S.F. 2402 DIVISION I 1 REGULATION OF DEVICE RETAILERS 2 Section 1. NEW SECTION . 453E.1 Definitions. 3 As used in this chapter, unless the context otherwise 4 requires: 5 1. “Business” means any trade, occupation, activity, 6 or enterprise engaged in for the purpose of selling or 7 distributing tobacco products and devices in this state. 8 2. “Consumer” means any person who has title to or 9 possession of devices in storage, for use or other consumption 10 in this state. 11 3. “Controlled substance” means controlled substance as 12 defined in section 124.101. 13 4. “Delivery sale” means any sale of a device to a purchaser 14 in this state where the purchaser submits the order for 15 such sale by means of a telephonic or other method of voice 16 transmission, mail or any other delivery service, or the 17 internet or other online service and the device is delivered by 18 use of mail or a delivery service. The sale of a device shall 19 constitute a delivery sale regardless of whether the seller is 20 located in this state. “Delivery sale” does not include a sale 21 to a distributor or retailer of a device not for personal use. 22 5. “Department” means the department of revenue. 23 6. “Device” means an item that is a glass or metal pipe 24 designed to ingest a substance through combustion that would 25 otherwise be defined as drug paraphernalia pursuant to 21 26 U.S.C. §863(d) but is exempt under 21 U.S.C. §863(f)(2) because 27 the item is intended for use with tobacco products. 28 7. “Device retailer” means a tobacco retailer who is also 29 engaged in selling devices to the ultimate consumer. 30 8. “Director” means the director of revenue. 31 9. “Place of business” means any place where tobacco 32 products and devices are sold, stored, or kept for the purpose 33 of sale or consumption; or for a business within or without the 34 state that conducts delivery sales, any place where tobacco 35 -1- LSB 5058SZ (2) 88 pf/jh 1/ 15

S.F. 2402 products and devices are sold or are kept for the purpose of 1 sale, including delivery sales. 2 10. “Retail outlet” means each place of business from which 3 tobacco products and devices are sold to consumers. 4 11. “Sale” means any transfer, exchange, or barter, in 5 any manner or by any means whatsoever, for consideration, and 6 includes and means all sales made by any person. 7 12. “Tobacco products” means cigars; little cigars; 8 cheroots; stogies; periques; granulated, plug cut, crimp cut, 9 ready rubbed, and other smoking tobacco; snuff; cavendish; 10 plug and twist tobacco; fine-cut and other chewing tobaccos; 11 shorts; refuse scraps, clippings, cuttings and sweepings of 12 tobacco, and other kinds and forms of tobacco, prepared in 13 such manner as to be suitable for chewing or smoking in a pipe 14 or otherwise, or both for chewing and smoking; but shall not 15 include cigarettes as defined in section 453A.1. 16 13. “Tobacco retailer” means a retailer as defined in 17 section 453A.42. 18 14. “Use” means the exercise of any right or power 19 incidental to the ownership of tobacco products or devices. 20 Sec. 2. NEW SECTION . 453E.2 Administration —— rules. 21 1. The director shall administer this chapter. The director 22 shall collect, supervise, and enforce the collection of all 23 fees, taxes, and civil penalties imposed under this chapter. 24 2. The director may adopt rules pursuant to chapter 17A that 25 are necessary to enforce this chapter. 26 3. The director may designate employees to administer 27 and enforce the provisions of this chapter, including the 28 collection of all taxes provided for in this chapter. In the 29 enforcement, the director may request aid from the attorney 30 general, the special agents of the state, any county attorney, 31 or any peace officer. The director may appoint clerks and 32 additional help as may be needed to administer this chapter. 33 Sec. 3. NEW SECTION . 453E.3 Device retailers —— permits —— 34 fees. 35 -2- LSB 5058SZ (2) 88 pf/jh 2/ 15

