Wednesday, January 17, 2018

Beyond the Food and Drug Administration (FDA) and Tobacco Control Act requirements that now apply to deemed tobacco products, manufacturers and retailers of vapor products, and particularly e-liquids, also face stringent environmental and waste management regulations and compliance issues that are significantly more complex than those faced by cigarette and traditional tobacco product companies. This dichotomy arises because regulations promulgated pursuant to the federal Resource Conservation and Recovery Act (RCRA) treat nicotine in tobacco-based products differently than when found in e-cigarettes and other vaping products.

Compliance with the waste management regulations can be confusing because their scope and extent will vary by the amount of waste nicotine produced at a manufacturing facility or the amount of nicotine-containing products collected for disposal by a retailer. Further complicating the issue, even if exempted from the RCRA regulations, certain nicotine-containing products may be subject to state regulation of nicotine as a dangerous or industrial waste. Although there have been few enforcement actions brought against vapor or e-liquid manufacturers or retailers, regulators have noted the industry's growth and potential for noncompliance. Going forward, we expect regulators to focus less on educating the industry about waste management obligations and follow a more active enforcement approach.

RCRA Overview

The federal RCRA regulations and state analogues establish a comprehensive system for managing hazardous waste from "cradle to grave," that is from the point the waste is generated until its ultimate disposal. Broadly speaking, the regulations prescribe how to determine if and when a material is regulated as a hazardous waste, and how to manage the waste once the determination is made. Critically, RCRA only applies when the material becomes solid waste, meaning that it has been discarded by being abandoned, recycled, or treated as "inherently-waste like," or the decision to discard has been made.[1]

Having decided to discard a material, the waste generator must next determine whether the waste is hazardous. This is done in one of two ways: (1) does the waste contain materials that EPA has listed in one of the three hazardous waste lists codified at 40 C.F.R. Part 261, subpart D; or (2) does the waste exhibit one or more of four characteristics: ignitability, corrosivity, reactivity, or toxicity?[2] With regards to e-liquids and other nicotine-bearing products, certain unused chemicals are listed hazardous wastes when discarded.[3] The hazardous waste listing applies when the following three criteria have been met. First, the chemical must be listed at 40 C.F.R. § 261.33(e) or (f). Nicotine and its salts are listed at 40 C.F.R. § 261.33(e) as an acute hazardous waste with the P075 waste code. Second, the listing applies "if and when they are discarded or intended to be discarded" prior to use.[4] Given its intended function, nicotine in e-cigarettes is not used until it has been inhaled by the end user.

Third, the listed chemical must be discarded in the form of a "commercial chemical product or manufacturing chemical intermediate having the generic name of the listed chemical" (CCP). The term CCP refers to a chemical substance which is manufactured or formulated for commercial or manufacturing use and which consists of the commercially pure grade of the chemical, any technical grades of the chemical that are produced or marketed, all formulations in which the chemical is the sole active ingredient, and any off-specification forms of the foregoing chemicals.[5] Products with more than one active ingredient are not regulated as CCP, although they may still be regulated hazardous wastes if they exhibit one of the hazardous characteristics.

According to the U.S. Environmental Protection Agency (EPA), nicotine is the "sole active ingredient" in e-cigarettes because it is the "only chemically active component that performs the function of the product.[6] Flavorings, sweeteners, colorants and other components are considered inert ingredients. Consequently, raw material (i.e., nicotine), off-spec e-liquids, container residues, and spill residues are hazardous wastes when they are discarded or intended to be discarded from businesses. In addition, EPA has stated that because certain e-cigarettes contain cartridges that are containers of a CCP, they too must be treated as hazardous waste when disposed.[7] This also applies to tanks and pods used in open-systems and advanced vaporizers to hold the nicotine-containing e-liquid.

RCRA Requirements Depend on Quantity

Hazardous waste compliance requirements vary significantly under RCRA depending on the amount of hazardous waste a facility generates each month. Thus, the generator category of a company and commensurate requirements, including storage and accumulation, recordkeeping and reporting, and training requirements could change from month to month.[8] Keeping up with these changes and ensuring a facility complies can be particularly burdensome for small businesses, such as those that constitute a large portion of the vapor industry.

