The illicit tobacco market in Mexico is costing the state more than 13 billion pesos (\$650 million) each year in lost tax revenue, while strengthening organized crime networks, according to new research by the Colegio de México (Colmex).

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The report, Illegal Cigarettes and Organized Crime (Colmex, 2025), found that one in five cigarettes consumed in Mexico is illicit, placing the country among the hardest hit worldwide. The study notes that contraband undermines public revenue, distorts competition, and provides funding for criminal groups.

“The high cost of Mexico’s special excise tax (IEPS) for legal companies makes illicit sales more attractive,” the study stated, highlighting how low prices and weak oversight have turned contraband into a highly profitable trade. Data from the National Institute of Public Health (2024) indicates that 18.2 percent of cigarettes smoked in Mexico come from the illegal market.

According to the report, organized crime groups have increasingly used illegal tobacco as a source of financing to expand operations in narcotrafficking, human trafficking, and money laundering. It identified two main supply routes: smuggling from Asia and domestic production. The Sinaloa and Jalisco New Generation cartels are reported to control much of the trade, posing risks to both public security and economic governance. “The problem has even been acknowledged by the U.S. government in its national security reports,” the document added.

Policy measures remain contested. The Mexican government has proposed raising the IEPS on cigarettes from 160 percent to 200 percent, along with an 80 percent increase in the specific quota, as part of the 2026 budget package. Experts caution this may further inflate legal prices and widen the space for illicit sales.

Meanwhile, enforcement actions continue. On Friday, the Attorney General’s Office announced that its regional control unit in Campeche incinerated 5.9 million illegal cigarettes, along with 246.6 grams of marijuana and 108 confiscated items tied to 13 criminal investigations.

The Colmex study underscores how the illegal tobacco trade has become a lucrative channel for organized crime in Mexico, depriving the state of revenue and raising doubts over whether tax hikes and enforcement alone can curb a black market of this scale.

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