It's a bizarre expression that I've always taken to describe a situation in which one has very nearly achieved their objective. Where do the roots of this expression lie?
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A cigar, as a luxury, is often awarded and smoked to celebrate a success, in much the same way that champagne is drunk.
The earliest quotation in the OED is from the Cleveland (Ohio) Plain Dealer of March 6th, 1930:
I found a slight antedating in the Princeton Alumni Weekly (Volume XXIX, No. 36 - Page 1166) of July 2, 1929:
Barry Popik's The Big Apple includes a brief history of awarded cigars:
A slightly earlier citation is given, from the Long Island Daily Press (Jamaica, NY) of 18 May 1929, as a headline:
A cigar is given to congratulate the winner. If you didn't win, no cigar.