Well known to the industry by now, the Federal Agriculture Improvement Act of 2018, or the 2018 Farm Bill, legalized hemp as defined, with a Delta-9 THC concentration of no more than 0.3% on a dry weight basis, and altered the Controlled Substances Act’s definition of “marihuana” to exclude hemp as a Schedule I substance.
Over the last five years, the industry has come to understand that due to the poorly constructed wording of these definitions, federal law has essentially legalized marijuana through the form of “intoxicating hemp.”[1]
Consequently, under this definition, marijuana seeds, even those from highTHC plants, are also now considered hemp and are therefore not subject to Drug Enforcement Administration, or DEA, control.[2]
The chasm between the federal government’s cannabis policies and burgeoning state-legal cannabis industries continues to grow wider the longer the federal government drags its feet on full cannabis legalization — dabbling in legal hemp and now potentially rescheduling marijuana, given recent recommendations by the U.S. Department of Health and Human Services.[3]
The legal inconsistencies that are developing have created competing state hemp and marijuana regulatory schemes which allow for interesting compliance loopholes in conjunction with federally legal hemp interstate commerce.[4]
A patchwork of state laws now governs: While several states have moved toward prohibition, passing laws that outright bar the sale, manufacture or distribution of intoxicating Delta-8 and Delta-10 products derived from hemp — despite their federal legality — other states have made those same products more accessible to the general public.
This includes California — the behemoth of the cannabis industry — which has been hard at work over the past year refining the labyrinth of rules and regulations for consumable hemp-derived
products.
Because of its huge market share, California’s hemp and CBD rules and regulations have a distinct impact on the national supply chain for hemp manufactured products. As such, it is imperative that hemp and CBD operators in every state understand the nuances of California’s regulatory regime, and how new legislation may alter the compliance calculus.
California Rules on Industrial Hemp Versus Marijuana
After the California Legislature enacted A.B. 45, it created a framework for California hemp regulations that have been passed as emergency rules.
As a result, entrepreneurs are now able to manufacture and distribute CBD products fit for human consumption. These manufactured products may contain CBD derived from industrial hemp, not marijuana, and can be sold to the general public, subject to compliance with all of the state’s rules.
Consistent with the 2018 Farm Bill,[5] California defines “industrial hemp” as an agricultural product “of the plant Cannabis sativa L.,” which includes “any part of that plant, including the seeds of the plant and all derivatives, extracts, the resin extracted from any part of the plant, cannabinoids, isomers, acids, salts and salts of isomers, with a delta-9 tetrahydrocannabinol concentration of no more than 0.3 percent on a dry weight basis.”[6]
Effective Jan. 1, 2022, the U.S. Department of Agriculture, or USDA, approved California’s state regulatory plan for industrial hemp production.[7] Thereafter, all hemp cultivators in the state of California are required to comply with existing state laws and regulations as well as any local restrictions that may apply.
While Division 24 of the California Food and Agricultural Code regulates the cultivation of industrial hemp, A.B. 45 regulates the production, manufacture, storage, transportation and distribution of manufactured hemp products. An important regulatory distinction exists between smoking products and manufactured products.
California Regulation of Products Throughout the Supply Chain Depending on the Final Product
In California, the California Department of Public Health’s Food and Drug Branch reigns over the regulation of manufactured industrial hemp products while the Department of Food and Agriculture regulates the commercial cultivation of industrial hemp.
As discussed below, California companies and operators seeking to engage in commercial activities associated with manufactured hemp products face complicated business decisions in light of compliance challenges throughout the supply chain.
Importation of Industrial Hemp for Processing, Manufacture, Distribution and Sale
California requires federal and state compliant importation of industrial hemp and an Industrial Hemp Enrollment and Oversight Authorization to process, manufacture, distribute or sell industrial hemp products.
In 2022, the CDPH established the Industrial Hemp Compliance Program for the implementation of A.B. 45 and the creation of the Industrial Hemp Enrollment and Oversight Authorization.[8] In order to manufacture, store, transport or distribute products with CBD/hemp in them, all imported products must be compliant and California companies that qualify must obtain an authorization.
These products include shelf-stable food, i.e., baked goods, candy, dried mixes, confections; dietary supplements taken by mouth, such as botanicals, herbs, powders, amino acids; cosmetics including lotions, balms, makeup, salves, cleansers, etc.; pet food, or food for animals not including livestock; beverages; raw hemp extract; and inhalers, but only for out-of-state sales.
All hemp manufactured products must be produced in a suitable, commercial location, as well as stored throughout the supply chain, in a commercial location.
Industrial hemp products may be sold online, however any sales or distribution will require an Industrial Hemp Enrollment and Oversight Authorization license.[9]
Importation of Unprocessed Hemp Material into California for Manufacture, Sale, Storage or Distribution
Due to the federal legalization of hemp, hemp or hemp products can be legally sourced or imported from any state that abides by a USDA-approved hemp program, complies with A.B. 45, and the CDPH emergency regulations.
