Oral Nicotine Pouches as “Tobacco Products”: “Tobacco Substitute” Includes Plant-Matter-and-Nicotine Replacements for Pulverized Tobacco

Introduction

In Kelly Hancock, Acting Comptroller of Public Accounts of the State of Texas; The Office of the Comptroller of Public Accounts of the State of Texas; and Ken Paxton, Attorney General of the State of Texas v. RJR Vapor Co., LLC (May 8, 2026), the Supreme Court of Texas addressed whether oral nicotine pouches—specifically RJR Vapor’s “VELO” pouches—are taxable under Texas’s Cigars and Tobacco Products Tax. The central statutory question was the meaning of “[t]obacco product” in Texas Tax Code § 155.001(15)(E), which covers “an article or product that is made of tobacco or a tobacco substitute” (excluding cigarettes and e-cigarettes).

RJR sought refunds after paying the tax under protest, contending VELO pouches are not “made of tobacco” and not “made of … a tobacco substitute.” The Comptroller classified them as taxable. The trial court and the Third Court of Appeals sided with RJR on taxability; the trial court also found the phrase “made of tobacco or a tobacco substitute” unconstitutional. The court of appeals declined to reach constitutional issues after holding VELO not taxable, calling those challenges “moot.”

The Supreme Court reversed on taxability, held VELO pouches are taxable as products “made of … a tobacco substitute,” rejected a standalone void-for-vagueness theory as duplicative in this setting, and remanded for the court of appeals to address RJR’s Texas Constitution “equal and uniform” challenge.

Summary of the Opinion

  • Holding (taxability): VELO nicotine pouches are “made of … a tobacco substitute” under TEX. TAX CODE § 155.001(15)(E) because their primary composition—a blend of non-tobacco plant matter (microcrystalline cellulose) and nicotine isolate—takes the place and function of tobacco plant matter as used in taxable pulverized-tobacco products such as snus or moist snuff.
  • Rejection of parties’ extreme readings: The Court rejected the Comptroller’s view that “nicotine used recreationally” is itself the “tobacco substitute,” and rejected RJR’s view that “tobacco substitute” has a narrow technical industry meaning that excludes VELO.
  • Constitutional issues: The court of appeals erred in calling constitutional challenges “moot”; they were alternative grounds. The Court held the void-for-vagueness argument does no independent work here given Texas tax doctrines and the Court’s conclusion that the statute unambiguously applies to VELO. It remanded the “equal and uniform” claim for initial consideration by the court of appeals.

Analysis

Precedents Cited

1) Statutory construction framework

  • Colorado County v. Staff, 510 S.W.3d 435 (Tex. 2017): Cited for de novo review and the primacy of plain meaning unless context indicates otherwise. The Court relied on this baseline approach to treat “made of,” “tobacco,” and “substitute” as ordinary words whose meaning can be resolved through text and context rather than policy assumptions about nicotine markets.
  • Hegar v. Am. Multi-Cinema, Inc., 605 S.W.3d 35 (Tex. 2020): Used to emphasize (i) plain meaning “first and foremost,” (ii) contextual limits when “a different, more limited, or precise definition is apparent,” and (iii) the admonition that courts must not rewrite clear text “under the guise of interpretation.” The Court used this to reject importing an unstated “recreational nicotine” purpose into the statute and to calibrate whether “tobacco substitute” should carry an industry-technical meaning.
  • State v. $1,760.00 in U.S. Currency, 406 S.W.3d 177 (Tex. 2013): Quoted through Am. Multi-Cinema for the principle that context may yield a more precise definition. Here, context narrowed “substitute” to a replacement for tobacco plant matter as used in the enumerated taxable tobacco-product categories.
  • Pub. Util. Comm'n v. Luminant Energy Co., 691 S.W.3d 448 (Tex. 2024), and State v. Hollins, 620 S.W.3d 400 (Tex. 2020): Cited for the axiom that statutory text must be read “in context—not isolation.” This supported reading subsection (E) alongside subsections (A)–(D) and the statute’s weight-based tax design.

2) Canons and contextual tools

  • Hilco Elec. Coop. v. Midlothian Butane Gas Co., 111 S.W.3d 75 (Tex. 2003): Cited for ejusdem generis. Because subsection (E) follows a list of specific tobacco products in (A)–(D), general language in (E) is restricted to the same class—products comparable to taxed traditional tobacco products. This canon was central to the Court’s move: “tobacco substitute” means a substitute for tobacco plant matter as used in those taxed products, not a free-floating “anything nicotine-related.”

