Once again, judges in separate states have come to opposite opinions on how much state officials can regulate, or even outright ban, hemp-derived cannabinoid (HDC) products, leaving the industry, as one hemp beverage maker said, in “a state of confusion.”
The last-minute addition of the words “in this State” to New Jersey’s new HDC law, signed by Gov. Philip Murphy on Sept. 12 with reservations, makes out-of-state hemp products illegal, therefore violating the federal Dormant Commerce Clause, ruled U.S. District Court Judge Zahid N. Quraishi for the District of New Jersey on Oct. 10.
While the judge also ruled the legislature is free to regulate the production of hemp, the portion of the law defining “intoxicating hemp products” could not be enforced. As a result, the Cannabis Regulatory Commission has halted plans to regulate HDCs within its business licensing program, which means HDC products can still be sold in unlicensed stores.
The next day, California Superior Court Judge Stephen I. Goorvitch in Los Angeles rejected the hemp industry’s request for a temporary restraining order to stop implementation of Gov. Gavin Newsom’s emergency order banning the sale of HDC products containing any detectable amount of THC.
“This potential harm to Californians, especially children, outweighs the potential that individual hemp businesses will not be able to adapt to the new regulations,” Goorvitch said in his ruling.
These are just two of the most recent court rulings in state and federal courts nationwide that are attempting to interpret the 2018 U.S. Farm Act that legalized hemp and its derivatives with less than 0.3% delta-9 THC as hemp industry advocates challenge restrictive state laws.
New Jersey’s split ruling
In Loki Brands LLC, et. al. v. [Attorney General] Matthew Platkin, et. al., a group of HDC businesses located within and outside New Jersey filed a lawsuit on Sept. 24 challenging the way SB 3235, known as the New Jersey Hemp Act Amendments, defines intoxicating hemp products.
“The Hemp Act Amendments threaten the existing market for hemp and hemp products because the new law impermissibly narrows the definitions of hemp and hemp products by recriminalizing the possession, manufacture, transportation, and shipment of certain hemp and hemp products,” the businesses claim in their complaint.
The plaintiffs, however, did not challenge the legislation’s requirement that hemp products be sold in licensed facilities or prohibit the sale of intoxicating hemp products to people under age 21.
Judge Quraishi pointed out that SB 3235 redefined a “hemp product,” which is not a controlled substance under state law. A hemp product is now defined as containing less than 0.3% and not more than 0.5 milligrams total THC per serving, including delta-8 and delta-10 as well as delta-9.
Moreover, a “hemp product” under the new law now excludes “intoxicating hemp products,” the definition of which hinges partly on where it is produced and sold. Intoxicating hemp products are now considered a “cannabis item,” which are also not controlled dangerous substances and would be regulated by the state’s Cannabis Regulatory Commission.
The judge noted that while the legislature intended to not violate the Dormant Commerce Clause by excluding the “movement or shipment of hemp products,” the law is still preempted by the Farm Act.
“The NJHAA creates and defines the category of ‘Intoxicating Hemp Products’ as hemp products cultivated and manufactured in New Jersey and sold in New Jersey, but does not recognize corresponding intoxicating hemp products cultivated, produced, or manufactured outside of New Jersey,” Quraishi wrote.
That would mean out-of-state hemp products would remain Schedule I controlled substances. “In short, once the NJHAA becomes operative on October 12, 2024, it will effectively be a crime to transport or ship out-of-state intoxicating hemp products to or through New Jersey.”
Gov. Murphy noted the confusing language of the bill when he signed it. He said some read the amendment to mean that out-of-state hemp products may be sold in New Jersey without violating this bill, while others interpret it to mean that authorized sellers may sell intoxicating hemp products in the newly regulated market only if the product is cultivated, derived, or manufactured in the New Jersey.
“The former reading would largely defeat the purpose of the legislation by creating an enormous loophole contrary to the Legislature’s purpose in passing the bill, while the latter would implicate concerns related to the United States Constitution’s dormant commerce clause,” he said in his signing letter.
While shooting down the definition of legal hemp, Quraishi also emphasized that the legislature “remains free to regulate the production of hemp as stringently as it would like,” so long as it doesn’t prohibit the transportation or shipment of hemp products.
The judge granted the plaintiff’s motion for summary judgement in part and enjoined the state from enforcing the portions of the NJHAA that violate the dormant commerce clause. But he allowed the state to enforce the age restriction.