S.F. 2402 1. Permits required. A person shall not engage in the 1 business of a device retailer at any place of business or 2 through delivery sales, unless the person complies with all of 3 the following: 4 a. The person has received and holds a permit as a tobacco 5 retailer pursuant to section 453A.47A that has not been 6 suspended or revoked and is not expired; complies with the 7 provisions of chapter 453A applicable to a tobacco retailer; 8 and sells tobacco products in addition to devices at the retail 9 outlet or through delivery sales. 10 b. The person has received and holds a permit as a device 11 retailer pursuant to this section that has not been suspended 12 or revoked and is not expired, and complies with the provisions 13 of this chapter. 14 2. No sales without device retailer permit. A device 15 retailer shall not sell devices until an application has been 16 filed and the fee prescribed paid for a permit and until such 17 permit is obtained and only while such permit is not suspended, 18 revoked, or expired. 19 3. Number of device retailer permits. An application shall 20 be filed and a permit obtained for each place of business 21 owned or operated by a device retailer located in the state. 22 If an out-of-state device retailer makes delivery sales of 23 devices, an application shall be filed with the department and 24 a permit shall be issued for the out-of-state device retailer’s 25 principal place of business. 26 4. Issuance. Cities may issue device retailer permits 27 to device retailers located within their respective limits. 28 County boards of supervisors may issue device retailer permits 29 to device retailers located in their respective counties, 30 outside of the corporate limits of cities. The city or county 31 shall submit a duplicate of any application for a device 32 retailer permit to the alcoholic beverages division of the 33 department of commerce within thirty days of issuance of a 34 device retailer permit. The alcoholic beverages division of 35 -3- LSB 5058SZ (2) 88 pf/jh 3/ 15

S.F. 2402 the department of commerce shall submit the current list of 1 all device retailer permits issued to the department of public 2 health by the last day of each quarter of a state fiscal year. 3 5. Fees —— expiration. All device retailer permits provided 4 for in this section shall expire on June 30 of each year. A 5 device retailer permit shall not be granted or issued until the 6 applicant has paid the fees provided for in this section for 7 the period ending June 30 next, to the city or county granting 8 the device retailer permit. The fee for a device retailer 9 permit is one thousand five hundred dollars. 10 6. Application. Device retailer permits shall be issued 11 only upon application, accompanied by the one thousand five 12 hundred dollar fee, made upon forms furnished by the department 13 upon written request. The failure to furnish such forms 14 shall be no excuse for the failure to file the form unless 15 absolute refusal is shown. The forms shall specify all of the 16 following: 17 a. The manner under which the device retailer transacts or 18 intends to transact business as a device retailer. 19 b. The principal office, residence, and place of business, 20 to which the device retailer permit is to apply. 21 c. If the applicant is not an individual, the principal 22 officers or members of the applicant, not to exceed three, and 23 their addresses. 24 d. Such other information as the director shall by rule 25 prescribe. 26 7. Records and reports of device retailers. 27 a. The director shall prescribe the forms necessary for 28 the efficient administration of this section and may require 29 uniform books and records to be used and kept by each device 30 retailer or other person as deemed necessary. 31 b. Every device retailer shall, when requested by the 32 department, make additional reports as the department deems 33 necessary and proper and shall at the request of the department 34 furnish full and complete information pertaining to any 35 -4- LSB 5058SZ (2) 88 pf/jh 4/ 15

S.F. 2402 transaction of the device retailer involving the purchase or 1 sale of devices, including the number of devices sold. 2 8. Requirements for sale. 3 a. A device retailer shall not sell, give, or otherwise 4 supply a device to any person under eighteen years of age and 5 must verify the age of all purchasers of devices. Valid proof 6 of the purchaser’s identity and age shall be obtained at the 7 time the device is supplied to the purchaser. 8 b. A device retailer shall only display and sell devices in 9 a location where the device retailer ensures that the devices 10 are not visible to a person younger than eighteen years of 11 age and where no person younger than eighteen years of age is 12 present or permitted to enter at any time. 13 Sec. 4. NEW SECTION . 453E.4 Delivery sale of devices —— 14 permit —— requirements. 15 1. a. A person shall not mail, ship, or otherwise cause 16 to be delivered any device in connection with a delivery sale 17 to any other person within this state unless the person has 18 applied for and holds a device delivery sale permit as provided 19 in this section. 20 b. A person applying for a device delivery sale permit shall 21 submit an application for the permit electronically, or in a 22 manner prescribed by the director. 23 c. An application submitted pursuant to paragraph “b” shall 24 be accompanied by a permit fee in the amount of one thousand 25 five hundred dollars. 26 d. The director may in accordance with this section issue a 27 device delivery sale permit which shall be valid for one year 28 from the date of issuance unless it is sooner suspended or 29 revoked for a violation of this section. 30 e. A permit issued pursuant to this section may be renewed 31 annually by submitting a renewal application in a manner 32 prescribed by the director, accompanied by the one thousand 33 five hundred dollar permit fee. 34 2. The delivery sale of devices pursuant to this 35 -5- LSB 5058SZ (2) 88 pf/jh 5/ 15

