As predicted, Massachusetts’ flavored tobacco ban is creating a black market
At Reason.com, Jacob Grier noticed that Massachusetts’ ban on flavored tobacco products has, predictably, created a black market in flavored cigarettes. The smuggling is so prevalent that law enforcement is running out of places to store seized products.
The Massachusetts Department of Revenue reports conducting more than 300 seizures in FY 2022, compared to 170 in 2021 and just 10 in 2020. Many of these involve substantial amounts of products and missed tax revenue. For example, a single search warrant yielded “a large quantity of untaxed ENDS products, [other tobacco products], and Newport Menthol cigarettes affixed with New Hampshire excise tax stamps” representing an estimated $940,000 in unpaid excise taxes.
Revenue officials are seizing so many illicit products, in fact, that they are running out of room to store them. The “Task Force’s increased investigative and enforcement activities during the past year have led to the seizure of large quantities of illegal tobacco products, resulting in a strain on the Task Force’s storage capacity,” says the report. But fear not, they are working on leasing additional space “that will significantly increase storage capacity and allow for continued increased enforcement.”
Official seizures represent only a fraction of the illicit trade, so the actual extent of illegal products and lost revenue is certainly larger. The state’s report notes that tobacco tax revenue has fallen by approximately 22.6 percent over three years. This is partially due to declining rates of smoking, but the authors acknowledge that smuggling of untaxed products may also be a factor.
A recent analysis of sales data by Reason Foundation, the nonprofit that publishes Reason, found that the decline in cigarette sales in Massachusetts coincided with substantial increases in sales in counties bordering the state.
Advocates of flavor bans downplay the potential for criminal prosecutions, but the experience in Massachusetts demonstrates that opponents are right to highlight this concern. The Task Force takes note of multiple criminal investigations leading to indictment or prosecution. Although violating the flavor ban is not in itself punishable by imprisonment, forcing these products onto illicit markets results in sellers violating state tax law. In Massachusetts, this is a felony punishable by up to five years in prison.
It’s only a matter of time (if it hasn’t happened already) before the first American will be sentenced to prison for selling menthol cigarettes or flavored e-cigarettes. It’s likely to happen in Massachusetts, where two men were arraigned last month on charges including tax evasion, money laundering, conspiracy to commit tax evasion, and flavor ban violation.
As we pointed out in 2020, not only did free-market advocates predict this black market, but the Massachusetts Multi-Agency Tobacco Task Force did too.
It’s fun to point out how New Hampshire benefits from this bad law. But as Grier notes, eventually people will go to prison simply for selling cigarettes that taste different than regular cigarettes. Ruining people’s lives in a misguided effort to control a product you have no hope of controlling is not funny.