Indianapolis Business Journal 3/1/2016
Manufacturers of electronic cigarette liquids that hope to gain a license to continue selling their popular products in Indiana fear their business in the state is at risk of evaporating.
Indiana lawmakers last year passed stricter rules for the vaping industry over concerns about the products’ safety, including a new rule that says e-liquid manufacturers must contract with a security firm that will regulate and inspect their facilities to prevent tampering and ensure product quality.
The rules block manufacturers—which include many smaller mom-and-pop retailers that mix their own e-cigarette liquids—from the market if the Indiana Alcohol and Tobacco Commission doesn’t approve them by June 30. But most players here say following the law is impossible because they haven’t found a security firm that meets the oddly specific standards set out in the statute.
“We have to have a contract with a company for five years, but there is no company that can provide the service,” said Evan McMahon, chairman of Hoosier Vapers Inc., a group that represents several vendors, including the mom-and-pop shops. “As of now, nobody can comply. You’re out of business.”
Meanwhile, some manufacturers are engaged in litigation over the new rules. Four vaping companies last year filed a lawsuit in federal court against the state, alleging the rules give an unfair advantage to larger, national manufacturers that can afford pricey security measures.
In federal court documents filed in mid-January, the ATC said it interprets last year’s law to mean that a manufacturer must hire a single security firm to comply with the new rules—which include providing remote security monitoring and remote video surveillance—and that the firm cannot subcontract with another firm to meet the requirements.
The security firm also must have an employee who holds both a Rolling Steel Fire Door Technician certification and an Architectural Hardware Consultant certification.
But even large security firms can’t scramble to meet those rules. Among other requirements: The security firm must have been in compliance by last July.
The ATC said in the documents filed in mid-January that it was “not aware of an independent security firm that complies with all of the Indiana statute’s security requirements.”
State Sen. Vaneta Becker, R-Evansville, earlier this month succeeded in getting language added to a bill she believed expanded the qualifications to become a security firm. But she said she now realizes only one firm could satisfy the new rules. Critics say that firm is Mulhaupt’s, a Lafayette-based security firm. Representatives from the firm did not immediately reply to IBJ’s request for comment.
“That was never my intent to create a monopoly so one company can control the entire e-vaping business,” Becker said.
The ATC so far has received just one application from a manufacturer, which came in Monday, but the commission said it has not yet reviewed the manufacturer’s qualifications or the qualifications of the security firm it chose. The manufacturer is Richmond, Virginia-based Avail Vapor LLC, and the security firm is the Richmond Alarm Company, according to the ATC.
E-liquids are typically made using vegetable glycerine, flavorings, nicotine and water. Some use tobacco-derived nicotine; others don’t contain nicotine at all.
Manufacturers want lawmakers this session to help them comply with the law, but time is quickly running out. The session is slated to end March 10.
“We either want them to fix it or not touch what was passed (last year),” said Statehouse lobbyist Mike Leppert, who is representing Louisville-based National Tobacco Co., which manufactures several tobacco products, including Zig-Zag e-liquids. “Our industry is way down the road taking issue with an obviously problematic law. We are confident in our position.”
Hoosier Vapers Inc. and other manufacturers also have filed a lawsuit against the state in Marion Superior Court.
But Republican lawmakers are divided on how to act on the issue. An attempt to extend the deadline for e-liquid manufacturers to get certified was defeated Monday in the Indiana Senate. So was an amendment by Becker aimed at nullifying the amendment she now believes creates a monopoly.
Sen. Phil Boots, R-Crawfordsville, said the current deadline restricts the market too much.
“If you’re a person who comes up with a better product and better idea (past June 30), they can’t apply,” Boots said. “Free enterprise says let people come into this business who want to come into this business.”
Sen. Carlin Yoder, R-Middlebury, said the Legislature “has to limit it in some way at some point.”
But that would result in giving “preferential treatment to companies in the game early” that want regulation that only applies to them, Sen. Scott Schneider, R-Indianapolis, said.
“We are locking them in and locking others out,” Schneider said. “It stifles competition, increases prices and it’s not the American way. We shouldn’t be in the process of picking winners and losers.”
Leppert said he believes manufacturers will seek an injunction preventing enforcement of the new law if at the end of the session legislators haven’t fixed the issue.
“The state is not helped by closing the market down on June 30,” Leppert said. “There are dozens, if not hundreds, of small businesses that are in jeopardy. The market is the one that’s going to suffer from this in the short run.”