Nicotine's status as an acute hazardous waste is likely the primary driver for determining the "generator" category for an e-liquid or vapor product manufacturer. Businesses that generate acute hazardous waste ("generators") are categorized as very small quantity generators (VSQGs) when generating up to 2.2 pounds (1 kilogram) per month, and large quantity generators (LQGs) when generating more than 2.2 pounds per month.[9] Regulatory requirements are significantly greater for LQGs, as is clear from a guidance chart developed by EPA.[10] Thus, e-liquid manufacturers have a strong incentive to operate as VSQGs or small quantity generators (SQGs).

When a generator has multiple hazardous waste streams, the generator must quantify each waste stream separately and abide by the more stringent generator category.[11] An e-liquid manufacturer will be classified as an SQG if the manufacturer does not exceed the 2.2 pound per month threshold for acute hazardous waste but generates greater than 100 pounds of non-acute hazardous waste per month.[12] For example, a generator of up to 2.2 pounds of acute hazardous waste that crossed the 220 pound threshold for non-acute hazardous waste may need to comply with SQG requirements, as opposed to VSQG requirements.

Fortunately, a generator has some options for managing hazardous wastes: recycling, treatment, storage, or disposal. Each approach has its own implications and requirements under RCRA. Recycling (e.g., nicotine reclamation) is a management method that can have a meaningful impact on the standards applicable to hazardous waste generators. Provided that the company can demonstrate the recycling is legitimate, the reclaimed nicotine will not be considered solid waste.[13] Recycling is a particularly appealing option as it can reduce the amount of material counted as hazardous waste for purposes of determining the generator category.

E-liquids May Be an Increasing Focus for Enforcement

Compliance with RCRA requirements by vapor product and e-liquid manufacturers is an increasing area of emphasis for both the states and EPA. Thus far, states have focused on outreach to the industry regarding compliance measures.[14] Such outreach typically lasts from six months to a year to provide a chance for the industry to come into compliance before the agencies transition to enforcement. Given that the e-cigarette and vaping industries have been growing for several years, and that the past two years have seen an increase in state proposals and communications concerning this issue, industry members need to consider whether regulators will pursue a more aggressive enforcement agenda in the new year and going forward. Accordingly, e-cigarette and e-liquid manufacturers should evaluate their processes and potential impact on generator status to determine whether their facilities are complying with RCRA or state analogues.

[1] 40 C.F.R. §§ 261.2(a), 261.33.

[2] 40 C.F.R. §§ 261.20-261.24.

[3] See 40 C.F.R. § 261.33.

[4] 40 C.F.R. § 261.33. See also EPA Letter to Merck Sharp & Dohme, FaxBack #11012, May 13, 1981.

[5] 40 C.F.R. § 261.33(b)

[6] Letter from Barnes Johnson, EPA, to Daniel K. DeWitt, Warner, Norcross & Judd LLP (May 8, 2015), RCRA Online #14850.

[7] Id.

[8] Recent revisions to the regulations do provide some relief to companies that consistently qualify under one category but experience an episodic event that shifts them to a more burdensome one. The rules generally limit the facility to one episodic event, however. See Hazardous Waste Generator Improvements Rule, 81 Fed. Reg. 85,732 (November 28, 2016).

[9] 40 C.F.R. § 262.13.

[10] U.S. EPA, "Hazardous Waste Generator Regulatory Summary," available at:https://www.epa.gov/hwgenerators/hazardous-waste-generator-regulatory-summary.

[11] 40 C.F.R. § 262.13.

[12] See 40 C.F.R. § 262.13.

[13] Four factors are used to determine whether recycling is "legitimate." 40 C.F.R. § 260.43(g). First, recycling must involve a hazardous secondary material that provides a useful contribution to the recycling process or to a product or intermediate of the recycling process. For example, the nicotine-containing materials may be the source of a valuable constituent (i.e., nicotine) recovered in the recycling process. Second, the recycling process must produce a valuable product or intermediate, which can be demonstrated by sale of the recycled product to a third party, by its use as an effective substitute for a commercial product, or by its use as ingredient in a process. Third, the generator and the recycler must manage the hazardous secondary material as a valuable commodity when it is under their control. This would entail management of nicotine-containing materials consistent with how raw nicotine is managed. Fourth, the product of the recycling process must be comparable to a legitimate product or intermediate. For example, the recycled product should meet widely recognized specifications for the raw material and not contain hazardous constituents in greater levels than a non-recycled analogue. See Letter from Barnes Johnson, EPA, to Scott DeMuth, g2revolution LLP (May 8, 2015), RCRA Online #14851.