Quebec provincial police Sgt. Joyce Kemp said Montreal's Italian Mafia teamed up with aboriginal organized crime to illegally import the bulk tobacco.
The tobacco made its way into Canada in big trucks after being purchased by the Mafia in North Carolina, she told reporters.
"It was hidden with other merchandise (and) often what was used was cedar mulch to hide the (odour) of the tobacco."
Police said the tobacco was imported into Canada through the Lacolle border crossing or through the Akwesasne Mohawk reserve.
Kemp said that after crossing the border, the truckloads were hidden for two or three days in a warehouse to ensure they hadn't been spotted. The tobacco was then transferred to factories where the contraband cigarettes were made.
The cigarettes were then allegedly sold on the Kahnawake reserve south of Montreal.
The strategically located Akwesasne Mohawk Reservation has been a hotbed of smuggling since the Great Depression. Drug trafficking organizations have employed savvy native smugglers to move all manner of contraband across the border- in recent years cocaine and untaxed cigarettes into Canada and ecstasy or hydroponically grown pot into the USA.
On the USA side of the border, the Akwesasne Reservation is in the northernmost reaches of New York State where the cigarette tax is $4.35 per pack- plus an additional $1.50 per pack in local taxes in New York City. However, a New York State Department of Taxation and Finance directive allows cigarettes made on one reservation to be transported to other reservations without the state excise tax. Unsurprisingly, this has led to cigarette smuggling in New York City and other high-tax jurisdictions in the northeast and state and local officials in St Lawrence County have seized truckloads of cigarettes produced on the reservation despite the clause allowing the transport of untaxed cigarettes from reservation to reservation.
Trafficking cigarettes from low or no tax jurisdictions like southern tobacco producing states of Indian reservations to high tax locales like New York or Boston is a very simple and lucrative way for organized crime and even terrorist organizations to make money. A combined federal and provincial sales tax in Quebec and Ontario means cigarettes can cost as much as $13 per pack, making much of eastern Canada a lucrative destination for cigarette smuggling as well.
One possible disincentive for smugglers would be for states and provinces to cut tobacco taxes, but not only have places like New York City shown an unwillingness to do so, but they have proposed restricting and taxing sales of e-cigarettes in the same way as tobacco products.