Illicit Tobacco Trade…What Could the Future Hold

As we’ve seen throughout history, prohibition doesn’t work. When the Volstead Act went into effect back in 1920, otherwise known as the National Prohibition Act, the manufacturing, importation, sale, and transport of alcohol was deemed illegal throughout the United States. Conversely, this led to a period known as the “Roaring 20’s” which, despite the thrill of speakeasies and flapper dresses, perpetrated a rise in organized crime, political corruption, and a greater division amongst the social classes of the country. Prohibition ultimately failed as there was no national will to stop the act of drinking itself and the law was later abolished 13 years later.

Some 100-plus years later, the lessons of prohibition are still being tested today. As we’ve seen with the government’s mounting efforts to drastically reduce access to tobacco, outcomes aren’t always linear. Take the state of Massachusetts for example, where the sale of flavored tobacco has been banned. Despite efforts by the Illegal Tobacco Task Force, bootleg cigarette smuggling has become an ongoing drain on law enforcement as illicit tobacco seizures surge and state tax revenues from tobacco sales continue to plummet. According to a report published by NECSEMA, the ban has not only failed to curb the use of these products but has created a robust market for illicit untaxed products and cross-border smuggling, costing the state nearly $150 million in lost tax revenues from legal sales since it went into effect in 2020.[1] Executive Director of the New England Convenience Store and Energy Marketers Association, Peter Evans, states “Moving flavored tobacco products out of the heavily regulated retail sales environment has been counterproductive and ineffective. While criminals rake in cash and flood the streets with contraband to fund illegal enterprises, taxpayers have lost, public health is threatened and retailers, who continue to demonstrate high rates of compliance, are left to suffer as they follow the law.”

The consequences of this ban demonstrate a higher concern for the industry as the FDA’s proposal to ban menthol cigarettes and flavored cigars reaches its final review among the Office of Management and Budget. As shown in Massachusetts, such implemented bans are likely to usher in an array of negative unintended effects. Not only would it add to the already burgeoning illicit tobacco market by moving businesses away from legitimate companies to unregulated producers, but it would also remove the consumer guardrails put in place by responsible sellers like the convenience store industry. Products in the illicit market are often imported from sources outside the United States and lack the quality control and safety standards that FDA-regulated products meet. This is a significant safety concern as it puts consumers at risk of exposing themselves to potentially dangerous ingredients. Additionally, a nationwide ban on menthol cigarettes is estimated to result in $1.9 billion in lost tax revenue within the first year with single convenience store operators expected to lose up to 4 percent of inside sales, on top of the $160,107 expected loss due to the reduction in sales of tobacco products.[2]

As writer and philosopher, George Santayana, once stated “Those who cannot remember the past are condemned to repeat it.” Sincere consideration should be taken to weigh the associated costs and consequences of tobacco prohibitions.

[1] https://www.convenience.org/Media/Daily/2024/March/11/4-Massachusetts-Flavored-Tobacco-Black-Market_GR

[2] https://csnews.com/industry-associations-urge-retailers-speak-against-menthol-ban