Cigar Industry

A Brief History of the Cigar Industry

War, revolution and regulation have failed to snuff out the continuing story of the cigar.
| By David Savona | From Cigar Aficionado's 20th Anniversary, September/October 2012

The year was 1992. The American cigar industry was in poor shape. The customer base was aging and contracting, sales had been in a steady 30-year decline and the men who made cigars and grew tobacco no longer encouraged their children to follow in their footsteps.

“I did not think that there was a future in the cigar industry,” said Carlos Toraño in 2006, speaking about the state of the cigar industry in the 1980s. His father, grandfather, cousins, uncles—just about everyone with the surname Toraño had worked with cigar tobacco, dating back to Cuba in 1916. But he was happy when his son Charlie chose a new career path, opting to become a lawyer instead of a tobacco man in August 1992.

American cigar consumption was spiraling to all-time lows, having dropped by more than 66 percent between the mid-1960s and early 1990s, according to the U.S. Department of Agriculture. Imports of premium, handmade cigars, which had hovered around the 100 million-unit mark throughout the 1980s, decreased by 2.6 percent between 1990 and 1991, to 103.6 million cigars.

“One of [my relatives] compared the cigar business to the buggy whip business,” wrote Stanford Newman about the U.S. cigar industry at that time in his autobiography Cigar Family. “A dying industry with no future.”

But Newman, and everyone else in the cigar industry, had no idea that the cigar boom was about to begin, and this centuries-old industry that has weathered all manner of challenges was about to be changed like never before.

We’ve all heard the tale of Columbus witnessing Cuba’s indigenous population twisting up tobacco leaves and enjoying a rustic smoke, and how the explorer brought the raw material back to Europe. Webster’s dates the origin of the word “cigar” back to 1730, from the Spanish cigarro, and what we think of as a cigar today—made of filler, binder and wrapper—appeared in the early eighteenth century, according to Tobacco in History and Culture. Spain developed quite the appetite for cigars, one that exceeded its ability to produce them, leading to Spanish investment in its then-colony of Cuba, where cigar production began in earnest.

The population of Havana boomed after the king of Spain declared free trade in 1818 in the country, which remained a Spanish colony until 1898. It was during that period that many of Cuba’s famous cigar brands were created. Punch was formed in 1840 by a German, the famous Partagás factory was built in 1845 by Spaniard Jaime Partagás, El Rey del Mundo and Sancho Panza were created by the German Emilio Ohmstedt in 1848 and Hoyo de Monterrey was founded in 1865 by José Gener, a young immigrant from Spain.

One hundred years ago, cigar smoking was quite common, and cigar factories seemed to be everywhere. “The cigar profession commanded a fair amount of prestige at the turn of the century. Cigars were arguably the most popular tobacco product in America,” wrote Stanford Newman. “Almost every city in the East and Midwest had at least one small cigar factory.” These factories were not necessarily large operations, and many were simply a person in a room rolling cigars.

Newman’s father, J. C., began rolling cigars in the barn behind his family’s Cleveland home in 1895, creating J. C. Newman Cigar Co., which still exists to this day. At the time, that facility was one of 300 cigar factories in Cleveland, and one of 42,000 in the entire United States.

Wherever they were rolled, all cigars were made entirely by hand until around 1920, when the first cigarmaking machines appeared, and they became more common after the Great Depression. In the meantime, cigarettes came on the scene, as they were included in the mess kits of G.I.s during the First World War, and began edging aside cigars in popularity. By the mid-1920s they had become the nation’s most popular form of tobacco.

Cigar sales were largely flat in the 1940s and early 1950s, and most of the cigars made in America (outside of Florida) were being made by machine. On the premium end of the cigar business, Americans had a great appreciation for Cuban tobacco, almost all of it rolled in Tampa, Florida, into cigars that were known as Clear Havanas. And they were inexpensive. Arturo Fuente sold a diminutive size known as a Breva for 10 cents apiece at the time. “Pre-embargo, most cigars in the United States that were considered premium were a quarter,” said longtime cigar industry veteran Sherwin Seltzer in a 1998 Cigar Insider interview. Imported Havanas, a small part of the business, cigars reserved for the extremely well-off, could be had for those willing to spend about 65 cents.

