Owners have lost $3 billion in legal cigarette sales in the past five years, Australian Association of Convenience Stores chief executive Theo Foukkare says.
"Some of our members are being stood over, threatened and asked to pay protection money. They have been ramraided, they have been held up at gunpoint," he told AAP.
"The safety of the 80,000 frontline staff that our members employ around the country has gone backwards."
Mr Foukkare is among dozens of industry experts and economists calling on the federal government to slash the tobacco excise, as Labor insists the tax is a good thing and urges states to crack down on illegal trade.
Assistant Customs Minister Julian Hill has pointed to data out of Queensland to bolster the arguments.
The state's legal tobacco sales rose 55 per cent in the first month after new enforcement laws took effect in November and remained at least 40 per cent above previous levels for the next six months, data supplied by major retailers to the Illicit Tobacco and E-cigarette Commissioner shows.
Nationally, the market remained almost flat across the same time period.
"We cannot overstate the emphasis on shutting down retail premises that are blatantly selling illegal products in high streets," Mr Hill told AAP.
Mr Foukkare said a roaring underground trade meant sales of legal cigarettes in Queensland were still well below what they were five years ago.
In other states, the picture was even bleaker.
Victorian Premier Ben Carroll said his state had successfully begun closing shops selling tobacco without a licence, yet crime was moving to the streets.
"We're actually seeing them now trying to change their business model. So this is why we do need to be one step ahead," he told reporters on Monday.
Mr Foukkare said Queensland's success was likely because it had shut down illegal stores in blitz suburbs and beyond, meaning people needed to drive large distances for illegal products.
However, people were now using WhatsApp and meet-ups to sell cigarettes.
Modelling from Tulipwood Economics, commissioned by the association, showed freezing the excise and legalising but regulating smoking cessation tools like nicotine pouches would generate $6.2 billion in GST over four years.
"It's time for you (the government) to change your position on tobacco control policy because you have absolutely failed everybody in Australia on this," Mr Foukkare said.
"Stop being so pig-headed and stuck in ideology."
The coalition has vowed to slash the tobacco excise by 80 per cent if elected, dropping the average price of cigarettes from between $50 and $40 to roughly $16-$26.
Opposition Leader Angus Taylor said the cut would take the oxygen out of the thriving black market, which he called "economic terrorism".
"Our strong plan will attack the gangs where it hurts by taking away their massive price advantage, taking away their customers, and taking away their profits," he said.
One Nation wants to slash the tax by 75 per cent and freeze indexation for five years.
NSW Labor Premier Chris Minns has long advocated for an excise cut.
Mr Hill waved away the criticism, accusing the coalition of being in "some crazy bidding war" with One Nation.
Queensland-based calls to Quitline, a national hotline for smokers trying to quit, more than doubled in the days following large enforcement operations, which he said indicated the crackdown was causing some smokers to quit.
"This is a really positive by-product of strong enforcement at the retail level," Mr Hill said.
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