CHICAGO (CN) – Indiana’s law regulating the production of “vape” liquids for e-cigarettes imposes broad requirements on out-of-state manufacturers that are unprecedented and unconstitutional, the Seventh Circuit ruled.
As smoking bans have made the use of traditional tobacco products illegal in many public places, businesses have rushed to fill the void in the market with electronic, or e-cigarettes, devices that sate the need to smoke tobacco, purportedly without as great of a public health hazard.
With its Enroll Act 1432, the Hoosier State has been at the forefront of efforts to keep a tight rein on this rapidly growing market.
The act lays out detailed requirements for manufacturers to qualify for a permit to sell their product in Indiana. For example, it requires manufacturers to hire an independent security firm rather than use in-house security, which must provide 24-hour video monitoring, and dictates details for the construction and operation of the facility, such as a clean room that abides by Indiana commercial kitchen standards.
Three out-of-state makers of liquids used to refill e-cigarette cartridges challenged the law as an unconstitutional regulation of non-Indiana businesses in a 2015 federal complaint. The plaintiffs are Legato Vapors, Rocky Mountain E Cigs, and Derb E Cigs.
They assert that the law’s stringent permitting requirements discriminate against small companies in favor of Big Tobacco.
Traditional tobacco companies are the leading, and perhaps only, manufacturers of closed vaping system devices, also known as vape pens, that use sealed cartridges, according to the lawsuit.
The liquids used in both closed and open systems function similarly and are chemically identical, the complaint states.
The Indiana law has been a boon to in-state e-liquid makers, as only six companies may now lawfully sell their vaping products in the state, as opposed to more than 100 before the act’s passage. Four of those six are Indiana-based companies.
A federal judge found for the state, but Seventh Circuit reversed and ruled the law unconstitutional Monday for violating the U.S. Constitution’s Commerce Clause.
“The Act is written so as to have extraterritorial reach that is unprecedented, imposing detailed requirements of Indiana law on out-of-state manufacturing operations,” Judge David Hamilton said, writing for a three-judge panel. “The Act regulates the design and operation of out-of-state production facilities, including requirements for sinks, cleaning products, and even the details of contracts with outside security firms and the qualifications of those firms’ personnel.”
The Chicago-based appeals court said the law’s prohibition on sales to minors, ingredient labeling, and requirements for in-state factories pose no problems, but the state cannot impose the same requirements on out-of-state manufacturers.
“More than just posing a significant threat of inconsistent regulation, the Indiana Act directly regulates specific elements of any security contract made by out-of-state manufacturers. These provisions control conduct ‘beyond the boundaries of the state’ and tell out-of-state companies how to operate their businesses,” Hamilton said.
The court did not address the complaint’s allegations of bias in favor of Big Tobacco companies.