The federal government is increasing its participation in the cannabis industry by enacting laws, providing opportunities for obtaining finance and generally initiating regulatory oversight over cannabis products and cannabis derived products.
The recent amendment of the PACT Act to include products which are a common feature in the vaping industry is another milestone on the long list of actions that have been taken to cement government’s position on cannabis. But what’s the PACT Act about and how does it affect you and your business?
The Prevent All Cigarette Trafficking (PACT) Act passed by Congress in 2009, seeks to control the illegal sale or trade in tobacco products through some set of requirements. The act which came into effect on June 29, 2010 is intended to prevent the illicit sale of unlicensed and unregulated tobacco and tobacco products including cigarettes, smokeless tobacco and roll-your-own tobacco.
Before now, the law was intended strictly for tobacco products, requiring tobacco product manufacturers to adhere to certain rules; registration, reporting and shipping rules. But recent amendments have expanded the scope of the act to include Preventing Online Sales of E-Cigarettes to Children Act, and a modification of the original definition of “cigarette” to include Electronic Nicotine Delivery Systems (ENDS) devices. The amendment broadly defines the term “ENDS” to essentially include all vaping products, liquids, components, and accessories, whether they contain nicotine or not.
What PACT means for ENDS
In the bulletin released by the National Association of Tobacco Outlets (NATO), companies that sell ENDS for delivery in other states may need to comply with the PACT Act beginning March 27, 2021. This is in line with the recent amendment of the PACT Act as a part of the “Consolidated Appropriations Act of 2021” (a series of COVID-19 stimulus relief legislation) signed into law on Dec. 27, 2020.
The new amendment lists Electronic Nicotine Delivery Systems (ENDS) in addition to cigarettes, smokeless tobacco and roll-your-own tobacco as part of products that fall under regulatory guidance.
The law defined ENDS as: “any electronic device that, through an aerosolized solution, delivers nicotine, flavor, or any other substance to the user inhaling from the device.” This includes “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…without regard to whether the component, liquid, part, or accessory is sold separately from the device.”
By the definition, vaporizers and vaporizer parts used for cannabis, hemp and CBD products come under the purview of this law. Therefore, it’s only expedient that cannabis companies selling, manufacturing, or shipping vaporizers or vaporizer parts across state lines begin to consider whether the amended PACT Act leads to new legal obligations for their business.
What You Must Know About PACT Act
As discussed earlier, the PACT Act requires companies that sell and ship for profit cigarettes, roll-your-own tobacco and smokeless tobacco into a state, locality or Native American tribe that taxes the sale of these products — or advertises these products for sale or shipment to adhere to a set of registration, reporting and shipping rules. Under the PACT Act, companies who engage in these activities under these conditions must register with the Federal Bureau of Alcohol, Tobacco, Firearms and Explosives and with the tobacco tax administrators of the state.
The PACT Act affects everyone on the value chain; distributors, manufacturers and retailers of these products including those that deal with ENDS. The three main parts of the Act that should be of interest to all parties is listed below.
The first requirement of the PACT Act is registration. It implies that any person that “sells, transfers, or ships for profit” tobacco products including ENDS across state lines, must register with the Alcohol, Tobacco, and Firearms Bureau (“ATF”) and the tobacco tax administrator in the shipping state. This requirement applies to all including delivery sellers (companies selling directly to consumers), distributers and manufacturers who engage in sales and marketing across state boundaries.
However, the registration requirement only applies if the destination-state, taxes ENDS. To this end, cannabis companies need to consider if;
- The state they ship into taxes ENDS
- If that ENDS-tax exempts THC, hemp or CBD devices.
The PACT Act demands that any person, in this case, manufacturer, distributor or delivery seller who “sells, transfers, or ships for profit” ENDS across states must report every shipment made during the previous month to their respective state tobacco tax administrator.
The seller(s) must obtain, and store specific data including city/town and zip code of the customer they ship to, for a minimum of four years. Similar to the registration requirements above, the reporting requirements only apply when the destination-state, taxes ENDS.
The PACT Act amendments have instructed the U.S. Postal Service (“USPS”) and other licensed private shipping companies to issue regulations prohibiting the shipment of all vaping products through the mail to residential addresses. While the amended PACT Act prohibits the USPS from delivering ENDS, the Act maintains an exception for business-to-business shipments for tobacco as long as they are transmitted between verified and authorized tobacco industry businesses.
While the implementation of the retail mail ban has come into effect on April 26, 2021, the USPS plans to extend the business-to-business exception for ENDS products, according to the proposed rule issued on February 19th.
From the above, it has become imperative that cannabis and cannabis derived product manufacturers carefully review the PACT Act amendments to identify where it applies to their business as violations of the PACT Act, codified at 15 U.S.C. § 375-378, carry civil as well as criminal penalties.