Compliance with regulatory and sustainability legislation is more crucial in 2024 than ever before, but it’s not a subject on every brand founder’s radar. To offer some vital and applicable insight, BeautyMatter co-founder and CEO Kelly Kovack sat down with Dr. Akemi Ooka, Vice President, Supply Chain and Sustainability Resources at Independent Beauty Association (IBA) to give NEXT attendees insight into the need-to-know regulations shaping the beauty.
Dr. Ooka opened up the conversation with some sobering words: “Cosmetics is on the radar for legislators and regulators. We've seen that materialize over the last five to 10 years and it's only getting more prevalent. So buckle up because it's coming,” she noted. She began with the WA State Plastic Plastic Recycling Content (PCR) Mandate Law, which was passed in 2021. While the law went into effect a few years ago, the section of the law pertaining to personal care goes into effect in 2025.
All rigid plastic packaging sized between eight fluid ounces and five gallons needs to comply with this law. In 2025, 15% of packaging has to be comprised of post-consumer recycled resin. To begin, brands must register with the state of Washington, capturing their packaging type and quantity, plus whether or not they have post-consumer recycled resin in the products that are being sold and distributed in the state of Washington.
The penalty for nonregistration is $1,000 per day, as well as a noncompliance penalty. A recent example of the latter is Clorox receiving a $67,000 penalty for not meeting the minimums. “This is a real wake up call for the industry that there's now sustainability regulations and laws on the books and there's actually enforcement by these state agencies,” she explained. In the case of Clorox, the company stated it was having trouble meeting PCR requirements due to insufficient amounts of the material being available. Dr. Ooka advises registering and understanding potentially applicable exemptions, which includes producing less than one ton in aggregate of a single category or generating less than $1 million in gross revenue of sales of covered product.
Next up was the Extended Producer Responsibility (EPR) Act, which Dr. Ooka noted includes a $25,000 per day per violation penalty. Already in place in the EU and Canada, “EPR is focused on shifting the burden on financial responsibility of collection, sortation, waste processing of packaging away from being solely carried by municipalities and taxpayers onto producers,” she explained. Five US states have already enacted this law: California, Colorado, Oregon, Maine, and Minnesota. There were nine more proposed bills in 2024, many of which did not pass, but are likely to return in 2025.
Dr. Oooka predicts that the EPR Act in New York and Washington could potentially pass in 2025, with more states to follow. Companies must register with a producer responsibility organization, typically a nonprofit that is tasked with implementing and enforcing the requirement, reporting, and registration aspects of the law. These organization will then determine how much a company has to pay based on how much and what type of packaging they’re selling and distributing in the state. There is an additional fee companies will also have to pay.
There are three deadlines relating to EPR laws (producer registration, producer reporting, producer fee payment), but no uniformity across the five states with these laws. For example, the registration deadline for Coloado (October 1, 2024) has already passed. Registration in Oregon will be required by March 31, 2025. Dr. Ooka advises entrepreneurs to register with the Circular Action Alliance, which offers an exploratory program for California, Colorado, and Maryland.
“The best thing you could do is take a look at your product portfolio, meet with your legal counsel and regulatory professionals to understand where you're obligated and what you're going to have to do from a reporting standpoint with respect to EPR,” she states.
The last discussion point was the Corporate Transparency Act (CTA), which passed as part of the Anti-Money Laundering Act of 2020, the company portion of which went into effect January 1, 2024. The enforcement date for the CTA is January 1, 2025. Companies need to file the beneficial owners of their company with the Financial Crimes Enforcement Network by this date. “This affects probably most small independent companies that are operating in this space. There are 23 exemptions and it's not for any of those companies. The exemptions are for nonprofits, financial institutions, investment companies, and then for large corporations, which are defined as companies that have revenue over $5 million and have more than 20 people and have a headquarters in the US,” Dr. Ooka explained.
This also applies to foreign companies actually looking to do business in the United States. The beneficial owner information being asked for is determining who has substantial influence in the organization, as well as anyone who has a 25% or more ownership stake in the organization. Details include the individual’s full name, date of birth, and residential address, along with a government-issued photo ID. There is a $500,000 violation penalty and up to five years of jail time for noncompliance.
In order to navigate all these regulations and deadlines, Dr. Ooka advised brand founders to work with trade associations, such as the IBA. “We are providing education around compliance activity, both legal and regulatory compliance. How do you grow and support your business? There's a lot of people on this stage giving you all kinds of sexy stuff. We're not so sexy, but we're going to keep you out of jail,” she concluded. “Compliance today is a top-down exercise and a cross-functional exercise. The top people in your company, your C suite, need to understand that the impact of regulatory and legal compliance and your execution against those measures are now more than ever a cross-functional activity.”
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