Black market cigarettes with First Nations origins are dragging convenience stores across Ontario into ruin, says the vice-president of the Canadian Convenience Stores Association. Cheap smokes like Monte Carlo, Red & White are now so readily available that smoking rates are beginning to increase in Ontario, Steve Tennant said, Monday, at a media event staged by the convenience stores association, at a Guelph variety store.
Local shop owners say they can’t compete with the ultra cheap smokes that are increasingly satiating nicotine addictions and flooding the local tobacco market. Youn Sae Lee, owner of Woolwich Variety in the city’s north end, said he had to lay off staff because of free-falling sales of legitimate tobacco products.
Stores go out of business every day in Ontario because of shrinking tobacco revenue, according to the convenience stores association.
Standing in front of a banner depicting a menacingly tattooed hand proffering an illicit bag of cigarettes to a youth, Tennant said contraband tobacco has poured into Guelph and most communities across the province, choking out convenience stores at an alarming rate.
“Convenience stores are heavily regulated, and we sell only legal product,” said Tennant. “So we are trying to compete in a market place where the competition is selling at 20 per cent of our value. What we saw last year was the loss of 800 stores in Ontario, and the year before that it was 765 stores.”
Roughly 5,000 convenience store employees lost their job last year.
Easily purchased through an ever-widening distribution network, contraband cigarettes represent 50 per cent of the tobacco market in many communities, Tennant said. Roughly 30 to 50 per cent of convenience store revenues are tied to tobacco sales – sales of legal products that are taxed, regulated and routinely inspected, he added. To avoid expensive, highly taxed smokes, more and more smokers are turning to black market cigarettes.
An association study that literally counted cigarette butts where they were stubbed, found high rates of contraband use locally. A butt count in April at College Heights Secondary School found the average rate of contraband use was 43.7 per cent. A similar butt study around the grounds of Parliament Hill in Ottawa found over 20 per cent contraband content.
“So almost 50 per cent of the high school students have no problem accessing cheap, untaxed, unregulated and uninspected tobacco,” said Tennant, adding that the bulk of the illicit tobacco comes directly from or through First Nations south of Cornwall, manufactured mainly on the U.S. side of the border, but also on Canadian soil.
Those cigarettes are now readily available on First Nation communities across Ontario. Such tobacco products are legal if sold on reserves, but break the law when sold beyond reserve borders, Tennant said.
“I’m not saying by any means that First Nations as a whole are benefiting from it,” he added. “The RCMP has identified over 100 criminal organizations that are garnering most of the profits from the illegal trade. That illegal trade pays for drugs, guns and other criminal activities. They can make many millions of dollars selling contraband, and that’s why they are in the business.”
While the illegal tobacco traders are getting rich, government coffers are being starved. Tennant said $2.4 billion in tobacco tax is lost in Canada every year, squashed by contraband sales. About $1 billion in tax revenue is lost in Ontario. A bag of tax-free contraband cigarettes sells for $10 to $15, he added. The equivalent legal product would cost $75 to $85.
The convenience stores association’s Contraband Objective Campaign — on a 25 city tour of Ontario — is asking politicians, including Guelph MP Frank Valeriote and Guelph MPP Liz Sandals to take steps that would help reduce contraband tobacco use to 10 per cent.
When Ontario’s harmonized sales tax kicks in on July 1, CCSA expects a spike in demand for contraband, as smokers dodge even higher prices for legitimate cigarettes. The organization’s awareness campaign seeks stronger enforcement on the supply side of the illicit trade, and also to stamp out some of the demand.
“It’s time for the Ontario population to realize that if they are buying contraband they are not paying for those hospitals or those MRI (magnetic resonance imaging) machines,” Tennant said. “Those tax dollars do benefit everyone in Ontario.”
Noor Dahi, co-owner of Quick Stop Variety, on Yorkshire Street, said it is very difficult to compete with illegal cigarettes. Smokers gravitate toward black market smokes because it is simply cheaper to satisfy their nicotine addiction that way.
“I’ve heard from a lot of people over the last five years who used to smoke legal cigarettes, but switched and are now just buying the affordable smokes,” Dahi said, adding that government may have to consider reducing the price of legitimate cigarettes as part of the solution to the problem.