Report Claims Revenue Loss Due to Tobacco Smuggling

Bootleg cigarette smuggling is an ongoing drain on law enforcement as illicit tobacco seizures surge and state tax revenue from tobacco sales continues to plummet, a new report by the Massachusetts Illicit Tobacco Task Force (ITTF) found.

“Despite enforcement efforts and the hard work done by the Illegal Tobacco Task Force, smuggling of untaxed tobacco products remains a significant challenge,” said Peter Brennan, executive director of the New England Convenience Store and Energy Marketers Association. “Smugglers are developing more sophisticated operations to counter the Task Force’s targeted investigations. It’s clear that the Commonwealth is struggling with enforcement.”

The report illuminates how the state’s ill-advised rush to ban flavored tobacco has not only failed to curb use of these products, but has created a robust market for illicit untaxed products and cross-border smuggling. The ban has cost the state nearly $150 million in lost tax revenue from legal sales since it went into effect in 2020.

“It’s clear that criminals – including organized crime syndicates – are profiting from bootleg cigarettes and vape, and have made contraband tobacco products a lucrative part of their racketeering endeavors,” Brennan said.

The ITTF report details a February bust by several federal, state and local law enforcement agencies that included 29 search warrants on businesses, residences, vehicles, individuals, and bank accounts. Investigators seized approximately 280,000 flavored “electronic nicotine delivery system” (ENDS) products as well as flavored cigars, unstamped cigarettes and $1 million in cash. The same bust also netted 70 pounds of marijuana, hundreds of cases of THC and Psylocibin-laced products, multiple jars of pure THC oil and THC crystalline, and a firearm.

The report also notes:

• New challenges associated with the storage and destruction of ENDS;
• Field personnel are routinely encountering or seizing untaxed menthol cigarettes, originally purchased in other states, and flavored ENDS products and cigars purchased from unlicensed distributors operating both within and outside the Commonwealth;
• A decrease of $25.2 million in cigarette excise tax collections from 2023;
• An overall decline in tobacco product revenues for the fourth consecutive fiscal year.

The report acknowledges the need for continued data collection, compliance resources, and enforcement coordination to uphold state policy. This suggests ongoing challenges in effectively coordinating enforcement efforts and addressing emerging issues within the tobacco industry.

“Moving flavored tobacco products out of the heavily regulated retail sales environment has been counterproductive and ineffective,” Brennan says. “While criminals rake in cash and flood the streets with contraband to fund illegal enterprises, taxpayers have lost, public health is threatened, and retailers, who continue to demonstrate high rates of compliance, are left to suffer as they follow the law.”

Read the full report here