Massachusetts’ Flavored Tobacco Ban Costs State $114 Million, Black Market Flourishing

(This article was originally posted at Maine Policy Institute’s Pine Tree Beat. Click here to access more of MPI’s policy related research and anlysis.)

Several years after Massachusetts imposed stricter tobacco regulations in June 2020—including a ban on all flavored tobacco products including e-cigarettes and menthol cigarettes, plus a 75% tobacco excise tax hike—cross-border smuggling is up, tax revenues are down, and state inspectors are busier than ever.

That’s the takeaway from the latest annual report from the Massachusetts State Multi-Agency Illegal Tobacco Task Force (ITTF). 

A year after the ban went into effect in June 2020, regional tobacco usage had not changed; sales just moved across the border, primarily to low-tax New Hampshire. Seemingly, the only effects were substantially lower earnings for Massachusetts store owners and employees, and $114 million less in tax revenue in the first 12 months after the ban.

In last year’s report, the ITTF notes that Massachusetts’ “high tax rates on tobacco products other than cigarettes relative to other states provide smugglers an incentive to import such products from low-tax states and sell them to in-state buyers willing to illegally evade payment of the applicable Massachusetts tobacco excise.” As the federal Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) notes, “Tobacco traffickers purchase cigarettes and/or OTP from low tax states and sell it in higher tax states.”

Perhaps an obvious bit of foreshadowing, it is difficult to see how regulators could have missed the extent of the massive recent spike in tobacco smuggling which took place in the last year. Menthol cigarettes and cigars made up the largest category of illicit tobacco seizures. MA State Police reported contraband cigarette seizures soared from just 40 packs in 2021 to more than 1,900 last year. In addition, seizures of illicit smokeless tobacco were up 800% year-over-year in 2022. 

In fact, the Massachusetts Department of Revenue (DOR) has greatly increased its enforcement of state tobacco tax evasion, showing inspections jumping by more than 42% from Fiscal Year 2020 to Fiscal Year 2022. This has resulted in a considerable jump in seizures, showing that cross-border smuggling continues as well.

In a March 2 press release, the New England Convenience Store and Energy Marketers Association (NECSEMA) described this phenomenon:

“Contraband cigarette trafficking is exploding, especially in states with high tobacco taxes, or with tobacco bans in place. The profit margin for criminals is high for bootleg cigarettes and the risk is low as criminal penalties are minor. Massachusetts authorities are ill-equipped to deal with another illicit market product that criminals are increasingly using to fund organized crime rackets.”

“Both organized criminals and petty smugglers are reaping millions from this newly-created illicit market while the state is being forced to spend more and more on enforcement, with no long-term plan in place.”

The trend of lost tobacco tax revenue has also continued, though the largest drop was in the first year of the ban. Today, the state is bringing in 27% less from all tobacco-related products, nearly 30% less cigarette tax revenue, and 47% less revenue from smokeless tobacco compared to Fiscal Year 2019, the year before the ban went into effect.

Higher taxes on cigarettes can reduce use somewhat, but since policy efforts in this arena have focused on smokeless tobacco, electronic nicotine delivery systems (ENDS) also known as e-cigarettes, as well as combustible tobacco products, they seem to be backfiring on their intended purpose to protect the youth from the dangerous health effects of tobacco use. An analysis from the National Bureau of Economic Research (NBER) found that “the health costs from greater youth smoking as a result of e-cigarette taxes may undercut or even outweigh benefits from reduced youth e-cigarette vaping.” 

Maine could be the next proving ground for these ineffective policies. Thankfully, LD 1693 and LD 1550—among other similar bills which would have imposed the same failing policies on the Pine Tree State— died upon adjournment last year. Seems as though lawmakers heard about Massachusetts’ experience and decided to forgo the same path.
Expect to see similar proposals make their way through the State House this session as well, especially since the out-of-state activists pushing a flavor ban have a strong ally in the Speaker of the Maine House, Rep. Rachel Talbot-Ross (D-Portland). Hopefully, these efforts will continue to fail and spare Mainers the unintended, yet obvious, consequences of failed prohibitionist policies.

Disclosure: The Maine Wire a project of the Maine Policy Institute.