Last year the U.S. District Court for the District of Columbia ruled against the U.S. Food & Drug Administration’s (the FDA’s) decision to deem premium cigars within its regulatory authority under the Family Smoking Prevention and Tobacco Control Act. Now, the ruling faces further scrutiny as the FDA appeals to the U.S. Court of Appeals for the District of Columbia. The outcome could have impacts both big and small for those involved in the supply chain of premium cigars with the potential for added compliance measures and other costs. The case–Cigar Association of America v. FDA, Case No. 16-cv-01460–also highlights the importance of industry leaders in seeking potential challenges of state and federal agencies that unnecessarily burden businesses by overstepping their regulatory authority.
The FDA’s Deeming of Premium Cigars in 2016
The Tobacco Control Act passed in 2009 gave the FDA authority to regulate other tobacco products that the FDA “deems” to be subject to the law. Tobacco products the FDA deems to be under its regulatory authority are subject to a variety of additional rules and restrictions, including the following:
- Enforcement actions against adulterated or misbranded products;
- Mandatory submission of ingredient lists and reporting of HPHCs;
- Required registration of tobacco product manufacturing establishments and products listings;
- A ban on selling or distributing products that contain modified risk descriptors that the FDA has not authorized;
- A ban on the distribution of free samples; and
- Premarket review requirements
Domestic manufacturers and importers of tobacco products must also pay user fees to support the administrative costs of the FDA’s enforcement of these regulations. This in turn requires submission of data to determine individual market shares for calculating the manufacturer’s percentage of the assessment for the product category.
In 2014, the FDA published proposed rulemaking that sought comment on whether to include all cigars as tobacco products or whether it may need to distinguish application of the rule among the different classes of cigars (e.g., little cigars, cigarillos, premium cigars, etc). The FDA’s final rulemaking published in 2016, however, included premium cigars as subject to the same requirements as all other regulated tobacco products.
The Cigar Association of America quickly filed several lawsuits, ultimately arguing the FDA had acted arbitrarily and capriciously when it deemed premium cigars as tobacco products under its purview. The U.S. District Court for D.C. explained in its August 2023 decision the arguments supporting a vacatur of the FDA’s rule. First, the Court noted that the FDA failed to consider data submitted during the rulemaking process about usage patterns and attendant health risks. Second, the Court noted the FDA had obscured data regarding youth usage that showed only a miniscule percentage (0.1 percent) who had reported smoking a cigar in the last 30 days had identified a premium cigar as their preferred brand. The Court then concluded that the FDA’s entire failure to consider these data points warranted vacatur of the rule despite the FDA’s allegations about how minimal its deficiencies are and how disruptive vacatur would be.
The Basis of the FDA’s Petition to the U.S. Court of Appeals for the District of Columbia
In January 2024, the FDA appealed the Court’s decision to vacate without remand the FDA’s rule deeming premium cigars to the U.S. Court of Appeals for the District of Columbia Circuit. The FDA focuses its appeal on the notion that premium cigars still present the potential for health risks to the public, regardless of their usage frequency, and that excluding them from other regulated tobacco products might improperly signal they are a safer alternative. The appeal goes on to also argue that if there were insufficiencies in the FDA’s rationale, the Court should remand back to the FDA to address those issues in its reasoning rather than vacate the rule altogether. The FDA cites the overall disruption to its regulatory scheme and operations as the primary reason for remand being the proper remedy. Notably, the impact on the user fee scheme and the unregulated distribution of premium cigars that would occur.
How the FDA’s Regulation of Premium Cigars Could Affect Your Compliance Obligations
The FDA’s regulation of premium cigars would undoubtedly place greater burdens on manufacturers, importers, distributors, and retailers. This oversight adds another layer of compliance items to consider, including package labeling, advertising, and other operational requirements. Payment of user fees and ancillary costs of this compliance could also add a wrinkle to your business operations. The FDA’s requirements would be another set of rules to follow in addition to state-level tobacco excise taxes and licensing obligations.
Meet with a Tobacco Tax Professional About an Appeal Challenge or Audit Defense Today
It remains to be seen how the U.S. Appellate Courts will rule on the District Court’s decision to vacate the FDA’s rule regarding premium cigars. However, the outcome will be one to watch for all interested parties. If you have questions about how the FDA’s regulations could impact your business and its state-level tobacco excise tax compliance, consider working with our experienced tobacco licensing and tax professionals today. We help clients in all stages of interactions with state regulating authorities to protect their interests when facing an audit, assessment, or another adverse enforcement action.