Wednesday, July 24, 2024

Vape Shipping and the PACT Act: What We Know So Far


In late December 2020, Congress passed a huge spending package that included a coronavirus relief bill, and—buried deep in the 5,000-page document—a law entitled the Preventing Online Sales of E-Cigarettes to Children Act. It was quickly signed into law by President Trump. The act is commonly referred to by vapers as the “vape mail ban,” but its effects will be much more profound than the prohibition on postal delivery that gave it its nickname.

The Preventing Online Sales of E-Cigarettes to Children Act wasn’t new. It had already passed the House in October 2019 and the Senate in July 2020 in slightly different forms. CASAA issued a call to action for the bill before it passed the Senate in the summer, but few vapers or vaping businesses seemed especially alarmed by the prospect of its passage.

The new law does two things:

  • Instructs the U.S. Postal Service to create regulations prohibiting shipment of all vaping products through the U.S. Mail to residential addresses
  • Inserts vaping products into the Prevent All Cigarette Trafficking (PACT) Act. (The PACT Act is an amendment to the older federal Jenkins Act)

The Preventing Online Sales of E-Cigarettes to Children Act covers a much wider range of products than the FDA’s Deeming Rule, and is unrelated to the FDA’s tobacco and vaping regulations. The definition of products covered by the law is so broad that it captures not just nicotine vaping devices and e-liquid, but anything that can be used to vape any liquid- or oil-based substance (and the substances themselves).

Unlike the relatively relaxed enforcement procedures of the FDA, the ATF is an actual police agency that takes its enforcement mandate seriously.

The postal ban and PACT Act provisions will include all e-liquid and oil vaping devices, nicotine and nicotine-free e-liquids, CBD and delta-8 THC liquids and oils, and every related component, part or accessory intended for those products.

Following passage of the new law, the major private delivery companies announced that they too would stop delivering vaping products, not just to homes but also to businesses. Fedex will end vape product shipping March 1, and UPS on April 5. DHL had already prohibited shipping vaping and nicotine products in the U.S. before the law passed.

What follows is a general look at what is likely to happen as a result of the new shipping restrictions and the PACT Act. The article is geared toward vaping consumers, who make up most of Vaping360’s readership, but will also touch on the likely effects for vape businesses. It is not legal or business advice. If you own a vaping business, you should be discussing your options with a knowledgeable lawyer, your suppliers, and your state trade organizations.

The proposed U.S. Postal Service rule

On Feb. 19, USPS published its proposed rule, titled “Treatment of E-Cigarettes in the Mail,” in the Federal Register, and provided a 31-day window for public comment (which ends March 22). The final rule will take effect soon after publication—on March 27, according to Tobacco Reporter. That is the same date the PACT Act rules will become law.

For those wishing to comment on the regulations, there are limited demands to be made of the Postal Service. The USPS is being ordered by Congress to impose the shipping ban; it wasn’t the agency’s idea, and the Postal Service has no leeway to do anything else. That said, <strong>CASAA has issued a call to action with suggested talking points for vapers to use in their comments to both the USPS and members of Congress. It’s important that the Postal Service and—especially—Congress hear how this law will hurt ordinary consumers, and that they hear from a lot of us.

The postal agency essentially intends to simply add vaping products to its existing cigarette and smokeless tobacco mailing rules, with minor changes that won’t affect online vape purchasers. The rules prohibit U.S. Mail shipments from businesses to retail customers (except shipments within the states of Alaska and Hawaii), and make business-to-business (B2B) shipping very difficult.

The existing USPS rules do contain an exception that allows private individuals to mail up to 10 small (under 10 ounces) packages per month containing cigarettes or smokeless tobacco to other private individuals or to businesses. Presumably this exception will be extended to vaping products. The exception is intended for gifts or for returning defective products to a manufacturer. There are specific rules private senders must follow.

The PACT Act and tax compliance

The Prevent All Cigarette Trafficking (PACT) Act was a 2009 amendment to the 1949 Jenkins Act, and was passed primarily to combat online sales of untaxed cigarettes. The 2009 law prohibited U.S. Mail delivery of cigarettes and smokeless tobacco, and required online sellers to register with the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) and the tax administrators of each state.

