The margins in the illicit cigarette trade are relatively low. Tobacco is legal, for one, eliminating the risk-based premium that comes with trading in illegal drugs, and there's a lot of competition, which puts downward pressure on retail prices.
But there is a margin, enough of one to attract entrepreneurial types like Glen Murray McDonald, who don't mind -- and this is the part that makes it illicit -- skirting state and/or federal tobacco taxes.
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McDonald, a 50-year-old from Pasadena, Texas, was sentenced this morning to nine months in federal prison, followed by nine months home confinement after pleading guilty to his role in what prosecutors dubbed "Operation Cowtown Tobacco." Ten others nabbed in the operations, all Texans, most from the Dallas-Fort Worth area, had previously been sentenced and ordered to pay restitution ranging from $24,000 to $1.1 million.
McDonald's scheme centered on counterfeit cigarette tax stamps, which cost $1.41 each in Texas and must be on every pack of cigarettes received by a distributor within 96 hours. (Federal taxes are levied earlier in the supply chain.)
He had 133,320 counterfeit tax stamps when he was busted in Euless in April 2012, trying to make a half-million-dollar purchase of 13,320 cartons of cigarettes (and 50 kilos of synthetic marijuana) from an uncercover ATF agent. If those had been affixed to packs of cigarettes and sold, it would've cost the state of Texas $187,000.
Send your story tips to the author, Eric Nicholson.