ENDS 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, ENDS products will no longer be sent through the U.S. Postal Service, FedEx, UPS, and a few other delivery services. 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 the new law affect mailing ENDS products, but it also includes “any component…part, or accessory of a device.” This means companies selling, manufacturing, or shipping ENDS products 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. This includes batteries and packaging, even though they are not ENDS products in themselves.
Sellers of ENDS products should focus on three main parts of the Act which include registration, reporting. and shipping.
Many people are referring to the PACT Act as a cartridge ban. This act is not considered to be a cartridge ban because there is no ban on any particular company or individual. It is not designed to legally stop people from using ENDS 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 companies will need to pay attention to whether the state they ship to taxes ENDS products and whether there are any tax exemptions.
From here on out, companies selling ENDS products will have to use an alternative method to ship 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 the city/town and zip code of customers for four years. Again, these reporting requirements only apply if the destination-state taxes ENDS.
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 ENDS 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 products. In some cases, these private restrictions may go further than the USPS ban by prohibiting all shipments of ENDS products. This would not include a business-to-business exception.
With that said, ENDS 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 ENDS accounts, and 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 still 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 dispensaries may have to set up networks from existing companies and create logistics systems that can manage shipments between manufacturers, distribution warehouses, extractors, and dispensaries.
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 all companies that deal with ENDS products 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. However, 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.
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