S.F. 2402 section shall be subject to the following requirements and 1 restrictions: 2 a. All devices delivered by delivery sale directly to a 3 resident of this state shall be delivered only by a device 4 delivery sale permit holder. 5 b. A device delivery sale permit holder shall only deliver 6 devices by delivery sale to a resident of this state who is at 7 least eighteen years of age for the resident’s personal use and 8 not for resale. 9 c. All devices delivered by delivery sale directly to a 10 resident of this state shall be conspicuously labeled with the 11 words “CONTAINS DEVICE: SIGNATURE OF PERSON AGE 18 OR OLDER 12 REQUIRED FOR DELIVERY” or shall be conspicuously labeled with 13 alternative wording preapproved by the director. 14 d. A device delivery sale permit holder shall obtain valid 15 proof of identity and age prior to delivery, and shall obtain 16 the signature of an adult as a condition of delivery. 17 e. A device delivery sale permit holder shall maintain 18 records of devices delivered which include the name of the 19 device manufacturer, quantity of devices delivered, recipient’s 20 name and address and verification of age on an electronic or 21 paper form of signature from the recipient of the device, and 22 sales and excise taxes paid. Records shall be submitted to 23 the director on a monthly basis in a form and manner to be 24 determined by the director. Records shall be maintained for at 25 least five years. 26 3. A device delivery sale permit holder shall remit to the 27 director an amount equivalent to the applicable sales tax and 28 excise tax on devices subject to delivery sale at the rates 29 specified in section 423.2 and section 453E.5, as applicable. 30 The amount shall be remitted at the time and in the manner 31 provided in section 453E.5. 32 4. A device delivery sale permit holder shall be deemed to 33 have consented to the jurisdiction of the director or any other 34 agency or court in this state concerning enforcement of this 35 -6- LSB 5058SZ (2) 88 pf/jh 6/ 15

S.F. 2402 section and any related laws, rules, or regulations. A device 1 delivery sale permit holder shall allow the director to perform 2 an audit of records of devices upon request. 3 Sec. 5. NEW SECTION . 453E.5 Sales and use tax on sales and 4 delivery sales of devices —— examination of records and premises 5 —— subpoena for witnesses and papers. 6 1. A sale or delivery sale of a device within this state 7 shall be subject to the sales tax provided in chapter 423, 8 subchapter II. All the provisions for the lien of the tax, its 9 collection, and all actions as provided in the uniform sales 10 and use tax administration Act, chapter 423, shall apply to the 11 tax imposed in this chapter. 12 2. There is levied and imposed an excise tax on a device 13 purchased in this state through a sale or purchased for use 14 in this state through a delivery sale of forty percent of the 15 purchase price of the device. 16 3. A device delivery sale permit holder shall be deemed to 17 have waived all claims that such permit holder lacks physical 18 presence within this state for purposes of collecting and 19 remitting the sales and excise taxes. 20 4. A device delivery sale permit holder making taxable 21 delivery sales of devices within this state and a device 22 retailer shall remit to the department all sales and excise 23 taxes due on such sales at the times and in the manner as 24 established by rule of the director. 25 5. The director shall adopt rules pursuant to chapter 17A to 26 administer this section. 27 6. Excise taxes collected under this section shall be 28 deposited in the specialty courts program fund created in 29 section 453E.6. 30 7. a. For the purpose of enabling the department to 31 determine the tax liability of device delivery sale permit 32 holders, device retailers, or any other person dealing in 33 devices or to determine whether a tax liability has been 34 incurred, the department shall have the right to inspect any 35 -7- LSB 5058SZ (2) 88 pf/jh 7/ 15

