The Prevent All Cigarette Trafficking (PACT) Act has caused issues for some businesses trying to navigate the new regulatory landscape. PactAct POS says it now offers a cloud-based software that includes integration with major e-commerce platforms like Shopify, BigCommerce and WooCommerce to help businesses remain in legal operation, according to a company press release.
“Pact Act vape compliance can be an overwhelming process for companies,” explained Terrence Johnathan, vice president of shipping and logistics for PactAct POS. “In some cases, the requirements are causing small businesses to shut down or stop shipping directly to consumers, which is hurting both consumers and manufacturers.”
PactAct POS provides registration, reporting, shipping and logistics, and government relations services.
PactAct POS is also releasing the PACT Act Survival Guide for 2022, a free e-book that focuses on PACT Act planning and strategies for 2022 and beyond.
“There are so many hoops to jump though,” said Johnathan. “We’ve worked with clients dealing with the vape mail ban [and] every kind of scenario, and we’ve been with them every step of the way. These companies don’t have to go at it alone. They just need to ask for help.”
PactAct POS is a cloud-based platform that automates PACT Act compliance for more than 250 businesses.
Pure Labs, parent to the Halo brand of vaping products, is now approved by the U.S. Postal Service (USPS) to ship e-liquid and other vaping products to compliant businesses through the brand’s Master Distributors; Syndicate Global Distribution and Halo Wholesale Direct, according to a press release.
The approval allows both Syndicate Global Distribution and Halo Wholesale Direct to ship Halo products, categorized as electronic nicotine delivery systems (ENDS), as a business and regulatory exception to the PACT (Prevent All Cigarette Trafficking) Act.
The original PACT Act (2009) was amended by Congress on December 27, 2020 to incorporate e-cigarettes and vaping products.
“This is a huge win for Halo and for all of our retail partners.”, said Kevin Dietz, director of Halo brand sales. “Halo’s tobacco and menthol vape products are in-demand by adult consumers throughout the country, and we are excited to have USPS solidify the supply chain. Halo has been here from the start and has numerous ENDS products in the final stage required for FDA Authorization, furthering Halo’s commitment to remain America’s #1 tobacco-flavored e-liquid brand”.
Greenlane Holdings has announced its approval from the United States Postal Service (USPS) for a business and regulatory exception to the Prevent All Cigarette Trafficking (PACT) Act, allowing the company to ship electronic nicotine delivery systems (ENDS) products to other compliant businesses.
Credit: MYDAYcontent
With the approval, over 97 percent of total annual sales will be eligible for shipment by freight, USPS, or major carriers, and the PACT Act’s impact will be reduced to less than 3 percent of annual sales, according to a press release. The approval also enables Greenlane to offer its logistics capabilities to distribute other businesses’ ENDS products.
“We are thrilled to secure this approval from USPS to ship ENDS products business to business,” said Nick Kovacevich, CEO of Greenlane. “We continue to believe that in a highly regulated industry-which is only going to be subject to stricter regulation over time-that companies with significant size, scale, resources, and robust compliance programs will be able to successfully comply with regulatory requirements. As evidenced by the approval, Greenlane is well-positioned as a Nasdaq-listed market leader with a demonstrated history of compliance to navigate this ever-changing regulatory landscape and continue accelerating our business.”
Kovacevich said the company will continue to focus on selling its own proprietary in-house brands, and remain a strategic purveyor and distributor of third-party brands that are complementary to its business and provide value for its customers. “In fact, many companies have already begun to reach out with the hopes of leveraging our structure, processes, network, and compliance position,” he said. “Our message to businesses is that ‘if you are having issues shipping via the PACT Act and would like to explore engaging Greenlane as a distribution partner, please reach out.’ We welcome inquiries from all customers whose supply chains have been disrupted due to the PACT Act.”
The ban on mailing vapor products through the United States Postal Service (USPS) takes effect tomorrow. After more than six months, the USPS has finally posted for public inspection its rules for mailing e-cigarettes with the Federal Register. The rules will publish tomorrow, Oct. 21, and go into effect immediately.
There is not an exemption for any vaping cannabis products, as many in the industry had hoped. The USPS is leaving it up to the U.S. Congress to carve out an exemption for hemp-based vaping products. The rules were originally set to go into effect in March and then April, however, the USPS held back publishing the rule while it went under agency review.
The rule states that Congress’s use of “nicotine” in the term “electronic nicotine delivery systems,” makes clear that “nonmailable ENDS products include those containing or used with not only nicotine, but also ‘flavor[s]’ or any other substance … It goes without saying that marijuana, hemp, and their derivatives are substances,” the rule states. “Hence, to the extent that they may be delivered to an inhaling user through an aerosolized solution, they and the related delivery systems, parts, components, liquids, and accessories clearly fall within the [Preventing Online Sales of E-Cigarettes to Children Act’s] scope.
