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John Hernandez is prospecting for good investment opportunities within the next month to make use of a one million dollar inheritance. He is an avid cigar smoker, and is excited about the possibility of the trade embargo with Cuba being lifted. With this just being speculation, the real issue is whether he should go forward in investing in the Cuban cigar market.
The most prominent problem facing external investment opportunities today for the Cuban cigar industry would be the forty plus years of a trade embargo with the United States. With the United States being the largest cigar market in the world, Cuba (and the individual investor) is missing out on a potential revenue goldmine. Obviously the potential slackening of the trade barrier would be an investor's dream within this industry, but the reality of the situation is still very unpredictable. With presidential elections looming in the United States, there is no way of knowing whether a candidate will stick with the current political policies concerning Cuba, or whether they will eradicate the embargo once they are elected to office (flip-flopping on issues is almost as assured of as death and taxes).
John has an interesting investing dilemma. There are many solutions to what he could do with his inheritance; however there are three obvious solutions: he could invest all of his money into the Cuban cigar market, he could partially invest his money in the market, or he could invest nothing in the market, and research other means of enhancing the returns on his money.
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"The Cuban Cigar Industry." 123HelpMe.com. 20 Nov 2019
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The best case scenario would be that John invests his entire inheritance into the Cuban cigar industry and the embargo with the United States would be lifted. The reputation of the Cuban cigar would lift it to stardom with its new found audience in the United States, and John, along with other early investors, would be far richer than their wildest dreams. However, the reality is that even if the embargo with the United States was eliminated, it could be argued that some of the charisma and charm of the Cuban cigar comes from the inability to get them in the United States. If the cigars were as easily obtainable, would the popularity be very long lived? Americans are a fickle bunch, and even now, the popularity of cigar smoking is decreasing. It is possible that the legalization of the Cuban cigar within the United States could turn this trend around, but it just as possible that it would not be long lived.
Another alternative for John is to invest only a portion of the inheritance. Of course this would not present the yields that a full investment would, given that the market opens up and the embargo is lifted, but it would safeguard him from losing all of his money in case the embargo continues. Any investment is a gamble, and particularly so with an agricultural investment. Droughts, molds, infestations and floods are just a few things that we have no control over that can affect our investments. At any rate, to invest in a Cuban based entity at this point, there is a great deal of uncertainty.
The final obvious choice for John would be to walk away from the investment opportunity all together. It is very possible that the embargo with the United States will not be lifted, and it is hard to tell without a formal financial analysis whether it is worth investing in the market as it stands now. We do know that the market is slowing down, and that it would be almost impossible to know if Cuba can continue to make a product that could not be substituted, when there are so many cigar companies close to replicating the product as it stands.
The best solution and the most cost effective way to solve this tricky situation would be to work with all of the scenarios that have been presented in an innovative way. An issue that must be addressed is the possibility that firms working with the government of Cuba now could be ostracized for their involvement with Castro if the government is ever overthrown. In this scenario, the investment would be lost, even if the embargo was lifted. In light of this, investment opportunities have to be thought through in a less direct sense. Though United States citizens currently cannot take advantage of any direct investment opportunities with any Cuban companies, there are always opportunities to invest with companies that might do well under either circumstance- the continued embargo environment or the resuming of trade after the embargo is lifted. If John really wanted to capitalize on this investment venture, it might be a safer bet to invest in a currently traded cigar company. There are a lot of changes being made within that industry, so a little research could probably result in a situation that satisfies both the current situation between Cuba and the United States, and Cuba and the rest of the world.