A Law That's Supposed to Protect Minors from Vapes Is Hurting the Cannabis Business
How the 2020 Pact Act is impacting the vape industry, and what sellers can do to mitigate the negative impact on their business.
In 2021, new federal legislation affects all sellers with vape-related products that ship directly to the consumer. Initially, lawmakers created the law to keep nicotine products from minors. But they wrote the legislation so broadly that other industries with vape products, including cannabis and CBD, have been negatively impacted.
What is the PACT Act?
An acronym for "Prevent All Cigarette Trafficking," the PACT Act has roots as far back as 1949. Originally called the Jenkins Act, the federal law states that any person who sells and ships cigarettes across state borders must report the sale to the buyer's state tobacco tax administrator.
Fast forward to 2009 when lawmakers amended the act to match new technology, broadening the language to include online sales. Digital sellers were now required to register with the Bureau of Alcohol, Tobacco, and Firearms (ATF) and the state they operated in and sold to. The 2009 amendment also prohibited the mail delivery of cigarettes and smokeless tobacco within the US.
The main intention for these amendments was two-fold:
- It prevented minors from buying. The ultimate goal was to limit the pathways that tobacco and related products can get to minors. There was a greater emphasis on online retail because it was harder to track the age of consumers.
- By linking taxes and registration with state authorities, the regulators had more control. State and federal officials could more easily audit companies and therefore track the age of consumers more closely.
New legislation in 2021
In December 2020, as part of a larger stimulus bill, the PACT Act was again amended. The new legislation went into effect on April 26, 2021, and the industry can already feel its effects.
The 2021 PACT Act includes two new rules:
- All electronic nicotine delivery systems ("ENDS") and substances that can be used with ENDS are held to the same rules as cigarettes and smokeless tobacco products. All regulations that apply to cigarettes and smokeless tobacco products now also apply to all ENDS, which is defined very broadly as "any electronic device that, through an aerosolized solution, delivers nicotine, flavor or any other substance to the user inhaling from the device." The breadth of this language puts manufacturers of vape pens for use with liquid cannabis, CBD, or other non-nicotine liquids in the untenable position of having to try to comply with a statute intended to regulate tobacco products.
- The US Postal Service is restricted from mailing any cigarettes, ENDS, or vape products anywhere in the US.
On April 19, one week before USPS implements the new regulations, USPS stated that they would postpone the deadline until they could clarify the guidelines. Regardless of the final ruling, most shippers of vapes for use with liquids anticipate that they will need to find alternatives to get their products to their customers.
What this means for sellers
The Attorney General has delegated the ATF to administer and enforce the PACT Act. If companies don't meet the guidelines, they face steep fines, criminal or civil charges, and even prison sentences. Sellers who fall under this new bill should take it very seriously.
Under the new PACT Act, all sellers must:
- Verify customers' ages.
- Use shipping services other than USPS.
- Verify an adult accepts each delivery by obtaining an adult signature.
- Register with the ATF and the US Attorney General.
- Register with tax authorities in the state where they produce and sell.
- File monthly reports with state regulators of all shipments of ENDS made.
- Apply labeling to outside packaging that says, "CIGARETTES/NICOTINE: FEDERAL LAW REQUIRES THE PAYMENT OF ALL APPLICABLE EXCISE TAXES, AND COMPLIANCE WITH APPLICABLE LICENSING AND TAX-STAMPING OBLIGATIONS."
Who the PACT Act affects
This new legislation affects countless companies, both large and small. Since the law went into effect in March and lacks guidelines from the USPS regarding how to apply the law to non-nicotine products, many companies are still scrambling to make sense of this and correctly shift their strategies.
The entire vaping industry
The new legislation includes a much broader definition of products than the previous amendments. They aren't just for cigarettes anymore. Now sellers may be affected if they produce or sell vapes that use liquid- or oil-based substances (not just nicotine) plus the substances themselves.
Companies working with USPS
USPS is hands-down the best carrier option for small businesses. It is consistently and reliably the cheapest way to move parcels around the US. Any vape companies not selling nicotine-based products will likely be stifled if USPS regulations prohibit the shipment of these products.
To make matters worse, all the large shipping companies, including FedEx, UPS, and DHL, have changed their policies to align with recent PACT Act amendments and no longer allow vape companies to use their service. This leaves small businesses with limited experience in a tight place to find new shipping partners quickly. If their customers are required to pay extra fees or wait longer for shipments, they may move on to other more prominent brands, leaving the small startups to fizzle out.
Companies working with major carriers
So companies anticipate USPS won't allow shipment of liquid vaporizer products once final regulations come out. What's the biggie? Well, when USPS faces a significant change like this, there's bound to be a big ripple effect. Now larger private and public carriers are in an awkward position. They can choose to continue delivering vape products, but they may be audited more often by regulators and will likely pay hefty fees to do so. The public carriers, including FedEx, UPS, and DHL, have temporarily stated that they will incorporate similar vape bans until the PACT Act is clearly defined. However, several regional carriers, who have experience shipping heavily regulated products like tobacco and alcohol, continue to ship vape products.
Smokes that aren't tobacco
If you sell tobacco or any tobacco-related product, it's no surprise that a bill like this would pass to regulate your products further. But if you're a marijuana or CBD company, you might be feeling like you're getting mixed messages in the last couple of years. With more legalization and acceptance of both CBD and MJ products across the US, it appeared things were opening up. With the PACT Act adjustments, if you sell anything that can be used to aerosolize a liquid solution, you need to pull back and reassess your shipping strategy.
The next few months look very uncertain. For now, sellers are taking a few clear actions. They are following the guidelines to comply with new tax and labeling rules. Some sellers have halted shipping until they can reassess their strategy (although only those with enough cash reserves to do so).
Many sellers who were shipping with USPS are now taking their shipments and finding new solutions. Many private carrier companies who have shipped tobacco products for decades are happy to collect the extra business from vape product companies. But not all carriers who can do this have a national presence, and most are far more expensive than the larger national carriers. Some sellers are tapping specialized third-party logistics companies, often referred to as 3PLs. They understand the regulations and have stitched together a regional carrier network to ensure they have national shipping coverage.
In addition, sellers lean more heavily on their retailers and distributors to ensure their products are still accessible to buyers in their local markets. While selling directly to their customers is more profitable, retail partners can provide a steady source of revenue while sellers look for cost-effective ways to sell their products online.