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Tannerite is a binary explosive. It consists of two packages, one contains the oxidizer ammonium nitrate and the other contains the fuel aluminum powder. When mixed together they will explode if impacted by a high-velocity bullet impact.
It is legal because neither material is explosive by itself. However people being people tend to do foolish things with it, adding incendiary chemicals or being too close to the explosion as this guy did.
The FBI is concerned about the stuff being used by terrorists and they have issued an advisory to the private sector.
Here in New Ipswich, NH we hear an occasional tannerite explosion. It may be legal but we are not as rural as some people may think.
"As with firearms, cannons, stereos, etc. Just because you can own and use them, doesn’t mean that you are immune to charges of “Disturbing the peace” and other such acts. Use common sense and respect adjoining property owner’s right to tranquility. If you live in a congested area, don’t shoot Tannerite® there. Drive to a safe and remote location for your shooting exercise." - Source Website
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