Introduction Dollar stores are rapidly altering the retail landscape for tobacco. Two of the three largest chains sell tobacco products in more than 24 000 stores across the USA. We sought to examine whether dollar stores are more likely to be located in disadvantaged neighbourhoods and whether dollar stores charge less for cigarettes than other tobacco retailers.

Methods Data were collected from a statewide random sample of licensed tobacco retailers in California (n=7678) in 2019. Logistic regression modelled odds of a census tract containing at least one dollar store as a function of tract demographics. Linear mixed models compared price of the cheapest cigarette pack by store type, controlling for tract demographics.

Results Census tracts with lower median household income, rural status and higher proportions of school-age youth were more likely to contain at least one dollar store. The cheapest cigarette pack cost less in dollar stores compared with all store types examined except tobacco shops. Estimated price differences ranged from $0.32 (95% CI: 0.14 to 0.51) more in liquor stores and $0.39 (95% CI: 0.22 to 0.57) more in convenience stores, to $0.82 (95% CI: 0.64 to 1.01) more in small markets and $1.86 (95% CI: 1.61 to 2.11) more in stores classified as ‘other’.

Conclusions Dollar stores may exacerbate smoking-related inequities by contributing to the availability of cheaper cigarettes in neighbourhoods that are lower income, rural and have greater proportions of youth. Pro-equity retail policies, such as minimum price laws and density reduction policies, could mitigate the health consequences of dollar stores’ rapid expansion.