The PACT Act mandates collection of state and local taxes by online sellers, creates standards for private carriers delivering cigarettes and smokeless tobacco to residential and business customers, and imposes strict rules regarding tax collection, payment and reporting to states and the federal government.

The Preventing Online Sales of E-Cigarettes to Children Act passed last December amends the PACT Act to include vaping products along with cigarettes and smokeless tobacco. While the original law’s goal was to police tax compliance, the inclusion of vaping products is supposedly intended primarily to prevent online sales to minors.

Online retailers will be required to:

  • Verify age of customers using a commercially available database
  • Use private shipping services that collect an adult signature at the point of delivery
  • Register with the ATF and the U.S. Attorney General
  • Register with state and local tax administrators in all states and localities where business is done
  • Collect and pay all applicable local and state taxes, and affix any required tax stamps to the products sold
  • Each month, a list of all transactions must be sent to each state’s tax administrator that includes the names and addresses of each customer sold to, the quantities and type of each product sold, and the name, address, and phone number of the person delivering the shipment to the recipient

The PACT Act also imposes additional labeling, delivery and recordkeeping rules. The federal law backs up its stringent standards with severe criminal penalties that can include huge fines and even federal prison sentences. Unlike the relatively relaxed enforcement procedures of the FDA, the ATF is an actual police agency that takes its enforcement mandate seriously. Excuses like, “This is what we’ve always done and nobody complained” will meet deaf ears, and the ATF is likely to make examples of some non-compliant retailers.

There will probably be many smaller online retailers unable to survive the cataclysmic upheaval that lies just ahead.

On top of all that, each state has its own set of rules for companies doing business in the state. Retailers can be cited by states for not following their individual requirements for tax payments and filings, and they may have to purchase tobacco and other licenses, or hire a registered agent in the state.

According to Geoff Habicht of Mi-One Brands (manufacturer of the Mi-Pod), online sellers will also be required to collect sales taxes—in addition to vaping or tobacco excise taxes—in many states, whether they have vaping product taxes or not. Habicht says that economic nexus laws can force online sellers to collect sales taxes if the retailer does a certain amount of sales or number of transactions (this varies) in a state.

At least one state is helpfully setting retailers up with the licenses they need to do business legally, and then immediately hitting them with bills for back taxes on sales to customers in that state. There’s nothing the retailers can do but pay the back taxes if they want to continue doing business in that state and avoid a lawsuit. The PACT Act reporting requirements will open a new playing field for states that want to squeeze money from out-of-state vendors, especially when combined with economic nexus laws that mandate sales tax collection.

The tax compliance requirements alone will probably convince many small online retailers to throw in the towel. Unless a company ships just a few packages to a couple of states, the tax collection, reporting, filing and follow-up will require trained, dedicated staff, as well as a lot of time and energy, legal advice, tax expertise, and an automated—and expensive—tax compliance solution.

Several large tax compliance companies are working on software for online vape sellers, but so far only one has a product ready to install and use right now. Wisconsin-based tax compliance experts IGEN says its software and support provides “solutions for heavily regulated industries like vape, tobacco, oil & gas.”

The company provides a software package designed especially for vaping businesses that integrates with the online seller’s checkout system to calculate the correct and up-to-date state and local excise taxes based on the purchaser’s zip code, and then add the tax charges to the bill. The software then sorts and compiles the transaction data, and generates the filing documents that must be sent each month to the various states and localities, using each jurisdiction’s preferred format. IGEN also has partner businesses that will obtain required licenses in each state, if needed.

An online retailer, even with a full-time employee dedicated to the job, would probably not be able to manually do the research necessary to simply determine all the tax rates in each state and locality, let alone compile the reports that must be sent to each state. But the price for a service like IGEN’s is probably also beyond the budget of a small business. One large online retail business owner said he expected to pay several thousand dollars a month, plus the cost of labor and training necessary to complete the state filings.

How will the shipping restrictions affect vapers?

As the day approaches when the U.S. Postal Service and the major common carriers stop shipping vapor products, the vaping industry is working to develop solutions that will allow deliveries to continue, at least for many vapers. And while progress is being made, the vape shipping and sales landscape is about to change radically for both vapers and the businesses they buy from.

