Good posts, gentlemen. I want to add that I think there are some jokers in this deck that will play out in ways we cannot yet foresee. There are a number of possibilities that I see as viable.
First, free market economics may play a huge factor in terms of S.A. distribution, depending upon how "free" they are to do business post-embargo. S.A. has a captive market of 300 million people within roughly 100 miles. These people have money and have been waiting for this day for decades. Shipping costs for S.A. to ship to the U.S. market would be trivial compared to the rest of the world. That alone skews the economics of distribution and by extension, pricing. Someone pointed out that S.A. will want to keep their current customers happy. That will be tough. For a cash strapped nation the lure of short-term huge profits may be overwhelming. Sending large production inventories to a new market the size of the U.S. will force prices upwards, substantially. I doubt that S.A. will want to "settle" for the status quo when, in the short term, they can increase the prices of their products by substantial margins. The market will NOT be flooded because S.A. cannot increase supply to any great degree, and if they are as smart as I think they are, they will not allow quality to decrease and affect reputation. For their current, loyal worldwide distributors it will be "too bad". The entire CC world market is a sham. It has been skewed since the embargo began, with the richest country in the world a non player. Capitalism of some form, maybe of the Chinese variety, will step in here and where the market ends up is anyone's guess.
Second, comes the whole NC issue. NC prices will tumble downward, at least in the short term if there is a substantial supply of CC's available to the U.S. market. Premiums will be hurt the worst since even the average consumer is not going to pay what is often a ridiculous price for artificially restricted cigars, especially when better CC's can be had for the same price or less; e.g. - Padron Anniversario, Hemingway's, etc. The large NC producers got to where they are because of the skewed CC market. A huge portion of their sales are to the U.S. alone, which they have had captive for decades. That will be gone in a flash as smokers flock to the "forbidden fruit", regardless of their NC preferences. NC's will now have to compete on a level playing field based upon quality and merit. There are powerful interests in the U.S. and abroad who have vested interest in preventing importation of CC's for this very reason.
Third, is the brands issue. In this country, lawyers rule. General and Altadis have too much at stake to allow importation without some control of names. The lawyers will tie this one up for years no matter what the fed does to allow importation. This is good for CC smokers in the short-run, but only delays the inevitable pricing increases over the longer term.
Fourth, is the fake market. As JW points out, there will be huge increases in both the CC fakes and the CC "crap" tobacco used as filler for NC's. Reliable sources will be golden and carefully cultivated and protected. The fakes themselves along with crap filler in NC's will hurt S.A. as many people say "what's the big deal with Cubans?"
Fifth is the tax incentive. The fed will want to grab a nice share of taxes for themselves and the states already place tremendous reliance on sin taxes for their coffers. They will put a heavy tax bite on the sale, which would likely put CC's out of the price range of most individuals. This influence alone will likely lead to game, set and match for the NC producers over the very long term. Taxation alone is a tremendous wild card. One the one hand you have a big reliance by the states on tobacco taxes throughout the nation. On the other you have the anti-smoking movement. Already high taxes, tacked on to the more expensive Cuban offerings, along with the anti-smoking movement may kill the CC market in this country to all but the wealthiest portion.
Here is the way I see this playing out. Some of the factors will pressure prices upward and others, downward.
- Embargo ends. U.S. allows importation after Congress passes bill authorizing same and putting heavy federal taxes on the product.
- Federal penalties for buying and importing "untaxed" cigars become Draconian, with enforcement increased. The fed does not like competition.
- Altadis and General judge shop and sue for brand infringement and control, tying up the issue for several years in court. World market remains at current equilibrium.
- Legal issues resolved, S.A. begins shipping to the U.S. World prices skyrocket until the shakeout caused by "forbidden fruit" experimentation and the influence of fakes.
- States want their share of taxes and S.A. finds that it cannot compete with NC's in many states, especially where taxes are approaching or over 100%.
- NC's return with a vengeance due to high taxation and CC prices begin to decline. Now is a good time to buy NC premiums if you like them.
- Long term - world market stabilizes at prices substantially higher than they are now due to U.S. influence. We are back where we started, but at much higher prices for CC's, albeit legal ones. S.A. increases deliveries to "old" customers as U.S. sales decline due to taxation. Wealthy Americans keep prices high in the U.S., even with a limited market.
- Long term - NC's return to prices comparable to today and actually begin making greater inroads to Europe and other areas due to the much higher CC prices.
- Very long term - CC's become a niche market for the wealthy. They do not have the land to hold quality and increase production, but it was a good run. . .
