Organized crime is profiting from a growing contraband tobacco market in Canada, which now exceeds legal cigarette sales in certain provinces.
The report commissioned by the Convenience Industry Council of Canada is the third in a series of reports tracking the growing spread of contraband tobacco since 2019 in Alberta, Manitoba, Quebec, New Brunswick, and Nova Scotia.
Contraband Tobacco in Alberta, Manitoba, Quebec, New Brunswick, and Nova Scotia reveals that in 2023, contraband cigarettes accounted for 52% of the market in New Brunswick, 45% in Manitoba, 38.4% in Nova Scotia, and 29.4% in Alberta.
In contrast, contraband tobacco only accounts for 11.9% of sales in Quebec, which the Convenience Industry Council of Canada attributes to it being the only province taking serious action to crack down on the illegal market.
A previous report in the series highlighted that contraband tobacco was eight times more profitable to traffic than cocaine.
Between 2019 and 2023, the legal sale of tax-paid cigarettes fell by 44.8% in Alberta. Following that was New Brunswick, with a 37.4% decrease, and Manitoba, which saw a 33.3% decline. Legal cigarette sales fell 28.4% and even 25.5% in Quebec.
“And the penalties, if caught, amount to a drop in the bucket for organized crime groups. It is not surprising that the Canadian contraband tobacco market is growing at a pace that it is eclipsing the legal tobacco market in nearly every corner of the country,” reads the report.
The report revealed that a carton of 200 contraband cigarettes could cost as little as $30-$40 if purchased on a First Nations reserve and $40-$50 if bought elsewhere.
Over the past three years, the report estimates that the five provinces have lost over $760 million in tax revenues without accounting for PST, HST, and GST revenues or federal excise duty.
A separate report from Ernst and Young estimated that British Columbia alone lost up to $591 million in tax revenue between 2019 and 2022 to illegal cigarette sales.
“Gross sales revenue realized by the sellers of contraband cigarettes in these five provinces for the same three-year period, 2021— 2023, is estimated at over $1.3 billion. These revenues generate profits for organized crime groups that help fuel their other illegal activities,” reads the report.
The $1.3 billion estimation is based on a $45/carton price of 200 cigarettes. Therefore, between 2021 and 2023, 5.78 billion illegal cigarettes were sold in the five provinces.
The rise in illegal cigarette sales follows continuous tax increases on tobacco, vaping, and the Liberals banning flavoured vaping products nationally.
“In an effort to reduce smoking rates, federal and provincial governments have increased taxes on legal tobacco products,” said a previous report. “The result? Many smokers have sought cheaper tobacco on the illicit market instead.”
The most recent report had similar sentiments on tax increases.
“This also means that the effectiveness of higher tax rates on cigarettes in reducing overall consumption has likely been overestimated. Although tax increases have depressed legal sales, they have certainly also expanded contraband sales The evidence presented here strongly suggests that the latter impact may be greater than the former,” reads the report.
The Convenience Industry Council of Canada said that addressing contraband tobacco is necessary for public safety. The council added that the surge in contraband tobacco is not helping with corner store closures, 1.5 of which are closing in the country daily.
“The illegal tobacco industry isn’t a victimless crime,” said President and CEO of the Convenience Industry Council of Canada Anne Kothawala. “Contraband costs us all and is taking money out of the pockets of law-abiding Canadians.”
The council offered four recommendations, including increasing enforcement and penalties for anyone caught with illegal tobacco.
