Pact Act 2021 - How It Affects Cannabis

Pact Act 2021 - How It Affects Cannabis

Congress passed the PACT ACT amendment to include regulations on e-cigarette products to include in its definition the use of vaping products within the cannabis industry. 

Most of the cannabis industry won’t feel the effects of the recent signing of the PACT ACT. More than likely, this Act will “not” affect the revenue of online manufacturers of cannabis/hemp vaping products due to the existence of even more strict regulations and taxation.

Keep reading below if you want to be on the top of your game regarding the new amendments.

What Is The Pact Act?

The PACT Act or the Prevent All Cigarette Trafficking Act was first passed in 2009 as an amendment to the former Jenkins Act of 1949. 

This Act aims at countering illicit trafficking and tax evasion which previously allowed interstate shippers to disclose cigarette sales to state tobacco tax administrators.

Passing the PACT Act banned (among other things) USPS from distributing cigarettes and smokeless tobacco products directly to customers.

How Did The Pact Act Change?

Congress revised the PACT Act as part of the "Consolidated Appropriations Act, 2021". 

This provision was signed as part of the COVID-19 relief bill on December 27, 2020, with e-cigarettes and other smoking products as the subjects of this provision.

Signing of the PACT Act now mandates, in addition to the non-mailing requirements, anybody selling cigarettes or smokeless tobacco to file with the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF).

In addition, you’re also required to file with the tobacco tax administrators of the States you’re shipping to, advertising in, or where the deal is distributed. 

Sellers are now mandated by the PACT Act to file a monthly report with the state tobacco tax administrator and every other municipal or tribal body taxing cigarette purchases. 

Besides, the 2020 PACT Act now includes e-cigarette and vaping products under the word “cigarette” making its online sale to children illegal. 

How Will This Affect Hemp And CBD Retailers?

By passing the PACT Act, hemp and CBD retailers are wondering how this might affect day to day operations.

How PACT Act amendments won’t affect the cannabis industry:

  1. The ATF and FDA have no power to monitor cannabis products or taxes on cannabis.
  2. Since marijuana (delta 9 THC) is already illegal under federal law, it’s already illegal to mail the product.
  3. The FDA does not regulate Electronic Nicotine Delivery Systems (ENDS) products that may not contain nicotine or cigarettes, or that do not use health statements such as smoking cessation.
  4. Since the new amendments, the online shipping of CBD or THC vapes and cartridges might be subject to the PACT definition of cigarettes.

More strict online Hemp and CBD requirements retailers must follow:

  1. Must register with the U.S Attorney General.
  2. Shoppers must provide information about their age and this will be stored in a database.
  3. Upon delivery, the signature of the customer is required.
  4. Private shipping companies’ services must be used instead of USPS and FedEx.
  5. According to the state and local taxes, any required tax stamp must be fixed on the product for delivery.
  6. Retailers must provide details about every transaction including the customer’s name and address, and the type and amount sold to the person to the tax administration. 
  7. Sellers must keep a 5-year record of an interrupted delivery that may be due to a violation of the Pact Act. 

Companies found not complying with updated rules can receive up to three years of prison time.

Is Mailing Vapes Illegal -- Even If It’s Federally Legal Hemp?

The PACT Act amendment includes new regulations regarding the shipping of ENDS products that will now include hemp and CBD vapes.

With this amendment, the US Postal Service (USPS) and FedEx will be required to regulate and stop the delivery of vaporizers. 

FedEx has confirmed they will stop shipping any vaping products on the 1st of March 2021. 

We are still waiting for any response from the USPS regarding the date for the application of the PACT Act amendment. 

The prohibition on posting ENDS will start on the date that the USPS will decree its regulations. 

Hemp and CBD retailers must now turn to private shipping companies who are willing to continue mailing ENDS.

The Implications Of The Appropriation Act For Cannabis Retailers

Despite federal law, it’s the state definition that has the final authority on the taxation of vaping products found under the PACT Act. 

Each state has a different definition of what encompasses ENDS products and will enforce the law accordingly.

Therefore, hemp and cannabis suppliers do not have much to worry about because states have different taxes for cigarettes, e-nicotine, and cannabis products. 

This distinction implies that the taxation on ENDS products, in certain states, remains the same. 

The ATF and FDA do not regulate cannabis products or taxes because of the absence of nicotine and tobacco. 

Rather, it’s the state cannabis regulators who have the authority to track, record, and audit the revenue of cannabis products that may fall under the PACT Act. 

State cannabis administrators surpass the ATF Bureau in the final decision for sanctions on a cannabis manufacturer. 

By having more details about the transactions, revenue, and tax payments they can provide appropriate sanctions on cannabis retailers. 

The Federal Controlled Substances Act has also made interstate sales of THC vaping products illegal and the sanctions are more severe than the PACT Act. 

Retailers can be punished to life in prison which is not comparable to the mere three years in prison from the PACT Act.

In contrast, the state tobacco regulatory administration is heavily underfunded and understaffed since the FDA and ATF are responsible for regulating tobacco manufacturers and retailers. 

Benefits Of The New PACT Act

There are a few benefits that come with the PACT Act for the cannabis industry that may not be obvious. 

Companies and retailers are expected to record a detailed list of their clients’ information to submit to tax authorities. 

This list is also helpful in knowing their customers and their preferences by providing an insight into the performance of various products. 

Companies will have a better understanding of what products are in demand on the market and can better serve the needs of the market. 

The PACT Act requires all ENDS companies, including cannabis retailers, to register themselves to the federal government thereby preventing any illegal companies from continuing their sales online. 

There will be no illegal competitors which will increase the customers’ demographic for cannabis vaporizers. 

With a mass reduction (elimination) of counterfeit cannabis products on the market, legal cannabis retailers are able to better protect the health and wellbeing of their consumers.

States will continue to distinguish between nicotine products and cannabis products giving cannabis suppliers the benefit of not being subjected to the tax regulation imposed on tobacco ENDS companies. 

Taxation on cigarettes and e-nicotine companies will be stricter but no changes will be applied to the cannabis market. 

Drawbacks Of The PACT Act

Amending the PACT Act law has presented some drawbacks to the general vaping industry, including cannabis vaporizers. 

The amended law demands every single ENDS retailer to register with the federal government. 

More details about transactions must be provided to the tax administration, meaning more paperwork to be filled out for registration and tax payments. 

There should also be a record for five years about any interrupted delivery which may be caused by a violation of the PACT Act from the buyer. 

Companies must search for the tax regulations of the buyer’s state and apply any tax stamps that may be required on the product before delivery. 

Additional procedures may increase the overall delivery time for buyers.

Since USPS and FedEx are no longer able to ship vaping products, retailers must turn to private shipping companies, which may cause an increase in shipping price.

The Bottom-Line For Hemp/Cannabis Retailers

Congress is still not persuaded to ban all online cigarette products for now which benefits the cannabis industry.

Online retailers for cannabis vaporizers will have to collaborate with private shipping companies to deliver their products but there will be no changes regarding their taxation. 

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