“Conversely, THC-containing substances that are excluded from the [Controlled Substances Act] CSA—that is, hemp and hemp derivatives with no more than 0.3 percent THC by dry weight—are not subject to CSA-based mailability restrictions, and items used with such substances (and not with controlled substances) may fall outside the definition of drug paraphernalia … As such, those substances continue to be mailable generally, to the extent that they are not incorporated into an ENDS product or function as a component of one. To the extent that they do comprise or relate to an ENDS product, however, then that product is now nonmailable under the PACT Act and POSECCA, except pursuant to a PACT Act exception.”
Credit: Wolterke
UPS and FedEx already have bans in place for vaping products. Many in the industry have also moved on to new ways of mailing vaping products to customers through third-party shippers. Numerous other companies have since gone out of business since the U.S. Food and Drug Administration started sending out marketing denial orders (MDOs) last month.
When a 5,000-plus page omnibus bill, the Consolidated Appropriations Act of 2021, was signed into law on Dec. 28, 2020, buried deep within the bill (page 5,136) was the Preventing Online Sales of E-cigarettes to Children (PACT) Act. It was a provision that effectively bans the USPS from shipping ENDS products.
Retail customers will no longer be able to receive vaping products by way of USPS delivery, according to the USPS. However, the USPS rule states that the agency will mail vapor products under narrowly defined circumstances:
Noncontiguous states: intrastate shipments within Alaska or Hawaii;
Business/regulatory purposes: shipments transmitted between verified and authorized tobacco industry businesses for business purposes, or between such businesses and federal or state agencies for regulatory purposes;
Certain individuals: lightweight shipments mailed between adult individuals, limited to 10 per 30-day period;
Consumer testing: limited shipments of cigarettes sent by verified and authorized manufacturers to adult smokers for consumer testing purposes; and
Public health: limited shipments by federal agencies for public health purposes under similar rules applied to manufacturers conducting consumer testing.
The USPS rules also state that the listed exceptions cannot feasibly be applied to inbound or outbound international mail, mail to or from the Freely Associated States, or mail presented at overseas Army Post Office, Fleet Post Office, or Diplomatic Post Office locations and destined to addresses in the United States. Because of this inability, all ENDS products “in such mail are nonmailable, without exception.”
Excluded from the statutory definition are products approved by the FDA for sale as “tobacco cessation products or for other therapeutic purposes and marketed and sold solely for such purposes.” The USPS also proposes to treat ENDS as a standalone category, “albeit one generally subject to the same restrictions and exceptions as cigarettes, consistent with the statute.”
According to the PACT Act legislation, anyone selling vaping products must:
Register with the U.S. Attorney General;
Verify age of customers using a commercially available database;
Use private shipping services that collect an adult signature at the point of delivery;
Register with the federal government and with the tobacco tax administrators of the states if selling in states that tax vaping products;
Collect all applicable local and state taxes, and affix any required tax stamps to the products sold;
Send each taxing state’s tax administrator a list of all transactions with customers in their state, including the names and addresses of each customer sold to and the quantities and type of each product sold; and
Maintain records for five years of any “delivery interrupted because the carrier or service determines or has reason to believe that the person ordering the delivery is in violation of the [PACT Act].”
Retailers can be cited by states for not following their individual requirements for tax payments and filings, and they may have to purchase tobacco and other licenses or hire a registered agent in the state. The cost for being PACT Act compliant can range anywhere from $40 to $250 or more per year per state, according to previous news reports.
This story will be updated as the published rules are reviewed
U.S. Senator Rand Paul has sent a letter to Postmaster General Louis DeJoy expressing concern over the United States Postal Service’s (USPS) forthcoming ban on the mailing of vaping products. Along with his letter, the senator forwarded a letter sent to him from more than 60 vaping industry representatives who say the proposed rule exceeds the USPS’s authority by being too inclusive.
Credit: Dragon Images
“I have deep concerns about the potential scope of this proposed rule and the impact it may have both on small businesses and on the customers they serve. In this case, I am especially troubled by the concern raised by the coalition that no economic impact analysis has been conducted pursuant to the Regulatory Flexibility Act of 1980 (P.L. 96-354),” Senator Paul wrote. “The lack of such an economic impact analysis means that the implementation of this rule may have unforeseen and unintended economic consequences.”
Paul letter then goes on to urge the USPS to take into account the interests of Americans in rural areas who want to access vapor products while crafting its finalized rules. The U.S. Food and Drug Administration has acknowledged that electronic nicotine delivery systems (ENDS) “can reduce the use of combustible cigarettes and may be less harmful” than combustible cigarettes, according to Paul.
“For rural Americans residing far from brick-and-mortar stores that sell vapor products, the United States Postal Service is their most reliable means of accessing these harm-reduction products,” he states. “The science of addiction medicine suggests that if these Americans lose access to less harmful alternatives, they are likely to relapse, thereby increasing their risk of developing serious illness.”
