Cuba: Myth and Mirage?

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By Eric Piras

The year 2015 is the year of Montecristo, celebrating the 80th anniversary of the brand and 2016 will be Cohiba year, with its 50th anniversary celebrations kicking off during the next Habanos Festival in March.

These events coupled with the new era in US-Cuba relationships should focus the cigar world on the Cuban myth and the future supply of the legendary island’s cigars.

Though we do not know when tobacco was first grown or smoked, Christopher Columbus’ sailors reported that the Cuban Indians smoked a primitive form of cigar with dried tobacco leaves. The word cigar takes its origins from sikar, the Mayan-Indian word for smoking, which later became cigarro in Spanish.

Cigars, resembling the ones we know today, were first made in Spain in the early 18th century, using Cuban tobacco. Cigar production started in Cuba in the mid-18th century when it was discovered that cigars traveled better than tobacco, leading to Cuban cigars superseding the Spanish production.

In 18th and 19th century Cuba, farmers originally from the Canary Islands (called Isleños) were the driving force in the cigar industry. Many of the big cigar factories in Cuba were owned by Isleños, who were also the first professional Torcedores, or cigar rollers, instrumental in the training of other cigar rollers.

Cigar production in Cuba has had its ups and downs but the way Cuba grows tobacco and produces cigars hasn’t changed much compared to when before Fidel Castro came to power, except for the government controlling tobacco growing and cigar production.

Before and after the revolution, Cuba has always been a mythic island and who hasn’t dreamed about it?

Mention Cuba and what comes to mind? Castro, Hemingway, vintage cars, salsa, music, rum, dilapidated palaces – not necessarily in this order - and of course, puros.

One of the island’s most famous residents, Ernest Hemingway, spent around 20 years in Cuba until 1960 and became a fixture of Havana. Hemingway’s two favorite watering holes in Havana, La Floridita, and La Bodeguita del Medio, still stand today. On a small plaque in La Floridita hangs Hemingway’s signed quote: “My mojito in the Bodeguita del Medio and my daiquiri in the Floridita.”

During the prosperous years of Batista’s second presidency from 1952 to 1958, Cuba was one of the five most developed countries in the region. Havana was a hedonistic playground for the world’s elite, a place of parties, luxury, drugs, gambling… as well as corruption and mafia.

Batista’s downfall on January 1, 1959 and Fidel Castro’s revolution became an other legendary milestone in the history of Cuba.

On February 1962, US President John Fitzgerald Kennedy signed Proclamation 3447, which would slap an embargo on all US trade with Cuba. However the story says that he only signed the Proclamation once he had securely acquired 1,000 H. Upmann Petits, his favorite cigars.

The early 1960s saw the creation of Cubatabaco, primarily in charge of cigar and cigarette production as well as their retail distribution.

The Cuban cigar industry was strongly hit by the trade embargo imposed in 1962 on the US market: in 1958, over two-thirds of the volume of leaf exports and half the volume of cigar exports were in the US.

It is the time when many of the key people in the Cuban cigar trade left the island. Most notably the likes of Nestor Plasencia, José Orlando Padrón Angel Oliva; most of them settling in Nicaragua, Honduras, or Dominican Republic.

The owners of major brands such as Montecristo, H. Upmann, or Partagas also fled the island, some of them selling their brands to Consolidated Cigars or General Cigars.

One of them is Benjamin Menendez, whose family owned Menendez, Garcia y Cia, the largest cigar factory in Havana - the H. Upmann factory, where the most famous brand rolled was Montecristo. After fleeing Cuba, he made cigars in Jamaica and the Dominican Republic, spent time with Altadis U.S.A. Inc. and now consults for General Cigar Co.

After the revolution, a number of brands were discontinued and there are now 350 references of Cuban cigars.

With this deep and legendary history, one can understand why Cuban cigars have almost been elevated to a myth.

Without the US markets, Cuba focused its efforts on Europe. Cigar exports were about 79 million in 1958, dropped to about 55 million in 1970 and increased to about 120 million in the end of the 1970s when blue mold and wet harvests decimated crops. As a consequence, Cuban exports dropped to about 50 million cigars in the mid-1980s until the arrival of Francisco Padron as head of Cubatabaco. Padron changed the way Cuban cigars were distributed and marketed, and introduced foreign investment in the cigar industry.

The quality of the Cuban cigars strongly improved in the late 1980s and early 1990s and demand became steady abroad, though exports seldom reached more than 100 million.

Some companies such as Davidoff and Dunhill sold their own Cuban cigars under their labels. But Cubatabaco (renamed Habanos S.A in 1994), under the lead of Francisco Padron, wanted to take a more active role in the distribution. Padron chose the best agent in each market and wanted 50% ownership in the company. A few agents fought and the biggest fallout was with Davidoff of Switzerland, which had become one of the most prestigious Cuban brands in the 1980s. In the early 1990s, Davidoff decided to move its cigar production to the Dominican Republic, claiming it broke the production agreement with the Cuban in order to have a better control on the quality.

By the year 2000, exports were 200 million cigars annually. However the quality started degrading, construction and draw became an issue. At the end of this production expansion, the Cuban government sold 50 % of Habanos S.A to Altadis S.A, later acquired by Imperial Tobacco.

Production for export is currently around 90 to 100 million cigars annually.

Outside of the US, Habanos cigars are leaders in volumes.

Since the announcement of a new era in the diplomatic relationships between Cuba and the US, most are wondering what will now happen. Habanos S.A estimates that, despite the embargo, the US consume around 15 to 20 million Cuban cigars, brought in from Canada or Mexico, or purchased online.

Habanos S.A believes it could capture nearly a third of the American market - the world’s largest for cigars with 300 million units - selling 50 to 60 million cigars on American soil should the embargo be lifted.

They estimate they would reach 25% market share within 3 years and 70% market share within 15 years, similar to the rest of the world.

However, removing the embargo would first require an Act of Congress and then the resolution of huge trademark battles: the embargo has created dual trademarks for cigars: Cuban brands are sold around the world but cigars of non-Cuban origin are sold in the US under the same brand names.

As an example, a legal dispute over General Cigar and the Cuban’s claim for the Cohiba trademark has been dragging on since 1997 and not been resolved yet.

Should these two major points of removing the embargo and resolving the legal trademark disputes be solved, there is of course the question of whether Habanos actually has the capacity of such a tremendous increase of its production?

We’ve seen decreasing quality of construction and draw of Cuban cigars when their production was increased to 200 million sticks in the year 2000. Is this avoidable if the production increases dramatically?

The other question is whether the production of raw tobacco will be sufficient to cover this additional manufacturing?

Additionally, with the strong success of other countries of origin such as Dominican Republic, Nicaragua, and Honduras (respectively first, second, and third premium cigar producing countries in volume – Cuba being the fourth), consumers have discovered and adopted new tastes and discovered new smoking sensations.

There is a high chance that American consumers will try the Habanos brands out of curiosity but will revert back to the brands they’ve learned to know and love.

The brands produced in other countries of origin such as Dominican Republic, Nicaragua, or Honduras often have strong Cuban roots (think of the Plasencia or the Padrón families) and are producing cigars of very high quality, excellently built, and showing a taste that is sometimes more appropriate to the current consumer’s palate.

And even with the rumors (confirmed by Davidoff) that Davidoff could well start again producing in Cuba, this will serve to reinforce the importance of the country of origin…

Imaginations have been captivated and opinions diverge on what will happen in the coming few years if or when Cuban cigars become available in the US. It will be an interesting process to watch, but it might still take a while for American consumers to taste the forbidden fruits of Cuba…

Additional sources: Trade publications & Cigar Aficionado