Contraband tobacco inhales 30 to 50 per cent of B.C. market, retailers, industry fear

VICTORIA – At first, Cory Holland thought the government’s anti-smoking measures were working when he noticed that tobacco sales at his supermarket in British Columbia were beginning to fall.

Holland said he remembered thinking that maybe raising taxes and switching to plain packaging to discourage young people from buying cigarettes actually persuaded more people to quit smoking.

But losing half of sales over three years and observing the smoking habits of his own employees at his Kelowna-area store told him a darker story about organized crime and the rise of contraband tobacco in BC, Holland said in an interview.

Retail organizations, distributors and tobacco industry officials estimate that between 30 and 50 percent of tobacco sales in BC are contraband, and they are urging governments and police to crack down on the organized crime groups that sell them.

“Unknown to me, this illegal tobacco smuggling market was growing rapidly,” Holland said. “Our sales are down 50 percent compared to three years ago. Last year half of my employees smoked (contraband cigarettes).”

Holland, whose Oyama General Store includes groceries and convenience items, a post office and a liquor store, said the proliferation of contraband tobacco is hurting its bottom line, but also hurting taxpayers and the healthcare system.

A pack of cigarettes at his store sells for between $17 and $21, and cartons of cigarette packs sell for about $175, while contraband cigarettes sell for about $5 a pack and the cartons for about $50, Holland said.

“I’m $200,000 less in sales than I was three years ago,” he said. “I’m just a small shop in BC. You can imagine the lost tax money. No money goes back into the healthcare system. Worse, people smoke these cigarettes and nobody controls them.”

The Convenience Retailers Alliance 4 Safe Communities says in a statement that their latest data and studies show “illicit tobacco accounts for more than 30 percent of our province’s tobacco market, making BC one of the worst provinces when it comes to contraband in Canada.” .”

The organization called on BC Prime Minister David Eby to ensure the government includes action to tackle illicit tobacco on its public safety agenda.

“Contraband tobacco invites criminal activity into our communities, puts contraband tobacco in the hands of children and young people and harms convenience store operators who play by the rules but are forced to compete with the black market,” one said Alliance statement released in November.

The BC government says contraband tobacco is not tolerated in the province and the Tobacco Tax Act provides for harsh penalties for trafficking in illegal tobacco.

The Treasury Department says in a statement that BC tightly regulates the sale, purchase, possession and transportation of tobacco and the province has taken steps to combat the sale and use of contraband tobacco.

“This work includes a special inspection program that will help prevent the sale of contraband products in retail outlets,” the statement said. “We also participate in the federal and provincial tobacco stamp program, which offers enhanced security features and markings.

The Treasury Department is said to have a special investigative unit that works closely with the city’s police forces, the RCMP, the Revenue Canada Agency, the Canada Border Patrol Agency and other law enforcement agencies.

The department says BC generated $708 million in tobacco tax revenue in 2021-2022 and $711 million the year before.

A spokesman for one of Canada’s largest tobacco companies said it had warned the BC government about increasing criminal involvement in the tobacco market, but the response had been limited.

“It’s a big problem, but nobody’s going to cry because big tobacco companies are losing money, but governments across Canada are losing about $2 billion annually because of it,” Eric Gagnon, vice president of foreign affairs at Imperial Tobacco Canada, said in an interview.

“In BC, we estimate the illegal (market) to be about 35 percent,” he said. “There is multiple evidence that illegal traffickers are taking over.”

Gagnon said the smuggled tobacco is manufactured in clandestine manufacturing facilities in Canada and the products are distributed across the country, with BC and Alberta being the main markets.

“It’s impossible to deal with the price,” he said, adding that a pack of illegal cigarettes sells for about a quarter of the price of the taxed pack.

Gagnon said the tobacco industry is ready to work with the government, retailers and health groups in the fight against contraband.

“Obviously that’s a big problem for us as a company,” he said.

No one from the RCMP was available for interview, but Sgt. Chris Manseau of E Division headquarters in BC said anyone in the industry with concerns should report them to their local police immediately.

Holland, who says contraband tobacco is sold in locations remote from retail outlets like his, said he estimates the illicit sales could account for up to 50 percent of BC’s total market

“I want to say they have half the market,” he said. “It is a problem. It’s not just a personal concern of ‘Hey, I’m out of money.’ I’m concerned that something like this will have a major impact on the healthcare system.”

This report from The Canadian Press was first published on December 16, 2022.

Dirk Meissner, The Canadian Press