Fidel Castro’s rise to power in Cuba in the late 1950s would forever change the world of cigars. In 1960, Castro seized control of Cuba’s cigar and tobacco industry, and his regime plucked the country’s cigar gems: it nationalized the Hoyo de Monterrey factory, home of Punch, Belinda and the Hoyo brand; seized the H. Upmann factory from owners Menendez and Garcia, taking with it Cuba’s famous Montecristo and H. Upmann brands; and grabbed the emblematic Partagás Factory from owner Ramón Cifuentes. “They came inside, and said, ‘We’re here to intervene the company,’ ” Cifuentes told Cigar Aficionado in an interview. “And they didn’t allow me to take anything.”

The nationalization of Cuba’s cigar industry led to the exile of many of its famed tobacco and cigar men, which led to the rise of the non-Cuban cigar industry. When U.S. President John F. Kennedy signed an embargo prohibiting nearly all trade between Cuba and the United States in 1962, it forced cigarmakers to reinvent their blends. Cuban leaf, the lifeblood of the cigar industry, was now off-limits to American smokers.

“When we got the embargo, we bought tobacco left and right by telephone,” said Alfons Mayer in 2002. Mayer, who died in 2006, spent years as the main tobacco buyer for General Cigar Co. “We were buying Puerto Rican, Dominican, Colombian, people went to Brazil, we went all over Honduras, our native tobaccos here [in the United States], we used some Java, some air cured, we made blends, blends, blends. People went to different areas to try and grow tobacco. There was a lot of trial and error.”

Cuba’s exiled cigarmakers traveled far and wide searching for new places to roll. The Menendez family went to the Canary Islands to make cigars, and soon launched Montecruz, a copy of the Montecristo brand it had lost in Cuba. General Cigar turned to Jamaica, where cigarmaking had been a big business during the Second World War. General acquired the Temple Hall Factory in 1969, which included a then-unknown brand named Macanudo, destined to become the best-selling premium cigar in the United States for many years.

Many of Cuba’s exiled cigarmakers made deals with American cigar companies to license or sell their cigar brand names, resulting in non-Cuban versions of Partagás, Punch, H. Upmann, Hoyo de Monterrey, Montecristo and other cigars strictly sold in the United States. The landmark 1972 lawsuit Menendez v. Faber, Coe & Gregg established a legal precedent in which the rights of the owners to sell their non-Cuban versions were upheld by American law.

Tobacco seeds were brought around the world, and propagated in various countries. French tobacco monopoly SEITA established plantations in Cameroon in western Africa in the late 1950s. The rich, toothy wrapper became an industry favorite, and the Meerapfel family saved it from extinction after the French left Africa in the early 1960s. At that time tobacco pioneers had success planting Cuban seeds in Honduras. In 1967, Carlos Toraño Sr. brought Cuban seeds to the Dominican Republic, a nation just removed from civil war, and helped improve the quality of the country’s tobacco, which was mostly grown for cigarettes at the time.

With Dominican Republic cigars currently ubiquitous, it may be hard for a modern-day cigar lover to believe that 40 years ago the Dominican Republic made very few cigars for export. In the 1970s, most of the imported cigars enjoyed in the United States were rolled in the Canary Islands, Jamaica and Mexico, and America still made a large number of cigars. In the early 1970s, free-trade zones opened in the Dominican Republic. Conglomerate Gulf + Western, then the owner of Consolidated Cigar Corp., a company that later became Altadis U.S.A. Inc., began processing tobacco in La Romana in 1969 and started rolling cigars there in 1972.

In 1974 a free-trade zone opened in Santiago, and Manufactura de Tabacos S.A., known as MATASA, soon set up shop. Its owner, Manuel Quesada, explained in a 2004 interview in Cigar Aficionado: “In Miami, the cigarmakers that had come out of Cuba were getting older, and with the Social Security a lot of them had to be paid under the table and it started to become a hassle. The free zones had just started in the Dominican Republic. So it was a good idea to transfer production from Miami to the Dominican Republic.”

By the mid-1980s, the Dominican Republic was a hot spot for making cigars. In the 1990s, it became the center of the cigar universe.

Imports of premium, handmade cigars began to climb towards the end of 1992—soon after Cigar Aficionado magazine appeared in September of that year. The American cigar market was turned on its head, and would go through a period of unimaginable growth. Premium cigar imports rose by 3.7 percent in 1992, 9.7 percent in 1993, 12.4 percent in 1994, 33.1 percent in 1995 and soared 66.7 percent in 1996, to more than 293 million cigars. Between 1992 and 1996, the market for fine cigars nearly tripled.