It’s likely that some customers will soon be unable to legally get the open-system vaping products they want—at least for a time—and will need to stock up or make other plans to get products. There will probably be many smaller online retailers unable to survive the cataclysmic upheaval that lies just ahead.

Who will survive? Companies that have “the cash flow, or the reserves, to survive the next three or four months of total uncertainty,” says industry veteran Geoff Habicht. Companies that can’t face several weeks or months of disturbance to their income probably won’t make it.

Online retail and B2C shipping: a kernel of hope

The ban on Postal Service shipping, combined with the decision by the major private carriers to end vape product deliveries, poses a true existential crisis for online vaping retailers and manufacturers who ship business-to-customer (B2C). And for vapers in rural areas and cities without vape shops it could mean the end of easily available open-system products.

After the announcements from Fedex and UPS, many large online sellers tried to apply for exemptions that would allow them to continue shipping vaping products through the major carriers, but they were rebuffed. The big delivery services don’t want the potential headaches of dealing with ATF’s PACT Act enforcement.

However, there now appears to be a kernel of hope for vapers—at least for a fairly large number of vapers. A partnership between a private group buying company and a national residential shipping carrier known simply as X has begun building a vaping product delivery network that will serve residential customers in some areas, with more to follow. There are currently more questions than answers about which areas will be covered and which vape companies will be able to participate, but the folks at X seem dedicated to making it happen.

Shipping costs will be slightly higher, but not far from the cost of USPS delivery with adult signature collection. However, the considerable costs retailers will incur because of PACT Act and tax compliance, and rejigging all of their shipping processes, will probably be reflected in the prices we pay for products and shipping.

The goal is to cover as many customers as possible right away, then to continue growing the coverage area after launch.

“This is a very competitive market, so companies are going to try to meet customers’ needs without going bankrupt,” American Vaping Association president Gregory Conley told Vaping360. Minimum order sizes to receive free shipping will likely increase, according to Conley. And product selection may thin out as large retailers look for ways to streamline their operations.

The X delivery coverage area has not been made public yet, but according to one seller who intends to ship through X, it is likely to cover parts of more than a dozen states as of April 1. The coverage area at launch is expected to include at least sections of Florida, Texas, California, Nevada and Arizona. A spokesman for X declined to confirm specifics about delivery areas, but told Vaping360 that it would soon provide a list arranged by ZIP code (the coverage isn’t defined by state borders).

The process of deciding which areas to include is complicated, according to a retail vendor who didn’t want to be named. First, X and its partners analyzed the customer lists of potential retail clients, then began looking at laws and regulations in the most commonly shipped-to locations. The company then sought shipping partners willing to deliver vaping products.

Drivers will have to be trained on the federal requirements, and shippers will have to track custody of each package for PACT Act reporting. The goal is to cover as many customers as possible right away, then to continue growing the coverage area after launch.

Building such a network from scratch is a difficult process, and launching it under ATF scrutiny doesn’t leave room for many mistakes. If successful, X will continue expanding the coverage area, which will eventually serve more customers and allow more online sellers to participate. (Interested online retailers can contact X through the company’s merchant sign-up page.)

“We’ve told our customer service people they’re going to need their A-game for the next 90 days.”

The X delivery plan will, however, leave a lot of online sellers out—at least in the near term. The minimum number of packages X will schedule a pickup for is currently 500 (with a weight limit of 10 pounds each). That will exclude many small e-liquid manufacturers who ship directly to customers, at least for now (X says the minimum pickup number may drop as the operation is streamlined). Small shippers may be able to consolidate pickups with other local businesses, X suggests, and the company says it will look at each situation on a case-by-case basis, but it seems clear that some small vape companies will be left out.

So major online vape retailers who do considerable business in heavily populated areas may be the only winners—for now—with the X shipping service. But according to an employee at one of X’s partners, 3PL (third-party logistics) providers may offer a solution for some smaller companies. 3PLs typically offer a package of services that include warehousing, ordering and delivery, so the cost is higher for the manufacturer, but some of the headaches are handed off to the 3PL. However, we did not fully investigate this option.

Small manufacturers will have to pause their operations until shipping solutions present themselves, or try to make deals with large distributors to be sold in vape shops, or with larger online sellers to be offered on their retail sites. But distributors and large retailers may choose to keep their brand lists small, with PMTA enforcement looming and vape shops wary of getting stuck with unsellable merchandise.