S.F. 2402 premises of the device delivery sale permit holder, device 1 retailer, or other person dealing in devices located within 2 or without the state of Iowa where devices are manufactured, 3 produced, made, stored, transported, sold, or offered for 4 sale or exchange, and to examine all of the records required 5 to be kept or any other records that may be kept incident 6 to the conduct of the business of said device delivery sale 7 permit holder, device retailer, or any other person dealing in 8 devices. 9 b. The department shall also have the right as an incident 10 to determining the tax liability, or whether a tax liability 11 has been incurred, to examine all stocks of devices and to 12 remain upon the premises for such length of time as may be 13 necessary to fully determine the tax liability, or whether a 14 tax liability has been incurred. 15 c. It shall be unlawful for a permit holder to fail to 16 produce upon demand of the department any records required to 17 be kept or to hinder or prevent in any manner the inspection of 18 the records or the examination of the premises. 19 d. In the case of any departmental inspection conducted 20 under this section requiring department personnel to travel 21 outside the state of Iowa, any additional costs incurred by 22 the department for out-of-state travel expenses shall be borne 23 by the device delivery sale permit holder, device retailer, or 24 other person dealing in devices. These additional costs shall 25 be those costs in excess of the costs of a similar inspection 26 conducted at the geographical point located within the state 27 of Iowa nearest to the out-of-state inspection point. In 28 lieu of conducting an on-premises out-of-state inspection, 29 the department shall have the authority to direct the device 30 delivery sale permit holder, device retailer, or other person 31 dealing in devices to assemble and transport all records 32 described in this subsection to the nearest practical and 33 convenient geographical location in Iowa for inspection by the 34 department. 35 -8- LSB 5058SZ (2) 88 pf/jh 8/ 15

S.F. 2402 Sec. 6. NEW SECTION . 453E.6 Specialty courts program fund. 1 1. A specialty courts program fund is created in the state 2 treasury under the control of the director of the department 3 of corrections. Moneys from permit fees, with the exception 4 of permit fees collected by cities or counties in the issuance 5 of permits, and excise taxes imposed and collected pursuant 6 to section 453E.5, shall be deposited in the fund. Permit 7 fees collected by cities or counties under this chapter shall 8 be paid to the treasurer of the city where the permit is 9 effective, or to another city officer as designated by the city 10 council, and credited to the general fund of the city. Permit 11 fees collected by counties under this chapter shall be paid to 12 the county treasurer and credited to the general fund of the 13 county. 14 2. Moneys in the fund shall be used only as provided 15 in appropriations from the fund for the purpose of the 16 support of specialty courts to address underlying substance 17 use disorder-related and mental health-related issues that 18 contribute to the contact of individuals with the justice 19 system. 20 3. The fund shall be separate from the general fund of the 21 state and shall not be considered part of the general fund of 22 the state. The moneys in the fund shall not be considered 23 revenue of the state, but rather shall be moneys of the fund. 24 The moneys in the fund are not subject to reversion to the 25 general fund of the state under section 8.33 and shall not 26 be transferred, used, obligated, appropriated, or otherwise 27 encumbered, except to provide for the purposes of this section. 28 Notwithstanding section 12C.7, subsection 2, interest or 29 earnings on moneys deposited in the fund shall be credited to 30 the fund. 31 4. The treasurer of state shall provide a quarterly 32 report of fund activities and balances to the director of the 33 department of corrections. 34 Sec. 7. NEW SECTION . 453E.7 Permits —— suspension —— 35 -9- LSB 5058SZ (2) 88 pf/jh 9/ 15

S.F. 2402 revocation —— penalties. 1 1. The provisions of chapter 453A including the permit 2 suspension and revocation provisions and the civil penalties 3 established in section 453A.22 shall apply to tobacco retailers 4 who are also device retailer permit holders or device delivery 5 sale permit holders under this chapter. The provisions of 6 chapter 453A applicable to persons other than tobacco retailers 7 who violate chapter 453A shall also apply to persons who 8 violate this chapter. 9 2. A person holding a device retailer permit or a 10 device delivery sale permit under this chapter who violates 11 this chapter by marketing or selling a device to be used 12 or attempted to be used in combination with a controlled 13 substance to knowingly or intentionally and primarily inject, 14 ingest, inhale, or otherwise introduce into the human body a 15 controlled substance, resulting in the device constituting drug 16 paraphernalia pursuant to section 124.414, commits a simple 17 misdemeanor in violation of section 124.414 and is also subject 18 to permit revocation. 19 3. a. If a person holding a device retailer permit or a 20 device delivery sale permit issued by the department under this 21 chapter has willfully violated this chapter, the department 22 shall revoke the permit upon notice and hearing. The hearing 23 before the department may be held at a site in the state as the 24 department may direct. The notice shall be given by mailing a 25 copy to the permit holder’s place of business as it appears on 26 the application for a permit. If, upon hearing, the department 27 finds that the violation has occurred, the department may 28 revoke the permit. 29 b. If a device retailer permit or a device delivery 30 sale permit is suspended or revoked under this section, the 31 suspension or revocation shall only apply to the place of 32 business at which the violation occurred and shall not apply to 33 any other place of business to which the permit applies but at 34 which the violation did not occur. 35 -10- LSB 5058SZ (2) 88 pf/jh 10/ 15

