Demand for illegal tobacco has exploded in Australia because of large tax increases on legal products.
The increases have pushed the price of a packet of legal cigarettes towards $50, prompting a surge in black market sales.
David Allen, who runs the Cobargo hotel in NSW's southeast, told a Senate inquiry into the illegal tobacco crisis he planned to hand in his tobacco licence in three months.
"We will have basically a fully illicit (tobacco) market in Australia within 12 to 24 months - the budget papers tell us that it's as simple as that," he told the hearing in Canberra on Monday.
"I'm worried about my staff, I'm worried about my business, my sales. I've lost 85 per cent of my sales since COVID - it's just mind-blowing."
It was perhaps the greatest health, fiscal, and criminal policy misstep in Australia's history, he said.
Marney Wishart, who owns a small business in Junee, in the NSW Riverina region, said illegal tobacco sellers were a "protected species in my area".
"They've reached Robin Hood status," she said.
"The government of the day is so hated, people actually think it's funny that they're taking those funds away from the government, cheering them on."
Her business was now closed on Sundays, two staff had been sacked and all sponsorships and community donations had been cut.
"There's nothing to give, and that all comes back to the illegal industry and the government's refusal to roll back the excise and compete with the mongrels," Ms Wishart said.
Ms Wishart's family had been in business for 43 years and had only been able to continue operating because her 81-year-old parents put money into it for the first time.
Robert Rodie, who has owned a tobacco store in Deception Bay north of Brisbane for 30 years, had cut back staff hours due to reduced sales.
In April 2019, his sales were $487,684 to 8026 customers. By April 2023, sales were $130 237 to 2412 customers and in April 2025, they were $116,856 to 2167 customers, he said.
Illicit tobacco comprises 50 to 60 per cent of Australia's total tobacco trade, the Illicit Tobacco and E-cigarette Commissioner estimates, steering up to $11.8 billion in excise away from federal coffers.
Senator Richard Colbeck asked Australian Association of Convenience Stores chief executive Theo Foukkare if their members' customers were switching from tobacco counters to Australia Post counters.
"Pretty clearly, they've been significantly busier than what they have been from a parcel collection perspective," Mr Foukkare said.
"That's a nightmare scenario, because they're actually coming into your own store and picking up the illegal product.
"Australia Post … is probably the largest distributor of illegal tobacco and illegal vaping products in the country, which is pretty wild when you think about that."
Master Grocers Australia chief executive Martin Stirling said its members with Australia Post licences routinely reported having to hand over suspiciously light packages in the shape of tobacco cartons.
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