The letter industry representatives sent to Paul and forwarded to DeJoy states that proposed rule, the Treatment of E-Cigarettes (86 FR 10218) (Proposed Rule), has two main issues: it is counter to the principles of the Regulatory Flexibility Act, as Paul’s letter explained, and the rule “exceeds its statutory authority” by the inclusion of products not intended to be included in the rules, such as cannabis vaping products.
“At a minimum, an economic impact analysis is warranted to better understand the implications of the proposed rule on the multiple industries that are affected,” the industry letter states. “The entire premise of the underlying bill is in relation to tobacco and nicotine, including the definition of ENDS. If the USPS sweeps in cannabis and hemp-related products and devices into the definition of ENDS, this capture of non-tobacco or nicotine products is without a legislative mandate and would subject products and devices that are already regulated and taxed under other statutory schemes to another suite of crippling regulations, unnecessarily.”
The vapor industry group hopes that the current proposed rule can be withdrawn so that an initial regulatory flexibility analysis (IRFA) that describes the impact of the proposed rule on small entities can be published for public notice and comment, or that the USPS publish a supplemental IRFA for public notice and comment before a final rule is published in the Federal Register.
The Consolidated Appropriations Act, 2021 contained provisions that addressed a range of issues not related to coronavirus economic relief, including legislation known as the Preventing Online Sales of E-Cigarettes to Children Act, which placed electronic nicotine-delivery systems (ENDS) under the Prevent All Cigarette Trafficking Act of 2009, which generally prohibits the mailing of cigarettes to consumers through the USPS, requires common carriers to register with the state’s attorney generals and tobacco tax administrators as well as meet certain shipping and reporting requirements.
In June, two U.S. Senators penned a letter urging the USPS to finalize rules for mailing vapor products. Senators Dianne Feinstein and John Cornyn asked DeJoy to implement regulations required by the PACT Act, which was signed into law on December 21, 2020.
More than 400 owners of independent vape shops are urging FedEx to reverse its rule banning the shipment of vapor products. A letter drafted by Greg Conley, president of the American Vaping Association (AVA), to FedEx Chairman and CEO Fredrick Smith, states that the shipping ban is a “misguided and unnecessary” policy that prevents combustible smokers from access to lower-risk products that could help them quit smoking. The signatories include representatives from every facet of the vaping industry.
Credit: John R Perry
“It also threatens thousands of small businesses like ours, which rely on common carriers like FedEx to ship the lifesaving products we stock every day,” the letter states. “Please reconsider this disastrous decision, which will perpetuate another generation of smoking-related deaths – especially among underprivileged communities.”
The letter also accuses FedEx of continuing to ship vapor products for a select few large vaping industry manufacturers. The letter claims that FedEx is “picking winners and losers” in the vaping industry, calling the practice discriminatory against small businesses and raises serious antitrust concerns.
“In addition to the hypocrisy, antitrust concerns, and blatant negative impact on marginalized communities, we can’t help but also notice an inconsistency in shipment policies of companies like yours. For example, it struck us as ironic that FedEx banned the shipment of our legal, lifesaving, and regulated products, yet they are failing to identify and stop the company’s own shipment of illegal pharmaceuticals – products that have proven to have disastrous consequences on our country,” the letter states. “Also, while we as a group do not express a position on the Second Amendment, it does seem odd that you continue to ship firearms yet are prohibiting us from stocking our store shelves with legal products.”
The U.S. Congress imposed new limitations on the shipment of electronic nicotine delivery systems (ENDS) through the United States Postal Service (USPS) by including ENDS products in an updated provision to the 2009 Prevent All Cigarette Trafficking (PACT) Act. ENDS would now be subject to the same shipping laws as combustible tobacco.
The PACT Act has historically exempted business-to-business deliveries from the USPS ban. Specifically, the USPS ban does not extend to tobacco products mailed only for business purposes between legally operating businesses that have all applicable state and federal government licenses or permits and are engaged in tobacco product manufacturing, distribution, wholesale, export, import, testing, investigation or research.
While the legislation was geared toward nicotine vaping products, the law is so broadly defined that cannabis businesses must also comply. This means marijuana and CBD companies selling, manufacturing or shipping vaporizers or associated parts across state lines are required to comply with the provisions of the PACT Act.
FedEx regulations are harsher than those mandated by Congress. The company has prohibited the shipment of all vaping products to both businesses and adult consumers. The letter states that the FedEx regulations would have a greater impact on small businesses than on large companies who have sophisticated distribution networks.
“Because most vape retailers are small mom-and-pop shops, they do not have the ability to build in-house distribution networks like those utilized by big tobacco companies,” the letter states. “As a result, the consequences of this decision are largely being borne by small, independent vape shops and our customers. We rely on companies like FedEx to stock our store shelves and meet customer demand. These restrictions will inevitably result in unintended, but severe, consequences for us, our businesses, our families, former cigarette smokers, and those trying to quit smoking around the country.”
