How the PACT Act Quietly Passed and How It Might Kill the U.S. Vape Market

In the midst of the shitshow of U.S. politics at the end of last year, federal lawmakers were facing the prospect of another government shutdown due to gridlock in agreeing to a proposed budget and passing a new spending bill. To avoid such a shutdown, Congress rammed through what was known as the 2021 Omnibus Appropriations Bill.

Those lawmakers were given just a couple of hours on December 21st to devour the entire 5,500+ page piece of legislation before casting their vote.

vape cart components PACT Act Beard Bros Pharms

Buried deep in that spending bill was a seemingly unimportant amendment to a tobacco law dating back to 1949, but that amendment to the Preventing All Cigarette Trafficking (PACT) Act is about to lay waste to the vaporizer market and the countless brands that fuel it.

We’re not just talking about e-cigs or nicotine-based vapes. This new language in the law will drop the hammer on online sales of cannabis and hemp-based vaping products, as well as any sort of piece, part or component needed to operate an electronic vaporizer – think empty cartridges, batteries, chargers, etc.

How will such a large marketplace be decimated by a relatively unknown amendment to a relatively unknown law? The same way the government always does it – overregulation and new forms of prohibition.

Why though? The same reason the government always does it – to make sure they get their cut, at all costs.

HOW THE 2020 PACT ACT AMENDMENT CHANGED EVERYTHING

With the perfectly conservative title of the “Preventing Online Sales of E-Cigarettes to Children Act” this amendment to the PACT Act effectively re-defines the term ‘cigarette’ in the original, antiquated law to now include all ‘Electronic Nicotine Delivery Systems’, or, ENDS.

Despite the word NICOTINE literally in the acronym, the exact definition of what falls into that ENDS category is a bit cloudy, but it is being interpreted by most to include ALL vaping products, liquids, parts, and accessories, not just e-cigarettes.

The Act attempts to clarify the definition of an ENDS product as “any electronic device that, through an aerosolized solution, delivers nicotine, flavor, or any other substance to the user inhaling from the device,” including “an e-cigarette; an e-hookah; an e-cigar; a vape pen; an advanced refillable personal vaporizer; an electronic pipe; and any component, liquid, part, or accessory of a device described [above], without regard to whether the component, liquid, part, or accessory is sold separately from the device.”

That “any other substance” part is the barb that is likely to snag cannabis or hemp vape products.

As mentioned, the impact that this new amendment will have on the vaping industry will be a 1-2 punch, and we are already seeing the repercussions from the first swing.

HOW THE PACT ACT PERPETUATES PROHIBITION

The original PACT Act – dating back 70 years – made it illegal for USPS to deliver tobacco products directly to consumers via the mail. In 2009, the law was amended to include the government’s rudimentary understanding of online sales of such products. Presumably, the 2020 amendment will lump ALL vape products into that ban.

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Fast forward several decades and we have more shipping options than just the United States Postal Service but in recent weeks carriers like UPS and FedEx have announced that they too will stop delivering all ENDS products by the end of this month, March 2021, in order to comply with federal prohibition.

“UPS will not transport vaping products to, from, or within the United States due to the increased complexity to ship those products,”effective April 1st, according to a press release from the global shipping giant.

FedEx released a similar statement saying that it would no longer allow “electronic cigarettes, vaping liquids, and other vaping products in the FedEx global network.”

There are potential exceptions through the USPS whereby ENDS could be “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….”

Just submit your application to the USPS Pricing & Classification Center but not until you are sure that you are in total compliance with all state and federal laws… oooohh there it is… that 2nd punch.

OVERREGULATION IN THE PACT ACT MAKES COMPLIANCE A PIPE DREAM FOR MOST

Without viable, reliable, affordable shipping options, compliance is a bit of a moot point, but just in case the vape industry found a way around it, the Feds have tilted the board so far against small business that it is likely to mean Game Over for countless vaporizer companies – from manufacturing to retail and all stops in between.

Now, to remain compliant under the newly amended PACT Act, any person or entity that sells tobacco-related or ENDS-based products must register with the ATF (Bureau of Alcohol Tobacco and Firearms) AS WELL AS registering with every individual tobacco taxing agency in every state that they wish to operate or even advertise in.

28 states currently tax vape products.

That is at least 28 additional sets of regulations (not to mention costs) that must be complied with. More states are likely to get on the money train and enact taxes of their own.

