California Governor’s Proposal to Integrate Hemp Into Cannabis Supply Chain Comes to Halt

Legislation that would have provided a hemp makeover to California’s regulated cannabis market came to a halt in the committee process Aug. 15. But this represents just one battle in an ongoing conflict between intoxicating hemp and cannabis products, which continue to have regulatory disparities throughout the nation.

California Senate Appropriations Committee Democratic Chairwoman Anna Caballero held Assembly Bill 2223 from a vote last Thursday, dealing the legislation a defeat this legislative session, which is scheduled to adjourn Aug. 31.

The legislation, sponsored by Assembly Majority Leader Cecilia Aguiar-Curry, was initially intended to restrict products containing intoxicating hemp derivatives, including products with synthetically derived cannabinoids, from being sold at places like smoke shops, gas stations and liquor stores.

“Right now, there’s no law in the state of California that says you can’t have more than a certain amount of THC in these products,” Ross Gordon, policy director with Humboldt County Growers Alliance and policy chair with Origins Council, said in an Aug. 8 webinar explaining the legislation. He was talking about the milligrams of THC available in hemp-derived products, not the percentage of THC.

“It’s a little more complicated than that, but I think really the reason for this bill is the current law, at the very least, is not very clear about this,” he said. “And so, this is one thing the bill is trying to do, is to say, you can’t sell these high-THC hemp products at a gas station.”

Origins Council is a nonprofit education, research and policy advocacy organization representing roughly 800 small and independent cannabis businesses in rural California counties like Humboldt, Mendocino, Nevada, Sonoma and Trinity.

A.B. 2223 comes at a time when intoxicating hemp-derived products have proliferated in what has become a multibillion-dollar interstate marketplace in the years following the 2018 Farm Bill, which federally legalized hemp containing no more than 0.3% delta-9 THC on a dry-weight basis (as often tested during a pre-harvest decarboxylation process).

RELATED: THCA in the Farm Bill: Amendment Goes Far Beyond Closing ‘Loopholes’

However, laboratories often synthesize CBD—the main nonintoxicating compound in hemp—converting the cannabinoid into intoxicating delta-8 or delta-9 THC, which is then infused into edible products and sold in retail locations across the nation. These products are often untested for harmful contaminants, sold without age restrictions and packaged in attractive ways to children.

This is what California and many other states throughout the U.S. are trying to stop.

RELATED: State AGs Take Action to Quell Proliferation of Intoxicating Hemp Products

The California Assembly voted, 73-0, to pass A.B. 2223 on May 21, sending it to the Senate for consideration. The Assembly’s version of the bill specifically intended to outlaw synthetically derived cannabinoids and high-THC hemp products, Gordon said in the webinar. 

However, on June 28, Gov. Gavin Newsom provided a 44-page draft of amendment language to alter the legislation significantly. The governor’s amendments aim to overhaul the state’s regulated cannabis industry by integrating intoxicating hemp products into the licensed marketplace under the Department of Cannabis Control’s (DCC) regulatory authority.

According to Origins Council, the governor’s proposed amendments include a framework that would:

• Prohibits products with any quantifiable amount of THC from being solid outside the cannabis supply chain (liquor stores, grocery stores, etc.)
• Allows high-THC hemp products and cannabinoids to be incorporated into the cannabis supply chain, including for sale at licensed cannabis dispensaries
  • Removes the requirement for THC and high-THC products sold in the cannabis supply chain to be sourced from DCC-licensed cannabis cultivators
• Allow high-THC hemp products produced anywhere in the U.S. to be imported into California through a licensed cannabis distributor and sold at California dispensaries.
• Allow high-THC hemp products—but not cannabis products—be exported out of California to other states through a licensed cannabis distributor.
• California’s current prohibition on retail sales of inhalable hemp products would remain in place.
  

In addition, Newsom’s proposal struck out the provision from the Assembly-passed bill that aimed to outlaw synthetically derived cannabinoids.

“It’s really a fundamental change in the character of the cannabis regulatory framework because the idea is that the regulation is now just not on cannabis; it’s on all types of cannabinoids, however they’re sourced,” Gordon said in the webinar.

In the weeks following Newsom’s amendment package, some industry organizations urged their supporters to oppose the governor’s proposals, including the advocacy organization U.S. Hemp Roundtable (USHR).

“With great disappointment in the administrative state—but with hope that Governor Newsom and the General Assembly see through a bureaucratic power grab that poses an existential threat to the California hemp industry—we urge all Californians to let the governor and the legislature know that A.B. 2223 should be quashed, and a true collaborative effort begin next year to protect farmers, small businesses, consumers and children,” USHR General Counsel Jonathan Miller said in a public statement Aug. 14.

Millers’ statement followed an Aug. 12 hearing the California Senate Appropriations Committee held on the fiscal impacts of the legislation.

Many potential implications were unknown, including a fiscal impact “ranging in the millions of dollars” for the DCC to modify regulations, reconfigure its track-and-trace system, and for “other administrative and enforcement workload” related to expanding the scope of products allowed in California’s cannabis supply chain.

There were also unknown fiscal impacts for the California Department of Public Health, the state’s judicial system, and potential reimbursable annual costs to counties for increased incarceration costs, according to A.B. 2223 documents.

On Aug. 15, the last day for the Senate Appropriations Committee to advance the legislation before a legislative deadline, committee Chair Caballero did not bring A.B. 2223 forward for a vote.

Following the bill’s defeat in this legislative session, USHR released a celebratory statement but also indicated that its advocacy work remains unfinished.

“The war on hemp continues on Capitol Hill and in state capitals across the country,” according to the USHR. “Moreover, in California, challenges remain. While the vast majority of hemp farmers, product manufacturers and retailers are small and family businesses who play by the rules and hold themselves to the highest standards, bad actors in our industry continue to manufacture products without quality control, label and package them insufficiently, and illegally target children. We also need to do a better job to promote equitable solutions for the entire cannabis industry.”

According to exclusive research by Cannabis Business Times, roughly half of constituents from hemp businesses in the U.S. believe intoxicating hemp-derived cannabinoids should be regulated like cannabis—not prohibited nor unregulated.

In California, Newsom’s efforts are ongoing to address the manufacturing, distribution and sale of intoxicating products containing hemp derivatives.

Last week, Newsom announced that his Unified Cannabis Enforcement Taskforce led an operation in Los Angeles that resulted in the seizure of nearly 2.3 million unlicensed products marked with forged cannabis regulatory seals and marketed in ways that were attractive to children.

RELATED: California Seizes 2.3 Million Unlicensed Cannabis Packages Marked With Forged Regulatory Seal

In April, the governor directed the Public Health and Alcoholic Beverage Control departments to take action to help protect the state’s youth by issuing notices on “illegal hemp products.”

“Mislabeled and misleading products do not belong in the marketplace—especially when they put our kids’ health and safety at risk,” Newsom said in a press release. “Today, the state is taking action to protect Californians, especially our kids, as we work to further close loopholes and increase enforcement to prevent children from accessing hemp and cannabis products.”