Anyone involved in the vaping business, or anyone who does business with the vaping industry, needs to be aware of big changes in federal law taking effect this month. On March 27, 2021, the “Preventing Online Sales of E-Cigarettes to Children Act” amends the PACT (Prevent All Cigarette Trafficking) Act to effectively regulate telephone and online sales and delivery of vaping products in the same manner as cigarettes. In a nutshell, vape shops that offer either remote ordering or delivery services will now be required to register themselves, report their monthly delivery sales, and prepay applicable state excise taxes on all delivered vape products. We’ll walk you through the highlights of these upcoming changes.
These changes affect most vape shops.
The Act will now apply to all vape shops that conduct “delivery sales.” This definition is broader than it appears. If any step in the ordering or delivery process occurs outside the four walls of a store (including orders placed online or over the phone, even if picked up at the store), the Act now applies. This means four primary changes to an affected vape shop’s business:
1. Vape shops need to register as tobacco sellers.
The PACT Act requires each state to operate a registration system for tobacco delivery sellers, which will now include vape “delivery” sellers. Vaping stores will need to register as a tobacco delivery seller: (1) with the federal ATF; (2) with the appropriate agency in every state in which they advertise or sell product; and (3) with local and tribal governments that have their own tobacco excise taxes.
2. Vape shops must record and report their monthly delivery sales.
Every vape shop making “delivery” sales under the Act must now keep detailed records of every delivery sale and retain those records for more than four years. Every month, the shop must also now report their delivery sales to the state in which the delivery was made. In Arizona (as of the time this is published), vape shops that do not have a tobacco distributor license (which is most vape shops) are being instructed to email their monthly delivery sale reports to luxurytax@azdor.gov. Shops with tobacco distributor licenses can upload their reports directly to the Arizona Department of Revenue website.
3. Vape shops have to pay excise taxes up front on delivery sales.
Nearly half the states in the U.S. impose an excise tax on vaping products, and more are expected to do so in the future (for now, Arizona does not, but California, Nevada, and Utah do). Federal law now requires vape shops to pay those excise taxes in advance, before a delivery is made. This may have a significant impact on a shop’s business model, and multi-state businesses must be careful to comply with each state’s specific (and often peculiar) tax rules.
4. Delivery of vaping products just became much more complicated.
We’re still awaiting specifics, but vaping products can no longer be shipped via USPS mail. Further, as many private shipping companies use postal services for part of their routes, big-name companies like UPS and FedEx have already said that they will also no longer ship vaping products.
All vape shops that make delivery sales must now employ an outside age-verification service to confirm the customer’s age and identity before an order can be accepted. All deliveries are now also subject to the 10 lbs./order limit applicable to tobacco sales. Remember, these rules apply to phone and internet orders, even if the customer picks up the products in person.
The potential penalties for noncompliance are severe.
All vape shops, delivery services, and any financial service companies or investors that do business with the vaping industry need to take these new regulations very seriously. Violations of the Act can lead to significant civil and criminal penalties for both vaping shops and private couriers—and federal agencies (such as the ATF) are well-equipped to pursue violators. The Act also allows some categories of private parties to file suit directly against non-compliant delivery sellers. That’s a lot of ways in which liability could accrue.
We don’t yet know how these regulations will affect the sale of vaping products containing CBD.
Although Arizona recently legalized recreational marijuana, it has provided little regulatory guidance for recreational marijuana sales, or how CBD products will be treated under federal laws such as the PACT Act (THC products are still illegal under federal law). The Act applies to “any electronic device that, through an aerosolized solution, delivers nicotine, flavor, or any other substance to the user inhaling from the device…”, 15 USC § 375(7)(a), which potentially includes THC/CBD products. So while nothing in the Act’s history indicates that Congress intended to sweep THC/CBD vape products into its purview, any business interested in selling recreational or medical marijuana products should keep a careful eye on this law.