Harm reduction advocates worry about the effects on vapers when the USPS implements PACT Act requirements for ENDS.
By Vapor Voice staff
The United States Postal Service (USPS) has delayed the implementation of a requirement to place electronic nicotine-delivery systems (ENDS) under the same shipping rules as combustible cigarettes. As of this writing, the USPS has not published its final rule for mailing ENDS products in the Federal Register. The USPS has stated that the rules will take effect immediately when the final rule is published.
The rule has been delayed because the USPS is still determining how it will handle the broad definition of ENDS set by the U.S. Congress and how the USPS will process and determine eligibility for companies seeking an exception to the Prevent All Cigarette Trafficking (PACT) Act rules. For example, CBD vaping devices fall under the ENDS definition, but it is believed that it was not the intent of Congress to ban the mailing of hemp products. No date has been announced for when the USPS intends to publish the final rule.
Emily Burns, of counsel for the Green Light Law Group, noted that while the USPS could have banned vaping products altogether as part of the new rule, the USPS is now taking time to revisit the implications of an all-encompassing prohibition on shipments of vaping products. She wrote in the firm’s blog that the USPS must not exceed its own legal authority under the PACT Act by regulating vaping products that fall outside the definition of tobacco product as such a rule could be subject to challenge by various industry groups.
Credit: Aleksandr Yu
“If lawmakers intended to truly change the way the federal government defines ENDS to include nontobacco and non-nicotine products, it is rational to assume that Congress would have also amended the [Tobacco Control Act] to allow the FDA to regulate these other substances. The strategy moving forward should be to encourage USPS to specifically focus on the ENDS market … anything done in relation to cannabis or hemp should be seriously challenged by the industry.”
The USPS confirms Burns’ concerns and has stated that the process is turning out to be more complicated than just ending all vape mail of vapor products. On April 19, the USPS issued guidance for exemptions to the requirements for mailing all vapor products, including cannabis. The USPS was inundated with exemption applications, none of which will be addressed until the final rule is published, according to the USPS.
The USPS refers to possibly exempting cannabis products in its guidance. Other exceptions include intrastate shipping within Alaska and Hawaii, shipments between businesses engaged in tobacco product manufacturing, distribution, wholesale, export, import, testing, investigation or research, shipments by individuals for noncommercial purposes (including return of goods to manufacturer), limited shipments by manufacturers to adult smokers for consumer testing, and limited shipments by federal agencies for public health purposes.
For cannabis-based product exemptions, the guidance states that “mailers must retain, and prepare to make available upon request, records establishing compliance with all applicable federal, state and local laws pertaining to hemp production, processing, distribution and sales, including the [2014 Farm Bill] and [2018 Farm Bill].” The guidance says such records may include “laboratory test results, licenses and compliance reports.”
Burns stated that the USPS guidance also indicates that cannabis products with greater than 0.03 percent THC would be nonmailable if they are deemed to be drug paraphernalia for purposes outlined under the Controlled Substances Act (CSA), which includes a federal ban on mailing drug paraphernalia that already exists outside of the PACT Act. However, the CSA prohibition on drug paraphernalia does not apply to “any person authorized by local, state or federal law to manufacture, possess or distribute” such items.
“In the case of medical and recreational cannabis states that have removed criminal statutes penalizing drug paraphernalia used to consume cannabis, anyone who is shipping from one legalized state to another would technically fall under the paraphernalia definition exception, thus providing a legal basis for exception from the PACT Act requirements,” Burns states.
The move to place ENDS under the PACT Act has been heavily scrutinized. Several harm reduction advocates say the new rule will bring unintended and deadly consequences. During a seminar sponsored by Hall Analytical in mid-May titled “PMTA and Beyond: A Global Outlook on ENDS Regulatory Requirements,” David Lawson, CEO of Inter Scientific, said that placing vaping products under the PACT Act only serves to benefit large tobacco companies and could push former smokers who shop for vaping products online back to combustible cigarettes.
“If you’re a large tobacco company in the U.S., you most likely sell directly to the likes of Walgreens and these kinds of stores. They then sell them to consumers. Many of the independent vaping companies and manufacturers, they sell online. The PACT Act doesn’t really impact store sales. It only impacts online sales,” explains Lawson. “So a company who relies entirely on online sales may have gone through the [submitting a premarket tobacco product application (PMTA) to the U.S Food and Drug Administration] process. They’re now risking the potential for not being able to ship to their clients at all. I think from that perspective, it’s quite negative and damaging.”
