Ottawa and provinces losing billions from illegal cigarettes, study finds - National Post

Copy URL Facebook Linked In X (Twitter) Loading account options Sign In Manage Account Close account menu Sign Out The report, to be released Monday, found that Ottawa, British Columbia and Ontario have already lost between $1.7-billion and $2.75-billion in taxes from illegal cigarette sales over the last three years. By Simon Tuck November 2, 2026 at 7:07 a.m. OTTAWA — Cash-strapped governments are losing billions in revenue because almost half of all cigarettes in Canada are now sold on the black market, a new report by the accounting firm EY Canada has found.

The report, to be released Monday, found that Ottawa, British Columbia and Ontario have already lost between $1.7-billion and $2.75-billion in taxes from illegal cigarette sales over the last three years, a period of strong growth in the contraband tobacco market.

Commissioned by the Convenience Industry Council of Canada (CICC), the EY study said the fast-growing illegal cigarette market has now almost caught up to the size of the legal market. In Ontario, contraband makes up between 42 and 53 per cent of the cigarette market, compared to an estimated range of 34-46 per cent just three years ago.

In B.C., the report estimates that the illegal market has grown from between 21 and 36 per cent in 2023 to between 33 and 46 per cent in 2025.

Those illegal sales, much of which is controlled by organized crime, are denying convenience stores and other retailers an important source of revenue, not to mention the public purse.

“It’s a major underground economy operating in plain sight,” said Anne Kothawala, the CICC’s president.

The motivation for smokers to buy illegal cigarettes is simple: price. A carton of 200 legal cigarettes, usually 10 packs of 20 smokes, costs about $160 in Ontario and $190 in B.C., depending on the brand, with federal and provincial taxes comprising more than 60 per cent of the price. An illegal carton often costs less than $50.

The RCMP has identified southeastern Ontario and southwestern Quebec, particularly on First Nations reserves near the Canada-U.S. border, as key manufacturing sites for illegal cigarettes. Some illegal tobacco products are also smuggled into Canada from the U.S. and elsewhere and then distributed throughout the country by truck, sometimes with guns, drugs and other contraband, or through the mail.

Governments in Canada, meanwhile, while fighting intense fiscal battles, are losing out on an important revenue stream.

Ontario announced Thursday that the province expects to post a deficit of $16.9-billion for this fiscal year, one of the province’s highest ever. B.C.’s deficit for this year is now expected to reach $13.8-billion, the highest in the province’s history. The deficit was a key issue in this month’s provincial election that saw incumbent NDP premier David Eby tossed out of office.

The EY report says Ontario and B.C., which served as test cases for the study, lost an estimated $1.1-billion and $400-million in revenue respectively over the last three years because of illegal tobacco sales.

The Carney government is scheduled to unveil its second budget on Thursday and is expected to post another massive deficit. The Parliamentary Budget Officer has forecast a budget deficit of $63.3-billion for this fiscal year, one of the largest in history. Ottawa lost between $788-million and $1.3-billion over the three-year period due to black market tobacco, EY found.

The EY report said legal cigarette sales have fallen 46 per cent in Ontario since 2019 and 59 per cent in B.C. That’s a function of the growth of the black market, the increase in the number of people who have quit smoking, and by the growth of potential substitute products such as vapes and legal cannabis.

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