California law currently allows for the importation of unprocessed hemp material and industrial hemp seeds/plants into the state. However, that unprocessed hemp material and seeds/plants must meet all plant pest quarantines and may even be subject to a further agricultural inspection for plant pests upon importation.
Testing Requirements for Hemp Manufactured Products
California companies must obtain proof that industrial hemp products are produced from industrial hemp grown in compliance with the California Food and Agricultural Code if sourced from within the state, or from a USDA-approved industrial hemp program, if sourced from outside the state.
In order to sell a manufactured product in California, the product must be accompanied by a certificate of analysis that specifies the requirements under California law, even if the hemp is
derived from a different state.
Specifically, a California-compliant certificate of analysis for any hemp utilized in a manufactured product must indicate potency levels of THC, CBD and other identified cannabinoids, heavy metals, mycotoxins or molds, pesticides and residual solvents.
Effective Jan. 1, 2024, the USDA Agricultural Marketing Service will begin the enforcement of a requirement that all hemp must be tested by a DEA-registered laboratory. This will hopefully streamline the testing of hemp so that all states will be operating under the same standards while engaging in interstate commerce. This is complicated by the fact that the number of DEA-registered laboratories are limited throughout the country.
Of course, this standardized process varies significantly from the legalized adult-use cannabis industry, which still operates under separate state laws for testing laboratories. This results in testing
with varying degrees of certainty.
Smoking Products
California hemp grown for the purpose of smoking or exportation would fall under the California Hemp Cultivation Regulations, not subject to the above-mentioned regulations of a manufactured
product.
Unlike the robust regulations that exist for manufactured products, hemp-derived smoking products remain largely prohibited.
Currently, inhalable hemp products remain prohibited for sale or manufacture in the state of California until the state Legislature devises a way to properly tax those products, and the California cannabis attorney general has been actively taking action against those who sell them within the state’s borders.[10] Notably, in California, so-called inhalables are limited to vaporizers.
Although California companies cannot sell inhalables to California businesses or consumers, California inhalables manufacturers can sell their products via export into other states.
As an added challenge, would-be California companies seeking to manufacture inhalables for export to other states have to navigate the patchwork of each individual state’s regulations to compliantly export their products.
Moreover, California Food and Agricultural Code Section 81006(e) requires most registrants to obtain a laboratory test report indicating the percentage concentration of THC prior to harvest.[11]
Unlike the legalized adult-use cannabis regime, there is no “home grow” allowance for industrial hemp.
The Complexities Operators Face — A Case Study
This matrix of regulations presents a number of compliance challenges for both in-state and out-ofstate operators.
Take, for example, a California-based company that desires to sell their CBD manufactured products in the state. Under applicable federal and California laws, they can legally source the hemp or the product from outside of the state. The hemp must be sourced from any USDA-approved program and yet still must follow the regulations according to California A.B. 45.
Continuing with this example, if said California company sources their CBD from a USDA-approved program in Texas, the product must have been manufactured in the state of Texas, according to California rules, and then shipped across state lines and into California. Accordingly, despite its origin in a separate state, in order for this product to end up on California shelves, this product must comply with California rules and regulations.
Notably, this Texas manufacturer must comply with California rules to sell to California companies while simultaneously complying with the rules and regulations of other states. As another example, the California company referenced here may want to sell their products online. Depending on the state of the customer, the company may or may not be in compliance with other states’ rules.
As this hypothetical quandary demonstrates, maintaining compliance while operating within interstate commerce requires companies to stay on top of the ever-changing regulatory environment.
Specifically, from sourcing compliant materials to the ultimate sale of the products, aka “seed to sale,” many California manufacturers and sellers must navigate compliance issues associated with not only California-specific rules and federal rules, but also a varying patchwork of regulations across the U.S.
Furthermore, California companies seeking to manufacture products for export to other states may need to import raw materials from another state for the manufacture, storage or distribution of products in the state of California and as a result must collect from each of those vendors the proper permits and compliant testing results.
Finally, certain operators must obtain the proper Industrial Hemp Enrollment and Oversight certification, comply with testing requirements, and maintain evidence of sourcing USDA-compliant industrial hemp. Additionally, although companies manufacturing outside of California do not need an Industrial Hemp Enrollment and Oversight Authorization, their operations must comply with their resident state as well as California-specific regulations in order to import industrial hemp or hemp products into the state.
A Potential Industry Change — A.B. 420
The industrial hemp and cannabis industries are quite separate, and industrial hemp products cannot be sold in cannabis retail stores.
It is currently prohibited to sell hemp-derived products at a licensed cannabis dispensary.[12] However, A.B. 420 could change that.
First introduced in February by Assemblymember Cecilia Aguiar-Curry, A.B. 420 would amend the Medicinal and Adult-Use Cannabis Regulation and Safety Act — the law legalizing recreational cannabis in the state — and would allow cannabis licensees to sell, manufacture and distribute hemp and CBD products.
