The new crackdown on tobacco — from flavor bans on virtually all tobacco and nicotine products to a new era of 21-years-only sales — has created a new problem for law enforcement: Where to put all those cigarettes?
In Massachusetts, for example, state police have run out of space to store untaxed cigarettes that were seized by smugglers. As a result, tobacco tax enforcement in the Bay State has been stymied.
After years in which the state has interdicted millions of dollars in illicit cigarettes, law enforcement officials have only seized over $30,000 in untaxed tobacco products since July of 2019.
There haven’t been any more seizures or legal actions, the multi-agency report said, “due to the lack of an appropriate storage facility for seized tobacco evidence.”
“Current tobacco storage is nearly at maximum capacity, which has led to an unusually low number of tobacco seizures,” according to the report. “Due to this storage issue, most state police cases are currently conducted as historical investigations requiring the location of invoices of purchases by Massachusetts smugglers.”
Now extrapolate that across the nation and the growing illicit tobacco trade that flourishes as government regulation increases. Internationally, the value of the trade is worth billions in lost tax revenues, touching virtually every corner of the world.
Even in the U.S., the illicit trade of cigarettes and tobacco products underline the expansive popularity of the next generation of products — like heat-not-burn devices and electronic cigarettes.
Michael LaFaive, senior director of the Morey Fiscal Policy Initiative at the conservative-leaning Mackinac Center for Public Policy, told Inside Sources that the growth in illegal trade is brought on by aggressive tobacco rules.
“We’ve been here before,” LaFaive said. He and his colleague Todd Nesbit, a senior economics lecturer at the Ohio State University, have tracked America’s illicit tobacco trade for years. According to their latest data, cigarette taxes and prohibitions are directly related to a state’s illicit trade and smuggling of tobacco products.
Massachusetts, for instance, is ranked by LaFaive and Nesbit as the 8th most common state for smuggling and other forms of cigarette tax evasion. In response to the growing problem, the state convened public safety and health agencies to commission a new report documenting the prevailing trends of the illicit tobacco trade statewide. The conclusions of their 2018 report coincided with the findings reached by LaFaive and Nesbit.
One key finding was that smuggling was the most common form of cigarette tax evasion and black market trading.
“We estimated using 2017 data that 25 percent of the Bay State’s cigarette market (legal and illegal) were a function of tax evasion and avoidance,” LaFaive said. “We expect that percentage to rocket after the state’s flavor ban takes effect, and with it, the need for even more storage space.”
For LaFaive, the lack of storage speaks to the inefficiencies of some tobacco control strategies, like heavy taxation. He said that this storage issue, too, “underscores that policymakers may not have been able to anticipate every unintended consequence of high cigarette taxes and will need to expand their storage capacity to accommodate law enforcement efforts.”
As newly passed legislation comes online June 1, 2020, expect the problem to get worse.
“Indeed, I expect to see a wave of illegal menthol cigarettes ride into the Bay state on the very same supply chains feeding demand for lower-priced smokes from elsewhere, and ultimately clogging government warehouses,” LaFaive concluded.