House Human Services reviews Commerce amendment to S.198 tightening tobacco-substitute regulation

Montpelier — The House Human Services Committee on Wednesday received a walkthrough of a House Commerce strike-all amendment to S.198, an act that would recodify and expand regulation of tobacco products and “tobacco substitutes,” Office of Legislative Counsel Jen Carby told members.

Carby said the amendment broadens the statutory definition of “tobacco substitute” to cover nicotine-containing products whether natural or synthetic and lists electronic cigarettes, nicotine pouches and delivery liquids and devices. "Tobacco substitutes means any product that meets all of the following conditions. First, the product is manufactured from, derived from, or contains tobacco or nicotine, whether natural or synthetic," Carby read to the committee.

The amendment would also move wholesale dealer licensure from the Department of Taxes to the Department of Liquor and Lottery, align wholesale and retail regulatory language, and phase the change in with an effective date of July 1, 2027, to allow agencies time to transition. Carby said both departments are supportive of the move with a one-year delay to work out implementation details.

Why it matters: The change consolidates tobacco licensing and enforcement responsibilities in the agency that already oversees retail liquor licensing, alters how taxes and compliance are verified, and creates new compliance and enforcement tools for regulators.

Key changes outlined by Carby

- Licensing and fees: Retailers would continue to need a tobacco license and — to sell tobacco substitutes — an added tobacco substitute endorsement. The bill raises the renewal fee for a tobacco license from $110 to $150 and the endorsement from $50 to $75. The amendment also creates a new annual wholesale-dealer license fee of $1,245 per outlet, where previously there was no wholesale license fee and the license remained valid indefinitely while operating at the same location.

- Penalties and enforcement: Selling without a license would shift from a misdemeanor to civil penalties: up to $2,000 for a first offense and up to $5,000 for subsequent offenses for retailers. Wholesale dealers face similar civil penalties. Administrative penalties and minimum suspensions would be imposed for repeat violations (Carby described graduated floors such as a $1,000 administrative penalty for a second violation, $2,000 for a third, and $3,500 for a fourth, with revocation plus a $5,000 penalty for certain purchase violations formerly penalized by a one-year suspension).

- Age and possession rules: The amendment strikes the longstanding statutory prohibition that made possession, purchase or attempted purchase by a person under 21 a stand-alone offense (exceptions for employment and indigenous cultural practices remain). The bill retains a penalty for persons under 21 who use false identification and increases the civil penalty for misrepresenting age from $50 to $100 (with community service options retained). Carby said the possession repeal and related confiscation questions were expected to draw testimony from stakeholders.

- Compliance testing: The Division of Liquor Control would be required to conduct compliance tests to ensure at least 90% compliance for buyers between 17 and 20 years of age; repeat failures during compliance checks would trigger escalated administrative sanctions and license suspensions.

- Contraband, internet sales and disposal: The amendment expands contraband definitions to include tobacco substitutes and certain internet-sales violations, authorizes seizure by either commissioner or law enforcement, and requires destruction at violator expense in accordance with Agency of Natural Resources hazardous-waste rules — an issue stakeholders may raise given e-cigarette components.

- Deceptive-product prohibition: A new Section 1013 would bar marketing, labeling or selling tobacco products or substitutes that imitate goods commonly marketed to minors (including candy, school supplies, consumer devices or characters) or that conceal the tobacco nature of a product. The Attorney General would be able to impose civil penalties up to $5,000 per violation and treat violations as unfair and deceptive trade practices under the Consumer Protection Act.

Committee members asked several implementation questions. Representative Steady asked about fee increases and the potential impact on small businesses, saying, “why the increases in fees when businesses are struggling paying taxes and bills and everything.” Carby responded that the adopted amounts reflect an inflationary adjustment and that an earlier proposal in the Senate would have set fees substantially higher before being reduced.

Carby also told the committee that the Commerce committee vote to report the strike-all amendment out of committee was 11-0-0 and flagged the confiscation issue — the question of whether regulators can seize products without a possession ban — as one the Human Services committee would likely revisit during testimony.

Next steps: Carby said the bill contains a study directive directing the Department of Taxes, in collaboration with Liquor and Lottery and the Attorney General, to evaluate taxing tobacco substitutes based on nicotine concentration and to study use of tax stamps; the Department is to report findings and recommendations by Jan. 15, 2027. Most provisions would take effect July 1, with wholesaler provisions delayed until July 1, 2027. The committee invited stakeholders to sign up for testimony and expects to begin hearings in coming weeks.

The committee moved on to other agenda items after the walkthrough, including markup scheduling for S.157 and a scheduled presentation from a Vermont DD Council policy analyst on S.193.