The Black-Market Boom

Illicit tobacco trade hits close to home for retailers across the globe.

By
Melissa Vonder Haar, Tobacco Editor

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And it’s not just the lost tobacco sales retailers need to worry about—it’s also the loss of the total market basket: snacks, beer, coffee and other popular items tobacco consumers often pick up. 
 
“Retailers who only sell compliant products often compete head to head with black-market retailers who sell at the lower price and create a pricing disadvantage that is nearly impossible to overcome,” says Brown of Cheyenne. “When a product is sold through the black market, the retailer loses valuable sales dollars in their stores.”
 
It’s an issue every retailer should care about, even if a company is operating in a lower-taxed state with little black-market activity. As Brazie of Kwik Fill/Red Apple points out, many states follow suit with higher taxes and stricter regulations once New York successfully passes such measures. To help combat the black market, Brazie relies on retail associations such as NACS, NYACS and NATO.
 
“You can’t take on these issues on your own,” he says. “You need a group to support what your thoughts are so you are represented in numbers. [Retail associations] keep us on the cutting edge of what is going on at all times.”
 
Beckwith agrees: “Working as one coordinated voice, the retailers can make their case far better than in a one-off fight.”
 

Collaborative Solution

Of course, it’s not just about retailers coming together to stop the black market, not when lawmakers are the ones responsible for raising excise taxes and creating the disparity that fuels black-market trade.
 
“I would suggest that the lawmakers fully understand the adult consumer and their buying habits,” Brown says, citing that tobacco taxes have forced many to shop for lower-priced (and often illegal) options. “Lawmakers need to know that each time that they increase the tax, they are creating an even increasing demand for products through the black market.”
 
This illicit activity directly contradicts the frequent goals legislators cite for increasing tobacco taxes: to deter people—especially youths—from smoking and raise money for state and local governments. 
 
“Bans and increased taxes create the demand for black-market products … and the black market does not check ID,” Beckwith says. “In fact, the black market exposes youth to other illegal products as well.”
 
On the flip side, legitimate retailers such as c-store operators often join state and local governments in the fight to keep tobacco products out of the hands of minors. As such, Beckwith suggests that politicians need to recognize retailers as their allies in this fight.
 
While retailers working with the politicians who often push for taxes and regulations that often undermine their business may seem an unlikely alliance, Jones has seen firsthand how such collaboration can stymie the black market: Once accounting for as much as 33% of the tobacco market in 2008, Canada’s illicit tobacco trade is down to less than 20%.

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