As a result, the New Jersey Cannabis Regulatory Commission announced it would not enforce the new regulations except for the restriction preventing the sale of products with “any detectible amount” of THC to a person under age 21.
California HDC emergency ban upheld
While the New Jersey federal judge said a ban on HDCs would violate the Farm Act, California Judge Goorvitch said protecting youth from the dangers of intoxicating hemp took precedent. He cited 53 complaints that the Department of Health received between Oct. 6, 2021, and Sept. 12, 2024, including 20 this year. One complaint involved the death of a child who consumed THC gummies, he said in his Oct. 11 ruling denying the temporary restraining order.
California’s ban is different because it was not passed by the legislature but enacted as an emergency order by Gov. Newsom through the Department of Health after a bill that would have regulated HDCs within the state’s licensed cannabis system stalled in the Senate. Currently, HDC products are not legal to sell in licensed dispensaries, and licensed manufacturers cannot work with hemp.
However, Goorvitch specifically cited licensure as a reason why the hemp industry petitioners did not demonstrate sufficient irreparable harm. He also counted lotions as a non-final food product.
“Under the emergency regulations, Manufacturers can sell non-final food products with detectable levels of THC (e.g., hemp flour, lotions, etc.). Manufacturers can sell final form food products without detectable levels of THC. Manufacturers can sell THC through the legal cannabis system in California, i.e., with a license,” Goorvitch wrote in his ruling.
The lawsuit was filed Sept. 25, after the rules went into effect, by the U.S. Hemp Roundtable and six hemp businesses including Cheech and Chong’s, which makes both cannabis and hemp products. The judge noted that at least half of the Hemp Roundtable’s members operate outside California.
Goorvitch said the plaintiffs failed to demonstrate a sufficient likelihood of success on the merits, siding with the state that it has the authority to enact emergency regulations. He also said the plaintiffs did not show that the regulations conflict with the Farm Act because, as the state argues, Title 21 of the U.S. Code independently prohibits interstate transportation of final food products containing THC.
“Moreover, the court is skeptical of Petitioners’ argument that federal law would permit the trafficking of food containing high doses of THC harvested from hemp; the same products containing the same drug harvested from marijuana are unlawful under federal law.”
Even if the petitioners were correct, they are not entitled to a TRO, he said. “Because Petitioners cannot lawfully ‘manufacture’ or ‘warehouse’ the products in California, the prohibition on interstate sales does not cause irreparable harm, since there is nothing lawfully located in California to ship to another state.”
While the lawsuit itself continues, disappointed hemp industry players hope they can nudge Newsom to a middle ground.
“We still hold out hope that Governor Newsom will come to the table and work with industry to achieve our mutual goal – to robustly regulate hemp products and keep them out of the hands of children – without devastating hemp farmers, business and consumers as does his emergency regulation,” stated Hemp Roundtable General Counsel Jonathan Miller.
California alcohol regulators begin hemp crackdown
Before the judge even ruled on the TRO, the California Department of Alcoholic Beverage Control conducted a sweep of 383 locations with liquor licenses and seized more than 700 products that they say are now illegal.
Overall, 97% of the establishments were in compliance with the new regulations, the ABC said in an Oct. 9 press release. But 12 stores were found to be violating the rules.
Brands seized included Cantrip, Cheech and Chong, Terpsey and TBD. They were mostly beverages and other products containing more than 5 milligrams of THC. Cann Grapefruit Rosemary, with 4 milligrams of CBD and 2 milligrams of THC, was also seized.
Cantrip CEO Adam Terry told CRB Monitor News he didn’t know which California retailer still had their products on the shelf since they mainly work through their distributors, and it can take weeks for products to be removed. “We stopped selling in California as soon as the ban happened,” he said.
He said no detectable THC rules are “crazy” and bans don’t work. States also can’t criminalize hemp-derived THC.
“People not interested in following the law will continue to sell,” he said.
Terry said there are productive policy solutions, such as in Minnesota, which has taken in more than $110 million in HDC tax revenue. “We’re asking, in every one of the cases, for lawmakers to have conversations with us.”
The Massachusetts-based company is not part of the California lawsuit but is a plaintiff in New Jersey. Terry said he testified before the New Jersey legislature when the bill was being considered, and he was surprised to learn of the last-minute “in the state” language addition. While he’s glad the New Jersey regulations are not going into effect, he still lost business as retailers stopped buying Cantrip drinks in anticipation of the Oct. 12 start date.
“We’re still in a state of confusion in New Jersey,” he said. “This law passing without going into effect has probably cost my company $1 million.”
