The Food and Drug Administration (FDA) under President Joe Biden is getting closer to finalizing its rule banning the sale of menthol cigarettes and flavored cigars nationwide.
The plans were announced in April 2022, with a deadline of August 2023. Despite the delay, the FDA says it still plans to implement the rule before the end of the year.
How would such a rule affect New Hampshire? That was the subject of Thursday’s KeepNHFree panel at Saint Anselm College, featuring Peter Brennan, executive director of New England Convenient Store and Energy Marketers Association; Drew Cline, president of The Josiah Bartlett Center for Public Policy; and Edgar Domenech, former sheriff of New York City and deputy director and chief operating officer at the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF).
“What’s going to happen, quite frankly, is unintended consequences,” Domenech said. “It’s going to create a black market, plain and simple.”
The administration’s logic behind the federal ban is that it will reduce smoking and improve public health. However, the panel highlighted two unintended consequences impacting the Granite State: Increased black market activity and lost tax revenue.
“If you’re banning something in high demand in your jurisdiction, all you’re doing is not only creating a black market for it, but you’re actually financing current crime syndicates,” Cline said.
Former state Senate President Chuck Morse (R-Salem) and state Sen. Ruth Ward (R-Stoddard) attend a roundtable on product bans and state revenue.
The panel argued the federal ban would bolster illicit trade while impacting states’ sales and tax revenues, as the black and gray markets would have the ultimate competitive advantage over the small businesses following the law.
According to the Tax Foundation, “A nationwide ban would result in a federal revenue decline of $1.9 billion in the first full year after prohibition. In the states, the decline in excise tax revenue would be $2.6 billion, the decline in sales tax revenue would be $892 million, and the decline in MSA payments would be $1.2 billion, for a total state revenue loss of $4.7 billion.”
In New Hampshire, where menthol cigarettes make up 34 percent of the state’s market, a federal ban would mean more than $49 million in lost revenue, of which 71 percent would be a decline in excise tax revenue.
As evidence of the looming consequences of this federal ban, the panel cited the observed outcomes of Massachusetts’ own ban on flavored tobacco.
After enacting its ban in 2019, 90 percent of Massachusetts’ lost sales merely moved to neighboring states rather than disappeared. While sales of flavored tobacco fell by 24 percent in Massachusetts between the year before the ban to the year after the ban, they increased by 22 percent in New Hampshire, 18 percent in Rhode Island, and six percent in Vermont as a result of the Bay State’s ban, according to the Tax Foundation.
“Those [Massachusetts] buyers go to New Hampshire, they go to Rhode Island,” Brennan said. “All the cigarettes are still in Massachusetts. Anybody that smokes, vapes, dips a flavored product knows where to get it in Massachusetts.”
Cline argued that the real effect of Massachusetts’ ban was to take flavored tobacco products out of the hands of licensed providers and give them to smugglers. According to the Mackinac Center for Public Policy, the Granite State saw one of the highest outbound smuggling rates in 2021 (-34.13 percent and over 32 million packs of cigarettes), while Massachusetts had the fourth-highest inbound smuggling rate (37.59 percent) and the ninth-most smuggled packs (over 63 million) — all due, in large part, to the state’s ban.
Furthermore, Massachusetts’ ban isn’t even accomplishing its stated goal of reducing smoking and improving public health. “There’s been no reduction in smoking rates amongst adults or youth in the state since that ban went into effect,” Brennan cited.
According to Reason Foundation, “approximately 22 million additional packs of nonmenthol cigarettes were sold in [New England] in the year after [Massachusetts’] flavor ban, leading to a net increase in cigarette sales.”
“It’s not like you’ve eliminated the market,” Brennan argued. “You’ve just taken it outside the regulated market and put it into the black market or the gray market, somewhere that they might not be carding to make sure the individual is 21. And you’re not going to recapture any of that tax money that could go to the public health impacts that allegedly this policy is designed to mitigate.”
Far from making sales disappear and reducing smoking, the panelists argued that bans just shift activity elsewhere with little to no effect on consumption rates. And, according to the panel, the Biden administration’s federal menthol cigarette ban would do just that, shifting activity to black and gray markets.
“It’s already illegal for kids to smoke,” Cline added. “So, this is not really about getting kids to not smoke. And when you ban the sweet-flavored tobacco products — take them out of the place where they card you and give them to the cartels — you’re doing more damage, not less.”
With consumption left largely unchanged, those primarily impacted by a federal ban on these products would be the small businesses — the convenience stores, gas stations, and smoke shops — who rely on these sales.
“Your mom-and-pop stores that want to do the right thing, they can’t compete with their neighbor who is selling contraband and counterfeit product out of their stores,” Domenech said. “That mom-and-pop store across the street that won’t sell [them] is out of business. I’ve experienced that as a sheriff in New York City. I experienced legitimate businesses come at me crying for law enforcement help, and we were stymied just by the sheer numbers and the magnitude…. That’s what bans do. You create a new financial market for the criminal groups.”
Domenech later reminded the audience, “Prohibition created organized crime.”
But many would argue that the FDA’s goal — to reduce smoking and improve public health — is worthwhile. So, how did the panelists propose accomplishing that?
“It’s persuasion,” Cline responded. “If we just want to educate kids and persuade kids, they grow up to be adults and make better decisions, and that’s the way to do it if you want to still have a free country. You’re always going to have some portion of the population that makes bad decisions, but persuasion is the way that adults interact with each other in a free country.”
