WASHINGTON -- As the U.S. Food & Drug Administration (FDA) contemplates the fate of menthol cigarettes, NACS is raising concerns that such efforts could lead to a black market for such products.
Dave Bryans, president of the Canadian Convenience Stores Association, spoke at a joint briefing yesterday on how Canada's own black market has affected c-stores. Driven by "punishing tax increases," display bans and flavored-cigar bans, the contraband tobacco market jumped from 13% four years ago to 48% in Ontario and Quebec provinces.
"The problem has become societal; [image-nocss] everybody is telling everybody how to get illegal cigarettes. And it's putting stores out of business," Bryans said.
The number of Canadian c-stores, which are used to relying heavily on tobacco for in-store traffic, has decreased 10% over the last two years. Bryans said he also believes the government lost out on $2 billion a year in tobacco tax revenue because of the contraband market.
"No one knows which way to turn anymore, because they've allowed this illegal activity and this societal issue to grow so far out of control," he said. "I'm not even sure if we can rein it in in Canada anymore and bring it back to some normalcy."
So far, however, the Canadian government hasn't banned menthol. "When they did flavor bans, they excluded menthol, knowing that this would only fuel the contraband market bigger than it's ever been, even though it's big now," Bryans said.
Lyle Beckwith, senior vice president of government relations at NACS, pointed out that the situation in Canada is largely fueled by excise-tax increases, but added, "Although the Canadian government created this black market unknowingly by raising their taxes, even they saw a potential problem in banning menthol and decided not to do that.... That is what our concern is: The problem is real; the void gets filled very quickly."
Beckwith compared the potential ban to prohibition, adding that menthol accounts for 30% of the tobacco market. "Obviously prohibition didn't work. People that need to drink just pushed it underground. It's that environment that we are concerned about."
Bryans estimated that 18 million to 20 million people would be affected by a menthol ban in the United Statesalmost two-thirds of the size of the whole country of Canada that would be sourcing the products from somewhere else.
Both Bryans and Beckwith said that black markets also mean that cigarettes are more readily placed in the hands of underage smokers. In Canada, those sales typically occur out of trunks of cars and in Aboriginal reserves. "We sent minors to the reserves. No one ever got carded."
Beckwith added, "The entire concept of fanning the flames on a black-market economy is something that we're very concerned about, not only from viability of the store perspective, but also from the public-health perspective."
Beckwith clarified that the concern is about problems that would stem from a ban, not necessarily the ban itself. "If there were a way to assure that there would be no black market, in a perfect world, in a vacuum, this would not be an issue to us, because we sell legal product responsibly. The reality, however, of the world is we will lose a significant number of customers because the black market would flourish."
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