It is going to be an interesting ride. . .Of course, I could be full of it since this is all speculation based upon economic principles and political stupidity. . .And, while economic principles are pretty sound mathematically, politically stupidity knows no bounds. . .:wink:
First, free market economics may play a huge factor in terms of S.A. distribution, depending upon how "free" they are to do business post-embargo. S.A. has a captive market of 300 million people within roughly 100 miles. These people have money and have been waiting for this day for decades. Shipping costs for S.A. to ship to the U.S. market would be trivial compared to the rest of the world. That alone skews the economics of distribution and by extension, pricing. Someone pointed out that S.A. will want to keep their current customers happy. That will be tough. For a cash strapped nation the lure of short-term huge profits may be overwhelming. Sending large production inventories to a new market the size of the U.S. will force prices upwards, substantially. I doubt that S.A. will want to "settle" for the status quo when, in the short term, they can increase the prices of their products by substantial margins. The market will NOT be flooded because S.A. cannot increase supply to any great degree, and if they are as smart as I think they are, they will not allow quality to decrease and affect reputation. For their current, loyal worldwide distributors it will be "too bad". The entire CC world market is a sham. It has been skewed since the embargo began, with the richest country in the world a non player. Capitalism of some form, maybe of the Chinese variety, will step in here and where the market ends up is anyone's guess.
Second, comes the whole NC issue. NC prices will tumble downward, at least in the short term if there is a substantial supply of CC's available to the U.S. market. Premiums will be hurt the worst since even the average consumer is not going to pay what is often a ridiculous price for artificially restricted cigars, especially when better CC's can be had for the same price or less; e.g. - Padron Anniversario, Hemingway's, etc. The large NC producers got to where they are because of the skewed CC market. A huge portion of their sales are to the U.S. alone, which they have had captive for decades. That will be gone in a flash as smokers flock to the "forbidden fruit", regardless of their NC preferences. NC's will now have to compete on a level playing field based upon quality and merit. There are powerful interests in the U.S. and abroad who have vested interest in preventing importation of CC's for this very reason.
Third, is the brands issue. In this country, lawyers rule. General and Altadis have too much at stake to allow importation without some control of names. The lawyers will tie this one up for years no matter what the fed does to allow importation. This is good for CC smokers in the short-run, but only delays the inevitable pricing increases over the longer term.
Fourth, is the fake market. As JW points out, there will be huge increases in both the CC fakes and the CC "crap" tobacco used as filler for NC's. Reliable sources will be golden and carefully cultivated and protected. The fakes themselves along with crap filler in NC's will hurt S.A. as many people say "what's the big deal with Cubans?"
Fifth is the tax incentive. The fed will want to grab a nice share of taxes for themselves and the states already place tremendous reliance on sin taxes for their coffers. They will put a heavy tax bite on the sale, which would likely put CC's out of the price range of most individuals. This influence alone will likely lead to game, set and match for the NC producers over the very long term. Taxation alone is a tremendous wild card. One the one hand you have a big reliance by the states on tobacco taxes throughout the nation. On the other you have the anti-smoking movement. Already high taxes, tacked on to the more expensive Cuban offerings, along with the anti-smoking movement may kill the CC market in this country to all but the wealthiest portion.
Here is the way I see this playing out. Some of the factors will pressure prices upward and others, downward.
- Embargo ends. U.S. allows importation after Congress passes bill authorizing same and putting heavy federal taxes on the product.
- Federal penalties for buying and importing "untaxed" cigars become Draconian, with enforcement increased. The fed does not like competition.
- Altadis and General judge shop and sue for brand infringement and control, tying up the issue for several years in court. World market remains at current equilibrium.
- Legal issues resolved, S.A. begins shipping to the U.S. World prices skyrocket until the shakeout caused by "forbidden fruit" experimentation and the influence of fakes.
- States want their share of taxes and S.A. finds that it cannot compete with NC's in many states, especially where taxes are approaching or over 100%.
- NC's return with a vengeance due to high taxation and CC prices begin to decline. Now is a good time to buy NC premiums if you like them.
- Long term - world market stabilizes at prices substantially higher than they are now due to U.S. influence. We are back where we started, but at much higher prices for CC's, albeit legal ones. S.A. increases deliveries to "old" customers as U.S. sales decline due to taxation. Wealthy Americans keep prices high in the U.S., even with a limited market.
- Long term - NC's return to prices comparable to today and actually begin making greater inroads to Europe and other areas due to the much higher CC prices.
- Very long term - CC's become a niche market for the wealthy. They do not have the land to hold quality and increase production, but it was a good run. . .
It is going to be an interesting ride. . .Of course, I could be full of it since this is all speculation based upon economic principles and political stupidity. . .And, while economic principles are pretty sound mathematically, politically stupidity knows no bounds. . .:wink:
