How the PACT Act Will Affect the Cannabis Vape Industry
Published on 3/18/21
Back in December 2020, the U.S. released a COVID stimulus package that was more than 5000 pages long. Buried deep within the pages of this bill was an entirely new set of regulations for the vaping industry, called the Preventing Online Sales of E-Cigarettes to Children Act. Signed into law by former President Donald Trump, this vape shipping ban seems helpful in preventing child access to vape products but could kill much of the industry in the process. While this act was mainly geared toward the tobacco industry, cannabis vapes and products will also be affected. Keep reading to find out what's next for the CBD and cannabis vape industry.
What is the PACT Act?
The original Prevent All Cigarette Trafficking (PACT) Act went into effect in 2010 and regulated online sales of cigarette and tobacco products through the U.S. Postal Service. Amending the Jenkins Act of 1949, which required interstate shippers to report all cigarette sales to state administrators, this bill was created to prevent illicit sales and tax avoidance.
The PACT law added registration requirements, reporting, delivery and recordkeeping requirements for cigarette and tobacco products, and those who do not comply may be charged with a felony by the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) and imprisoned for up to 3 years.
Through the PACT Act bill, any business that sells, transfers or ships tobacco or smokeless tobacco products for interstate commerce must register with ATF, as well as those who advertise or offer these products for sale, transfer or shipment. This bill also requires that they file monthly reports with the state tobacco control as well as any local or tribal entity that can tax these products. Additionally, those who do not follow PACT Act compliance regulations will be added to a list and barred from delivery from any common carriers.
We've seen this law in effect for many years, as you know that you can't just head to Amazon and pick up a pack of cigarettes. But with the explosion of vaping across the US has led to many businesses opening and shipping across the country. The expansion of the PACT law to include vaping could be detrimental to the industry.
Preventing Online Sales of E-Cigarettes to Children Act
While many people are generally calling this act the "vape mail ban", the implications that it has on the industry are much deeper than just shipping. This new law does two (big) things. First, it bans the shipment of any vape products to residential addresses via the U.S. Postal Service. This act also adds vaping products into the PACT Act 2021, requiring all sales, taxes and shipments of these products to be reported to the government.
Unfortunately, the definition of vape products created by the law is so broad, it includes not only nicotine vaping devices and e-liquid, but also any liquid or oil-based smokable substance.
Many of these requirements are set to take place 90 days after the bill passed, meaning they will begin around March 28, 2021. The mail ban has a 120-day limit, meaning that after April 27, 2021, USPS will no longer ship any vape products. In addition to USPS, many popular private mail carriers like FedEx, DHL and UPS also banned the shipment of these products, leading to highly complicated shipping and interstate commerce taxing procedures for all businesses.
How did the PACT Act 2021 Pass?
While the bill officially passed as part of the Consolidated Appropriations Act 2021 found in the last COVID relief bill of Donald Trump's presidency, the PACT Act bill amendments are not new. The Preventing Online Sales of E-Cigarettes to Children Act passed slightly different versions of the bill in both the House of Representatives in 2019 and the Senate in 2020, and few vapers and businesses seemed alarmed by its passage.
This Act now requires online retailers to verify customer age using a commercially available database, use private shipping services that collect adult addressee's signature at the point of delivery, register with ATF, the U.S. Attorney General, state and local tax administrations, collect and pay all applicable local and state taxes as well as affix required stamps to all products, send a list of all transactions to the state's tax administration including the names and addresses of all customers, quantities and types of products sold and the name, address and phone number of the person who delivered the shipment.
For the next 3-4 months after the PACT Act bill goes into affect, there will be confusion on both the consumer and business side of things. Unfortunately, this impacts the consumer in many different ways. Besides paying higher prices for these products to offset new software costs and taxes, many retailers will also probably stop carrying large amounts of different products. Smaller online vape retailers will likely shut down due to the tax compliance alone, let alone trying to find new PACT shipping retailers.
How is the Cannabis Industry Affected?
PACT Act vaping rules don't just end with actual tobacco vaping products, but rather all e-liquid and oil vaping products, including nicotine and nicotine-free liquids, CBD and delta-8 THC products as well as any related part, component or accessory. Yes, this means that your favoritedab pen or CBD vape products are also affected by the ban.
Of course, the cannabis industry is used to many of these regulations. Your local dispensary doesn't ship your dab pen to your house but rather hand delivers it straight to you. Additionally, large brands like PAX aren't going to go out of business because they have to implement these new regulations. Many of them are seeking solutions and working with freight carriers to create shipping networks, but things like this take time and money, something that small vape and CBD companies don't have.
What's Next for the Cannabis Vape Industry?
Since this affects the industry on so many different levels, it will be hard to predict everything that will happen in the coming months. PACT ACT compliance for taxing will likely be the hardest for many small vape businesses to continue. Tax compliance is complicated since every state has different tax laws, so many large businesses have staff dedicated to this very subject. Some companies, like IGEN, are working to create online tax compliance software for these businesses, but this software comes at a price that many smaller businesses cannot afford.
We also know that with the Postal Service and other private residential mail carriers banning the shipment of products through the mail, other shipping and logistics companies will have to step up and create specialized delivery networks. One company that has risen in wake of this announcement is simply known as X, and is the only national shipping carrier that is working to allow vape B2C residential shipping. Currently, only certain zones are covered and the minimum pickup is 500 boxes with a weight of 10 pounds each, which unfortunately cuts small e-liquid manufacturers and anyone who lives in a rural area likely out of the picture. But the people at X are working hard to expand their shipping zones and lower their rates for more customers.
How to Prepare as a Consumer
If you're a consumer wondering how you'll be affected, listen up. The next couple of months in the world of vaping will be a bit rocky, so you'll want to be well prepared to keep smoking. First, stock up on all of your favorite products before March 28 when PACT Act compliance begins. If you vape, stock up on any e-juice or oil that you love that is sold online-only. If you've ever wanted to start making your e-juice or CBD oil, now is the time to get the supplies and start your journey. It would also be smart to purchase some extra coils, tanks and atomizers as well. Also, consider buying a sturdy vape that you can use as a backup in case yours breaks. As more companies are impacted by the PACT Act bill, those who survive will be thinning out their inventory of older models to save money.
Now is the time to reconnect with your local dispensary, CBD or vape shop to keep your stash full. Of course, you do pay higher prices for these products than you would online, but many of these shops have excellent customer service and will help you find the right products for your needs. These shops often carry popular mass-market products that will get you through any hiccups that may arise.
With the PACT Act 2021 coming into effect soon, the future of the vape industry will change drastically. If internet sellers of these products can comply with tax and new shipping charges and X expands interstate shipping networks across the country quickly enough, hopefully, the impact will not be as deep as expected. We will begin to see many of these smaller businesses that cannot afford to comply go out of business, so make sure to support your favorites early on.
Have you heard of the PACT Act? Let us know what you're doing to prepare in the comments below!