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TOBACCO OUTLET BUSINESS
NOVEMBER/DECEMBER 2012
not sure by how much,” he tells
Tobacco
Outlet Business
. “
We don’t miss the
lost business because you can’t miss
something you never had.”
Again, where he, like most in the
channel, primarily feels the pain is
in stores where state cigarette taxes
have drastically gone up—sending
customers to lower-tax states or
to find other means of purchasing
contraband cigarettes. Three years
ago, Iowa raised its tax from 38 cents
to $1.38, drastically hurting his stores
in the southern part of the state that
borders Missouri, still with a 17-cent
state tax rate.
“
One store was averaging 3,000
cartons a week and it dropped down
to 500,” Schmitz relays. “But there’s
nothing we can really do about it, we
grin and bear it—and do what we
can to pick up sales and cut expenses.
We’re not closing the doors; we
find other ways to make money. For
instance, in that store, we changed
the focus. We put in more premium
cigars, for one.”
And then there are industry
observers who are very passionate
about the contraband issue as it
relates to taxes. Rob Port, a blogger
on sayanythingblog.com writes, “The
State of New York has the highest
tax on cigarettes in the nation at an
unbelievable $4.35 per pack, so is it
surprising that a huge swath of the
cigarettes sold in the state are black
market cigarettes?”
He concludes in his blog, “The lesson
to take from this is that prohibition
doesn’t work. The primary justification
of the cigarette tax isn’t revenues. It’s
prohibition. The government doesn’t
want people to smoke, just as in a past
age, the government didn’t want people
to drink; but rather than an outright
ban on tobacco use, they’re trying to tax
tobacco use to death. These taxes aren’t
just bad policy, they’re not just bad for
the economy, but they promote crime
and contempt for the law.”
Bill Godshall, executive director of
Smokefree Pennsylvania, is appalled
that contraband is the one issue
where the public health community
and the legal tobacco industry have a
seemingly mutual goal—to reduce it.
“
We should be working together,” he
tells
TOB
. “
But one of the problems
is that the public health community
really doesn’t want to reduce
contraband, they claim they want to
do that in press statements—but then
they propose policies that perpetuate
and create the problem.”
Godshall also criticizes the anti-
tobacco groups (which he says have
now moved their focus to cigars—
wanting to tax them at the same rate as
cigarettes) for using “bad economics”
and making no correlation between
taxation and smuggling/contraband.
“
These people are just tax nuts. They
see no unintended consequences,
their attitude is, ‘We don’t care.’ It’s
very frustrating, but the good news
is, we’ve defeated a lot of their bills,”
he says.
So what else can be done beyond that?
Godshall’s solution to reduce cross-
border smuggling is for all states that
have a cigarette tax rate under a dollar
to raise them. He’s aware that others
say the solution is to reduce them in
the very high-tax states, but the point
is that the gap needs to be reduced.
It makes sense that cigarette
manufacturers want to be in on a
solution. For instance, Altria has a
brand integrity department where
cigarettes from actual criminal cases
sometimes end up, so inspectors can
be trained to spot fakes, according to a
recent report by NBC affiliate NBC12
in Richmond, Virginia. According
to the article, Altria spends tens of
millions of dollars to help train police.
The tobacco giant even helped the state
of Virginia to craft an anti-smuggling
law—it’s now illegal to be caught with
more than 25 cartons if you are not a
legitimate cigarette trader, according to
the report.
Educational efforts outside the
U.S. can also offer inspiration. In
Canada, the Ontario Convenience
Stores Association (OCSA) took its
cigarette contraband message to the
streets in August with a new 10-
week billboard campaign that went
to dozens of locations in about 10
communities in Ontario, including
Niagara Falls and Toronto, according
to an association press release.
“
Governments have told us that
education was a key tool in the war on
illegal cigarettes,” says Dave Bryans,
CEO of the OCSA. “Our goal with
these billboards is to educate the
public and draw their attention to the
fact that contraband tobacco is illegal
and comes in many forms.”
The OCSA ran two different
billboard messages—one highlighted
the sophistication of the illegal
tobacco industry by informing
people that illegal cigarettes come
in many forms, including traditional
cigarette packaging and plastic bags.
The second billboard highlighted the
fines Canadians face if they purchase
contraband tobacco.
The OCSA reports that as
many as one-third of cigarettes
smoked in Ontario are contraband;
Ontario’s auditor general reveals
that contraband tobacco is costing
Ontario more than $500 million a
year in lost revenues.
ToB
Shade of Black
Billion
THE
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