If you’re anything like us, sitting down to read the 115 pages of ATF’s Proposed Rule 2021R-05 was nothing short of tedious.  Even with our tenure in the firearms compliance space, we found ourselves feeling as though our eyes were going crossed as we read through what felt like a novel of information!  As we sat reading and re-reading, we realized many folks in the firearms industry – whether or not they currently hold an FFL – will be wondering what on earth these 115 pages of regulatory ease will mean for day-to-day business operations.  Because – to be honest – to say there’s “a lot” here is an understatement!  Depending upon your particular business model you could feel very little impact from these changes – or huge impact from this Proposed Rule.

Foremost, it’s important to keep in mind this is a PROPOSED rule.  Yes – a Proposed Rule does most frequently lead to changes in rulings – – – but the final document can be very different than the initial filing. Take every bit of talk and impact discussions around this PROPOSED Rule – including this blog series – with a grain of salt.  We’re all talking about what MIGHT BE – not what IS – all bets are off until the Final Rule is published in the Federal Register – which will take several months to accomplish, at best.

And, although lots of folks will be debating the content of this Proposed Rule – carefully stepping through the legal aspects and arguments.  Although we applaud and appreciate the work, that’s NOT what we’ll be presenting in this blog series.  This blog series is strictly focused on the what-if scenario that this Proposed Rule – exactly as it’s laid out today – were to become final in its entirety and what firearms industry folks will need to do and consider to move forward with their business operations.  As we mentioned before – it is extremely unlikely that this EXACT Proposed Rule will be the Final Rule – things will change – we’ll simply be talking through the “what if” for what’s here, today, so you can prepare your business operations for whatever may come.  

As one of our favorite sayings goes – how do you eat an elephant? One bite at a time.  We’ll take this Proposed Rule in pieces and steps across this blog series so we can dedicate the time needed to dig down into each area and how it could impact your business operations.

Keep in mind, this Proposed Rule is in an Official Comment Period. What does that mean? It means ATF is accepting comments from anyone – and I mean ANYONE – about the content of this Proposed Rule.  Simply visit www.Regulations.gov and follow the instructions for commenting.  You’re welcome to say what you’d like, but – keep in mind – comments are public.  Our two cents here – unless you’re a Bonafede attorney – consider limiting your comments to the true scope of impact to your life and business.   Be brief – be bold – and be impactful!  Logical and well-documented facts go a long way – anger and frustration aren’t readily quantifiable and thus do little to move the needle for change.  Support your comments with real data and you can be heard; use this opportunity as an open rant forum and your input – no matter how valid – will likely be set aside.  You have 90 days from the date of publication to express your thoughts and feelings – put your ideas together, write them down – review and edit them – get a friend to read them.  We encourage you not to submit them until you are proud of your work!  Trust us – it took a team of folks at ATF hundreds if not thousands of hours to pull together this document; you’ve got 90 days for this comment period (there will be more) – don’t go off half-cocked.  Plan and carefully present your feedback with facts, and you’ll find it’s much harder to set it aside.

Bite One of the Elephant:  Change to the Definition of Firearm

With this Proposed Rule, the current definition of Firearm would change to:

Firearm.  Any weapon, including a starter gun, which will or is designed to or may readily be converted to expel a projectile by the action of an explosive; the frame or receiver of any such weapon; any firearm muffler or firearm silencer; or any destructive device; but the term shall not include an antique firearm.  In the case of a licensed collector, the term shall mean only curios and relics.  The term shall include a weapon parts kit that is designed to or may readily be assembled, completed, converted, or restored to expel a projectile by the action of an explosive.  The term shall not include a weapon, including a weapons parts kit, in which each part defined as a frame or receiver of such weapon is destroyed.

The new verbiage is, “The term shall include a weapon parts kit that is designed to or may readily be assembled, completed, converted, or restored to expel a projectile by the action of an explosive.  The term shall not include a weapon, including a weapons parts kit, in which each part defined as a frame or receiver of such weapon is destroyed.”  

So, what does this mean to you and your business?  The impact will largely depend on the type of item(s) you sell and your overall business operations model.  Honestly, if you don’t sell or transact 80% receiver kits, then these additional sentences change virtually nothing for your business.  

Established FFL:

If you’re an established FFL that transacts in 80% receiver kits, it’s important you know these kits would meet the legal definition of a “firearm” and all the applicable regulations associated with transacting firearm(s) applies.

Recommended Action Items:

1)    Determine Which Item(s) Meet the New Definition of Firearm.  Take a look at all the items on your shelves and compare those to this new Firearm definition.  If needed, contact a compliance expert.  Figure out exactly which items are AND which items are NOT defined as firearms.  It is likely vendors will be repacking items previously sold together, as well.  Get with your vendors so you have a firm understanding of what IS and what is NOT a firearm.