“I went back to look at our financials dating back to 1992, and I will honestly tell you that, based on our sales increases beginning in 1993, I would have had no problem guessing the year [the magazine] started,” says John Oliva Sr., the head of Oliva Tobacco Co., one of the cigar world’s leading names in growing and brokering cigar tobacco. “It was, in my opinion, Cigar Aficionado that kick-started the boom.”

Once-sleepy smoke shops became jammed with customers. Incoming orders of cigars would sometimes be stacked in piles on the floor, never making it to the walk-in humidor. Kansas City retailer Curt Diebel, whose boom-time business doubled each month for a time, went as far as to install a secret spot in his humidor to hide his stock, in fear that new customers would walk in and buy everything he had. “I spent my time on the phone trying to convince the vendors to give me product,” says Diebel. “Then I had to allocate my product for my [regular] customers. We got tired of having strangers come in and saying ‘I’ll take all of them.’ ”

In Miami, Ernesto Perez-Carrillo’s La Gloria Cubana brand—heralded in the third issue of Cigar Aficionado with several 90-point scores for $2 cigars—suddenly had the hottest thing in the cigar world, and found himself completely submerged in new orders. His sales rocketed from 700,000 cigars in 1992 to 3.3 million in 1996, and then nearly doubled to 6.1 million the following year.

Antismoking regulations in the United States were still in their infancy during the cigar boom, and restaurateurs eagerly welcomed the cigar lovers. Cigar bars opened, cigar dinners flourished, and Cigar Aficionado’s Big Smokes brought cigar lovers out en masse.

Cigar shops expanded and new ones opened. As traditional cigar companies tried to expand their operations, newcomers flocked to the cigar industry, creating brand after brand after brand. People dug old cigars out of humidors (and basements) hoping to cash in at auction. The average price for a box of pre-embargo Cuban cigars sold at Christie’s soared from less than $500 in 1992 to nearly $2,500 in mid-1996.

Cigar lovers were not only buying more cigars, but they had radically changed their buying habits. Before 1992, said Robert Levin, retailer and owner of the Ashton brand, “people would be brand loyal, come in once a week for a box of cigars. Now they come in with the ratings, and they want to buy a bunch of different brands.” The sale of singles quickly replaced the box sale.

The most popular cigars of the early 1990s were often made of mild, Dominican filler, wrapped with mild leaves of Connecticut-shade. Cigarmakers, emboldened by the increased sales, made more flavorful blends. The late 1995 release of the Fuente Fuente OpusX helped spark a trend toward more powerful, spicy smokes. Cuban-seed tobaccos and Ecuadoran Sumatra wrappers became increasingly popular, and cigar smokers learned the term “ligero,” describing the strongest variety of filler tobacco. The 1994 release of the ultrarich Padrón 1964 Anniversary Series, made entirely with Cuban-seed tobaccos, ignited a trend toward box-pressed cigars, which had been almost entirely absent from the U.S. market.

As cigar sales grew, so did the girth (measured in ring gauge) of the most-popular smokes. One retailer said that in 1990, almost 80 percent of his sales came from the very slim lonsdales and coronas sizes. By 1996, most of his sales came from fat robustos and corona gordas. The first edition of Cigar Aficionado magazine rated 17 robustos, the fattest of which had a ring gauge of 52. The Diamond Crown brand, a line consisting entirely of 54-ring gauge cigars, made news in 1995 when it was launched—as 54s were considered quite thick in those days. Today, a ring gauge of 60 characterizes one of the most popular sizes in American smoke shops.

The effects of the cigar boom reached Cuba as well. Consumers flocked to Cuban cigar stores and bought every cigar they could find. On a trip to Havana in early 1996, the Cigar Aficionado editors visited nine cigar shops and couldn’t find a double corona, Montecristo No. 2 or Partagás Serie D No. 4. Cuba, which had produced fewer than 60 million export-quality cigars in 1993 and 1994, vastly increased its production. Cuban cigar exports reached 100 million units in 1997, and officials announced the long-term goal of increasing further to 200 million cigars by the year 2000.

In November 1996, Cuba launched the Cuaba brand, the first new brand from the island in nearly 30 years. That was soon followed by such creations as Vegas Robaina, Trinidad and San Cristobal de la Habana. Cuba opened new cigar factories and vastly increased plantings of tobacco. Alas, the mandate to pump out cigars at such a rate resulted in a rash of inferior product.