S.F. 2402 c. The department or local authority shall report the 1 suspension or revocation of a device retailer permit or a 2 device delivery sale permit under this section to the alcoholic 3 beverages division of the department of commerce within thirty 4 days of the suspension or revocation of the permit. 5 4. In addition to any other applicable penalties, a device 6 retailer permit holder or a device delivery sale permit holder 7 who violates this chapter shall be subject to the following: 8 a. For a first violation, a civil penalty of five hundred 9 dollars. 10 b. For a second violation, a civil penalty of one thousand 11 dollars. 12 c. A third violation constitutes grounds for suspension or 13 revocation of the permit under this chapter. 14 5. A person other than a device retailer permit holder or a 15 device delivery sale permit holder who violates this chapter 16 shall be subject to the following penalties: 17 a. For a first violation, a civil penalty of one thousand 18 dollars. 19 b. For a second violation, a civil penalty of two thousand 20 dollars. 21 c. For a third or subsequent violation, a civil penalty of 22 five thousand dollars. 23 DIVISION II 24 HEMP PRODUCTS —— RETAIL SALES 25 Sec. 8. NEW SECTION . 126.24 Hemp products —— retail sales 26 —— claims. 27 Unless a state or federal agency has substantiated and 28 approved the efficacy and safety claims of a product based 29 on competent and reliable scientific evidence, a person 30 engaging in the retail sale in this state of a hemp product 31 that contains hemp-derived cannabidiol, or in the retail sale 32 of a cosmetic, personal care product, or product intended for 33 human or animal consumption to which hemp-derived cannabidiol 34 has been added in compliance with section 204.7, subsection 35 -11- LSB 5058SZ (2) 88 pf/jh 11/ 15

S.F. 2402 9, shall include on the product’s principal display panel, 1 a statement that the product may or may not contain the 2 ingredients stated on the label, that the efficacy and safety 3 of the product have not been substantiated or approved by 4 a state or federal agency based on competent and reliable 5 scientific evidence, and that the consumer should use the 6 product at the consumer’s own risk. This section shall not 7 apply to a medical cannabidiol manufacturer licensed pursuant 8 to chapter 124E. 9 EXPLANATION 10 The inclusion of this explanation does not constitute agreement with 11 the explanation’s substance by the members of the general assembly. 12 This bill relates to the regulation of certain tobacco and 13 hemp-related products. 14 Division I of the bill requires a person who engages in 15 the business of a device retailer through a retail outlet 16 or delivery sales to receive and hold a permit as a tobacco 17 retailer, comply with provisions applicable to a tobacco 18 retailer, sell tobacco products in addition to devices at the 19 retail outlet or through delivery sales, and hold a permit 20 as a device retailer. The bill provides for the application 21 for and issuance of device retailer permits by cities and 22 counties depending upon the location of the retailer; requires 23 the payment of a $1,500 fee for each permit; and provides for 24 annual expiration of the permits. The bill also requires 25 device retailer permit holders to keep certain records and 26 submit reports to the department of revenue; establishes 27 requirements for the sale of devices including that a device 28 retailer shall not sell, give, or otherwise supply a device to 29 any person under 18 years of age and must verify the age of 30 all purchasers of devices; and provides that a device retailer 31 shall only display and sell devices in a location where the 32 device retailer ensures that the devices are not visible to a 33 person younger than 18 years of age and where no person younger 34 than 18 years of age is present or permitted to enter at any 35 -12- LSB 5058SZ (2) 88 pf/jh 12/ 15