Lawson said that what lawmakers failed to realize when moving ENDS under the PACT Act is that online retail has the advantage of being able to do more thorough ID checks than a local mom-and-pop shop. A credit card is needed for an online purchase, for example, along with a photo ID. At a brick-and-mortar store, a youth simply needs a fake ID and cash. “It’s much easier to do detailed checks on people online than it is to do them in store,” he said. “It is a growing concern for the U.S., the ability of youth to get access to ENDS, but I think, from the experience I’ve had, from what I’ve seen from our clients in the U.S., the kids aren’t getting the products online.”
Credit: Michael Vi
Another consequence of the PACT Act is that when adult consumers who purchase vaping products online can’t get their products anymore, they may go back to smoking combustible cigarettes, which are more readily available in local stores, according to Lawson.
“In the U.S., if you’re buying a specific product online, certainly it’s not going to be available anymore. You have the option there to try and find an alternative brand or risk going back to cigarettes. I think there’s a huge risk impact that will result in adult smokers who are currently vaping going back to smoking again, which is, obviously, not good for public health,” said Lawson. “I don’t personally see the value of the PACT Act. I think it’s kind of a step backwards. It does risk impacting public health negatively.”
While the industry continues to wait for the USPS to publish its finalized rule and what a PACT Act exemption might entail, Burns recommends that concerned business owners “reach out to a regulatory attorney about the compliance process ahead of time in preparation of the forthcoming regulatory changes.”
Coupled with the requirement to submit premarket tobacco product applications to the FDA, the PACT Act and flavor bans, ENDS regulations have become overly stringent, and the complex rules can turn smokers away from the idea of switching to ENDS products, said Lawson, especially when that regulation doesn’t allow for clarification of the science behind vaping products.
“The issue here really is around all this information from the perspective of science, perhaps. When ENDS first entered the market back in 2006 … there was a lot of bad science and bad data generated. When you generate a bad set of data and it becomes publicly available, people don’t necessarily question and interpret how the information has been generated or the validity of that data,” said Lawson. “I think there’s a huge risk with the media and with the interpretation of science that it can certainly switch people away from using ENDS.”
There are other regulatory challenges coming too. The Tobacco Tax Equity Act Of 2021, a bill that would establish the first federal e-cigarette tax, increase the traditional tobacco tax rate and close tax loopholes, is currently making its way through the U.S. Senate. The rule would follow the lead of 21 states, and Washington, D.C., that have set their own state taxes on vapor products by setting a federal tax on ENDS products.
Senator Dick Durbin, who sponsored the bill, said tobacco-related disease accounts for one out of every five deaths in America. He did not mention that there has never been a reported death associated with vaping of legal nicotine products.
“Data shows that the most effective strategy to prevent children from starting this deadly habit is to price it out of their range. This bill would help reduce tobacco and e-cigarette use by ending loopholes that the industry has exploited to target our children,” he said in a statement. “If America can kick its nicotine addiction, it would go a long way to improving our public health for generations to come.”
The repercussions of the USPS vapor mail ban on the vaping industry will not be realized for some time. While the PACT Act requirements have forced many businesses to close, the vapor industry is used to dealing with a great amount of uncertainty. With numerous regulatory hurdles on the horizon, it does not seem like that is going to change any time soon.
Two U.S. Senators have written a letter urging the United States Postal Service (USPS) to finalize rules for mailing vapor products. Senators Dianne Feinstein and John Cornyn asked Postmaster General Louis DeJoy to implement regulations required by the Preventing Online Sales of E-Cigarettes to Children (PACT) Act, which was signed into law on December 21, 2020.
Credit: blr60
The rule requires the USPS to apply the same mailing restrictions to e-cigarette products that are currently in place for traditional cigarettes. “As you know, the law requires the U.S. Postal Service to promulgate these new regulations by April 26, 2021, which is 120 days after enactment. We are now seven weeks past that deadline, and the regulations still have not been published,” the letter states. “We urge you to publish these new regulations as soon as possible in accordance with the requirements of the law.”
Tobacco and vapor companies may use private services to ship their products to consumers, but the PACT Act requires them to register with the Bureau of Alcohol, Tobacco, Firearms and Explosives and the tobacco tax administrators of the states into which a shipment is made. Delivery sellers are further required to verify the age and identity of the customer at purchase and maintain records of delivery sales for a period of four years after the date of sale, creating substantial administrative burdens.
“As we begin to emerge from the pandemic, it is imperative that the U.S. Postal Service immediately implement these new regulations to ensure the harmful effects from the ongoing youth vaping crisis aren’t compounded by the lingering risks posed by the pandemic,” the letter states.
Critically for the vapor industry, the most popular carriers, Federal Express and United Parcel Service also ended all deliveries of vapor products. This has forced many online retailers to close or alternative shipping methods.
In an email to subscribers, My Freedom Smokes (MFS) announced Monday that it would be closing its doors due to the current regulatory climate of the vaping industry. In business since 2008, MFS has been a longtime staple in the business of vaping.