Wall Street soon took an interest in cigars, and six cigar companies went public in 1996. Newcomer Caribbean Cigar Co. became the first stand-alone public cigar company with its August 1, 1996 initial public offering. Sixteen days later, high-profile financier Ronald Perelman took his Consolidated Cigar Holdings public for $23 a share. Machine-made giant Swisher International Group Inc., the cigar retailers JR and Holts, and even a one-year-old company named Tamboril soon followed suit.

By 1995, more than 25 million cigars were on back order, and in 1996, that number was more than 50 million. Cigar brands such as Arturo Fuente and La Gloria Cubana became impossible to find. For six weeks of the summer of 1996, General Cigar didn’t ship a single Macanudo cigar, the best-selling premium cigar in the United States at the time. “We were using tobacco so rapidly we got caught. We didn’t have enough in the aging blend,” said then-company president Austin T. McNamara.
The influx of boom-time smokes often meant substandard product. The April 1997 Cigar Insider had ratings for 50 cigars and, for the first time since publication began in January 1996, not one scored 90 points or more. Low ratings abounded, with a trio of 83s and one of the most expensive cigars in the issue—a $6.25 effort from a Canary Islands brand called Goya—scored 82 points.

Newcomers arrived in droves, cash in tow, in Honduras, Nicaragua and especially the Dominican Republic, hoping to make a quick profit on the boom. New factories appeared across the Dominican Republic, hiring away talented cigarmakers. Some factories ran double shifts to keep up with demand, and it became a battle to find tobacco, cellophane, cedar boxes—everything used to make a premium cigar. Tobacco companies planted seeds in such unlikely places as Peru, Colombia, Panama, even Canada, and cigar factories opened in Indonesia, Ecuador and elsewhere. The once enemic industry tradeshow expanded from a few dozen booths to hundreds, and some enterprising attendees went so far as to sell their badges to those hoping to get inside. There were more than a few quirky market launches, among them cigar vending machines (created by two separate companies in 1997) and a line of cigars aimed at female cigar lovers called Cleopatra, which never quite got out of the planning stages.

Cigar sales had grown at an untenable pace. It was 1997 when the cigar industry started to catch up to the demand for cigars. The established companies began filling all the back orders for traditional cigar brands, a number that turned out to be inflated as cigar retailers had over-ordered through the boom, asking for 10 boxes, say, in hopes of receiving five. As the old-time brand names filled up the distribution chain, most of the newcomers found themselves in a pinch.

When the big-name brands caught up with demand, many of the cigars without pedigree no longer interested cigar lovers. By 1998, the discount retailers were buying up unwanted cigars from new manufacturers who suddenly found themselves without customers. Mark Goldman of House of Oxford Distributors set up a table in the Gran Almirante Hotel in Santiago in 1998 and bought cigars that had once retailed for $200 a box for as little as $7. “Basically, we’ve been buying cigars for less than it costs to make them,” he said at the time.

Imports dipped as the market struggled to absorb all the cigars that had been made in the dizzying, final days of the cigar boom, falling to 248.3 million cigars in 1999. At the same time, the Wall Street love affair with cigars came to an end. (The cigar industry is a long-term business, in which tobacco bought today might not be sold for two or more years—a poor match for the stock market, which seeks gains in every quarter.) Swisher bought back its stock in 1999, JR Cigar went private the following year and Holt’s followed suit in 2001.

Europe’s Tabacalera S.A. had bought heavily in the U.S. cigar industry, investing at the very peak of the market. The company spent more than $350 million on three deals, including an eye-popping $27 million on two Central American factories owned by Nestor Plasencia. When the market began to cool, the European influence grew. In 1999, France’s SEITA S.A. acquired Consolidated Cigar for $730 million. SEITA merged later that year with Tabacalera in a $3.3 billion deal that created Altadis, which then bought half of Cuba’s Habanos S.A., and was itself acquired by Imperial Tobacco PLC.
Altadis rival Swedish Match AB, which bought the La Gloria Cubana brand in 1997, acquired General Cigar in a two-part deal beginning in 1999.

