Haypp Group: Tremors

“When you come to a fork in the road, take it.” – Yogi Berra

If you’re involved with an industry that faces a seemingly perpetual cloud of regulatory uncertainty, you can’t be too surprised when things get bumpy. This goes double if you’re dancing with a microcap smack-dab in the middle of some fast-growing category. But it isn’t really about whether or not things are bumpy. Even the strongest companies don’t operate smoothly all the time. At the end of the day, it’s about how the bumps are managed. Recent headlines concerning Haypp Group provide plenty to discuss.

The California situation

On September 4, 2024, the City Attorney of San Francisco, David Chiu, announced a lawsuit against four companies engaged in online tobacco retail. Northerner Scandinavia, Inc., an operating subsidiary of Haypp Group, was one of the named defendants.

The complaint’s spirit is well-captured by the statement provided on the City Attorney of San Francisco’s website:

It is appalling the length tobacco companies will go to reinvent their products to addict a new generation of young people. The nicotine pouches sold on these sites are dangerously addictive and come in a variety of sweet flavors clearly meant to appeal to young people. We will not allow these companies to flagrantly disregard the law and unravel decades of progress reducing youth tobacco use. These products are not welcome here, and we are taking decisive action against these online retailers for selling these products in San Francisco.

I suppose you must suspend your knowledge that underage usage prevalence of nicotine pouches was low in 2023. Also, disregard preliminary data showing underage usage prevalence has remained low in 2024 and that adults quite like flavors. Instead, focus on the specific allegations against Northerner Scandinavia, Inc., which can be distilled into some non-legalese:

1. Northerner Scandinavia sells a wide assortment of nicotine pouches on its US sites, northerner (dot) com and nicokick (dot) com.

2. On April 1, 2024, an investigator purchased flavored tobacco products (pouches) from Northerner Scandinavia, with one order from nicokick and one from northerner.

3. The nicokick order was processed even though the purchaser’s photo ID did not match the billing information on the credit card used for the transaction. This order, containing flavored tobacco products, was received at an address in San Francisco, California. Northerner did not label the package to state that it contained tobacco and that the signature of a person 21+ was required for delivery.

4. The northerner order was also shipped to an address in San Francisco, California. Like the nicokick order, it was not labeled stating it contained tobacco and that delivery required a signature from a person 21+.

5. Before shipping, Northerner did not call the purchaser for confirmation.

This boils down to two things:

1. The selling and distributing of flavored tobacco products to a person in San Francisco, California, pertains to Article 19S, part of the San Francisco Health Code. This concerns the city and county.

2. The mismatch between ID and billing information, lack of proper labels and 21+ signatures, and absence of phone calls relate to the STAKE (Stop Tobacco Access to Kids Enforcement) Act. This concerns the entire state of California.

A provision of the STAKE Act, Section 22963 of the Business and Professions Code, amended by SB 39, includes the following excerpts:

(1) (A) Before enrolling a person as a customer, or distributing or selling, or engaging in the nonsale distribution of, the tobacco product through any of these means, the distributor or seller shall verify that the purchaser or recipient of the product is 21 years of age or older. The distributor or seller shall attempt to match the name, address, and date of birth provided by the customer to information contained in records in a database of individuals whose age has been verified to be 21 years or older by reference to an appropriate database of government records kept by the distributor, a direct marketing firm, or any other entity. In the case of a sale, the distributor or seller shall also verify that the billing address on the check or credit card offered for payment by the purchaser matches the address listed in the database.

B) If the seller, distributor, or nonsale distributor, is unable to verify that the purchaser or recipient is 21 years of age or older pursuant to subparagraph (A), the seller, distributor, or nonsale distributor shall require the customer or recipient to submit an age-verification kit consisting of an attestation signed by the customer or recipient that the customer or recipient is 21 years of age or older and a copy of a valid form of government identification. For the purposes of this section, a valid form of government identification includes a driver’s license, state identification card, passport, an official naturalization or immigration document, such as an alien registration receipt card (commonly known as a “green card”) or an immigrant visa, or military identification. In the case of a sale, the distributor or seller shall also verify that the billing address on the check or credit card provided by the consumer matches the address listed in the form of government identification.

(4) (A) The nonsale distributor shall deliver the tobacco product to the recipient’s verified mailing address, or in the case of a sale, the seller or distributor shall deliver the tobacco product to the purchaser’s verified billing address on the check or credit card used for payment.

(5) The tobacco product shall be delivered only in a container that is conspicuously labeled with the words: “CONTAINS TOBACCO PRODUCTS: SIGNATURE OF PERSON 21 YEARS OF AGE OR OLDER REQUIRED FOR DELIVERY.”

(6) Upon the delivery of the tobacco product to the recipient’s or purchaser’s address, the seller, distributor, or nonsale distributor shall obtain the signature of a person 21 years of age or older before completing the delivery.

Keep in mind that the Factual Allegations are the plaintiff’s side of the story. Haypp Group’s version could be very different. They could deny some or all of it. Or none. Either way, the identifiable age verification layer used on northerner (dot) com and nicokick (dot) com, AgeChecker, can provide comprehensive verification logs. They likely have similar data for 3PL/owned concerning shipping information, delivery, and so on.

Part of you may be thinking, “Hold on. Doesn’t Haypp have 100% of its transactions age-verified? There was no mention of the purchaser being underaged in the complaint!” That may be true, but there is far more to consider.