2)    Review the Total Profit for These Items.  Although transacting these items may have been a worthwhile venture when they were NOT classified as firearms, the cost of compliance can be significant.  In general terms – for every firearm, you’ll be investing at least 30 minutes of labor hours before the sale.  Look at your average labor hour cost and consider if you can add that half-hour in compliance cost to the cost of goods for each of the kits.  Unfortunately, for many businesses, you’ll likely find the juice isn’t worth the squeeze – or that you’ll need to significantly increase the kit cost to cover your compliance expenses.  Before you dramatically up-end your business model, be sure it’s worth the investment and that your customers will have an appetite for these firearm(s) (and associated 4473 and background check) at the adjusted price point.  If it’s the best decision for your business to discontinue these items, have an exit strategy and a plan to sell through whatever remaining inventory you have – or be prepared to surrender them to law enforcement and take the financial loss.

3)    Review Which Vendors “Kit” Orders are Placed.  You’ll want to ensure all of the vendor(s) from which you receive these items – now defined as Firearms – will be transferring the kits in accordance will all applicable regulations, including possessing a Federal Firearms License (FFL) and providing a valid copy to your business for record-keeping purposes.  As FFLs are only valid for a three-year period, it will be essential these vendors are reviewed periodically for records update to ensure ongoing compliance.  I highly recommend you have a New FFL Vendor and FFL Vendor Review process in place, and that all currently on-boarded vendor(s) be re-reviewed to determine if they should now be classified as FFL Vendors.

4)    Update Your Receiving / Acquisition Flows.  With the new definition of “Firearm,” these parts kits will need to be acquired into your bound book of record with the date the firearm(s) arrived on FFL premises.  Review your delivery/receiving flows to ensure these goods are now put into the firearm(s) acquisition funnel and time frame.  It’s important that all team members realize the acquisition date is not the date the inventory is received, but rather the date the firearm(s) arrived on FFL premises and it’s critical you have a process to ensure you’re properly capturing this date.

5)    Determine What Data Points Will Appear in the Bound Book and Add Them to Your Master Data Set.  I suggest taking a look at every parts kit that will meet the definition of “firearm” that you stock and determine what data points are available, which data points will be documented in your bound book, and add these to your Master Data set.  In other words, decide ahead of time how each item should be logged into your bound book – don’t decide on the fly each time – give your receiving team members a template to work off for each kit, and train them to your expectations.

6)    Review Your Software for Compliance and Train on System Changes.  Software providers will look to solve these changes in various ways, so it’s hard to say everywhere you’ll need to look. Therefore, be proactive and ASK your provider how they’ll be updating your software and when training will be available.  Be sure your team completely understands all the new facets of the system and – most importantly – be 100% sure you believe any changes to your digital ATF Form 4473 or bound book software are compliant.  It’s ok to ask others in the industry about their experiences; I highly recommend doing your own research.  After all – there is no regulatory authority that validates software to FFLs – – – all the compliance demands are on the licensee NOT the software provider.  Don’t get caught up in potential violations because your software provider made system updates that are determined to be non-compliant.

7)    Plan. Train. Practice. Replan. Execute.  Many times, I have seen business owners assume changes to their business operations due to regulatory changes are nothing short of obvious, so there’s no need for training or planning.  Please do not make this mistake!  Take some time to walk through WHAT the changes are with employees and how they, specifically, impact each team member’s job; don’t assume they “get it.”  Talk with your stakeholders and let them tell you all the areas these Ruling changes may or may not touch.  Make a plan that incorporates each one of these areas – practice what you’ve outlined – learn from what went well and what failed – retool your plan as needed – and then go execute.  Don’t wait until the last second to implement your business changes – start early so by the time the regulatory changes are required to be in place you have a well-functioning system.

8)    Answer Questions.  As the highest priority, I strongly recommend not only answer your team members’ questions but give them the tools they need to answer customer questions.  Write scripts – give them sound bites – whatever they need to provide complete, polished answers to customers.  Put together a list of the most common questions you think customers will have and give your customer-facing employees a honed response so they’re prepared when the questions arise – which can often be in moments of customer frustration.  Help out your team and your brand by being prepared to answer customer’s questions in a positive, productive way.  

No FFL:

If you’re a business that transacts in 80% receiver kits, but you don’t currently maintain a Federal Firearms License, you’ve got some work to do! Ultimately, you’ll need to consider the total investment costs to take your business model down to the studs and rebuild – – and decide if the payoff is there or it’s time to cut these items from your inventory.

Recommended Action Items:

1)    Determine Which Item(s) Meet the New Definition of Firearm.  Take a look at all the items on your shelves and compare those to this new Firearm definition.  If needed, contact a compliance expert.  Figure out exactly which items are AND which items are NOT defined as firearms.  It is likely vendors will be repacking items previously sold together, as well.  Get with your vendors so you have a firm understanding of what IS and what is NOT a firearm.  Don’t just assume you’ll need an FFL; understand your inventory and any changes to vendor packaging first.

