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At the federal level, I don't see any problem. The BATFE is concerned with things that fire projectiles through the energy of an explosive, and whether it does so with a fixed cartridge.
While such a thing fires a projectile through the use of an explosive, it doesn't make use of a fixed cartridge, so it should be the same as a muzzleloader.
You probably wouldn't want to sell such a thing to kids these days, though.
State and local laws would be where the real issue lies.
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