Unexpected Failure of AB-228
I was at my local coffee shop in Venice this morning and I saw a new sign up advertising hemp extract for coffee. This isn’t unusual in Venice—or really across the United States—but it brings up interesting questions of the state of retail hemp sales given the failure of AB-228 to pass through the California state senate last summer.
Federal
Hemp is federally legal. The United States legalized hemp when the President signed The Agriculture Improvement Act of 2018 (2018 Farm Bill, PL 115-334, hereinafter “Farm Bill”). The Farm Bill explicitly removed hemp from the definition of marijuana under the Controlled Substances Act (CSA). Id. at § 12619. The Farm Bill defines hemp as Cannabis sativa L. and derivatives of cannabis with extremely low concentrations of the psychoactive compound delta-9-tetrahydrocannabinol (THC), and no more than 0.3% THC on a dry weight basis. Id. at § 297a; 7 U.S.C. § 1639o. (1). It also empowered the federal government to create a regulatory floor, and left states free to create a more stringent framework if they so desire. See 2018 Farm Bill, PL 115-334, § 287B.(a)(2)(A)(3)(A).
Ranking member of the Senate Agricultural Committee, Debbie Stabenow (D–MI), testified in July 2019 of hemp’s inclusion Farm Bill "This exciting new opportunity is actually part of a great American tradition. George Washington, John Adams, and Thomas Jefferson all grew hemp. During World War II, the USDA encouraged farmers to grow hemp in order to produce ropes for the U.S. Navy."
The federal government legalizing hemp allowed businesses and individuals touching hemp to let their products flow through inter-state commerce, use financial services such as banking and insurance, and prevents law enforcement from intervening. It also put federal regulation in the hands of the FDA. State and local governments are responsible for creating a granular architecture for how operators must work within the state.
The Food and Drug Administration has been slow in issuing guidance on hemp, and its active ingredient CBD. At the end of 2019, the FDA issued issued warning letters to 15 different companies for marketing their CBD products online in a way that violates the Federal Food, Drug, and Cosmetic Act (FD&C Act). Among many issues, these products made specific claims about what issues CBD could address, for example multiple sclerosis, fibromyalgia and epilepsy.
Beyond those warning letters, and a revised consumer update on CBD, the FDA has been silent.
States matter
As with many consumer products, states have an outsized role in regulating marketing, manufacturing, and sales. A state cannot prohibit hemp sales as it would probably be a violation of the Commerce Clause and the Dormant Commerce Clause of the Constitution. States can create frameworks for its sale so long as it isn’t too burdensome to interstate commerce.
Some states have already passed a defined retail framework. For example, Florida has passed a law and issued regulations to guide retail sales of help extract. Florida largely adopted the federal definition of hemp, added labeling rules, and gave a granular list of threshold levels of pesticides.
But California, the epicenter of Cannabis in the United States, and perhaps the world, has been slow in passing legislation.
State of the law in California
Legislation.
California has been slow in passing its hemp laws. It quickly created an industrial hemp program, and adopted word-for-word the Farm Bill’s definition of Hemp. In summer 2019, AB-228 was going to flew through the California State Assembly, passing 77-0. It passed through the Senate Health; Business, Professions & Economic Development; and Appropriations Committee unanimously this last summer. And just needs to a full vote from the Senate and to be signed into law by the Governor.
AB-228 would have formally legalized hemp infused foods, and create a retail architecture.
“[AB-228] didn’t receive a full Senate vote because there was not enough time.” said Hirsh Jain, Director of Government Affairs for Caliva. “It passed the Senate Appropriations Committee in late August [2019], but the Senate and the Governor felt it didn’t have enough runway to meaningfully review the bill before the state’s September 30th deadline for the Governor to sign bills.”
In addition Mr. Jain brought up some issues the hemp and cannabis industry need to reconcile. Specifically Mr. Jain highlighted that because hemp and CBD products could compete with cannabis sales, cannabis operators want hemp to be subject to the same testing standards to level the playing field. There are also some regulation issues with co-mingling grow operators.
Elected officials have signaled that they want to passing this in the first part of 2020.
Regulation.
The only California governmental body to issue any type of guidance hemp sales is the California Department of Public Health (CDPH) went on record that extracts from hemp that fits the California Code’s definition (i.e. 0.3% THC or less) can be added to food and beverages so long as it comes from hemp seeds. Conversely, hemp derived from cannabis or CBD (i.e. more than 0.3% THC) could not be added to food.
This one-pager is largely interpreted by the legal and business community and confusing and contradictory largely because of the distinction the CDPH drew between extracts from industrial hemp and industrial hemp seeds. While across the country, and federally, the distinction is the THC content in the product.
The State of California must pass AB-228
The California state legislature must pass AB-228 for the hemp industry to scale. The confusion that no legislation blocks hemp and CBD operators from achieve significant retail distribution. It is illegal under California Cannabis regulation for a licensed cannabis dispensary to sell industrial hemp products, and so hemp operators must use traditional consumer package good distribution means.
Some may say that since retailers are already carrying hemp products in California this isn’t an immediate problem. However, just because some retailers are selling hemp products doesn’t mean all will. Retailers with the largest market share are risk-averse. Mainstream stores, hotels, and entertainment venues refuse to offer hemp infused beverages and food products to their customers. When working on a distribution deal for a consumable industrial hemp product, a prospective distributors attorney told me that while the law was obviously unclear, his clients would “rather be safe than sorry.” The product in question also had lab reports showing 0.00% THC content.
These types of responses are far too common, and the blame rests squarely on the legislature for not clarifying this. Until California passes AB-228, the hemp and industry will continue to limited in its growth.