Credit: MFS
“Due to ongoing compliance requirements and new regulations of the e-cig industry, it has become nearly impossible for a shop like MFS to function without turning into something completely different,” the email states. “This was never the goal for MFS as we always prided ourselves on being able to offer customized products and service at great prices. So unfortunately, we will be shutting our doors at the end of the month.”
The MFS website states that the company is run by vapers, for vapers and is a one-stop website for everything from e-cig starter kits and cheap e-liquids to the most advanced cloud competition ready box mods and RDAs available. Based out of Charlotte, North Carolina, MFS was founded by Chris Yelton.
An amendment to the PACT Act to include vapor products has caused major disruption throughout the vapor industry.
By Timothy S. Donahue
When a 5,000-plus page omnibus bill, the Consolidated Appropriations Act of 2021, was signed into law on Dec. 28, 2020, the vapor industry knew its impact would be bad. It was impossible to know at the time how crushing a blow it would be. Buried deep within the bill (page 5,136) was the Preventing Online Sales of E-cigarettes to Children Act. It was a provision that effectively bans the United States Postal Service (USPS) from shipping electronic nicotine-delivery systems (ENDS).
The updated provision redefines the word “cigarette” under the 2009 Prevent All Cigarette Trafficking (PACT) Act to include ENDS products. ENDS would now be subject to the same shipping laws as combustible tobacco. The ensuing shipping problems for vapor retailers forced many companies to end all U.S. online sales and many others have been forced out of business. Chris Innes, owner of Elevated Vaping in Houston, Texas, announced that he would be closing his shop due to the PACT Act and the U.S. Food and Drug Administration’s stringent premarket tobacco product application (PMTA) requirements.
The Vape Spot in Los Angeles also announced it would be closing its store due to the PACT Act after eight years of helping smokers make the switch. Securience, parent to DuraSmoke, announced a merger with VapinDirect to stay in business. Logic ended all online sales on March 16. White Cloud Electronic Cigarettes ended all online U.S. sales on March 26. Vapewild and Vistavape went out of business entirely. The list goes on.
“If the increase in shipping costs wasn’t enough, the bill also imposes huge paperwork burdens on small retailers and backs it up with threats of imprisonment for even innocent mistakes,” said Gregory Conley, president of the American Vaping Association. “This is not a law designed to regulate the mail-order sale of vaping products to adults; it’s an attempt to eliminate it.”
According to Karen Goss of Chemular, a business improvement solutions and compliance systems provider, the PACT Act affects the entire vaping industry from the manufacturers shipping to the distributor, the distributor shipping to the retailer, and businesses taking orders from consumers online regardless of whether the product is even mailed.
While the legislation was geared toward nicotine vaping products, the law is so broadly defined that cannabis businesses must also comply. This means marijuana and CBD companies selling, manufacturing or shipping vaporizers or associated parts across state lines are required to comply with the provisions of the PACT Act.
“It affects literally everyone in the distribution chain, regardless of whether you are actively shipping your product into a state. If you are advertising your product for sale in that state, you should be registered with that state for PACT Act purposes. This is for any electronic device that, through an aerosolized solution, delivers nicotine, flavor or any other substance to the user by inhaling from a device,” said Goss during a recent webinar. “This covers liquid and any component, part or accessory, whether sold with the device or separate. It coves liquids with 0 mg of nicotine. It covers synthetic nicotine. It essentially covers the gamut of vaping products.”
The PACT Act has turned out to be an even greater hurdle to the vaping business than the FDA’s onerous PMTA applications, which had to be submitted to the regulatory agency in September of last year, according to James Xu, chairman and CEO of Avail Vapor, a major chain of brick-and-mortar vape shops. He said FDA regulations took time; the PACT Act was implemented in less than four months.
“It was just like, wow, this is happening. The PACT Act can take away the majority of online vapor businesses. Smaller companies aren’t going to be able to comply, especially these companies that are selling e-liquids for $10 a bottle that are now going to have to go up to $50, $60 a bottle,” he said. “They’re not going to survive; there’s no way they can survive. They were already cutting their profit margins just to be able to push product out.”
Credit: Sam Larussa
Rules of the road
PACT Act regulations are so stringent for online merchants that leading private shipping companies will also stop delivering vapor products. “Effective April 5, 2021, UPS will not transport vaping products to, from or within the United States due to the increased complexity to ship those products,” said UPS spokesperson Matthew O’Connor in a statement. FedEx began no longer accepting vapor products for delivery on March 1, 2021. DHL had already previously banned all shipments of nicotine-containing products and has now also ended all cannabis vapor product shipments.
The only shipping option that remains is Austin, Texas-based X Delivery, a private B2C shipping company. “The shipping carrier X Delivery isn’t afraid of a little red tape,” the company’s website states. “X will verify the age of the purchaser and obtain the required signature of the adult, as outlined in the PACT Act, with every vape-related delivery.” Another company, Vapefreight, was preparing to ship B2B vapor products but was still conducting trial runs as of this writing.
