Why Big Tobacco Is Getting Hooked on E-Cigs

No big state taxes means no black market

By Ruth Brown,  Newser Staff

Posted Aug 26, 2013 6:49 PM CDT
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(Newser) – The American e-cigarette business is booming: It's expected to make more than $1 billion this year, and sales are projected to overtake those of real cigarettes by 2047. Big tobacco is probably fine with this, reports BusinessWeek, and the reason why is surprising. According to a recent report, an average of 11% of cigarettes sold in each US state are smuggled in, and that figure is way higher in states like New York (61%), Arizona (54%), and New Mexico (53%). "Smuggled" smokes can be anything from those brought in from other states with lower taxes to counterfeit cigarettes—which are sometimes stuffed with sawdust and "human excrement."

"Once a tax gets too high, it acts in the same way that Prohibition did: You get substantial black-market activity," says an economist. E-cigs, on the other hand, are only subject to regular sales taxes, so the black market incentive isn't there. Tobacco giants are now moving their focus to the e-cig market and launching products of their own. Of course, now the FDA is looking to start regulating the industry, as the Wall Street Journal reports. But bans on online sales or advertising restrictions probably won't bother them that much, the BusinessWeek report suggests—so long as they're not hit with taxes.

A person poses with an electronic cigarette.
A person poses with an electronic cigarette.   (AP Photo / Tim Ireland, PA)
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