A Smaller Market, Big Profits: Russia's Tobacco Trade Faces Mandatory Licensing

Until now, anyone selling cigarettes in Russia has not needed a permit to do so. That is set to change. Starting March 1, 2027, a license will be required to sell cigarettes. The 270,000 retail outlets in the country must obtain a license by that date in order to continue operating. The authorities will begin accepting applications on October 1, 2026. A retail license costs 20,000 rubles per year, or 222 euros. Starting in March 2028, a minimum sales area of 5 m² will apply to retailers. Anyone selling without a license risks up to three years in prison. “There is very little time left: The licensing process, for which only five months are allotted, begins on October 1 of this year. The regions must review applications for more than 250,000 retail locations,” said Alexei Vorobyov, director of government relations at industry leader Japan Tobacco, in a statement to the business portal RBC.

Consumption has nearly halved in twenty years

In the early 2000s, Russians smoked about 400 billion cigarettes a year. Ten years ago, the figure was 294 billion, as the Moscow business newspaper Kommersant reported at the time. Last year, consumption fell further to 220 billion cigarettes, according to Philip Morris International’s annual report. The smoking rate—that is, the proportion of the population that smokes—fell from 30.3% in 2016 to 18.2% in 2026. Rising prices have also contributed to this decline: Ten years ago, a pack of cigarettes cost 79.7 rubles, or 90 cents. Today, it costs 232 rubles, or 2.57 euros. The excise tax rose from 960 rubles per 1,000 cigarettes in 2015 to 3,278 rubles in 2026.

Japan Tobacco estimates its share of the Russian market for 2025 at 36.9%, half a percentage point less than the previous year, with sales of 81.6 billion cigarettes. Philip Morris’s share stands at 31.7%, down from 32.3% the previous year. A Japanese and an American company thus control a good two-thirds of the market. Next is ITMS, the former Russian division of British American Tobacco, which is now owned by a holding company based in Abu Dhabi and does not report its own market share; its St. Petersburg plant has an annual production capacity of 45 billion cigarettes. Fourth is the International Tobacco Group, the successor to Imperial Brands and under Russian ownership since 2022. In terms of cigarette brands, as of early 2026, Winston leads with 13.9%, ahead of Camel with 9.7% and LD with 5.5%—all three are owned by Japan Tobacco.

Two Left, Two Stayed After 2022

The British company Imperial Brands took decisive action in 2022, transferring its distribution operations and the Volgograd plant to four Russian private individuals in April 2022. The company did not disclose the price but wrote off 225 million pounds, nearly 300 million euros. British American Tobacco followed suit in September 2023 with a sale to its own management; since then, the business has operated under the name ITMS. The market leaders, Philip Morris and Japan Tobacco, announced a halt to investments and remained in the market. For the Americans, there is a lot at stake: In 2025, Russia accounted for about 9% of the group’s sales volume and 6% of its net revenue.

When the Russian edition of Forbes business magazine listed the country’s 50 largest foreign companies by revenue in 2024, tobacco companies ranked second and third behind the Chinese conglomerate Chery (now Tenet): Japan Tobacco with 480.0 billion rubles (5.3 billion euros) and Philip Morris with 440.2 billion rubles (4.9 billion euros).

Japan Tobacco reported a net profit of 47.2 billion rubles (523 million euros) for its Russian sales subsidiary in 2023. The Philip Morris plant in Ishora near St. Petersburg generated 150.7 billion rubles in revenue and earned 55.9 billion rubles in profit—more than 600 million euros. Since 2024, neither company has filed Russian financial statements. The successors to the companies that withdrew have disclosed the following figures: In 2025, ITMS increased its revenue by 44.5% to 60.5 billion rubles (700 million euros) and its profit by 55.7% to 9.9 billion rubles (110 million euros).

The government earns revenue from every pack

Since April 2021, a government-mandated minimum price for cigarette packs has been in effect in Russia, currently set at 153 rubles or 1.70 euros. Since June 2014, cigarettes may no longer be displayed openly; sales are made only according to the price list.

Tobacco taxes brought in approximately 1 trillion rubles—11 billion euros—to the 2025 budget, up from 826.7 billion rubles—9 billion euros—the previous year. The share of untaxed goods fell to 8.6% at the end of 2025—the lowest level ever recorded; six years ago, it was still more than 15%. Russia grows virtually no tobacco of its own: Raw tobacco worth a good $600 million a year comes from Brazil, Malawi, and India.

Russians smoke more than Germans

In a country-by-country comparison, smoking rates in Russia are above average but not extreme. The auditing firm KPMG reports total consumption—including contraband and purchases made abroad—for seven European markets. Per capita for those aged 15 and older, this amounts to 2,885 cigarettes in Bulgaria in 2025, 1,594 in Romania, 1,223 in the Czech Republic, 1,215 in Poland, 1,046 in Germany, and 736 in Hungary. According to government tracking data, Russia stands at around 1,500—that is, a good four cigarettes a day—and just under half more than in Germany.

At 69.3 billion units, the German market is just under one-third the size of the Russian market. Four companies control 87% of the market in Germany, with Philip Morris alone accounting for 37.5%.

In terms of price, there is a world of difference between the two markets. A 20-pack of Marlboro, the best-selling German brand, has cost 9.40 euros since January; in 2015, it was 5.34 euros, with 62% of that amount consisting of taxes. This means a pack of cigarettes in Germany is nearly four times as expensive as in Russia.

Source: Federal Statistical Office (DE), RIA Novosti, Kommersant (both RU)

Source: German-Russian Chamber of Foreign Trade, “Smaller Market, Big Profits: Russia’s Tobacco Trade Facing Mandatory Licensing,” July 31, 2026.

This article was prepared for the German-Russian Chamber of Foreign Trade.