ICSA calls on the government to confront illegal market costing small retailers millions in lost revenue
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Independent convenience stores follow the rules. We check ID, we pay taxes, and we accept strict limits on how we display and sell age-restricted products like alcohol and tobacco. But in recent years, we’ve seen the illegal market for these products take our customers, our revenue, and the government's tax base with seeming impunity.
Two product categories illustrate the problem. Contraband tobacco now makes up over 38% of the Canadian tobacco market and costs federal and provincial governments an estimated $2.1 billion every year in lost revenue. Nicotine pouches, meanwhile, were pulled from our shelves in 2024 and handed to a market that pays no tax, checks no ID, and answers to no one. In both cases, government policy has not reduced demand. It has simply moved the sale from a licensed retailer to a criminal one.
No legal business can compete with a product that carries no excise tax, no sales tax, and no compliance cost. Because they evade these significant costs, criminal enterprises can profitably sell contraband cigarettes at a fraction of the legal price. They have used their pricing advantage to scale up dramatically.
In July 2025, Ontario Provincial Police seized 17,820 kilograms of contraband fine-cut tobacco worth about $4.4 million from a single transport truck. In May 2026, a drug bust in Manitoba resulted in the seizure of 1.35 million illicit cigarettes. We know that the amounts seized during these courageous law enforcement actions are only the tip of the iceberg. For every illicit shipment that gets seized, how many make it to their destination undetected?
Every one of those cigarettes represents a sale that a law-abiding store did not make, tax revenue that Canadians did not collect, and profit that went to organized crime. The RCMP has repeatedly documented the connection between tobacco smuggling and the trafficking of firearms, cocaine, and fentanyl. This is a public safety crisis fuelling violence, drug addiction, and the decline of independent retailers across the country.
The federal unit dedicated to contraband tobacco has been funded at $3 million per year since its creation in 2008. The illegal market it is meant to police is worth billions. We have immense respect for the men and women across Canada who combat these gangs every day, but the Government has not given them the resources they need to win.
Some provinces are moving on their own. Alberta has introduced administrative penalties equal to three times the evaded tax, collectible directly from a trafficker's assets, along with mandatory seizure reporting so that governments can finally measure the problem. Ontario has committed to stronger enforcement and better police training. These are welcome steps, but contraband crosses provincial and international borders. Only Ottawa can lead a coordinated national response, and so far it has not.
Only one brand of nicotine pouches is legally available in Canada. It has 4 milligrams of nicotine per pouch (a relatively low dose), is only available in mint flavour, and it was approved by Health Canada as a Nicotine Replacement Therapy (NRT). Despite the fact that these pouches are 99% safer than the cigarettes they’re designed to replace, the federal government banned convenience stores from selling them in 2024.
The ban did not affect youths interested in recreational nicotine pouches popular in America and elsewhere. Those brands, like Zyn, were never legal in Canada in the first place. It was easy in 2024 - and it is just as easy today - to buy them online or in unlicensed storefronts across the country. Illegal pouches in fruit flavours and doses as high as 50 milligrams can be bought in seconds by anyone in Canada, regardless of their age.
The government took a regulated product out of stores where every customer is ID'd and every sale is taxed, and did nothing to counter a market with no age verification whatsoever. It is difficult to imagine a policy better designed to increase youth access while eliminating government revenue.
We understand why the government acted on nicotine pouches, and we do not object to strict rules. We already sell the most heavily regulated products in Canadian retail, and we have the compliance record to prove we can be trusted with them. What we object to is a system where the punishment for following the law is losing your customers to someone who does not.
Substantially increase federal funding for contraband tobacco enforcement, which has been frozen since 2008.
Lead a coordinated national anti-contraband strategy with provinces, and empower and resource local police to act.
Shut down the online channel where illegal tobacco and unauthorized nicotine products are shipped directly to Canadians, including minors.
Return authorized nicotine replacement products, including pouches, to licensed convenience stores under strict age verification requirements.
Halt further tobacco tax increases that widen the price gap driving consumers to the illegal market.
