Vape product vendors confront a new legal landscape after Congress expanded the Prevent All Cigarette Trafficking (“PACT”) Act to cover vaping devices. Starting Tuesday, April 27, vape products will no longer be sent through the U.S. Postal Service. FedEx, UPS, and a few other delivery services have already complied. The PACT Act now applies to all Electronic Nicotine Delivery Systems, or “ENDS”, which include electronic devices that, through an aerosolized solution, deliver nicotine, flavor, or any other substance.
Not only does ENDS cover all vaping products, but it also includes “any component…part, or accessory of a device.” This means cannabis, hemp, and CBD companies selling, manufacturing, or shipping vaporizers or parts across state lines, should be closely monitoring the outcome of this new law and carefully consider whether it leads to new legal responsibilities.
Sellers of vape products should focus on three main parts of the Act which include registration, reporting. and shipping.
Registration Requirements
Many people are referring to the PACT Act as a vaping ban. This Act is not considered to be a vaping ban because there is no ban on any particular company or individual. It is not designed to legally stop people from using vape products, or companies from making them, but it does seem to be trying to determine how the public can get products, and what products are available. Not only does the PACT Act prohibit mail, but it also requires anyone who sells cigarettes or smokeless tobacco to register with the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF). State tobacco tax administrators must also be notified. This requirement applies to companies selling ENDS directly to consumer. This means that cannabis companies will need to pay attention to whether the state they ship to taxes vape products and whether ENDS-tax exempts THC, hemp, or CBD devices.
Reporting Requirements
From here on out, companies selling tobacco or cannabis vape products will have to use an alternative method to shop for their products. These companies must also report every shipment made monthly to their respective state tax administrator. The report must be sent with a copy of the invoices for the previous month’s sales or a memorandum of required invoice information. They must also collect and retain for four years, city/town, and zip code of customers. Again, these reporting requirements only apply if the destination-state taxes ENDS.
Shipping Restrictions
It is important to understand that the amendments only apply to business-to-consumer sales. Wholesale distributors or manufacturers like DMLift Inc are exempt from the USPS shipping ban, as long as they have the necessary licenses to operate. Yet, with no major carriers willing to ship vape products, businesses are now forced to find a new way to get their products. For example, many private shipping companies plan to install policies prohibiting the shipment of ENDS. In some cases, these private restrictions may go further than the USPS ban by prohibiting all shipments of ENDS. This would not include a business-to-business exception.
With that said, vaping manufacturers, distributors, and shops may face many of the same shipping challenges as online retailers. Private carriers will no longer ship their packages, and the Postal Service exemption is not likely. The USPS is currently refusing applications for B2B vape accounts, but even if it allows manufacturers and wholesalers to ship, the process would be expensive.
This puts manufacturers and wholesalers in the same position as online retailers: they will have to create a new shipping ecosystem by forming private networks. Even though the PACT Act requirements are not as strict for B2B businesses; shippers are responsible for tax compliance and reporting. Shipping by freight is an option. The wholesale sector is fairly accustomed to shipping freight. But without the big carriers, they’ll have to go through the same process as B2C shippers. The freight industry consists of a network of national, regional, and local carriers that ship truckloads, LTL (less-than-truckload), and smaller parcels. Now vaping businesses may have to set up networks from existing companies and create logistics systems that can manage shipments between manufacturers, distribution warehouses, extractors, and vape shops.
What Now?
Violations of the PACT Act, codified at 15 U.S.C. § 375-378, have civil as well as criminal consequences. The new changes make it necessary for cannabis, hemp, and CBD companies to carefully review whether the PACT Act amendments apply them and decide how to comply.
Yet, without effective delivery options, PACT Act compliance is debatable. Many vapor businesses are exploring arrangements with private logistics and transportation companies. Others are exploring expensive software solutions. But the outlook for many small vapor companies and online retailers looks bleak. More will be known in the next few months as the infrastructure of the PACT Act gets refined and small manufacturers make hard decisions
Do you have any additional information about the PACT Act that we missed? Feel free to comment below!
