As the final countdown to the introduction of plain packaging, scheduled for September 2019, begins a year from now, there is a growing concern that this measure will fuel contraband tobacco across Canada.
Indeed, according to an official RCMP memo (see here) never made public and obtained exclusively by DepQuébec via the Access to information Act, Canada will be more vulnerable than other countries to see a marked increase of the tobacco black market once plain packaging is implemented.
A “robust domestic industry” of contraband
At a closed-door meeting held on September 23rd, 2016 as part of the Strategic Forum on Contraband Tobacco chaired by Michael Holmes, a Senior Advisor at the Department of Public Safety, RCMP representatives made their concerns clear to that extent by pointing out why we are in uncharted territory with this regulation.
“Of consideration to RCMP is that neither Australia nor the UK have a robust and domestic contraband tobacco manufacturing industry. Plain packaging laws may present opportunities for organized crime groups to further penetrate the legal tobacco market through counterfeiting. This concern was relayed to the Forum.” – RCMP meeting briefing
The two countries mentioned — Australia and the United Kingdom — are among the only three in the world, along with France, to have implemented plain packaging to date, a measure for which there is very little evidence, with Canada becoming only the 4th country to put this new regulation in place.
The undeniable fact that none of these countries has an industrial contraband infrastructure like here places Canada in a unique position as the first one to test it in such a context.
In other words, Canada is experimenting while retailers wait in the test tube!
Facing the unknown
The RCMP’s well-founded opinion clearly did not impressed or modified Health Canada officials’ determination to put in place the purest and most orthodox version of this regulation, of which we still know very little as to its effects.
This is quite apparent from the plain packaging draft regulation made public two months ago and which is currently subject to consultation until September 6th, following which the final version will be adopted and the legislation implemented (see the important dates to know at the bottom of this article).
In terms of increased contraband risks, the draft regulation agrees though that this may be a real possibility.
“Should there be a rise in counterfeiting, enforcement authorities would likely need to increase the frequency of retail and supply chain audits (…). It is difficult to predict the impact, if any, PSA (plain and standardized appearance) measures will have on counterfeiting” — Health Canada
It is interesting to note here that in such a case, Health Canada confines itself to seeing the problem under the sole angle of the sale of illegal tobacco by legal retailers when in reality, the issue is much larger since almost no one — including authorities — would become capable of easily distinguish between legal tobacco and counterfeiting.
In addition, Health Canada is dismissive of legitimate industry concerns about the possible impact of plain packaging on contraband:
“Such claims were also made in 2009, when Canada first introduced a schedule to restrict flavours in cigarettes (…), and again in 2011, when Canada increased the size of its HWs on cigarettes and little cigars to 75 % of the package. In both these cases, contraband tobacco levels did not increase after the new requirements came into force.” — Health Canada
What Health Canada forgets to mention, however, is that in the early 2000s, when the federal and provincial governments doubled and quadrupled tobacco taxes, the industry warned them of an increase of contraband tobacco, a warning that proved to be accurate, while health groups tore up their shirt pretending otherwise (see here).
This huge policy mistake ended up in a public health disaster. It has generated an unprecedented wave of low-priced tobacco that has engulfed the country for many years and costed tens of billions of dollars in lost revenue, both to governments and retailers, only to benefit the organized crime to the detriment of communities’ safety.
However, if legal and illegal products become similar in all respects apart from price, we could very well experience such a nightmare again. Hence the RCMP’s serious concerns.
Making sure we can’t distinguish legal from illegal
But far from considering the authorities’ wise opinion and rather than advancing with caution, Health Canada will in fact do everything possible to help the organized crime by making it extremely difficult and confusing to distinguish legal tobacco from contraband.
Not reassuring for retailers
Clearly, this new regulation will be quite challenging for depanneurs.
This is by far the worst disruption in the tobacco market we will see since the drastic tax hike in the 2000s.
Because they still derive a majority of their sales and profits from tobacco, convenience stores must be prepared for the plain packaging introduction and impact in September 2019.
Such impact will include the following:
- A complete revision of tobacco planograms as all formats will now be the same;
- Significant staff training to distinguish packages, where to find them and being able to answer customer questions without taking too much time;
- Removing the old inventory on Health Canada’s deadline;
- Possible significant decline of sales following a marked increase in contraband.
Of course, the RCMP and the police will probably be on the edge. But questioned by DepQuébec as to whether it intended to adopt special measures to prevent a resurgence of contraband following the adoption of plain packaging, the RCMP merely replied this to us:
“The RCMP focuses its investigations on the criminal activity of groups and networks rather than on certain commodities.” The fight against organized crime is a strategic priority of the RCMP with the goal of preserving community safety and economic integrity from Canada.” – RCMP
Not quite reassuring!
PLAIN PACKAGING: KEY DATES TO KNOW
May 23th, 2018: Bill S-5 Royal Assent
June 23th, 2018: Draft Regulations published in Canada Gazette 1
September 6, 2018: End of Draft Regulations consultation period
Fall 2018: Health Canada reviews comments & draft final regulations
December 2018 / January 2019: Publication of Final Regulations in Canada Gazette
June 2019: End of the 6 month transition period for tobacco manufacturers… after this date, all tobacco packaging sold to retailers must be compliant with plain packaging
September 2019: Retailers must only sell plain packaging compliant products
October 19th, 2019: Federal elections