Tax increases on cigarettes have contributed to declining tobacco use, but they’ve also helped fuel a multibillion-dollar black market in provinces where costs are the highest.
What happened: Illegal smokes are on track to outsell legal cigarettes in some provinces, accounting for 29% of sales in Alberta, 38% in Nova Scotia, 45% in Manitoba, and 52% in New Brunswick, according to a report by EY and the Convenience Industry Council of Canada.
- Contraband cigarettes are popular because they’re cheap — selling for as little as $5 a pack — and are mostly sourced from First Nations reserves in Ontario and Québec.
Why it matters: The trade is dominated by organized crime groups who use the profits to fuel other illegal activities. Between 2021 and 2023, sales of illegal cigarettes are estimated to have exceeded $1.3 billion in just five provinces, and they are now considered more profitable than cocaine.
- Provinces in 2023 saw a $1.2 billion drop in tobacco tax revenue compared to 10 years prior alongside a falling smoking rate. But last year, they lost over $316 million to illegal sales alone.
Bottom line: Between 2009 and 2019, New Brunswick hiked taxes on tobacco by 117%, the most seen by any province. Over the same period, cigarette affordability dropped by 55%, also the highest of any province. No coincidence why black market sales are thriving.—SB