With the cigar market undergoing radical change, the industry was remade. In 2000, General Cigar closed its Jamaica factory, ending some 30 years of history and putting an end to Jamaica’s era as a cigar-industry power (it had ranked third among major shippers in the early 1990s). Cigar shipments from Mexico, also once vibrant, have shrunk yearly, from 11 million in 1998 to fewer than 1 million last year. Nicaragua is the new star of the cigar world, with shipments growing continuously since 2003. The nation’s cigars, once embargoed in the U.S. market, have soared from 33 million in 2003 to 102 million last year, vaulting to second place among premium cigar producers. The shift is a sign of the changing tastes of
connoisseurs, who are flocking to the fuller flavors of Nicaraguan tobacco.

Cigar imports have since recovered from the post-boom years. In 2001, they began to climb again—albeit at a far slower rate— and between that year and 2011 imports have increased by an average of six percent annually, with more than 278 million cigars imported last year—approaching three times the size of the cigar market in 1992, on a unit basis.

Today, the myriad companies that make, market, distribute and retail cigars worry not about who will buy their cigars, but if the government will cripple the industry with over regulation and taxes. The possibility that the Food and Drug Administration will slap restrictions on the industry, increasingly higher taxes and fewer and fewer cigar-friendly venues are the worries of the moment, and some fear that the government could ruin the cigar business.

But the legacy of the cigar boom can be seen in the heir apparents to some of the world’s most famous cigar brands.
Children of cigarmakers, who had nearly forsaken their birthrights in the industry, were once again emboldened to join their parents. Today the cigar business is rich with father/son, father/daughter, brother/brother and brother/sister teams, including the Fuentes, Padróns, Quesadas, Eiroas, Garcias, Patels, Levins, Kelners, Newmans, Plasencias, Turrents, two Oliva families (one growing leaf, one making cigars) and many more. Charlie Toraño abandoned his law practice and joined his father in 1996, and today is president of the company, becoming the fourth generation in his family in the tobacco business.

Today Quesada proudly sits at the helm of MATASA, albeit in a new, far larger and more modern cigar factory, with his two daughters, Raquel and Patricia, taking an increasingly active role in the company, along with a number of nephews, nieces and cousins. They make blends using leaves that weren’t grown in the 1980s, package the cigars in vibrant boxes with modern logos and use their Blackberries to tweet about the products to cigar lovers around the world.

Twenty years ago, cigarmakers toiled in obscurity in a business that few felt had any future. “Nobody knew who was behind the products,” says retailer Gary Pesh. Today, cigarmakers are stars, similar to celebrity chefs. And while cigar sales today aren’t nearly as vibrant as they were during the peak of the boom, the cigar market is far larger today than it was before the boom. Premium cigar imports in 2011 (the last full year available) were 278.5 million cigars, well more than two-and-a-half times their level in 1991, when only 103.6 million cigars were imported.

While the market for cigars is far larger on a unit scale, the impact of the past 20 years is far more pronounced when you look at the overall value of the market. The average price for a premium cigar in 1990 was $1.75, according to Cigar Insider estimates, giving the U.S. premium cigar industry a market value of $186 million. The average price of a cigar rose to $3.23 by 1996, giving the market a value of close to $1 billion.

Today, cigar prices have pushed even higher. While there are bargains to be found, most lie in the $5 to $7 range. Many cigars sell for around $10, and special cigars push the upper limits of premium cigar pricing to $25, $30 and more per cigar.
The average retail price of a premium cigar rated by either Cigar Aficionado or Cigar Insider in 2012 is $9.51. At that average price, the U.S. premium cigar market would have a value of $2.6 billion—14 times the value of the annual market in 1990.

The cigar world has been completely, unforgettably transformed. Cigarmakers work alongside their sons and daughters, and no one who makes a cigar in 2012 worries that consumers down the road will lose interest in their product.

“Thank God for the cigar boom,” says Carlos Fuente Jr., one of the icons of the cigar business. “For the first time in history, tobacco farmers, tobacco dealers, people who own smoke shops were all able to make a decent living.”

J.C. Newman Cigar Co.
"This was a very enlightening article. An excellent summary, however I am surprised you did not mention the first cigar "boom" in 1964, which was the first real resurgence of cigars since the Golden Age of cigars, which peaked in the early 1900s and started to decline around 1920. The first boom, in 1964, was related to a number of factors (which I have written about elsewhere) and was helped along, ironically, by the Surgeon General's first-ever report on Smoking & Health. This report claimed that, “men smoking less than five cigars per day have death rates about the same as non-smokers.” This provided a scientific halo-effect for cigars that enhanced that short-lived yet significant cigar boom in the mid-1960s." —December 4, 2012 02:21 AM

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