Many businesses were unsure if B2B mailing would be allowed. According to Azim Chowdhury, a partner at Keller and Heckman, the PACT Act has historically exempted business-to-business deliveries from the USPS ban. Specifically, the USPS ban does not extend to tobacco products mailed only for business purposes between legally operating businesses that have all applicable state and federal government licenses or permits and are engaged in tobacco product manufacturing, distribution, wholesale, export, import, testing, investigation or research.
“Companies seeking to use USPS for business-to-business deliveries must first submit an application to the USPS Pricing and Classification Service Center and comply with several other shipping, labeling and delivery requirements,” said Chowdhury. Under the B2B exception for the USPS, all transactions must be done in-person, face-to-face, according to the USPS.
“This was not a requirement set by Congress, and it imposes time and money burdens on both businesses and the USPS infrastructure,” said Conley. “USPS should accept the approved business purposes exception documentation, verify that a recipient is a covered and approved authorized business recipient of ENDS products, and allow mailings through both the USPS pickup and drop-off system in place for other USPS-handled packages.”
The USPS mail ban on vaping products will go into effect on or before April 27, 2021. After this date, retail customers will no longer be able to receive vaping products by way of USPS delivery, according to the USPS. However, the USPS rule states that the agency will mail vapor products under narrowly defined circumstances:
Noncontiguous states: intrastate shipments within Alaska or Hawaii;
Business/regulatory purposes: shipments transmitted between verified and authorized tobacco industry businesses for business purposes, or between such businesses and federal or state agencies for regulatory purposes;
Certain individuals: lightweight shipments mailed between adult individuals, limited to 10 per 30-day period;
Consumer testing: limited shipments of cigarettes sent by verified and authorized manufacturers to adult smokers for consumer testing purposes; and
Public health: limited shipments by federal agencies for public health purposes under similar rules applied to manufacturers conducting consumer testing.
The USPS rules also state that the listed exceptions cannot feasibly be applied to inbound or outbound international mail, mail to or from the Freely Associated States, or mail presented at overseas Army Post Office, Fleet Post Office, or Diplomatic Post Office locations and destined to addresses in the United States. Because of this inability, all ENDS products “in such mail are nonmailable, without exception.”
One way USPS could simplify the exception process would be digitizing not only the specific business requirements but also the exception application itself, suggested Conley. He says that by uploading the necessary permits and business filing documents online, USPS would have access to verified businesses anywhere in the nation, ensuring that there are not unnecessary delays in the shipping process for ENDS businesses. “This online portal could also be used by applicant businesses to verify the status of an approval for utilizing USPS as a shipping provider of ENDS in a timely manner,” he said.
Excluded from the statutory definition are products approved by the FDA for sale as “tobacco cessation products or for other therapeutic purposes and marketed and sold solely for such purposes.” The USPS also proposes to treat ENDS as a standalone category, “albeit one generally subject to the same restrictions and exceptions as cigarettes, consistent with the statute.”
According to the PACT Act legislation, anyone selling vaping products must:
Register with the U.S. Attorney General;
Verify age of customers using a commercially available database;
Use private shipping services that collect an adult signature at the point of delivery;
Register with the federal government and with the tobacco tax administrators of the states if selling in states that tax vaping products;
Collect all applicable local and state taxes, and affix any required tax stamps to the products sold;
Send each taxing state’s tax administrator a list of all transactions with customers in their state, including the names and addresses of each customer sold to and the quantities and type of each product sold; and
Maintain records for five years of any “delivery interrupted because the carrier or service determines or has reason to believe that the person ordering the delivery is in violation of the [PACT Act].”
Retailers can be cited by states for not following their individual requirements for tax payments and filings, and they may have to purchase tobacco and other licenses or hire a registered agent in the state. The cost for being PACT Act compliant can range anywhere from $40 to $250 or more per year per state, according to Goss. “There are a variety of companies that perform PACT Act compliance,” she said. “I put those numbers out there so that you have some sort of ballpark figure and you know you’re not getting overcharged. At the same time, it gives you a view of what to expect for this process on an ongoing basis.”
Credit: Manuel Alvarez
Registered for mail
In addition to the nonmailing provisions, the PACT Act requires anyone who sells ENDS products to register with the Bureau of Alcohol, Tobacco and Firearms and Explosives (ATF) and the tobacco tax administrators of the states into which a shipment is made or into which an advertisement or offer is disseminated, according to Chowdhury. Retailers who ship ENDS, cigarettes or smokeless tobacco to consumers are further required to label packages as containing tobacco and maintain records of all delivery sales for a period of four years after the date of sale, among other things.
