U.S.-Cuba Thaw May Lead to Cigar Price Gain, Altadis Says

A breakthrough in trade relations between the U.S. and Cuba could lead to an increase in prices for premium cigars if more Americans are able to buy them to smoke, the head of Imperial Tobacco Group Plc’s Spanish unit said.

“If a new market that accounts for two-thirds of the global market opens up, it can generate tensions,” Juan Arrizabalaga, chief executive officer of Altadis, told journalists today in the division’s hometown of Madrid.

President Barack Obama said on Dec. 17 that the U.S. would move toward normalizing relations with the Caribbean island nation by establishing diplomatic ties and easing economic barriers. The U.S. accounts for two-thirds of world consumption of premium cigars, or 300 million cigars a year, according to an estimate by Bristol, England-based Imperial Tobacco.

Imperial Tobacco owns 50 percent of Corporacion Habanos SA, a cigar-distribution joint venture with the Cuban government that it inherited with the acquisition of Altadis in 2008. The ban on cigar sales to the U.S. from Cuba dates from 1962.

Arrizabalaga said there is still a long way to go before Cuban cigars will be allowed for sale in the U.S. Even so, the company will start preparing now for when that happens.

Obama’s move for closer U.S.-Cuba ties is a “magnificent step” that opens a “very good opportunity” for the higher-priced cigar business, Arrizabalaga said, declining to estimate the potential size of the U.S. market for the Cuban products. The company sells mainly premium Dominican and Honduran cigars in the U.S.