2)    Determine IF It is Even Possible to Get an FFL For Your Business Premises.  Most people don’t realize this, but the local zoning for the physical location of your business must allow for firearms to be transacted (and potentially manufactured) before ATF can issue an FFL. And, if you do not own your business facility, your lease or rental agreement must allow for firearms transactions to be conducted as well.  Yes, ATF will carefully review city/county ordinances and/or code and request and review a copy of your rental or lease agreement as part of the application process.  If your building premises is in an area that disallows firearms transactions, there will be no FFL issued.   Don’t assume you can get an FFL at your location – review your city ordinances and/or county codes BEFORE you apply for your FFL.  If ATF determines, as part of the application process, the FFL cannot be issued, you’re out the $300 application fee.

Determine IF You Can Get the Appropriate Business License(s) Needed.  Although it’s very difficult to make blanket statements that are applicable from one end of the U.S. to the other, as a rule of thumb, changing to a firearm(s) sales/distributor model of business operations can require the city/county in which your facility is located to issue a new/different/additional business license.  In some parts of the U.S., these can be more difficult to get than others.  Yes – the area your business may be located may issue FFL operational type permits – but maybe they only allow five active licenses to be issued at any given time.  If all five are active, will you be waiting years for a chance to get one? What will you do in the meantime? How much does the new business license cost?

3)    Review Insurance Requirements.  Again, changing to a firearm(s) sales/distributor/model of business will generally greatly impact your business insurance.  Create a careful outline of your proposed business processes, carefully review what item(s) you’ll transact – if you’re only transacting 80% receivers and no other firearm type(s) this could be critical in reducing your overall insurance investment – be sure your provider understands the true scope of your business model, so you’re not slapped with some exorbitant new fees, if possible.

4)    Determine IF Business Owners / Responsible Parties are FFL Eligible.  Not just anyone can be issued an FFL; there are minimum standards.  Carefully review ATF Form 7, paying special attention to your business structure and who(m) should be defined as a Responsible Person.  Each Responsible Person for the license will need to meet all eligibility standards for a license to be issued, including citizenship requirements and fingerprint & photo submission to the FBI.

5)    Determine IF Employees are Eligible To Transact Firearms.  Keep in mind, as a general rule, a person need not legally own a firearm to be considered in possession of a firearm.  Having access to a firearm in the home OR having access to firearm(s) at work many times meets the definition of “possession” for the purpose of firearm(s).  Therefore, employees at your FFL premises likely must not be prohibited from firearm(s) possession (permanently or temporarily) while employed at your facility.  If you have prohibited employees, you could be in a position to have to separate them, if your business becomes a licensed FFL.

6)    Understand Timelines.  It takes several months to apply for and be issued a Federal Firearms License – even after you are 100% certain the license may be issued.  I encourage you to plan your business transition around best-case and worst-case scenarios so that you don’t find yourself in a position where your business model requires an FFL to transact but you’re still awaiting ATF issuance.  

7)    Review & Enhance (As Needed) Security Systems / Processes.  Although the exact definitions of security for FFLs are not outlined in Federal Regulations, there is an assumption that firearms will be treated with a higher level of security and inventory management than “standard” inventory items.  Some local and /or state ordinances may be enacted regarding the exact standards for your facility.  Do your research and make enhancements, as needed, to ensure firearms on your business premises are secured as such.

8)    Review Software Systems and Identify Needs.  The vast majority of point of sale and/or accounting systems out there are not equipped to transact firearm(s).  There is a small, niche group of software systems out there, and you’ll need to fully understand what your potential investment in software, hardware, and implementation & training costs will be to convert to a new system.  Don’t forget to include not only the real, fixed cost of new system(s), but the cost to train employees – employees in training can’t help customers on the sales floor or take calls.

9)    Review the Total New Investment Required to Be an FFL.  With great privilege comes great responsibility – and potentially, great financial investment.  Sit down and put pen to paper – what are the total costs of licensing and renewals over the next 1, 3, 5, and 10 years?  How about insurance?  Employment costs?  Software & Hardware?  Can we get the licenses we need?  Do we want to be in the firearms business?  Are the timelines to converting to an FFL business practical or will we lose all our market share in the downtime?  It’s essential you understand your out-the-door cost for years 1, 3, and 5 to really know if the investment is worthwhile.

10) Make a Decision.  Businesses have to make a profit to be a business – any else is just a charity.  Review all of the data points available and make a choice for your business model.  Putting dollars and SENSE into a decision is key to making the right choice for you and your employees.

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Next week we’ll be taking Bite Two of the Elephant:  Firearms Frames and Receivers.

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