Canada’s experience with contraband cigarettes is a cautionary tale for the U.S.

Dave Bryans Contributor
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A government agency that wants to do the right thing. A “black market” that is relentless and thumbs its nose at law enforcement. And willing buyers of contraband goods. Such is the situation in Canada today, and could be the situation in the United States in the near future.

Those of us who live in Canada are wary about offering advice to our good friends in the United States. But in the coming weeks, the United States could start heading down a path — a potential ban of menthol cigarettes — where Canada’s experience can be instructive.

In the United States, the issue will come to the forefront later this month, when a scientific advisory committee of the U.S. Food and Drug Administration (FDA) is expected to vote on a recommendation to ban menthol cigarettes. Menthol cigarettes are about one-third of the U.S. cigarette market. If the federal government bans them, about one-third of the smokers in the United States will be without their flavor of preference.

A ban of menthols would be analogous to the time four years ago when the Canadian government more than doubled taxes on cigarettes in hopes of curbing smoking. Seemingly overnight, Canada was saddled with a problem of staggering proportions.

Across the country, one out of every three cigarettes is purchased illegally. In Ontario and Quebec provinces, the contraband market jumped from 13 percent of the overall market four years ago to 48 percent today. Canada’s experience demonstrates that an enormous black market can take shape quickly when a government taxes or takes away a legal product.

The challenge for law enforcement has grown as illegal activities have evolved from single individuals involved in sporadic smuggling to large groups distributing an illicit commodity through a national pipeline.

Every week, Canadians discover new evidence of this harmful black market. In December, the Royal Canadian Mounted Police busted the largest counterfeit cigarette shipment ever detected in British Columbia — 10 million contraband cigarettes hidden aboard a container vessel. The container, originally from China, contained 51,000 cartons with a street value of $4.9 million. The same day, Ottawa police seized more than three million contraband cigarettes, a small quantity of drugs and four vehicles used to transport the contraband in and around Ottawa. According to the police, only organized crime syndicates have the money or resources for that type of enterprise.

These stories are depressingly common. Illicit tobacco is one of the world’s largest black market commodities. In Canada, the underground economy is worth hundreds of millions of dollars.

Because convenience stores’ break-even profit margins often depend on cigarette sales, Canada’s convenience stores have suffered as a result of the decline of legal cigarette sales. As legitimate sales were replaced by illicit sales, many small businesses went under, unable to compete with illegal traffickers who bring contraband cigarettes to doorsteps in baggies, sell them through street vendors or peddle them from car trunks.

There is a great debate in Canada today about whether the government’s actions have also undermined its health objectives. For one thing, smugglers don’t worry about the ages of their customers. In some schoolyards, roughly a third of cigarette butts collected in studies are contraband.

A task force put it this way in a 2009 report to the minister of public safety: “Persons involved in contraband tobacco, including the end users, are undermining global and domestic health objectives, contributing to the proliferation of organized crime, inviting criminals into their communities, undermining the local legitimate economy and evading taxes that support Canada’s social programs.”

So as the United States considers a ban on menthol, it’s worth looking north. If one-third of the cigarette market is banned in the United States, a contraband market will surely emerge. It will be substantial, unregulated and untaxed. Contraband cigarettes will flow to consumers with complete disregard for underage sales and hurt legitimate small businesses. A contraband market hasn’t benefitted the “public health” in Canada. It’s hard to see how it could in the United States.

Dave Bryans is the past president of the Canadian Convenience Stores Association.