The bill would “expand the prohibition that raw hemp extract not exceed 0.3% of a tetrahydrocannabinol comparable cannabinoid, and prohibit the manufacture, distribution, or sale of an industrial hemp product that contains a cannabinoid that is not present in nature in commercially meaningful quantities, unless authorized by the department in regulation.”[13]
Additionally, an out-of-state hemp manufacturer who produces an industrial hemp product that is a food or beverage for sale in this state is required to register with the department.
This change in policy and law could very likely create new complications for the industry but may also provide potential areas of expansion for creative entrepreneurs.
This legislation could ameliorate some of the issues discussed above by combining these products into one supply chain that is then accessible to the consumer through licensed marijuana retail shops, aka one-stop-shops. This standardization will also likely legitimize CBD and hemp products being sold through the regulated marijuana retail market and clear up confusion for consumers.
On the other hand, it may compound issues like the difference between the testing requirements between marijuana and hemp manufactured products. As of January 2024, all hemp must be tested by a DEA-registered laboratory, which is not a requirement for marijuana consumable products.
The DEA lab testing requirement for hemp will streamline the testing of hemp so that all states will be operating under the same standards while engaging in interstate commerce. However, this standardization may also provide a new headache, by the fact that the number of DEA-registered laboratories are limited throughout the country. This can lead to product testing backlogs, which can impact the entire supply chain.
Most recently, as of Sept. 1, the bill is being held under submission in the Appropriations Suspense File. The Appropriations Committee Suspense File is where the committee must send any bill with an annual cost of more than $150,000.
The suspense bills are then considered all together at one hearing — but only after the state budget has been prepared and the committee has a better sense of available revenue. No testimony is presented at the Suspense File hearing. Thus, the bill’s likelihood of passage is now dependent on the final fiscal budget of the state.
Conclusion
Today, the industrial hemp and marijuana industries are quite separate and come from distinct supply chains, largely due to the intoxicating aspect of marijuana and its related cannabinoids.
However, federal legality of hemp now allows for interstate commerce, which has introduced novel compliance issues around testing, storing and manufacturing of consumable hemp products within the state of California.
However, over the last year, the state has been working toward a single regulated supply chain through the proposal — and hopeful passage — of A.B. 420.
Overregulation has often been deemed a killer of any industry so here is to hoping that this consolidation may lead to a simpler cannabis regulatory scheme for those operators in and out of the
Golden State.
Alexis Lazzeri is an associate and Meital Manzuri is the managing partner at Manzuri Law.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] Matt Zorn and Shane Pennington, “On Drugs”; https://ondrugs.substack.com/p/delta-9-thcgummies?utm_source=substack&utm_medium=email.
[2] Ibid.
[3] Riley Griffin, Ike Swetlitz, and Tiffany Kary, US Health Officials Urge Moving Pot to Lower Risk Tier, Bloomberg, (Aug. 30, 2023), https://www.bloomberg.com/news/articles/2023-08-30/hhs-callsfor-moving-marijuana-to-lower-risk-us-drug-category?embedded-checkout=true#xj4y7vzkg.
[4] Matt Zorn and Shane Pennington, “On Drugs”; https://ondrugs.substack.com/p/delta-9-thcgummies?utm_source=substack&utm_medium=email.
[5] Agriculture Improvement Act of 2018, Pub. L. No. 115-334 (2018), https://www.govinfo.gov/app/details/PLAW-115publ334.
[6] Cal. Food and Agr. Code § 81000(a)(7) (2023); See also, Cal. H&S Code § 11018.5 (2023). (The definition of “Cannabis” under the Business and Professions code excludes the definition of “industrial hemp” as defined by Section 11018.5 of the Health and Safety Code); Cal. B&P Code § 26001(e) (2023); Agriculture Improvement Act of 2018, Pub. L. No. 115-334 (2018), https://www.govinfo.gov/app/details/PLAW-115publ334.
[7] Cal. Code Regs. tit. 3, §§ 4890 – 4952 (2022); https://www.ams.usda.gov/sites/default/files/media/CAStateRegulatoryPlanforHempProduction.pdf.
[8] Cal. H&S Code §§ 111923.3 and 111923.5 (2023).
[9] Ibid.
[10] Office of the CA Attorney General, Attorney General Bonta Files Lawsuit Against Nine Companies for Illegal Sale of Inhalable Industrial Hemp Products and Proposition 65 Violations, (Sept. 8, 2023). https://oag.ca.gov/news/press-releases/attorney-general-bonta-files-lawsuit-against-ninecompanies-illegal-sale.
[11] Cal. Food and Agri. Code § 81006(e) (2023) (Note: The exception to this is except when industrial hemp is grown (1) by a registered established agricultural research institution and tested in accordance with an approved research plan or (2) by a registered hemp breeder and tested in accordance with an approved variety development plan.)
[12] Cal. Food and Agr. Code § 81006(c), (2023) https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=81006.&lawCode=FAC.
[13] Cal. AB 420 (Feb. 2, 2023), https://legiscan.com/CA/text/AB420/id/2828766/California-2023-AB420-Amended.html.