3) Constitutional avoidance, vagueness, and tax-specific doctrines

  • Tarr v. Timberwood Park Owners Ass'n, 556 S.W.3d 274 (Tex. 2018), and S.A. Gen. Drivers, Helpers Loc. No. 657 v. Thornton, 299 S.W.2d 911 (Tex. 1957): Cited for constitutional avoidance—courts should not reach constitutionality if a case can be decided on nonconstitutional grounds. The Court clarified the court of appeals should have treated constitutional claims as alternative arguments, not “mootness” (a jurisdictional concept).
  • Tex. Dep't of Ins. v. Stonewater Roofing, Ltd., 696 S.W.3d 646 (Tex. 2024): Provided the two standard due-process vagueness concerns (lack of fair notice; arbitrary enforcement). The Court used this to explain why vagueness review is atypical in taxation and why, after concluding the tax statute clearly applies to VELO, speculative ambiguity “in other applications” is not the focus.
  • TracFone Wireless, Inc. v. Comm'n on State Emerg. Commc'ns, 397 S.W.3d 173 (Tex. 2013): Cited for Texas’s tax rule that ambiguity about a tax’s reach is resolved in favor of the taxpayer and that taxes must apply “unequivocally” with clear language. The Court effectively treated this doctrine as covering much of what “fair notice” vagueness arguments seek to do in tax cases, and found it inapplicable because the statute was unambiguous as applied to VELO.
  • In re Nestle USA, Inc., 387 S.W.3d 610 (Tex. 2012): Cited for the equal-and-uniform principle that tax classifications must “attempt to group similar things and differentiate dissimilar things” relative to the tax’s purpose—addressing the anti-arbitrariness concern that sometimes motivates vagueness doctrine.
  • In re Troy S. Poe Tr., 646 S.W.3d 771 (Tex. 2022): Cited for the Court’s ordinary practice of remanding unaddressed questions—especially constitutional questions—to the court of appeals to consider in the first instance. This drove the disposition of the equal-and-uniform claim.

4) Federal vagueness cases (comparative backdrop)

The Court cited a line of federal vagueness decisions—United States v. Davis, 588 U.S. 445 (2019); Sessions v. Dimaya, 584 U.S. 148 (2018); Village of Hoffman Estates v. Flipside, 455 U.S. 489 (1982); Johnson v. United States, 576 U.S. 591 (2015); Grayned v. City of Rockford, 408 U.S. 104 (1972); Giaccio v. Pennsylvania, 382 U.S. 399 (1966)—principally to underscore that none involved holding a tax statute void for vagueness and to explain why vagueness challenges to noncriminal tax provisions are rare and typically unsuccessful.

Legal Reasoning

1) The interpretive target: “made of … a tobacco substitute”

The Court treated subsection (E) as a catchall that extends taxation to products sufficiently like the enumerated tobacco products (A)–(D), while still excluding “cigarettes” and “e-cigarettes.” It then analyzed each component phrase:

  • “made of” = “composed of” (primary composition): The Court read “made of” to require that the relevant substance be a primary ingredient or component, not a trace presence.
  • “tobacco” = tobacco plant matter: “Tobacco” was understood as leaves/stem/plant matter, consistent with dictionary usage and the statutory definition of “raw tobacco.”
  • “substitute” = “takes the place or function of another”: The Court emphasized function and flexibility: “substitute” describes a category that can evolve with technology and consumer products, rather than an exhaustive list.

2) Rejection of the Comptroller’s “nicotine alone” theory

The Comptroller argued nicotine is a “tobacco substitute” when used recreationally. The Court rejected that framing as mismatched to the statutory text (“made of … a tobacco substitute”), and as practically inconsistent with how the taxed products operate: nicotine isolate alone cannot be rolled, smoked as pipe tobacco, chewed, used as snuff, or used as the fill of a pouch in the way pulverized tobacco is.

The Court also rejected purpose-based taxation (recreational vs. cessation) because the statute contains no “nicotine” or “recreational” language. Context cut against it as well: e-cigarettes, a prominent recreational nicotine product, are expressly excluded from the definition in § 155.001(15)(E), and they are not captured by the cigarette tax definition either.

3) Rejection of RJR’s narrow technical-industry limitation

RJR urged the Court to adopt an industry definition limiting “tobacco substitute” to reconstituted tobacco sheets or certain plant-only replacements in limited product contexts. The Court declined because (i) reconstituted tobacco sheets are still tobacco (they come from tobacco plant scraps), and (ii) the record and sources did not support confining “substitute” to a historically cigarette-centric industry conversation. Instead, the Court treated the statutory phrase as using ordinary meaning, informed by context.

