Higher FDA User Fees Coming For Cigar Industry

Higher FDA User Fees Coming For Cigar Industry
“At the end of the day, it affects consumers.” - Jorge Padrón, president of Padrón Cigars Inc.

The U.S. Food and Drug Administration, which regulates all tobacco products, including premium cigars, today announced its calculation for user fees for the 2018 fiscal year. And the fees are going up.

For 2018, the Center of Tobacco Products, the branch of the FDA responsible for carrying out tobacco regulation activities, will charge the entire U.S. tobacco industry $672 million, $37 million more than last year’s assessment. (The CTP will increase the assessment each year until it reaches its maximum budget of $712 million for fiscal year 2019.) This means that the entire tobacco industry must pay the CTP $168 million per quarter in fiscal year 2018, which starts October 1 and continues through September 30, 2018.

The cigar industry will pay a portion of that total, slated for $16.6 million per quarter, or $66.4 million for all of 2018. That means the cigar industry will pay approximately $5 million more in CTP fees next year compared to this year’s numbers.

Since October 2016, cigar manufacturers and importers, in accordance with the FDA’s controversial Final Deeming Rule, have been required to submit federal excise tax information to the FDA on a monthly basis. The FDA, in turn, analyzes this data to calculate user fees for cigar companies, which are paid on a quarterly basis. Cigar companies pay the user fees directly to the FDA, and those payments are the sole source of funding for the CTP.

User fees are also collected from manufacturers and importers of cigarettes, snuff, roll-your-own tobacco, and pipe tobacco. (For more on how user fees works, see FDA User Fees Mean More Costs For Cigar Companies.)

In short, user fees add significant costs to the finances of cigar manufacturers and importers. And while some manufacturers and importers absorb the extra cost, some pass it on to consumers by raising prices.

“User fees have always been there. And they’re astronomical,” Rocky Patel, owner of Rocky Patel Premium Cigars, told Cigar Aficionado today. “We believe as an industry that user fees should not be applied to premium cigars, and this is a dominant argument in our lawsuit against the FDA.”

“Whenever you have anything like this, it’s a significant burden to the business,” says Jorge Padrón, president of Padrón Cigars Inc. “We have been absorbing the cost. At the end of the day, it affects consumers.”