By Alex Malyshev. Published in the New York Law Journal.
To a large extent legalization of adult-use cannabis, including New York’s passage of the Marijuana Regulation and Taxation Act of 2021 (MRTA), has eclipsed other developments in the cannabis sector over the past year. A notable exception has been the crackdown on Delta-8 THC, which is derived from hemp. Several states, including New York, have moved to ban the manufacture and sale of the substance.
But that is only the tip of the iceberg for regulation of hemp and hemp derived substances. Since issuance of adult-use licenses and regulations is likely more than six months away, this is a good time to review New York’s soon-to-be-finalized hemp and CBD regulations and their interplay with federal guidance.
Where Things Stand Federally
Prior to December of 2018, hemp and all hemp-derived substances (including cannabidiol or CBD) were considered to be a form of “marijuana,” subject to the federal government’s most restrictive regulation under Schedule I of the Controlled Substances Act of 1970 (CSA). The 2018 Farm Bill carved “hemp” and its derivates from the definition of marijuana in the CSA. It defines hemp as “cannabis sativa L. … and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers … with a delta-9 tetrahydrocannabinol [THC] concentration of not more than 0.3 percent on a dry weight basis.” See 7 U.S.C. 1639o.
The DEA, which enforces the CSA, has indicated that it may consider delta-8 derived from hemp to be a “synthetically derived tetrahydrocannabinol” which still belongs on Schedule I of the CSA. It also lists delta-8 THC is in its “Orange Book” as an alternative name to tetrahydrocannabinol (along with THC, and delta-9 THC).
As the name suggests, the Farm Bill was mostly concerned with the cultivation of hemp, outlining how states, and Native American tribes, can regulate the process by having their plans approved by the U.S. Department of Agriculture. Hemp has many applications beyond the extraction of cannabinoids and isomers for human consumption, but those have proved to be the most profitable in recent years (with CBD products seemingly everywhere).
While the Farm Bill does not have a detailed regulatory scheme for those derivatives, it specifically preserved the ability of the Food and Drug Administration to regulate hemp derivatives. The FDA moved quickly to assert its authority, consistently maintaining that making unsubstantiated health claims, as well as adding CBD to food and beverages, violates the Food, Drug, and Cosmetic Act. It also made clear that CBD cannot be sold as a drug or introduced into the food supply until it concludes its rulemaking process to determine how CBD should be regulated.
Unsurprisingly, the FDA rulemaking process has not moved at the speed of commerce, requiring it to issue warning letters to companies it considers to have crossed the line. More recently the FTC, which worked with the FDA on this issue, announced a number of settlements as part of its “Operation CBDeceit,” which cracked down on products making a wide range of scientifically unsupported claims about those CBD products’ ability to treat serious health conditions. Of course, given the number of operators in the field, these actions are a proverbial drop in the bucket. Enforcement falls, for the most part, to states like New York, who have moved on their own to regulate hemp derived cannabinoids.
Where Does New York Stand?
Cultivation, transportation, and sale of unprocessed hemp in New York is governed by Article 29 of the Agriculture & Markets law. New York does not issue cultivation licenses in accordance with the 2018 Farm Bill due to its concerns about the USDA’s implementing rule, especially as it relates to testing. Instead, New York continues to administer an “Industrial Hemp Agricultural Research Pilot Program” established in accordance with the 2014 Farm Bill (7 U.S.C. §5940), which allows hemp to be cultivated for research (as opposed to commercial) purposes. It is expected that New York will transition to a plan under the 2018 Farm Bill in 2022 (as federal authorization to administer plans under the former law will expire on Jan. 1, 2022).
In 2020 New York launched a “Cannabinoid Hemp Program” in accordance with Article 33-B of the New York Public Health Law (PHL) signed by the governor. In 2021 the Legislature passed, and the governor enacted, the MRTA which covers Cannabinoid Hemp and Hemp Extract in Article 5. See 2021 NY S.B. 854, §§90-111. The MRTA repeals Article 33-B effective April 1, 2022, and transitions administration of the program from the department of health to the, yet unformed, cannabis control board.
Draft regulations were issued by the department of health in October 2020, and updated earlier this year in response to comments received from stakeholders. The regulations specifically deal with licensure for manufacturers and retailers of hemp derived CBD (§§1005.2-1005.3; 1005.14); impose third-party accredited laboratory testing requirements on all lots of CBD hemp products, holding processors to federally-established standards of good manufacturing practices (GMP) (1005.7-1005.8, 1005.10); deal with the types of products that can, and cannot, be sold in New York (§1005.8); and establish packaging and labeling standards (§1005.9).
These regulations are some of most comprehensive in the country. They apply to any retailer selling cannabinoid hemp products to New York consumers, whether at a retail location or over the Internet. They include specific limits on the amount of cannabinoids per product if sold as a food or beverage product (no more than 25 mg), and how such products should be sold. And they outright ban the use of “synthetic cannabinoids, or Δ8-tetrahydrocannabinol or Δ10-tetrahydrocannabinol created through isomerization, in the extraction or manufacturing of any cannabinoid hemp products.” §1005.8(11).
After the effective date of the regulations, retailers will be prohibited from selling cannabinoid hemp products already in their inventory which contain or were manufactured “with Δ8-tetrahydrocannabinol or Δ10-tetrahydrocannabinol created through isomerization.” §1005.21(b)(4). The regulations also require packages to indicate “Total THC” or “THC” which includes “detectable levels of total Δ9-Tetrahydrocannabinol, Δ8-Tetrahydrocannabinol and Δ10- Tetrahydrocannabinol.” §1005.9(a)(3)(ii).
It is likely that these regulations, once enacted, will survive the transition to the cannabis control board since a representative of the department of health will be a voting member of the “cannabis advisory board” within the office of cannabis management, and will work with the control board and the executive director on, among other things, regulation of cannabinoid hemp and hemp extract. Id. 2021 NY S.B. 854, §14. But it remains to be seen if any changes will be made in the transition.
The regulatory flux in which the hemp derived cannabinoid industry finds itself lands both entrepreneurs and established businesses in uncharted waters. On the other hand, regulators, both at the federal and state level, must contend with regulating an industry that continues to innovate with respect to what can be extracted from hemp, something they did not need to concern themselves with at all less than four years ago. This tug of war is likely to continue until a federal baseline is established, but manufacturers and retailers would be wise to still keep an eye out on state laws.
Alex Malyshev is a partner at Carter Ledyard, and co-chair of its Cannabis, Hemp and CBD Industry Group.
Reprinted with permission from the June 30, 2021 edition of the New York Law Journal © 2021 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or email@example.com.