“You’re already seeing smaller players begin to exit the market, because of shipping restrictions and PACT Act compliance, but also because of new FDA enforcement actions against manufacturers that didn’t apply for PMTAs,” says Conley. “At least in the short term, if you’re not shipping hundreds of products [a day], you’re either going to have to close your business or figure out a partnership with someone who does ship a lot of products.”

B2B shipping: from manufacturer to distributor to vape shop

Vaping manufacturers, distributors and brick-and-mortar retailers will face many of the same shipping challenges as online retailers. Fedex, UPS and DHL will no longer carry their packages, and the Postal Service exemption many had pinned their hopes on is probably not the answer.

The USPS is refusing to even accept applications for B2B vape accounts until it issues its final rule, but even assuming it allows manufacturers and wholesalers to ship by U.S. Mail, the current rules for tobacco shipping indicate that the process would be expensive and brutally cumbersome.

First, applicants must provide the names and addresses of all the businesses they will ship to on their applications, along with providing a list of all their customers’ licenses. If the business later adds new customers, or a customer changes its address, the application must be updated and the changes approved by USPS before any products can be shipped to the new address. Applicants must also name the individual post offices it will ship from, and only use those branches.

Packages have to be physically carried into the post office, and processed in a face-to-face transaction. Shippers are restricted to three Priority Mail options. Each package must have attached a request for PS Form 3811 return receipt, which must bear the sender‘s PACT eligibility number and other specific information, some of which must be identical to that listed on the shipper’s B2B tobacco application. The receiving business has another set of steps to follow.

As is the case for online retailers, vape manufacturers and wholesalers are being forced to create a new shipping ecosystem as they go along.

These requirements are simply not practical for, say, a manufacturer that ships dozens or hundreds of large packages a day. Not only would it be exceedingly expensive to send large B2B packages via Priority Mail, but the labor involved to ship would require hiring staff to do nothing but visit the post office daily.

“Unless you’re shipping just two or three packages a day, USPS isn’t going to work. I’d have to physically go into the post office and fill out one of those little green cards for each package,” says Mi-One’s Geoff Habicht. “Nobody will do that.”

That leaves manufacturers and wholesalers in the same boat as online retailers: they will have to create a private network of shipping companies to carry products. And while the PACT Act requirements are somewhat less strict for businesses, vape shippers are still stuck with nearly the same tax compliance and reporting issues.

The wholesale segment of the vaping industry is fairly accustomed to the world of shipping freight. But with the big carriers out of the picture, they’ll have to go through essentially the same process X is attempting with B2C shipping.

The freight industry is already a huge network of national, regional and local carriers that deliver full truckloads, LTL (less-than-truckload), and smaller parcels. Now the vaping businesses will have to assemble ad hoc networks from the existing companies, and create logistics systems that can manage deliveries between the various manufacturers, distribution warehouses and vape shops.

At this moment, no one is able to say in exactly which areas customers will be able to receive home delivery of vaping products.

Some companies are trying to build their own delivery systems with regional shippers that already cover areas that include large distributors and shops in adjacent states also covered by the regional carriers. And at least one person is attempting to create a national freight network that will deliver all sizes of shipments from manufacturers and distributors to shops across the country.

Michael Wittenberg, who has 20 years of logistics experience and a history in the vape industry (he owns National Vape Expo), has created a company called Vapefreight, which he describes as a “complete B2B shipping solution for the vape industry.” He says the company will offer freight, LTL and parcel delivery across the nation, and that he already has arrangements with over 5,000 carriers. Freight services are less touchy about delivering “tobacco” than companies who do residential delivery, so the process of finding partners is less fraught.

“Vapefreight customers are shipping LTL and freight right now, and we should have parcel service by the end of the week,” says Wittenberg. As with home delivery, freight shipments must be tracked for PACT Act reporting.

Mi-One’s Geoff Habicht is doing some test shipments through Vapefreight this week. He says 90 percent of his business is B2B sales, and he had been exclusive with Fedex for freight delivery until now. As is the case for online retailers, vape manufacturers and wholesalers are being forced to create a new shipping ecosystem as they go along. Even the businesses that survive will go through months of turmoil.