If you still have any doubt that the PACT Act is less about protecting kids than it is about raking in tax revenue, check out the language from the 2009 version of the PACT Act, its first update since 1949:

SECTION 1. SHORT TITLE; FINDINGS; PURPOSES.(a) SHORT TITLE. — This Act may be cited as the ‘‘Prevent All Cigarette Trafficking Act of 2009’’ or ‘‘PACT Act’’.
(b) FINDINGS. — Congress finds that —
(1) the sale of illegal cigarettes and smokeless tobacco products significantly reduces Federal, State, and local government revenues, with Internet sales alone accounting for billions of dollars of lost Federal, State, and local tobacco tax revenue each year;
(2) Hezbollah, Hamas, al Qaeda, and other terrorist organizations have profited from trafficking in illegal cigarettes or counterfeit cigarette tax stamps;
(3) terrorist involvement in illicit cigarette trafficking will continue to grow because of the large profits such organizations can earn;
(4) the sale of illegal cigarettes and smokeless tobacco over the Internet, and through mail, fax, or phone orders, makes it cheaper and easier for children to obtain tobacco products;
(5) the majority of Internet and other remote sales of cigarettes and smokeless tobacco are being made without adequate precautions to protect against sales to children, without the payment of applicable taxes, and without complying with the nominal registration and reporting requirements in existing Federal law;
(6) unfair competition from illegal sales of cigarettes and smokeless tobacco is taking billions of dollars of sales away from law-abiding retailers throughout the United States;
(7) with rising State and local tobacco tax rates, the incentives for the illegal sale of cigarettes and smokeless tobacco have increased;
(8) the number of active tobacco investigations being conducted by the Bureau of Alcohol, Tobacco, Firearms, and Explosives rose to 452 in 2005;
(9) the number of Internet vendors in the United States and in foreign countries that sell cigarettes and smokeless tobacco to buyers in the United States increased from only about 40 in 2000 to more than 500 in 2005; and
(10) the intrastate sale of illegal cigarettes and smokeless tobacco over the Internet has a substantial effect on interstate commerce.
(c) PURPOSES. — It is the purpose of this Act to —
(1) require Internet and other remote sellers of cigarettes and smokeless tobacco to comply with the same laws that apply to law-abiding tobacco retailers;
(2) create strong disincentives to illegal smuggling of tobacco products;
(3) provide government enforcement officials with more effective enforcement tools to combat tobacco smuggling;
(4) make it more difficult for cigarette and smokeless tobacco traffickers to engage in and profit from their illegal activities;
(5) increase collections of Federal, State, and local excise taxes on cigarettes and smokeless tobacco; and
(6) prevent and reduce youth access to inexpensive cigarettes and smokeless tobacco through illegal Internet or contraband sales.

Note that the very first concern expressed by the authors of that law is that the states and the Feds aren’t getting their “fair share” of tax revenue.

But let’s assume that you are able to hire a compliance officer to keep up to date with every state’s taxation, licensing, and regulatory framework.

Then let’s assume that you can find some 3rd-party shipping service willing to buck federal law and assume that much risk.

If you can and do choose to take on that burden, you will need to also need to check age and identity and gather an adult signature at the point of purchase and maintain sales records for at least four years – even for retail sales.

A monthly report must be presented to all taxing agencies providing the names and addresses of anyone delivering or receiving a tobacco product or ENDS product shipment, and the brands and quantities of the products shipped. Yes, even for retail sales.

It’s not impossible. It’s just incredibly expensive and intrusive and the high level of liability for falling out of compliance (up to three years in prison!) will make the risk far outweigh the reward for many.

THE PACT ACT WILL HURT CONSUMERS

Although the U.S. cannabis market, in general, has thrived during the yearlong global Coronavirus pandemic, this news from the nation’s capital is just the latest in one hurdle after another for the cannabis vaping industry.

From the rapid rise and even more rapid disappearance of the vaporizer-related deaths and health problems associated with #VapeGate in 2019 to the logistics and shipping nightmares between China and the U.S. throughout 2020, this latest blow may be a knockout.

It would certainly keep a lot of kids from getting their hands on vaporizers.

It will also keep a lot of patients who benefit from vaporized cannabinoids from getting vaporizers.

It will also keep a lot of folks currently killing themselves with cigarettes from finding a healthier alternative.

And, no doubt, it will detrimentally impact every American vaporizer business, many of which will simply go up in smoke.

Via Beard Bros