailers will step outside the box and look at accessory offerings, and with more people smoking, they have this chance to offer these luxury products and going outside the everyday mentality of ‘I am walking in to buy a box of cigars.’ The guy with the six Opus Xs in his bag also uses a Dupont lighter. Consumers want nice stuff and retailers want to sell that.We have more product introductions in the first six months of this year than we had for all of 2021. If we thought things were slowing down, we would slow down innovation. And that’s just not the case.

Frank Herrera, attorney, H New Media:

Regulation is also in the favor of the industry; I am optimistic that the FDA will understand that a premium cigar is different [than other tobacco products]. The FDA certainly has its hands full and has spent a lot of time on e-cigarettes and vapes and some of the non-premium flavored cigars that they feel are attractive to youth. Once the scientists come back with insight on premiums, the FDA will have to look at that and review and analyze that information in the context of the non-premiums. By nature, they will see that premiums are different and finally realize what we’ve been telling them.

Storm Boen, chairman of the board of directors, Cigars for Warriors: The regulations on donating cigars in 2016 meant that we lost a lot of donations from manufacturers and of course there are still plenty that don’t give a shit and do it anyway. But in late February [2022], I will be going to DC to meet with the cigar caucus. They are excited about Cigars for Warriors. There are several things we’d like to fix, including the age requirement for cigar smoking. We want to make sure deployed troops are not held to the 21 or over rule, and no other country besides the U.S. has that rule. I’m sorry but if you are in the military, you are an adult and can smoke a cigar. We need to make sure that stays so.

One of the things that will help us in 2022 is the return of events. We were in only two festivals last year, and we’re usually in 25. Our biggest fundraiser, the C.A.T.S. (Cigar Aficionados Trades and Sales) Fest, had to be canceled the last two years. But this year looks good.

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It’s anticipated in-person events will ramp up benefitting both retailers and manufacturers.

Steve Saka, Dunbarton Tobacco & Trust:

There were trade shows last year that did great despite the pandemic, but everyone was still in the Covid bubble and consumption was way up. Now we’re going back to work, and the government money is drying up so 2022 will be the first year we’re back to a semblance of normal, so it’s hard to judge what will ultimately happen with these events, be they trade shows or retail stores. Even before the pandemic, in-store events were money losers, so it may be some of these get scaled back now. I’m too busy to do them all and now I switch the onus on to the retailer to make it a special event. I can see the smaller brands cranking it out, region by region, continuing to do them and more reps doing the events, but as far as principals, I don’t think you’ll see that coming back as quickly.

Terence Reilly, VP, Aganorsa Leaf:

We’re going to have more in-person in 2022 until something prevents it. There is a real demand for people-to-people meetings, in-stores, anything like that. People are triple vaxxed and they want to socialize. This year, people are going to go to in-store and cigar places that are experience-based, as people want to go to a place where they can find something interesting going on, anything from live music to domino tournaments, dinner, something other than the back porch. They want an atmosphere where the events are an accoutrement to the cigar.

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Abe Dababneh, owner, Smoke Inn/The Great Smoke.

Abe Dababneh, owner, Smoke Inn/The Great Smoke:

There will be two types of people existing in the world after all this virus is gone. There are the people wearing a mask in their car while alone and driving, and there are people who have just moved on and are going to live their lives and accept there is an illness out there that goes on every year.

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