S.F. 2402 time. 1 The bill establishes requirements for the delivery sale 2 of devices including permit requirements and restrictions 3 including all devices delivered by delivery sale directly to 4 a resident of this state shall be delivered by a holder of 5 a device delivery sale permit; that a device delivery sale 6 permit holder shall only deliver devices by delivery sale to 7 a resident of this state who is at least 18 years of age, for 8 the resident’s personal use and consumption and not for resale; 9 all devices delivered by delivery sale directly to a resident 10 of this state shall be conspicuously labeled with the words 11 “CONTAINS DEVICE: SIGNATURE OF PERSON AGE 18 OR OLDER REQUIRED 12 FOR DELIVERY” or with an alternative wording preapproved by 13 the director of revenue; a device delivery sale permit holder 14 shall obtain valid proof of identity and age prior to delivery, 15 and shall obtain the signature of an adult as a condition of 16 delivery; and that a device delivery sale permit holder shall 17 maintain records of devices delivered which include certain 18 information that must be maintained for five years. 19 The bill provides for the imposition, collection, and 20 payment of sales and excise taxes on the retail sale, including 21 delivery sales, of devices. Moneys from permit fees, with the 22 exception of city and county permit fees, and excise taxes 23 imposed and collected under the bill, are to be deposited in 24 the specialty courts program fund created in the bill to be 25 used for the purpose of the support of specialty courts to 26 address underlying substance use disorder-related and mental 27 health-related issues that contribute to the contact of 28 individuals with the justice system. 29 The bill provides penalties for violations of the bill. 30 The applicable provisions of Code chapter 453A (cigarette and 31 tobacco taxes and regulation of alternative nicotine products 32 and vapor products) including penalties and license suspension 33 and revocation provisions and penalties applicable to those 34 other than permit holders apply to tobacco retailers who are 35 -13- LSB 5058SZ (2) 88 pf/jh 13/ 15

S.F. 2402 also device retailer permit holders or device delivery sale 1 permit holders as well as to those who are not permit holders. 2 Additionally, a person holding a device retailer permit 3 or a device delivery sale permit who violates the bill by 4 marketing or selling a device to be used or attempted to be 5 used in combination with a controlled substance to knowingly 6 or intentionally and primarily inject, ingest, inhale, or 7 otherwise introduce into the human body a controlled substance, 8 resulting in the device constituting drug paraphernalia, 9 commits a simple misdemeanor in violation of Code section 10 124.414 and is also subject to permit revocation. 11 If a person holding a device retailer permit or a device 12 delivery sale permit willfully violates the bill, the 13 department shall revoke the permit upon notice and hearing. 14 In addition to any other applicable penalties, a device 15 retailer permit holder or a device delivery sale permit holder 16 who violates the Code chapter is subject to a civil penalty 17 of $500 for a first violation, a civil penalty of $1,000 for 18 a second violation, and a third violation constitutes grounds 19 for suspension or revocation of the permit. A person other 20 than a device retailer permit holder or a device delivery sale 21 permit holder who violates the Code chapter is subject to a 22 civil penalty of $1,000 for a first violation, a civil penalty 23 of $2,000 for a second violation, and a civil penalty of $5,000 24 for a third or subsequent violation. 25 Division II of the bill relates to claims made regarding 26 hemp products sold at retail. The bill provides that unless 27 a state or federal agency has substantiated and approved the 28 efficacy and safety claims of a product based on competent and 29 reliable scientific evidence, a person engaging in the retail 30 sale in this state of a hemp product that contains hemp-derived 31 cannabidiol, or in the retail sale of a cosmetic, personal care 32 product, or product intended for human or animal consumption 33 to which hemp-derived cannabidiol has been added in compliance 34 with Code section 204.7(9), shall include on the product’s 35 -14- LSB 5058SZ (2) 88 pf/jh 14/ 15

S.F. 2402 principal display panel a statement that the product may or 1 may not contain the ingredients stated on the label, that the 2 efficacy and safety of the product have not been substantiated 3 or approved by a state or federal agency based on competent and 4 reliable scientific evidence, and that the consumer should use 5 the product at the consumer’s own risk. This provision does 6 not apply to a licensed cannabidiol manufacturer. 7 The violation of this provision is a serious misdemeanor as 8 well as an unfair practice under Code section 714.16. 9 -15- LSB 5058SZ (2) 88 pf/jh 15/ 15