“There are going to be lots of kinks and hiccups,” says Habicht. “We’ve told our customer service people they’re going to need their A-game for the next 90 days.”

While it appears that some large online retailers have discovered a solution to the shipping problem, there are still a lot of questions about which areas will be covered for the first few months. At this moment, no one is able to say in exactly which areas customers will be able to receive home delivery of vaping products.

We will report that information when it becomes public, but until then vapers should consider taking precautions. There are alternatives to buying e-liquid and devices online. And while vape shops may be more expensive, and DIY requires more effort, all of these workarounds are better (and cheaper!) than going back to smoking.

You’ve got a few weeks to buy online before PACT Act compliance and B2C shipping restrictions take effect. That gives you time to spend your savings (or credit) on vape products still available online. If you have favorite e-liquids that are only sold directly by the manufacturers, they may not be available after this window of time. Each day brings new announcements of impending closures.

If you need backup devices, pick sturdy and reliable ones. Check the vaping forums and ask fellow vapers which mods people trust. Buy two, along with an extra tank or atomizer.

Buy lots of extra coils if you can, especially if you use a tank that isn’t still being sold. As retailers and distributors find shipping solutions, they are likely to trim their selection, so replacement coils for discontinued atomizers may get hard to find. Consider buying a popular tank whose coils are sold most places.

You’ll get the most bang for your buck by using e-juice in a high nicotine strength and devices that deliver lower volumes of vapor. There are many high quality mouth-to-lung (MTL) tanks and refillable pod systems sold nowadays.

Learn to make DIY e-liquid

Buying DIY nicotine may be as difficult as buying e-liquid after the restrictions take effect, but a little goes a long way. If you buy and freeze a couple liters of 100 mg/mL nicotine, it could supply your e-liquid needs for years, depending on your nicotine strength preference.

Learning to make your own DIY e-liquid is a relatively simple process, and PG, VG and flavorings will always be available. You’ll have to spend some money up front, but in the long run, DIY e-liquid is much less expensive than commercial vape juice—especially if you use a lot of e-juice every day.

Reconnect with local vape shops

While there will be kinks in the supply chain for a while, vape shops are probably more likely to develop shipping solutions rapidly than online sellers—at least for customers who don’t live in major metropolitan areas. The drawbacks to shops—higher prices and less selection—won’t seem as important when the alternatives are c-stores or quitting (or smoking!).

Most vape shops that have survived this long have excellent customer service, with employees that take pride in helping vapers find the right products. If you haven’t visited a vape shop in years, now’s the time to get acquainted with the ones in your area.

Learn to love (or at least like) mass-market vapes

Fans of open-system vaping devices and bottled e-liquid often sneer at the vaping products sold in convenience stores. But in fact as many or more people use closed-system pod vapes and other mass-market products as the more flexible vapes that many of us prefer.

The biggest drawbacks with c-store products are flavor choices and price. Some vapers absolutely won’t vape tobacco or menthol flavors, but others don’t mind. And if you think NJOY or Vuse pods are expensive, check out the current price of cigarettes (and heart surgery). These products may help you get through the supply hiccups that are bound to happen for the next few months, even if you never love them.

While waiting for answers, support the businesses that you can

At this point, no one knows exactly what the future holds. The home delivery solution being built by X and its partners could come together quickly and offer service to most customers in just a few months. Or it could stall and leave online sales only available to people in a handful of large metro areas.

If that effort goes smoothly and internet vape sellers are able to deliver products without compliance problems, other shipping networks may spring up and drive prices down through competition. But the road is likely to be rocky for at least the next few months, as the new systems are being built and refined and small manufacturers make hard decisions.

Until then, try to find workarounds—and understand that a lot of people are working hard to make things work. There are many millions of vape shipping dollars out there for enterprising delivery and logistics pros to chase. Trust that capitalism will find a way.

“America is the land of ingenuity,” says Greg Conley, “so I have faith.”

Smokers created vaping without any help from the tobacco industry or anti-smoking crusaders, and vapers have the right to keep innovating to help themselves. My goal is to provide clear, honest information about the challenges vaping faces from lawmakers, regulators, and brokers of disinformation. I recently joined the CASAA board, but my opinions aren’t necessarily CASAA’s, and vice versa. You can find me on Twitter @whycherrywhy

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