Executive Vice President, Chief Operating Officer, Consolidated Cigar Corporation
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DiMeola: It was about a 4 million-cigar brand then, but they also did a lot of other cigars, like bundles. The brand itself might have been 4 million or so.
CA: What's it today?
DiMeola: Right now it's around five.
CA: Why did the owners of Te-Amo sell the brand in 1989?
DiMeola: I think they wanted to cash out.
CA: Are there any other major acquisitions before we talk about today?
DiMeola: We acquired two pipe tobacco companies--small ones. We acquired Century and we acquired Milton Sherman's business and we folded it into our pipe tobacco company in Richmond, Virginia. And, of course, there's the factory that we bought in Honduras. It was originally established by the Te-Amo people, and Pepe Gutierrez, who now works for us, was president of Te-Amo in the U.S. That was his factory. They make bundles there. Primarily, it was designed then to utilize some of the tobacco being grown in Mexico. We established Las Cabrillas, which is a very good value brand, and which is doing quite well both in the U.S. and internationally.
CA: When you say a value brand...
DiMeola: Well-priced, well-made.
CA: What's the approximate size of that?
DiMeola: Today? I don't know; about 2 million--in that neighborhood. When we bought that factory four and a half years ago, we were producing 2.2 million cigars. Today, it's producing 12 million. We could have taken it to 15 million but we didn't want to use junk tobacco.
CA: How big is Consolidated's production?
DiMeola: In premium cigars, in 1995, we produced 45 million from the Dominican Republic, Honduras and Mexico.
CA: Could you break that out by country?
DiMeola: Twenty-five million from the D.R., 12 million from Honduras and eight million from Mexico.
CA: Can you tell us in terms of the machine-made cigars?
DiMeola: About 4 million machine-made in the Dominican Republic, and that's all the [premium] machine-made we do.
CA: So, of the 45 million produced outside the United States, 41 million are handmade and four million are machine-made. Just as an overview number, could you tell us the total quantity of cigars from the company?
DiMeola: I don't remember. It's big--a billion. We used to say a billion. It fell off a billion, but we're climbing back. It's probably approaching a billion when you get back to putting the little cigars in.
CA: Can you tell us a little about the partnership you had with a company that had the worldwide rights to some Cuban cigar brands? What eventually happened to it?
DiMeola: I think I mentioned earlier that we bought controlling interest of CIT, and we got into partnership with Pepe Garcia, who was the original manufacturer of Montecristos with his partners, the Menendezes, in Cuba. Pepe was in litigation in the U.S. to get the rights to his trademark, and in the mid-'70s, the U.S. government decided he was, indeed, the rightful owner of H. Upmann, Montecristo, and Por Larrañaga, which were the ones that Menendez and Garcia had.
CA: So Garcia became the rightful owner around the world?
DiMeola: The U.S. government adjudicated that he was the rightful owner of his trademarks in the United States. The same thing happened to the Cifuentes brands with other companies, and so CCB--Cuban Cigar Brands--was formed as a partnership between Consolidated Cigar and Pepe Garcia, where Consolidated had a controlling interest. And the purpose of CCB was simply to hold those trademarks. Then, we started to market H. Upmann in the United States in 1975.
CA: If Garcia owned the brands, how did you end up getting the controlling interest? Was it that there was a bigger deal through a separate division that was set up, and he was allowed to keep a significant equity even though you bought the brands?
DiMeola: That's correct. And so we started to produce H. Upmann for the United States in 1975, and those sales paid royalties to CCB in which Pepe shared, and his heirs still do today. There was also a separate situation with those brands on a worldwide basis. At the same time as the litigation in the States, there was litigation in other countries as well--France and Spain in particular. The Cifuentes brands--Partagas, Ramon Allones and La Gloria Cubana--were involved in a legal dispute in Spain as well. Their case was heard first, and we had a parallel case going of Montecristo and H. Upmann. Now, Montecristo accounted for 75 percent of the premium cigar business in Spain. So when the Cifuentes people got their win, we started talking and they said, "Look, we have a win here, and you have a brand that accounts for 75 percent of the market. You have the power. It's going to take you maybe years for your case to go through the Spanish courts. Why don't we form a partnership, and see what we can do?" And that's what was done. We, over a period of time, negotiated with Tabacalera.
CA: Who else was involved?
DiMeola: The Leopoldo Cifuentes family.
CA: So it wasn't Ramon Cifuentes?
DiMeola: No, Leopoldo is a nephew of Ramon Cifuentes and he held the world rights to the trademarks outside the United States. Whatever those world rights are. So the partnership was formed and a sale was negotiated of the trademarks to Tabacalera, the Spanish monopoly, and once the Supreme Court in Spain agreed with the lower court's decision, the world rights to those trademarks were transferred to Tabacalera, except, of course, for the United States and the Dominican Republic.
CA: And that partnership was shared 50-50?
DiMeola: No. There was a formula that was used.
CA: We heard that those rights sold for $10 million. So you got your portion, they got their portion, and today you own the Upmann's brand rights, as an example, for the Dominican Republic and the United States, and that's it.
DiMeola: Well, we also maintain that we have the rights in Cuba. And there's a litigation still going in France which we also retain, although Tabacalera holds the rights to the trademarks in France. We retain the litigation and any results of it. And that's still going through the French courts.
CA: No doubt you have internally discussed the possible scenarios of what will happen once the embargo is over, and how this will affect your business and how you will participate or not participate in the renewed market of Cuban cigars in the United States.
DiMeola: Sure. I mean it's a very interesting subject if you're a brand owner.