Registering with the ATF online requires visiting the agency’s website (www.atf.gov) and filling out a single-page form. Goss said that companies should notice that in the first section under “Person,” the company would enter its name; person is defined as the business. “Another item to note is that you should list all of your business locations that are receiving product,” she said. “For example, if you have multiple distribution hubs, list all of them on this form. Save yourself the trouble of filling out multiple forms and lump all your business locations into one form.”
Companies will also have to tell the ATF where to send service of process in each state the company operates in case of any potential lawsuits. This is another area where hiring an agency to serve as a registered agent can make things easier. “There are a number of registered agent organizations that have offices in every state across the U.S. When you find a company that you like, they can most likely be your agent in all states that you require their services in,” said Goss. “Basically, they’re your mailbox in that state.” There’s not any further interaction required with the ATF after filling out the form unless a company changes agents or any information such as addresses change.
Completing the requirements to register with the states is more complicated. Each state has its own rules for companies doing business in the state. Retailers can be cited by states for not following their individual requirements for tax payments and filings. Some will have special forms while others will accept the same letter copy of the federal registration (addressed to the state). “Go to each state’s tobacco tax office website, if there is one,” said Goss. “Typically, that’s where the state will have information on how to register.”
The state and ATF registration requirements only apply when the destination state taxes ENDS products, according to JDSupra.com, a business news source. This is important for cannabis companies since some states, Oregon for example, have exemptions for ENDS shipments of cannabis (THC and CBD) devices.
The most arduous requirement of the PACT Act is monthly reporting. Similar to the ATF and state registration requirements, the state reporting requirements only apply when the destination state taxes ENDS, according to JDSupra. Just like with the registration process, states have different ways to submit information, and states also want varying amounts of information, according to Goss.
Some states want a form and hard copies sent in, while others have an online portal with templates. Typically, for each delivery sale and each person who has delivered product in connection with a delivery sale, it is required to file a delivery sales report with the comptroller’s office.
“The same product may get reported to the state multiple times. A bottle of e-liquid will get reported when it’s shipped from the manufacturer to the distributor, and then the distributor is going to report it when it ships it to the retailer,” says Goss. In most states, the reports must also include a memorandum or a copy of an invoice that provides:
the name, address and phone number of the person delivering the shipment to the recipient on behalf of the delivery seller;
the name, address, telephone number and email address of the individual to whom the delivery sale was made;
the brand or brands of the ENDS products sold; and
the quantity of ENDS products sold.
California, however, requires brand names and wants registrants to identify and distinguish between various types of ENDS products (a coil and an e-liquid, for example) with all invoice information relating to specific customers to be organized by city or town and by zip code. Texas wants only the brand name and the quantity sold. Every state requires the reports to be submitted on or before the 10th of the month for the previous month. For many states, the first reports were due April 10 for sales from March 27 to March 31.
Credit: John R Perry
Back to the basics
Many believe that including ENDS products in the PACT Act requirements is going to be a detriment to the overall public health of the country. If ENDS products cost more than combustible cigarettes and are harder to acquire, smokers who quit cigarettes with vaping will likely return to smoking combustibles. States are going to know where all the ENDS shipments are going now and how much was purchased. Alongside all the other requirements that vary by state, each state also has varying rules and regulations for when and who should apply and collect any excise taxes.
Xu says that many online companies do not charge either state or local sales tax or excise taxes. Now, the consumer will be responsible for all the taxes and the additional shipping costs. This could mean the end of online vapor sales entirely in some states. For example, numerous vapers from California order online due to their state’s complex tax regime, explains Xu.
According to the California Dept. of Tax and Fee Administration (CDTFA), the state’s statewide sales tax rate is 7.25 percent. The excise tax rate on vapor products is 59.27 percent of wholesale value. In most areas of California, local jurisdictions have added district taxes that increase the tax owed by a seller. Those district tax rates range from 0.10 percent to 1 percent. Some areas may also have more than one district tax in effect.
“That will be a huge cost increase to the consumer when they add up the sales tax, local tax and the vaping excise tax. People order online, one for convenience, but mostly it’s for the cost. That cost advantage is going to go away,” said Xu. “Add an adult signature fee with the shipping-related cost and suddenly the online purchase is just as costly as from the brick-and-mortar stores … possibly even more. [In some states], it’s immediately become a level play[ing] field with brick-and-mortar stores.”
There is no arguing that the PACT Act will change the vapor market. There are going to be supply chain issues, and companies may receive warning letters, felony charges and fines as they navigate the new process. As numerous online retailers close or move to a distributor, those customers will most likely move to brick-and-mortar vape shops.
There are some positives, according to Xu. “The online market is going to suffer, and sadly, it’s going to push some back to traditional cigarettes. However, the local brick-and-mortar vape shop can do a better job at educating consumers about vapor products and helping people transition away from deadly combustibles,” he says. “Most shop owners and employees take pride in their customer service and their knowledge of the product. It’s too early to tell what type of impact the PACT Act will have on our retail stores or the industry as a whole. Right now, it’s still wait and see.”
