Albertans spending millions on illegal cigarettes, diverting tax revenue: report

A new report says smokers are spending less money on cigarettes in Alberta, while hundreds of millions of dollars are instead being used to buy illegal smokes for a fraction of the price.

A report from consulting firm Ernst & Young for the convenience store sector analyzed the illegal tobacco industry in five provinces.

It estimates that contraband cigarette sales garnered nearly $430 million in gross sales revenue in Alberta from 2021 to 2023 — costing the province more than $262 million in tobacco tax revenue over the same period (not including sales tax revenue).

Alberta's total estimated loss was the highest among the provinces the report evaluated, which included Manitoba, Quebec, New Brunswick and Nova Scotia.

The report was commissioned by the Convenience Industry Council of Canada (CICC), whose membership includes 7-Eleven, Circle K and Loblaw, among other retailers. Its vendor partners also include tobacco companies, such as Imperial Tobacco Canada and Rothman's, Benson & Hedges Inc. 

"Contraband tobacco in Alberta has really punched a hole in tobacco tax revenues for the province," said Sara MacIntyre, the CICC's vice-president of Western Canada.

MacIntyre said she believes there's two reasons why residents have seen contraband tobacco "kind of explode" across Canada.

"There's a lot available and there's a lot of choice to get it. You can order it online now. You don't have to go out and go to a smoke shack or find a connection," she said.

Alongside that is the price. The report said a carton of 200 cigarettes costs about $163, compared with a carton of illegal cigarettes, which can range from $30 to $55.

But Les Hagen, executive director of Action on Smoking and Health Canada, points out that tobacco revenues have been dropping because tobacco use in Canada and Alberta has been dropping. 

Hagen said tobacco use in Alberta and Canada has plunged.

"This comes after decades of efforts to reduce and prevent tobacco use, and policy measures, health warnings, smoking bans, marketing restrictions and tobacco tax increases," Hagen said.

He added all of those factors combined have reduced the demand for tobacco and have reduced the social acceptability of smoking, which means tobacco companies make less money.

About 10 per cent of Canadians smoke daily and the smoking rates among youth under the age of 18 are even lower, according to Hagen.

He said taxes are the most effective way to reduce and prevent tobacco use in Canada.

MacIntyre said the shift away from legal cigarettes also impacts local retail stores who are being undercut by cheaper, illegal cigarettes.

She said the CICC will meet with the Alberta government soon to lobby for more resources to be put toward managing contraband tobacco sales, including more enforcement officers and an awareness campaign about the harms of illegal tobacco.

Where's that money going instead?

About 29.4 per cent of the cigarettes bought in Alberta in 2023 were contraband, the report said, a stark increase from 2021 when the market share was estimated at less than half that — 13.1 per cent.

Since there are no direct statistics to measure how common contraband tobacco is, the report's calculations are based on the overall number of known smokers and consumption in Canada. It then uses that result against legal sales volumes, expecting that should represent contraband sales, or be a very close proxy, to determine the amount of illegal sales.

The money from those contraband sales can be vented back into criminal organizations, said Peter Bruni-Bossio, a senior manager in charge of investigations for Alberta's north at Alberta Gaming, Liquor and Cannabis (AGLC). AGLC runs a tobacco enforcement unit.

"We're taking money away from Albertans is what it is, and the money goes towards our health-care systems, infrastructure, programs to help Albertans," he said.

Bruni-Bossio said most contraband tobacco is manufactured in eastern Canada and transported west. It's then sold in various ways, including local retailers selling it illegally, local dealers who sell it individually or people who order it online to be delivered to them.

In June, the AGLC reported that it seized $5.3 million in illegal tobacco retail products from two Edmonton warehouses. A couple months prior, 60 wrapped pellets with 111,300 cartons of illegal cigarettes were seized from an undisclosed warehouse — an estimated $18 million in market value.

"There's a lot of financial gain, so you have a lot of criminal networks that are monopolizing this particular commodity," he said.