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Richard L. DiMeola

Executive Vice President, Chief Operating Officer, Consolidated Cigar Corporation

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CA: Do you have any point of view on when you think the embargo will end? And what do you think will happen, and how will that affect the market and your company?

DiMeola: I don't know when the embargo will end. It certainly looks like we're moving in that direction. But after all, I heard people say the same thing in 1989 when the Berlin wall came down, and we still have an embargo.

CA: There is a lot of speculation that if Clinton is reelected, that in the first quarter of '97 the embargo will likely be ended. [Editor's note: The interview took place before Cuba downed, in late February, two small airplanes flown by Brothers to the Rescue, a Miami-based Cuban exile organization.]

DiMeola: Maybe it will. Maybe it won't. We don't know. I subscribe to the industry position that we would like to see the government end the embargo when they decide to do it, in an orderly fashion when it pertains to cigars and tobacco. We would like to see the U.S. industry be able to obtain Cuban tobacco first, before Cuban cigars are allowed in the market, in order to allow us to use Cuban tobacco and say that we are using it; so that the mysticism surrounding Cuba does not give anyone bringing in Cuban cigars an unfair advantage.

CA: OK. You own the U.S. rights to H. Upmann and Montecristo. Take those as obvious examples.

DiMeola: And, of course, Por LarraƱaga, La Corona, Henry Clay, Cabanas and a couple of others.

CA: Do you see the case of Montecristo and H. Upmann and others that you would then produce one brand, or a parallel brand? Would you continue to produce a Montecristo in the Dominican Republic and have a sister brand with maybe a different color band from Cuba? How do you see this unfolding, especially since you have a huge investment and a very sophisticated operation in the Dominican Republic?

DiMeola: First of all, we're not going to abandon our investments in the Dominican Republic, Honduras or Mexico. Secondly, I have to give you a non-specific answer because I don't know. We're playing it by ear, because neither we nor anyone else knows what they are going to find when they get to Cuba. I will say that, in my opinion, 10 years after the embargo is lifted on tobacco products and cigars--after the necessary capital investment is made in Cuba, and the crops are delivering sufficient supply--and after the trademark issues are settled, we will find Cuban cigars on the U.S. market again. They will co-exist with all the other cigars.

Here's a scenario for you--a theory that may or may not come to pass. Go back to what we were talking about earlier. The total market in the United States [of pre-embargo, hand-rolled premium cigars] was 185 million, but only 8 percent came from Cuba. What's likely to happen in the future? Can we say that the clear Havana market that existed prior to 1961 has now been replaced by the Caribbean and Central American product? And that Cuban cigars, when they come back into the United States, will co-exist at the same levels that they existed before? Maybe. Don't forget--we didn't have the tobacco that we're getting now from places like the Dominican Republic in 1960.

CA: Let's say you are able to go out and buy large quantities of high-quality Cuban tobacco, which can either be shipped to the United States to be made as it was 40 years ago, or, more than likely, you would ship it to the Dominican Republic where you already have the rollers. You already buy tobacco from all over the world for that plant, and then the rollers there would be producing either clear Havana cigars made in the Dominican Republic or a blend. After all, you use blends of different tobaccos, so the new product might be a cigar that has tobaccos from two or more countries, including Cuba. Isn't that possible?

DiMeola: I would guess we would want to experiment with Havana tobacco to see what it does to our blends, and we would want to test cigars made with Havana tobacco and blended with Havana tobacco to see what the American public at large thinks of them. Bear in mind the American consumer has always been different from the world consumer. Even when the market was 185 million, 90 percent of the Cuban cigars coming into this country and 90 percent of the clear Havana cigars sold in the United States were candela wrapped--green. Today, candela's nothing in the market, but it was 90 percent then, and only in the United States. That's where the term English market selection came from, because English market selection cigars were made with natural [brown] wrapper.

CA: I guess it is likely that there will be a lot of new brands, which might be frightening to the trade, but it should be very exciting to the consumer.

DiMeola: Very exciting. I think that, in fact, it's going to focus people on cigars in general, and that will take the cigar industry to another plateau.

CA: Absolutely.

DiMeola: I'm very excited about it, and I think that all of the above can happen. However, I think that you have to put it in a time frame as well. I'm not an agronomist, but I've been told by people who know that it would take three to five years to bring the crops in Cuba back to where they were before. And then how much can the production be expanded, and how fast can that be done? Three to five years, if Mother Nature cooperates.

CA: They're trying right now, and they're having problems that aren't even financial, that have to do with weather and storms, even though there are conflicting reports about the extent of damage right now.

DiMeola: Look at the U.S. [premium cigar] market right now--it's where? Where did it come in last year? One hundred and sixty, 165 million cigars? I haven't seen the final numbers. [Editor's note: Estimates this March place 1995 U.S. premium cigar sales at 176 million.] It's still not back to where it was prior to the Revolution, right? We still have a long way to go. I'm beginning to believe what you said last year, Marvin, in that we've only scratched the surface.

CA: But there is a difference. You said that the average pre-embargo cigars cost three for a dollar. I mean, you know the premium price level is going up. Isn't everybody raising their prices?

DiMeola: I bought one of my own cigars in a hotel last year for $15. Last night I would have to have paid $23.

CA: That's ridiculous. Let's move on. The topic of wrappers is controversial and, frankly, quite interesting to cigar smokers, because we're beginning to learn much more about them. You are faced as a producer with political and availability issues. In your opinion, is there a country which produces the best wrapper, and if so, what country is it?

DiMeola: The United States.

CA: Connecticut wrapper?

DiMeola: Connecticut wrapper.

CA: You believe the Connecticut wrapper is the best wrapper in the world? OK. Why then, do you not use the Connecticut on all of your cigars?

DiMeola: It's a matter of producing variances in taste. We have another wonderful wrapper that we use from Indonesia. I classify Connecticut as number one because of its color and because of its burning characteristics, as well as the taste and its workability.

CA: Can we talk a little bit about the various sources of tobacco--of wrapper tobacco for your brands and what has changed as a result of the difficult harvests in the Cameroon. First of all, let me just go down a list: H. Upmann? Where's the wrapper from?

DiMeola: Indonesia.

CA: Montecristo?

DiMeola: Connecticut.

CA: Primo del Rey?

DiMeola: Indonesia. I had to think. It used to be Brazil.

CA: Don Diego?

DiMeola: Connecticut.

CA: Montecruz?

DiMeola: There are two different types of cigars in the Montecruz brand. One is Connecticut and the other is Indonesia.

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