4) The Court’s affirmative rule: the “plant matter + nicotine” blend substitutes for pulverized tobacco

The key move was to identify what VELO pouches are “like” within the statute’s enumerated categories. The Court analogized VELO to snus (a pouch containing pulverized tobacco), which is taxable as a “preparation[] of pulverized tobacco” under § 155.001(15)(D). VELO’s pouch uses:

  • cellulose (plant matter) to provide the physical “fill” (weight, feel, pouch content) comparable to pulverized tobacco; and
  • nicotine isolate to provide the pharmacological effect that tobacco plant matter typically delivers in such products.

Together, that blend “takes the place and function” of the tobacco plant matter used in taxed pulverized-tobacco pouch products. The Court reinforced this with two contextual factors:

  • Ejusdem generis: subsection (E)’s general terms are constrained by subsections (A)–(D); so the substitute must be a substitute for tobacco as used in those taxed products.
  • Weight-based tax design: because the tax is levied by weight (TEX. TAX CODE § 155.0211), it fits products whose primary ingredients have tobacco-like bulk/weight properties—supporting a plant-matter-based “substitute” conception over a pure-nicotine conception.

5) Constitutional issues: “mootness” vs. avoidance; vagueness vs. equal-and-uniform

The Court corrected the court of appeals’ “mootness” label: constitutional claims were not jurisdictionally moot; they were simply unnecessary to reach if RJR won on statutory grounds. Having found VELO taxable, the Court then pared down constitutional issues:

  • Void-for-vagueness: The Court held RJR’s vagueness argument was “inapt” and duplicative in this setting, given (i) the pro-taxpayer ambiguity rule from TracFone Wireless, Inc. v. Comm'n on State Emerg. Commc'ns and (ii) the overlap between “arbitrary enforcement” concerns and the Texas Constitution’s equal-and-uniform requirement discussed in In re Nestle USA, Inc.. Because the statute was unambiguous as applied to VELO, the Court saw no need for separate vagueness analysis.
  • Equal and uniform: The Court remanded for the court of appeals to decide whether taxing VELO while not taxing nicotine replacement therapies violates TEX. CONST. art. VIII, § 1(a).

Impact

  • Expanded taxable scope for modern oral nicotine products: The decision makes clear that non-tobacco oral nicotine pouches can fall within “tobacco products” when their primary components functionally replace tobacco plant matter in traditional taxed forms (especially pulverized tobacco preparations).
  • Product-design sensitivity: The Court’s focus on “made of” (primary composition) and functional replacement suggests that future disputes may turn on formulation: the ratio and role of plant matter, the presence/absence of nicotine, and the product’s similarity to taxed categories (snuff/snus/chewing/smoking).
  • Tax-administration constraints: By rejecting a purpose-based “recreational nicotine” lens and anchoring analysis to statutory text, context, and tax design (weight-based), the Court reduces administrative discretion to classify products based on consumer intent.
  • Constitutional litigation remains live: The remand ensures that the “equal and uniform” theory—particularly comparisons to nicotine replacement therapies—may become the next major battleground, potentially influencing how Texas structures excise taxes on nicotine-delivery products.

Complex Concepts Simplified

  • “Ejusdem generis”: When a law lists specific items and then adds a general catchall, the catchall is read to include only things similar to the listed items. Here, “tobacco substitute” in subsection (E) is limited by the kinds of tobacco products listed in (A)–(D).
  • “Void for vagueness”: A due-process doctrine that invalidates laws so unclear that people cannot tell what is covered or that invite arbitrary enforcement. The Court suggested that, in taxation, Texas’s “ambiguity favors the taxpayer” rule and the “equal and uniform” clause often cover similar ground.
  • “Equal and uniform” taxation (Texas Constitution): Texas generally requires that similarly situated taxpayers/products be treated alike. Disparate treatment can be unconstitutional if the classification is not a meaningful differentiation related to the tax’s purpose.
  • “Constitutional avoidance” vs. “mootness”: Avoidance is a prudential rule (don’t decide constitutionality if you can decide the case another way). Mootness is jurisdictional (no live dispute). The court of appeals used the wrong label.

Conclusion

This Opinion establishes a practical, text-and-context-driven rule for TEX. TAX CODE § 155.001(15)(E): an article is “made of … a tobacco substitute” when its primary components functionally replace tobacco plant matter as used in enumerated, taxed tobacco products—here, a cellulose-and-nicotine blend that substitutes for pulverized tobacco in snus-like pouches. The Court’s method rejects both a sweeping “nicotine = tobacco substitute” approach and an unduly narrow industry-technical limitation, instead tying “substitute” to the statute’s structure and weight-based tax design. While VELO pouches are taxable as a matter of statutory interpretation, the Court left open—and remanded—the significant constitutional question whether the Comptroller’s overall tax treatment of comparable nicotine products satisfies Texas’s “equal and uniform” requirement.